Front and Center

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Category Archives: stimulus

The President and the False Blame Game

This article was brought to my attention by a friend of mine (shoutout to Kovarik Glasco, fellow Georgia Tech grad and fellow fan of the “Song of Ice and Fire” series).

There is a narrative that President Obama and many on the left engage in when discussing the economy.  Even two-plus years into the new presidency, the “blame Bush” technique is still used.  In this narrative, the picture painted shows runaway spending and runaway deficits during the Bush years.  And the main point he uses is that the year he entered office he inherited a deficit of nearly $1 trillion.

But in an article found on the Huffington Post, Dean Baker, Co-Director of the Center for Economic and Policy Research, shows how this narrative just isn’t true:

This is simply not true. In its budget projections from January 2008, the last set before the impact of the collapse of the housing bubble was clear, the Congressional Budget Office (CBO) projected a deficit of just $198 billion for 2009. This is less than one-fifth of the “on track to top $1 trillion” figure that President Obama gave in his speech. This is a serious error. One trillion is a much bigger number than $198 billion.

This difference is central to the budget debate. People can argue that the $198 billion deficit projected for 2008 was too large. But it would be absurd to claim it was out of control or represented any remotely serious threat to the nation’s solvency. In fact, over the five years 2003-2007 the country’s debt to GDP ratio was virtually unchanged, meaning that the country could run deficits of the same size (relative to the economy) literally forever.

This changed with the recession caused by the collapse of the housing bubble. It was the recession, and the response to it, that pushed the deficit in 2009 from the $198 billion projected by CBO to the over $1 trillion noted by President Obama in his speech.

Further, Dick Morris explains where the President is getting his numbers from:

In 2008, George W. Bush ran a deficit of $485 billion. By the time the fiscal year started, on Oct. 1, 2008, it had gone up by another $100 billion due to increased recession-related spending and depressed revenues. So it was about $600 billion at the start of the fiscal crisis. That was the real Bush deficit.

But when the fiscal crisis hit, Bush had to pass the Troubled Asset Relief Program (TARP) in the final months of his presidency, which cost $700 billion. Under the federal budget rules, a loan and a grant are treated the same. So the $700 billion pushed the deficit — officially — up to $1.3 trillion. But not really. The $700 billion was a short-term loan. $500 billion of it has already been repaid.

So what was the real deficit Obama inherited? The $600 billion deficit Bush was running plus the $200 billion of TARP money that probably won’t be repaid (mainly AIG and Fannie Mae and Freddie Mac). That totals $800 billion. That was the real deficit Obama inherited.

Then … he added $300 billion in his stimulus package, bringing the deficit to $1.1 trillion. This $300 billion was, of course, totally qualitatively different from the TARP money in that it was spending, not lending. It would never be paid back. Once it was out the door, it was gone. Other spending and falling revenues due to the recession pushed the final numbers for Obama’s 2009 deficit up to $1.4 trillion.

One important note that both writers mentioned: the important thing being missed is JOBS. Job creation will create income earners, which will boost the economy and help revenues. This is what the debate in Washington should be all about.

When Spending Cuts Aren’t Really Spending Cuts (or, “They Think We’re Stupid”)

In the ongoing battle between the parties to negotiate a debt-limit increase, there has been much talk of spending cuts.  Republicans are strongly taking a stand on cutting spending but no new taxes.  Democrats are open to spending cuts but are looking for ways to increase revenue to increasing taxes or cutting tax breaks.  But people won’t be surprised to know that both sides are choosing not to be up front with we the people.

When we the people look at a budget, we base it on what we have coming in at the time.  We then decide where we will spend those funds.  We won’t get into the notion that if we were out of money and needed more, if we did as the government does sometimes and print our own, we’d be hauled off to jail rather quickly.  In general, most people don’t have the luxury of just going out and getting loan after loan while continuing to spend above their means.

Not so with the government.

I got a call from a good friend of mine who was watching a show on CNBC.  He said a guy was on talking about how spending cuts weren’t spending cuts and how he’d remembered hearing it from me months ago.  You see, the government doesn’t operate the way normal people do.  Matter of fact, the government doesn’t even operate like a good company does.  And here is where they pull the wool over our eyes.  Let me explain using an example.

When Joe Public is doing a budget, he bases it off of how much he has coming in, and how much he as going out.  If he has more going out than coming in, he has no choice but to cut spending.  If he decides that he must make a spending cut, typically its going to result in him spending an amount less than what he is spending now.  So, where he may be spending $1,000 per month now, a budget cut may result in spending $950 per month next year.  That is a budget cut.

Now, the government doesn’t do that.  The government uses a nice little trick called baseline budgeting.  The government has already planned ahead as to what spending increases will be.  For example, while the budget for program A is $1,000 for 2011, they have already planned that in 2012 it will be $1,100, for 2013 it will be $1,200, and so on (sidenote:  the government tends to project increases in terms of percentages.  I’m using real numbers so I don’t have to use a calculator.).  So when there is talk of a spending cut, it is not like Joe Public, who takes his spending below what he was spending before.  Instead the government says, “well, instead of spending $1,100 in 2012, we’ll spend $1,050, and in 2013 we’ll spend $1,100.”  As you can see, overall spending still goes up, just not as fast.

This is why complaints about spending cuts have to be taken with a grain of salt.  Politicians will make things seem like a program is going to die due to budget cuts, but that is making the assumption that the reduced spending increase won’t be enough.  They also assume (correctly) that the majority of the people have no idea of how they are pulling the wool over their eyes.  If there is to be a serious, authentic discussion about spending cuts, then lets see some serious, authentic reductions in actual spending!

White House Disputes the Findings of Their Own Economic Advisors

Earlier I posted about how a group of economists picked by President Obama issued a report that showed the stimulus saved or created 2.4 million jobs at a cost of $278k per job.  Evidently the White House disagrees with those findings:

“That’s a cost to taxpayers of $278,000 per job,” according to the Weekly Standard, a Washington, D.C.-based magazine. “In other words, the government could simply have cut a $100,000 check to everyone whose employment was allegedly made possible by the ‘stimulus,’ and taxpayers would have come out $427 billion ahead.”

But the White House said that study is based on “partial information and false analysis.”

“The Recovery Act was more than a measure to create and save jobs; it was also an investment in American infrastructure, education and industries that are critical to America’s long-term success and investment in the economic future of America’s working families,” White House spokeswoman Liz Oxhorn said in a statement to FoxNews.com.

Read more: http://www.foxnews.com/politics/2011/07/05/white-house-disputes-study-saying-stimulus-cost-taxpayers-278000-per-job/#ixzz1RGDNjWuj

The story goes on to say that the WH points at a CBO report that says the number is closer to 3.6 million jobs, that the stimulus lowered unemployment, and helped spark economic growth. Republicans point out that unemployment is higher than it was, in addition to a substantial increase in the national debt. Still another person quoted says that there is no point in measuring effectiveness based on “cost per job.”

Whether or not the stimulus was effective will continue to be debated, it seems.

 

$278k Per Job “Created or Saved.” So the Stimulus Worked?

From Jeffrey H. Anderson at The Weekly Standard:

When the Obama administration releases a report on the Friday before a long weekend, it’s clearly not trying to draw attention to the report’s contents. Sure enough, the “Seventh Quarterly Report” on the economic impact of the “stimulus,” released on Friday, July 1, provides further evidence that President Obama’s economic “stimulus” did very little, if anything, to stimulate the economy, and a whole lot to stimulate the debt.

The report was written by the White House’s Council of Economic Advisors, a group of three economists who were all handpicked by Obama, and it chronicles the alleged success of the “stimulus” in adding or saving jobs. The council reports that, using “mainstream estimates of economic multipliers for the effects of fiscal stimulus” (which it describes as a “natural way to estimate the effects of” the legislation), the “stimulus” has added or saved just under 2.4 million jobs — whether private or public — at a cost (to date) of $666 billion. That’s a cost to taxpayers of $278,000 per job.

Wow.  Not very efficient, right? I would say that in corporate America, and you were running a company that was that inefficient, you’d get canned. When hiring an employee, there is the employee’s salary. Then, factor in another 30%-40% of the salary, which is what it costs the employer to train the new employee. Then, factor in another 20% of salary to account for benefits, social security, and other costs. Even if every employee accounted for in the stimulus numbers were new hires, and they were all paid $100,000 salaries, it STILL wouldn’t cost $278,000 to hire them. So one has to wonder why the cost was so high.

In the face of these numbers, as well as the fact that unemployment post-stimulus is higher than pre-stimulus, the argument made by Obama supporters that things were “worse than they thought” doesn’t justify the inefficient spending. Then again, I have to agree with Anderson–that maybe the stimulus would’ve worked better if the money had not been spent “mostly on Democratic constituencies rather than in a manner genuinely designed to stimulate the economy.”