Measuring the Effect of Stimulus: If You Don't Like the Results, Change the Yardstick

By Mike Shedlock

Global Economic Trend Analysis

January 13, 2010

All the Austrian economists (and none of the Keynesian clowns) predicted the following: Unemployment Unchanged by Stimulus Projects

A federal spending surge of more than $20 billion for roads and bridges in President Barack Obama's first stimulus has had no effect on local unemployment rates, raising questions about his argument for billions more to address an "urgent need to accelerate job growth."

An Associated Press analysis of stimulus spending found that it didn't matter if a lot of money was spent on highways or none at all: Local unemployment rates rose and fell regardless. And the stimulus spending only barely helped the beleaguered construction industry, the analysis showed.

Transportation Secretary Ray LaHood defended the administration's recovery program Monday, writing on his blog that "DOT-administered stimulus spending is the only thing propping up the transportation construction industry."

But AP's analysis, which was reviewed by independent economists at five universities, showed the strategy of pumping transportation money into counties hasn't affected local unemployment rates so far.

The 400-page stimulus law contains so many provisions - tax cuts, unemployment benefits, food stamps, state aid, military spending - economists agree that it's nearly impossible to determine what worked best and replicate it. It's also impossible to quantify exactly what effect the stimulus has had on job creation, although Obama points to estimates that credit the recovery program for creating or saving 1.6 million jobs.

It is also becoming more difficult to obtain an accurate count of stimulus jobs. Those who receive stimulus money can now credit jobs to the program even if they were never in jeopardy of being lost, according to new rules outlined by the White House's Office of Management and Budget.

Dear Chairman Devaney:

Last November, I wrote to you to express my concern about the misleading number of jobs reported on the Recovery.gov website as "created/saved" by the American Recovery and Reinvestment Act ("Recovery Act"). ...

On December 18, 2009, the Obama Administration issued new guidance to recipients on how to report the use of stimulus money. The new guidance drastically changed the formula for counting "created or saved" jobs.

Unless the Board modifies the " JOBS CREATED/SAVED" label and adds appropriate explanatory language about the new formula, the total jobs number on Recovery.gov will be even more misleading.

The Administration's original guidance defined a job "created" as "a new position created and filled or an existing unfilled position that is filled as a result of the Recovery Act." Similarly, the original guidance instructed recipients to count a job as "saved" if it "would not have been continued to be filled were it not for Recovery Act funding.")

However, the new guidance counts every job that is funded using stimulus money - even if it existed before the Recovery Act, and was not in any danger of being eliminated, as "created or saved".

This definition ignores the plain meanings of the words "created" and "saved," and makes Recovery.gov's "JOBS CREATED/SAVED" label a falsehood, further eroding the confidence of the American people in their government. ....

The House approved its $154 billion second stimulus package in its last vote of 2009, little more than a week after a policy address Mr. Obama delivered at the Brookings Institution. Yet perhaps the most intriguing part of that speech is what the president did not say. Not once did he use the word "stimulus."

The president's increasing shyness about the S-word does not appear to be a coincidence. Here's a snippet from a December exchange between White House Press Secretary Robert Gibbs and one reporter:

Reporter: "[W]hy are we talking about a second stimulus now?"

Mr. Gibbs: "Well, again, you haven't heard the President talk about a second stimulus. You heard the President discuss targeted ideas that he believes and the economic team believe will have a positive impact on private sector hiring, and creating an environment that will allow the private sector to make those hiring decisions positively."

Reporter: "So it's not a stimulus?"

Mr. Gibbs: "The President hasn't called it that and I don't believe it is."

Perhaps the reluctance to call the new package a second stimulus has something to do with the extravagant promises Mr. Obama made to sell the first. Less than a month into Mr. Obama's presidency, the first stimulus was pushed through partly on the promise that doing so would keep unemployment south of 8%. With Friday's jobs numbers, the same people who sold us that one now have to explain why keeping unemployment at 10% is progress.

In Washington when your policies don't work, you don't change them. You change the name and hope nobody notices.

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