Fed Study: Stimulus Spending Created Temporary Jobs At A Cost Of $400,000 Per Worker

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Written By:
Rob Port

Dec 6, 2010
11:52am

A lot of people, including myself, have long argued that the government cannot stimulate the economy with spending because the government cannot spending anything without first taking what it spends from someone else. That’s the nature of government. It taxes and it spends. Or, in the case of our government, it taxes and spends then borrows against our future prosperity and spends some more.

Then they print some money, called “quantitative easing”, and spend some more.

We’ve all observed the lack of economic recovery despite nearly all of Obama’s $787 billion “stimulus” spending spree, but a new study from the San Francisco Fed puts its finger on exactly the impact that spending has had on the economy. Their conclusion?

Zero:

It is difficult to properly calculate the effects of the 2009 ARRA bill, as it was a nation-wide program. Though employment and growth failed to respond to ARRA as the Administration had suggested, fiscal stimulus advocates have argued that employment levels would have been lower still without the program.

Wilson’s study makes an important contribution to this debate by focusing on state-by-state comparisons. A large portion of stimulus funding at the state level was based on criteria that were entirely independent of the economic situation that states faced. For example, the number of existing highway miles was used to calculate additional transportation spending.

The study uses this resulting variation in state-level stimulus funding to determine what impact ARRA funding had on employment — including both the direct impact of workers hired to complete planned projects, as well as any broader spillover effects resulting from greater government spending. Administration economists have repeatedly emphasized the importance of this indirect employment growth in driving economic recovery.

The results suggest that though the program did result in 2 million jobs “created or saved” by March 2010, net job creation was statistically indistinguishable from zero by August of this year. Taken at face value, this would suggest that the stimulus program (with an overall cost of $814 billion) worked only to generate temporary jobs at a cost of over $400,000 per worker. Even if the stimulus had in fact generated this level of employment as a durable outcome, it would still have been an extremely expensive way to generate employment.

At Reason they respond to the Obama administration’s justification for the paucity of economic development that has resulted from the “stimulus” which is that without the stimulus things would have been much worse:

Backers of the stimulus have always had to contend with two big problems: The first is measurement. How do we know how many jobs were created, saved, funded, whatever? Do we count new permanent jobs, or partially funded contractors, or grocery clerks whose paychecks are dependent on added business from stimulus-funded workers across town? And even if you can verify that those jobs are funded by stimulus money somehow, how do you know that the same jobs would not have been created in the absence of the stimulus? It’s a thankless task, and the administration has tended to respond by skirting the issue and relying on models that don’t really measure output at all. Wilson’s study, with its state-by-state comparisons, attempts to partly address this problem.

But his tentative conclusions lead to the second problem, which is value. Even if you find that the stimulus did create jobs, then the question becomes: Were the results worth the price? The findings in Wilson’s study suggest that they weren’t.

Sadly, it’s taken us $787 in stimulus spending (not to mention spending on programs like “cash for clunkers” and the bailouts for the states) to learn this lesson.

Government spending doesn’t create stimulus. We’ve learned an expensive lesson. Let’s close the book on that economic nonsense and turn to what actually works to create prosperity: Limited government, lower taxes and free markets.