Thursday, May 31, 2012

CBO: Obama Stimulus May Have Cost as Much as $4.1 Million a Job

By James Pethokoukis - May 30, 2012

The Congressional Budget Office in a new report:
When [the American Recovery and Reinvestment Act] was being considered, the Congressional Budget Office (CBO) and the staff of the Joint Committee on Taxation estimated that it would increase budget deficits by $787 billion between fiscal years 2009 and 2019.

CBO now estimates that the total impact over the 2009–2019 period will amount to about $831 billion.

By CBO’s estimate, close to half of that impact occurred in fiscal year 2010, and more than 90 percent of ARRA’s budgetary impact was realized by the end of March 2012. CBO has estimated the law’s impact on employment and economic output using evidence about the effects of previous similar policies and drawing on various mathematical models that represent the workings of the economy. …

On that basis CBO estimates that ARRA’s policies had the following effects in the first quarter of calendar year 2012 compared with what would have occurred otherwise:

– They raised real (inflation-adjusted) gross domestic product (GDP) by between 0.1 percent and 1.0 percent,

– They lowered the unemployment rate by between 0.1 percentage points and 0.8 percentage points,

– They increased the number of people employed by between 0.2 million and 1.5 million,

– They increased the number of full-time-equivalent jobs by 0.3 million to 1.9 million. (Increases in FTE jobs include shifts from part-time to full-time work or overtime and are thus generally larger than increases in the number of employed workers.)
OK, so without the stimulus, there would be anywhere from 200,000 to 1.5 million fewer people employed right now? That means the current cost-per-job created is somewhere between $4.1 million and $540,000.

At the very least, I think the CBO report should raise more questions about whether $831 billion of temporary tax cuts and government spending was the best use of that money back in 2009. It should also make Washington cautious about further such stimulus measures if the U.S. economy should slip back into recession. Better we try what Sweden did.

And, again, here is the CBO’s take on the long-run impact of the stimulus:
In contrast to its positive near-term macroeconomic effects, ARRA will reduce output slightly in the long run, CBO estimates—by between zero and 0.2 percent after 2016.

But CBO expects that the legislation will have no long-term effects on employment because the U.S. economy will have a high rate of use of its labor resources in the long run. ARRA’s long-run impact on the economy will stem primarily from the resulting increase in government debt.

To the extent that people hold their wealth in government securities rather than in a form that can be used to finance private investment, the increased debt tends to reduce the stock of productive private capital. In the long run, each dollar of additional debt crowds out about a third of a dollar’s worth of private domestic capital, CBO estimates.

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