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Wednesday, July 14, 2010

Chestwader Alert: Another Created or Saved Jobs Report

Much like the tales of the fish that got away, you'll need your chestwaders to slog through the muck in the latest fairy tale report on the wonders of that trillion dollar stimulus:
“The Recovery Act appears to be stimulating private investment and job creation at a time when the economy needs it most,” Christina Romer, chairwoman of the Council of Economic Advisers, said in testimony prepared for a hearing of Congress’s Joint Economic Committee.

Romer cited the Build America Bond program, which has subsidized interest costs for about $118 billion of local government securities sold to finance public-works projects, and tax credits for companies that invest in plants to build solar panels and wind turbines.

The report says the stimulus has “saved or created” about 3 million jobs, and is moving toward a goal of 3.5 million jobs by the end of the year, according to an administration official speaking on condition of anonymity before the report’s release today.

The Obama administration has been stepping up its efforts to defend the $862 billion stimulus measure passed by Congress soon after Obama took office, as the U.S. economy struggles to recover from the worst recession since the 1930s.
THREE MILLION JOBS? No, not really according to Veronique de Rugy:
As it turns out, when you unpack the numbers, you find that Romer and her team didn’t actually count how many people got a job thanks to the stimulus. Instead, the number is a projection that relies on the myth that a dollar of government spending creates up to 2.5 dollars of economic growth.

That’s strange. Robert Barro of Harvard University has estimated that, even in the best-case senario, $1 of government spending will generate between $0.40 and $0.70 of economic growth, i.e., much less than the amount of growth that we would get if that dollar was invested privately. What’s more, if that dollar has previously been taxed out the economy, then the overall effect of $1 of government spending is a destruction of $1.10 of economic growth. Not exactly the rosy projections that Romer is touting today. (And Barro is not alone. Even the most optimistic projections of the economic effect of government spending never display such numbers. Never.)
de Rugy is testifying before Congress to make this and many other points exposing the fairy tales contained in the latest fantasy report on the magical stimulus so please read the rest.  No doubt this latest "created or saved" report was designed to convince an increasingly skeptical electorate Democrats' latest experiment in Keynesian economics wasn't a complete disaster.  Perhaps they should take James Carville's latest advice and start praying instead.

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