Everyone is frustrated with how little progress (if any) we have seen in the US economy in the past year. I have to wonder if the current White House and Congress has any common sense in regards to economic policy. I am not an economist, but even I can see that the kind of “stimulus” that we are currently attempting at the cost of hundreds of billions in taxpayer dollars is doomed to fail.
Here’s the math:
The Obama Administration claims that the stimulus program has saved or created 640,329 jobs since it was enacted back in February through the end of October. This number is updated and posted on the Administration’s recovery.gov web site. That amounts to $246,436 per job based on the $157.8 billion that has been awarded so far. Total compensation earned by the average payroll employee during October, on an annualized basis, was $59,867. If the government had simply used the funds awarded so far to pay for a year’s worth of labor, that would have paid for 2.6 million jobs.
Don’t get me wrong, I am not suggesting that the government start funding payroll. They are already doing that anyway. According to a USA Today article from September 2009, the stimulus program was responsible for 25,000 new federal jobs year-to-date.
[http://www.usatoday.com/news/washington/2009-09-23-stimfed_N.htm]And that’s just federal jobs, that doesn’t include state and local tax payer-funded jobs. So really the main thing that the federal government is stimulating is the size of the federal government.
Here is the basic reason why this type of distribution of tax payer dollars to stimulate the economy has not worked and will not work: it is not the job of the government to create (or save) jobs… and they stink at it. The government is not a good manager nor spender of money because it is not their money. I like to tell the story of my first job working for a PR firm where we had mostly corporate clients but also the state agency of Cal Trans as a client. Or corporate clients pushed us to give them the best return on their investment for public relations services. Cal Trans meanwhile paid our public relations firm $80 – $100 per hour to pass out fliers in neighborhoods announcing upcoming construction projects. Government agencies have a “spend it or lose it” mentality that would never fly in the private sector. I see it all of the time in my current job responding to government bids that have to be awarded by a certain date so that the funds will be allocated again the next year, and the next year, and the next year….
Besides the gross mismanagement of funds, the Government also hurts the economy by artificially handicapping the market. The government picks winners and losers in industries, sectors and among competitors that have no basis in economic Darwinism or supply and demand.
1. Cash for Clunkers succeeded in getting some people to buy a car a few months or a year sooner, but they were going to buy a car eventually, so we get growth in the auto industry one month followed by a slump the following months. And maybe that car buyer was incentivized by Cash For Clunkers to buy a new car that month instead of a new washer and dryer, thus taking the money away from the washer and dryer company and the stores that sell washers and dryers. And since when is destroying good working cars and all of their parts a good idea? Gas guzzling cars are incrementally being replaced by more fuel efficeint cars because of demand and fuel savings. When the government tries to artifically speed up that process, the unintended consequences outweigh the positive effects.
2. Demand, not government intervention, creates lasting growth in an industry. If the government wants to grow “green jobs” they may prop up a product that is simply not in demand yet due to the cost / benefit ratio. Consumers have proven with hybrid cars, compact flourescent light bulbs and programable thermostats that when the cost of a product or technology produces relative benefits, we will adopt that green technology. As soon as solar panels on houses becomes affordable, the technology will be adopted in mass. But if the government subsidizes that technology to artificially boost the sector they will slow down the timeline for that to happen.
3. Government economic gerrymandering leads to cronyism. Case in point: there was only one energy-efficient window company in the US to get stimulus dollar tax breaks. What do you know, the window company’s policy director is married to Cathy Zoi, Asst. Secretary for Energy Efficiency and Renewable Energy in the White House. Zoi is the administrations “weatherization boss.”
What effect does the money and promotion given to the hand-picked Serious Materials window company have on its competitors that might make as good or better windows? This is not capitalism.
I fear that this administration and congress will continue to play these stimulus games in lieu of doing what is proven to stimulate the economy. Give across the board tax breaks to the small and medium businesses that create jobs in this country and remove any burdensome regulation that hampers business growth. Then let the private sector do the rest. In essence: get out of the way.
One more thing: let companies that make bad decisions go out of business. Better companies will take their place. artificially propping up bad companies just leads to more bad companies. I don’t want to own a car company, and if I did, it wouldn’t be one destined to fail because labor unions have driven legacy costs to unsustainable levels. But that’s a blog for another time.