 |
|
|
| 11/6/2009 9:07:00 AM | Email this article • Print this article |
|
| President Barack Obama makes a point during a visit he made to Green Bay this summer to promote his health care plan.
Raymond T. Rivard photo |
|
Obama's real national crisis: You know, the economic one
Critics question recovery, say stimulus a failure
For President Barack Obama, it sometimes seems everything is a national crisis - until it's not.
We have a glut of crises: crises everywhere. We have a national swine flu emergency, a national health care catastrophe, an international panic attack in climate change. Until recently, we had a national economic emergency.
Now, the president said last week, things economic seemed to have turned the corner. The Great Recession is over, the Gross Domestic Product grew by 3.5 percent the last quarter, compared to a .7 percent decline the previous quarter, and, while unemployment might still be high and times might still be tough, the president's stimulus plan is working exactly as it was intended, having directly created or saved 650,000 jobs and on track to create or save a total of 3.5 million by the end of 2010.
The president himself suggested in his radio address last week that he had ridden in to save the day: "We can see clearly now that the steps my administration is taking are making a difference ... blunting the worst of this recession and helping to bring about its conclusion."
The questions are, then, are we to take the president at his word? Is the worst of the recession blunted and behind us? Has the $787 billion stimulus plan made a difference?
First, about that acclaimed end of the recession. While technically the recession might be over because of one quarter of domestic economic growth after four quarters of contraction, many economists worry it might not be - in terms of the real daily lives of real people - it just might not be over at all.
After all, consumer spending, which accounts for approximately 70 percent of all economic activity, fell in September, and nominal U.S. wages have continued to head southward. Hourly wage rates dropped about a half percentage point between February and August, and nominal wages have plunged about 2 percent this year after declining throughout 2008.
Then there's unemployment, which remains intractably high at 9.8 percent and is expected to spike even higher.
Falling wages, declining consumer spending, rising unemployment - can anyone really call that an economic recovery?
The media
Unfortunately for the president, not everyone is. There are quite a few skeptics, starting with a suddenly revitalized press corps, which last week confronted Obama as he self congratulated himself over the success of his stimulus plan, with some questioning whether the numbers were flawed.
It wasn't just Fox News, either. Just as it was announcing 'Mission Accomplished,' the administration suddenly had to expand its ground war to other news agencies.
The Associated Press jumped into the fray, for example, after a preliminary government report claimed federal contracts awarded to businesses under the recovery plan had funded more than 30,000 jobs. That was more than expected, and the Obama team said the numbers showed the stimulus program had exceeded expectations.
But AP reviewed the numbers and contended they overstated the number of saved or created jobs by at least 5,000.
"The AP review found some counts were more than 10 times as high as the actual number of jobs," the AP's Brett Blackledge and Matt Apuzzo reported. "Some jobs credited to the stimulus program were counted two and sometimes more than four times; and other jobs were credited to stimulus spending when none was produced."
To cite one AP example, according to the news organization, "(a)bout two-thirds of the 14,506 jobs claimed to be saved under one federal office, the Administration for Children and Families at Health and Human Services, actually weren't saved at all . . . . Instead, that figure includes more than 9,300 existing employees in hundreds of local agencies who received pay raises and benefits and whose jobs weren't saved."
The Obama administration was quick to respond with its own sally. A senior adviser to the president said the AP grabbed onto a "handful of examples," thereby producing a "misleading story." The AP story missed "hundreds of thousands of jobs" the White House was set to report, the administration riposted, and that, even with the removal of 5,000 jobs, the total federal contracts job number would still be in line with government estimates of "about one million Recovery Act jobs" so far.
"You may have seen a misleading Associated Press story this morning on the accuracy of Recovery Act job reports that were posted earlier this month on Recovery.gov," Ed DeSeve, senior advisor to the President for Recovery Act Implementation, wrote on his White House blog. "On the same day that we learned that the economy has begun to grow again for the first time in over a year, the very critics who opposed economic rescue from the beginning are now trying use this misleading story to twist the truth about the early success of the Recovery Act."
Still, by the end of last week, when the White House reported its numbers - the day the president proclaimed 650,000 jobs saved or created - the Wall Street Journal had joined in the criticism. That day writers Louise Radnofsky and Maurice Timmerman said their initial review found an overstatement of at least 20,000 jobs.
For example, they reported, as many as 86 percent of the jobs estimated by recipients of Head Start grants could have been inaccurately reported, among others. What's more, the media reviews suggested they had only scratched the surface of potentially inaccurate job reports.
Economists demur, too
As doubts about the administration's data began to make the rounds, so did Obama's supporters, who took to the talk show circuit to say the success of the stimulus could not be questioned by serious people, given the growth in the GDP.
Former U.S. Rep. Martin Frost made the point to Fox News' Stuart Varney.
"The point is, is we had a 3.5 - we had a 3.5 - well, we had a 3.5 percent increase in GNP in the last quarter," Frost told Varney. "If you had not passed the stimulus, that would not have occurred. And everybody agrees with that."
Well, not everybody, including some major economists.
John Taylor, a professor of economics at Stanford University and a senior fellow at the Hoover Institution, said tables released by the Bureau of Economic Analysis "make it very clear" the stimulus package had "virtually nothing to do" with the GDP improvement.
"Of the 4.2 percent improvement, more than half (2.36 percentage points) was due to firms cutting inventories at a less rapid pace, which has nothing to do with the stimulus," Taylor wrote on his blog. "What about the other components of GDP? In particular what about government spending, which was supposed to be a big part of this stimulus? Government spending was a negative factor, subtracting 0.9 percentage points from the change in GDP growth. Automobiles and parts contributed 1.15 percent for the quarterly improvement, but ... monthly data shows that was an unsustainable temporary blip: up in August and down in September due to cash for clunkers."
The American Enterprise Institute's Alex Brill, a former chief economist to the House Ways and Means Committee, and former congressional staffer Rachel Forward went even further, arguing that Obama's stimulus had little impact on GDP because most of it was still wrapped up in red tape behind government doors.
"When President Obama signed the $787 billion stimulus bill last February, the administration projected that the bill would create or save 3.5 million jobs by the end of next year, in part by quickly implementing 'shovel-ready' infrastructure and energy projects," Brill and Forward wrote in an Oct. 27 piece for The American, the journal of the American Enterprise Institute. "Unfortunately, the job market has thus far deteriorated further than economists had projected and proponents of the stimulus bill are now scrambling for explanations. But new data on the stimulus bill makes clear that many supposedly shovel-ready projects are still tied up in administrative red tape."
The departments of Commerce, Defense, Energy, Homeland Security, Interior, and Transportation had spent less than 10 percent of their stimulus funds, far less than what was originally anticipated, they wrote.
"The Department of Transportation, with its particular emphasis on shovel-ready projects, spent 8 percent of its stimulus funds - only three-fourths of what it was expected to have spent thus far," they wrote. "Other agencies have done far worse - National Institutes for Health and the National Science Foundation spent only 1 percent of their stimulus funds in the first seven months. At that rate, those agencies would take 58 years to exhaust their stimulus money."
Far from being as enthusiastic about the stimulus as the president, Brill and Forward said it might be time to throw the towel in on the whole stimulus idea.
"Looking forward with a goal of creating jobs, lawmakers need to reexamine the stimulus bill and ask if there is any reason to hope that it will perform better in the year ahead," they wrote. "With the federal deficit exploding, Congress needs to either find a way for the stimulus bill to create real economic results quickly and efficiently or maybe just pull the plug."
Nails in the coffin
Perhaps the most damaging numbers when it comes to grading stimulus success are the ones streaming out of the highly respected and nonpartisan Congressional Budget Office.
Echoing Brill and Forward, CBO figures show total stimulus spending to be just about where the CBO first estimated they would be, but with most of the money going to help people on a one-time basis and relatively very little going to job creation.
Here's how the CBO put it last week:
"Half of the 2009 stimulus spending is attributable to two programs: $32 billion for Medicaid and $22 billion for unemployment insurance," the CBO stated. "A one-time payment to Social Security beneficiaries added another $13 billion; spending for financial assistance to states (from the new State Stabilization Fund) added $12 billion; and direct assistance to college students (mostly for Pell grants) added $7 billion. Together, those five programs account for almost 80 percent of stimulus spending in fiscal year 2009."
Meanwhile, money for job creation lagged behind original estimates.
"Infrastructure-related spending fell short of CBO estimates," the CBO stated. "For example, spending by the Departments of Transportation, Energy, and Commerce totaled just over $5 billion, compared with CBO's original estimates of about $8 billion for those three agencies. Funding for a broad range of other federal agencies has been spent considerably more slowly than originally estimated."
One group of agencies had received more than $60 billion in stimulus funding, the CBO reports, but has spent only about $6 billion. Even worse, as Brill and Forward pointed out, the CBO originally estimated that some of the money provided for infrastructure in the American Recovery and Reinvestment Act would not be spent until 2019.
The CBO's look at the effect of the stimulus on unemployment is equally troubling.
In a Sept. 24 report to the National Economists Club, CBO director Douglas Elmendorf forecast unemployment to remain high throughout 2010 and 2011, despite spending the $787 billion stimulus package during those years.
The CBO prediction for unemployment in 2010? 10.2 percent, up from this year's 9.8 percent. Unemployment in 2011? Still at 9.1 percent, the official end of the recession notwithstanding.
In fact, the CBO estimates the stimulus package's effect on the unemployment rate could be as low as .6 percent next year.
If unemployment is a central barometer of the stimulus plan, it will have failed, if these numbers hold. The Obama administration originally predicted unemployment to peak at 8.5 percent without the stimulus and said the stimulus package would keep it at 8 percent. If the CBO numbers are right, the stimulus won't get unemployment anywhere near 8 percent or even lower unemployment much below where it is now.
Christina Romer, the chairwoman of Obama's Council of Economic Advisers, told Congress last week the stimulus had worked by jump starting the economy during the last two quarters, but even she told lawmakers the remaining spending would be a matter of preventing a backslide.
"By mid-2010, fiscal stimulus will likely be contributing little to further growth," she said.
That's troubling to many given the flat lining on jobs, consumer spending and wages. It might even lead some to proclaim a national economic crisis.
|
Reader Comments
Posted: Thursday, November 19, 2009
Article comment by:
Matt
Sounds as if you're making perfection the enemy of good. It seems as if the primary problems here lie with a slow implementation of the policy - not it's substance. And if I recall correctly, didn't the GOP fight against increasing the amount of spending allocated to infrastructure - a quick and easy way to create jobs? Rather than join the nattering nabobs of negativity - I'd be interested to know why the spending has been held up?
Posted: Sunday, November 08, 2009
Article comment by:
John Szewczyk
I'd like to thank Obama for the above average warm weather that we are experiencing this weekend in Nov.Must be from all the hot air that is coming out of his mouth.
|
Comment on this story
|
|
|
|
