A lot of wishful thinking has surrounded the $862 billion in “stimulus” spending that Democrats in Congress approved in 2009. The stimulus was supposed to hold down unemployment. If it had worked as the president said it would, joblessness today would be somewhere under the 8 percent mark. Instead, official unemployment is closer to 10 percent – not to mention millions more Americans who have only part-time jobs instead of the full-time work they need.
But why hasn’t the stimulus been very “stimulative” to our extremely weak economy? After all, the Obama administration predicted that every dollar of government stimulus spending would multiply into as much as $2.50 of economic growth, and that all the spending together would mean 3.5 million “created or saved” jobs. In fact, the administration is still trying to claim that the stimulus has wonderfully improved the jobs climate, despite clear evidence to the contrary.
So what went wrong? Why isn’t the stimulus working by now? Well, the stimulus – like lots of “big ideas” from government – ignored history.
A Harvard economist, Robert Barro, and a Harvard graduate, Charles Redlick, actually looked at the history of government spending and its effect on economic growth. They found that a dollar spent by government produces only 40 to 70 cents of growth. That’s a net loss to the economy.
By contrast, the Obama administration used economic “models” to predict (or guess) how much growth and how many jobs the stimulus would create or save. So the administration, which continues to claim the stimulus is responsible for millions of new jobs, is not so much counting actual jobs as it is claiming how many jobs ought to exist based on the spending.