We tend to think the White House’s forays into media criticism are the sincerest form of flattery, so we’re glad to join the ranks of Politico and Fox News as a target. In a White House blog post Tuesday, Obama economic adviser Jared Bernstein writes that “somebody over at the Wall St. Journal’s editorial page has a whole lot of explaining to do” about our criticisms of the $787 billion economic stimulus. Once more into the breach!
Mr. Bernstein claims vindication on the basis of a new Congressional Budget Office report that finds that 600,000 to 1.6 million more people are employed and GDP is 1.2% to 3.2% higher than if Congress had done nothing. After rehearsing some of our greatest hits—”It’s hard to imagine a more complete repudiation of Keynesian stimulus than the evidence of the last year’s job market”—Mr. Bernstein says that we’re “more interested in scoring political points” than acknowledging the stimulus reality.
We stand by our economic judgment, but it doesn’t have much to do with politics, which we’ll leave to the White House experts who today will stage a “jobs summit.” We’ll go out on a limb and predict nothing of substance will come of this event—except maybe cheerleading for a second stimulus—though it does reveal the deepening political panic over the unemployment rate that rose to 10.2% in October and might stay high long enough to affect the 2010 election. (Sorry, that’s political.)
The 10.2% rate may be a sore point in particular for Mr. Bernstein, who along with Council of Economic Advisers Chair Christina Romer helped to sell the spending stimulus in January by predicting it would keep the jobless rate below . . . 8%. If the current jobs market counts as stimulus success, we’d hate to see what the White House considers failure.
A word about that CBO report: It sets up a nonfalsifiable standard for judging the Administration’s policies by using large macroeconomic forecasting models, including a Keynesian “multiplier” that says each dollar government injects into the economy yields more than a dollar in output. “The ranges for multipliers . . . are the same ones that CBO used in its initial analysis of the economic effects” in March, CBO’s report admits. This is also, ahem, the same theory and more or less the same model that Mr. Bernstein used in his now-infamous stimulus paper.
More relevant to the real world, this modeling is single-entry economic bookkeeping. No one ever doubted that the stimulus spree would create or “save” some jobs, but the problem is that the money comes out of the private sector in the form of higher taxes or borrowing. If $1 is devoted to transfer payments—such as jobless benefits or Medicaid like so much of the stimulus—then a $1 net gain in economic growth will register in the GDP accounts.
But that $1 has to come from someone or some business in the private economy that might have put it to more productive, job-creating uses. Economists call this a substitution effect. These new jobs that aren’t created don’t get picked up in Bernstein-CBO econometric models, but their loss leaves the economy less prosperous overall.
What can be measured with greater, if not perfect, accuracy is how many new jobs are being created across the economy, and how many people want to work but can’t find a job. On those counts, the stimulus has been a manifest bust, much as the critics who appeared on our pages predicted.
As the recovery continues, sooner or later the economy will begin to create new jobs, thank heaven. But the stimulus won’t have much do with it, except insofar as the higher taxes to finance the runaway spending further retard private investment and hiring. Meanwhile, the millions of Americans currently looking for work can rejoice in Mr. Bernstein’s jobs boom.