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Tuesday, September 13, 2011

Did Obama’s “Stimulus” Create or Save Jobs?

The official line is that President Obama’s 2009 “stimulus” package (tax cuts and spending increases) “created or saved” more than 3.5 million jobs. Is that so?

It depends on what you mean by created, saved, and jobs.

It is certainly true that the federal government gave money to the states and localities, and some of that money was used to pay teachers, police officers, and firefighters. However, to say that this “saved” those jobs implies that they really would have vanished without federal money. In some cases, state and local politicians might have been engaging in fear-mongering. It’s been done before. But even if they weren’t, we would have to assume that if the federal money hadn’t materialized, those politicians wouldn’t have found other things to cut in order to keep paying the teachers, officers, and firefighters — the perhaps bloated administrative bureaucracy, for instance. We’ll never know because they were relieved of the necessity –mother of invention — of making “the tough choices” they always say they were elected to make.

What about other kinds of jobs? Two studies demonstrate that many jobs “created” were filled by hiring people away from jobs they already held. Some will claim that this is fine because the vacated jobs were available to the unemployed. But that implies that highly skilled people were sitting around waiting for jobs, and this is not the case. Companies losing employees had to incur high search and training costs to refill those jobs. See this previous post, “Labor Is Not Fungible,” for more discussion. Also see “No Such Thing as Shovel Ready”: ”[H]iring people from unemployment was more the exception than the rule in our interviews”; and “Did Stimulus Dollars Hire the Unemployed?” Both papers are by Garett Jones and Daniel Rothschild of the Mercatus Center. (Summary here.)

Finally, in economics a job is employment that creates value by helping to transform resources from a less- to a more-useful condition. In the market, prices, consumer behavior, and profit-and-loss sheets tell us if that criterion is met. A job is not merely exertion for which someone is paid. In the case of government and government-financed jobs, where resources are acquired by force and there is not market pricing at every stage, we can’t be sure that people who “work” actually create value rather than destroy it. They may sweat, but they that doesn’t mean they have jobs.

Finally, let’s remember that government can’t actually stimulate the economy; that is, it cannot inject something from outside the economy, like a defibrillator transfers electricity to a body to jump start a heart. Any money the government appears to inject was already in the economy and is just moved around. So, as Russ Roberts says, government’s stimulating an economy is like taking water from the deep end of a pool and pouring it into the shallow end.

  • Sheldon Richman is the former editor of The Freeman and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families and thousands of articles.