David Kirkpatrick

September 3, 2010

Christina Romer on solving the current level of unemployment

Short version? Cut taxes and crank up spending to give the economy a boost.

June 26, 2009

News on the stimulus

This is one of those bonus two posts in one.

Up first is an update on the stimulus job guidelines, something the states have been waiting for from the Fed. Sounds like the method for counting jobs created by the stimulus program is a bit fast and loose.

From the link:

From the minute President Obama declared that the $787 billion federal economic stimulus package would save or create 3.5 million jobs, state officials have been confused about how to count those jobs.

Now, four months later, the White House has offered states guidance. The advice includes a description of the programs subject to the job-reporting requirements.

“All we’re asking them (states) to do is a simple headcount,” Rob Nabors, deputy director of the White House Office of Management and Budget, told the Wall Street Journal.

In other words, he said, recipients of federal stimulus dollars should use their best guess as to whether a job would have been saved or created if the stimulus plan had not been approved.

Some critics say such leeway could lead to contractors and state officials inflating the job numbers, or undercounting.  They also worry that employers, in reporting to states the number of jobs generated or saved, will not be diligent about including subcontractors.

“It also seems that OMB is not imposing strict rules on how employers measure the number of jobs retained as a result of stimulus funding and is willing to let them lump together jobs created and jobs retained,” said  Good Jobs First, a national jobs policy resource center in Washington, D.C.

Next up is a little analysis on why the stimulus isn’t doing all that much stimulating from Bruce Bartlett.

From the link:

For a program to be stimulative, it must bring forth economic activity that otherwise would not have taken place. The classic example is public works. When a new road or bridge is built, construction companies have to purchase concrete, steel and other materials that create business for other companies. They also employ workers that otherwise would not be working, paying them wages that they will spend, producing jobs and incomes for other workers.

If this works the way it is supposed to, stimulus spending has a multiplier effect throughout the economy. A Council of Economic Advisers study estimated that government purchases of goods and services raise the gross domestic product by $1.57 for every $1 spent. By contrast, tax credits and income transfers are much less stimulative, raising GDP by considerably less than $1 for every $1 rise in the deficit.

Since 60% of the stimulus package had a multiplier effect of less than one, only 40% of the package went to programs like public works that have a high multiplier. Moreover, the programs with a low multiplier were the fastest ones to implement; those with a high multiplier take much more time to come online. According to Elmendorf, by the end of fiscal year 2009, which ends on Sept. 30, about a third of the least stimulative spending will have been spent vs. only 11% of the highly stimulative spending.