Monday, September 07, 2009

Higher unemployment with Obama's centi-billion stimulus

Obama and the Democrats told us that his porky "recovery plan" would reduce the climb in unemployment. To be sure we understood they produced a graphic showing how unemployment would be lower if we accepted his $787 billion in pork spending. How have we fared? Obama promised that his spending would keep unemployment below 8 per cent. It went above 8 in February, above 9 in May and is now above 9.5. Here is Obama's projection in blue overlayed with the actual unemployment numbers in red from Innocent Bystanders:. Unemployment got worse instead of better, according to the Bureau of Labor Statistics. The stimulus didn't help. Obama's blue lines are from Christina Romer, Chair (then designate) of the President's Council of Economic Advisers and Jared Bernstein of the Office of the Vice President Elect on January 9 - here (pdf). Why didn't it help? If their demand-side assumptions are correct - that spending increases buying and selling which increases employment - why haven't they spent it yet? Very little has been spent yet. Most of the spending comes after one year or later. They bypassed "shovel ready" projects to fund their political friends instead. But there is a long record of failure for demand-side incentives. Success has been from incentives to invest. Cutting income taxes encourages working more, because you get the reward for your effort. Cutting capital gains taxes encourages investment. President Reagan turned Jimmy Carter's stagnation into increased investment, job growth and economic growth and the longest recorded period of peacetime prosperity without recession.

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