Not that we need more evidence, but here are two new items confirming the absurdity of thinking that bigger government is stimulus. First, we have a story from Los Angeles revealing that the city only created 55 jobs with $111 million of stimulus funds. This translates to a per-job cost of $2 million, which is a grossly inefficient rate of return. But this calculation is incomplete because it doesn’t measure how many jobs would have been created if the money was left in the productive sector of the economy. Moreover, it’s also important to consider long-term costs such as the fact that Los Angeles now has more overhead, which will exacerbate the city’s fiscal problems.
The Los Angeles City Controller said on Thursday the city’s use of its share of the $800 billion federal stimulus find has been disappointing. The city received $111 million in stimulus under American Recovery and Reinvestment Act (ARRA) approved by the Congress more than year ago. “I’m disappointed that we’ve only created or retained 55 jobs after receiving $111 million,” says Wendy Greuel, the city’s controller, while releasing an audit report. …The audit says the numbers were disappointing due to bureaucratic red tape, absence of competitive bidding for projects in private sectors, inappropriate tracking of stimulus money and a laxity in bringing out timely job reports.
Our second item is a new study from two scholars who find that the cash-for-clunkers program was a total failure. Just as anybody with an IQ above room temperature could have predicted, the overwhelming effect of the program was to encourage people to change when they purchased cars. There was no long-term positive impact on any economic variable.
A key rationale for fiscal stimulus is to boost consumption when aggregate demand is perceived to be inefficiently low. We examine the ability of the government to increase consumption by evaluating the impact of the 2009 “Cash for Clunkers” program on short and medium run auto purchases. Our empirical strategy exploits variation across U.S. cities in ex-ante exposure to the program as measured by the number of “clunkers” in the city as of the summer of 2008. We find that the program induced the purchase of an additional 360,000 cars in July and August of 2009. However, almost all of the additional purchases under the program were pulled forward from the very near future; the effect of the program on auto purchases is almost completely reversed by as early as March 2010 – only seven months after the program ended. …We also find no evidence of an effect on employment, house prices, or household default rates in cities with higher exposure to the program.
The lesson from the cash-for-clunkers program also can be applied to other temporary programs. Good tax cuts, for instance, become gimmicks when they are temporary. This doesn’t mean there is no positive effect on incentives from a payroll tax holiday, temporary expensing, or a two-year extension of the 2001/2003 tax cuts, but the overwhelming impact is to alter the timing of economic activity rather than the level of economic activity.
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In NE Denver, a sign is up declaring the upcoming construction of a public health clinic, funded by stimulus dollars. I don’t know who this will benefit, other than the construction workers who build it, or the public employees who work there. Borrowed money always ends up in someone’s pocket, but then it disappears, but must be repaid. That is the problem with this ponzi scheme. Construction workers eat today, but we all pay for their lunch for years to come.
Let’s be consistent: if we don’t think government has a clue in figuring out the number of jobs created as a result of a particular program, we should be as skeptical of reports such as this as we are of the reports the Obama side use to tout the stimulus as a great success.
And while I do get a (sad) chuckle out of the $2 million per job number, it doesn’t make sense. How is it possible to spend $111 million and not create more jobs?
Breaking it down, the disbursements are made to some combination of government employees and outside contractors. For the sake of discussion, let’s assume that no additional government employees were hired, therefore, all of those funds would have been paid to outside firms.
These firms would either have been given more money for doing no more work than they were doing or given money in return for providing additional services.
If the former, the payments would have flowed through to the bottom line and either been paid out in dividends to the owners or reinvested in the company… both of which supposedly have a stimulative effect on the economy.
If the latter, presumably the company would have needed to hire more employees and/or purchased material from other suppliers in order to complete the work… and both of these would also have a stimulative effect.
The only scenario I can imagine which would support such a low number would be if all of the money went to government contractors who had completed other government work and, without this spending, would have had to lay off workers. But in this case, that would have been counted a ‘job saved’. And as we know, the government isn’t averse to reporting those numbers.
And to pre-empt a possible rebuttal, it is possible that more jobs would have created had this spending not taken place … but that wasn’t taken into account in the jobs report, it measured only jobs supposedly created by the program and was not a net assessment.