Aug 11 2010
As we all end our summer season as best we can, given this horrid economic mess the Democrats have saddled us with, it is important to recall the false promises made by the liberal economists who were so sure government could spend our economy out of a recession. Â This Keynesian theory, which dates back to 1936 (is there anything humanity still clings to from the days of the rise of Adolf Hitler and Joseph Stalin?), has been finally, unequivocally and completely destroyed. The proof is in the government’s own failed predictions when compared with the actual results:
One way to correct this is to treat the current stimulus as one would treat any other kind of scientific or social scientific experiment: Form a hypothesis before you run the experiment, run the experiment, and then observe how the results of the experiment compare with your original hypothesis. Christina Romer, who resigned last Friday as chairman of the presidentâ€™s Council of Economic Advisers, and Jared Bern-stein, chief economic adviser to Vice President Biden, have done the first part of this experiment. In January 2009, they published a paper using a model similar to the one Blinder and Zandi used to project what would happen if President Obamaâ€™s proposed stimulus package passed, compared with what would happen if it did not.
I am sympathetic to their argument and Chart 1 corrects for their complaint by raising their estimate of where unemployment started in their experiment. The lowest line provides the original estimate of the path of unemployment provided by Romer and Bernstein on January 9, 2009. The second line replicates the Romer and Bernstein path, but raises the initial unemployment rate from their assumed 7.5 percent to 8.2 percent. This was the actual average of the unemployment rate in the first quarter of 2009, the period in which the stimulus was passed. The third line provides a more extreme alternative by raising the initial unemployment rate to the 9.3 percent average of the second quarter 2009. The first modification fully compensates for their objection while the second modification more than compensates for their concern.
The chart is all you need to see to understand how this expensive and painful, liberal social experiment has failed:
What this chart shows (and the accompanying analysis hammers home) is the death knell of Kenyesian nonsense. Even adjusting for underestimating the depth of the problem, the Keynesian predictions fail as seen in Chart 1. Chart 2 shows what would have happened if we had not gone $1 trillion dollars into debt – and the point is staggering. We would be right where we are, but not $1,000,000,000,000 poorer. Every man, woman and child in this country of 300 million souls just spent $3,333 dollars for NOTHING.
I predicted many times since the passage of the ‘stimulus’ bill that the one critical factor never considered in any analysis was the time it takes for the colossal behemoth of the federal bureaucracy to just authorize spending – let alone get on with it. Federal programs take a year minimum to put in place. This cannot be shortened. So the stimulus was never going to make a difference until 2010 – if even then. All the other stimulus was unemployment benefits and aid to states to keep government workers on the dole. There was nothing stimulating in the stimulus bill for 12+ months!
I initially was monitoring the actual government funded programs in the stimulus bill, but the pace of the bureaucracy was so damn slow it was like watching coral grow. So I stopped updating my charts. But as we come out of the summer of 2010 enough time has passed to illustrate my point with the feds’ own data. And the results are as predicted. The actual ‘go do work’ programs are still maybe a 3rd or less through their funding appropriations, as bureaucratic red tape chews up the money that supposedly was going to go to productive work.
Here is the status of spending in 6 government entities (5 departments and 1 agency) I have tracked since the spring of 2009, just after the stimulus bill was signed.
In the first graph you can see:
- Left Column: The amount of money appropriated in the bill for each organization
- Center Left Column: The amount obligated to specific programs (first step before spending can begin)
- Center Right Column: The amount spent to date (as of 7/30/10)
- Right Column: The amount left unspent of the appropriated funds
Another way to look at this is in percentages of funds appropriated, instead of absolute values. The second graph illustrates the last three categories of funding (obligated, spent & unspent) as a percentage of the appropriated money. As can be seen, the unspent numbers are quite high.
As of 7/30/10, the total appropriated across all 6 entities was $105 billion, of which $77.7 billion (74%) had been finally obligated to federal programs or projects. Sounds impressive, yes? Well, it isn’t. Â Only $26.8 billion had been actually spent (24.5%), leaving $79.5 billion (73.5%) of the appropriated money unspent 15 months after the bill’s passage! You can find the raw data tables here, which are culled from Recovery.gov data. And I loaded the data tables from 7/10/09 last year to emphasize the fact our government couldn’t stimulate our economy if their jobs depended on it. Very little has changed in the spending department, which is why there has been no change in unemployment.
As I said, the federal bureaucracy is a slow and loathsome beast. Trickle down poverty has all of a sudden become a reality as we throw good money after bad chasing liberal fantasies that never had any hope of ever working.