Aug 22 2010

Hard Truth: Stimulus Bill Did NOT Lessen Unemployment

Bombshell Update Below!

Powerline has a post out today discussing evidence the stimulus bill did not lessen unemployment, as the Obama administration and Democrat Congressional Leaders claim:

Those who tout the bill point to a study by liberal economists Alan Blinder and Mark Zandi purporting to show that the fiscal stimulus enacted under Presidents Bush and Obama lowered the unemployment rate by approximately 1.5 percentage points. However, as Lawrence Lindsey points out in the Weekly Standard, this study assumed that the recent stimulus has been roughly as effective, dollar for dollar, as past programs. It then multiplied past measures of job creation by the number of dollars spent this time around.

This simplistic methodology assumes, rather than measures, the efficacy of the most recent incarnation of stimulus. It thus begs the question it purports to answer.

Let me provide the coup de grace on this matter.

If the  stimulus bill saved or created jobs it would have kept the unemployment low WHILE keeping the workforce in place. If the recession was so bad that the workforce shrunk due to workers giving up (instead of workers finding jobs), then there is no way the stimulus bill lowered unemployment. It would mean all the lessening of the unemployment figure was due to dejected workers, not saved jobs.

The proof of this is provided by the federal government labor statistics. Here is a graph (click to enlarge) of the work force levels for July throughout the last decade. As can be seen, the number of people working each year steadily and slowly grows year-to-year as the general population grows – until 2008. In 2008 the workforce started to shrink and accelerated its losses during the period of so called ‘save and created’ jobs.

It is clear as day the recession hit so hard it literally chased workers out of the workforce (not just out of their jobs). Even the unemployment benefits in the stimulus package did not stop the damage, since people on unemployment are considered ‘in the workforce’. The red line illustrates a simple linear extrapolation of the last decade’s July growth in the economy. It shows that under normal conditions the workforce should be around 156 million, instead of the 153.5 million being reported by the federal government.

So what does that missing 2.5 million workers mean to the computation of unemployment for July 2010? If you recompute the July 2010 work force level (138.9 million) as a percentage of 156 million workers, you find only 89.1% of the workforce is employed. That means July’s unemployment rate is really 10.9%!

That is 1.4% higher than July’s 9.5% unemployment computed using the deflated workforce. Which is also magically close to the 1.5% the liberals’ claim the stimulus bill lowered unemployment.

If the stimulus bill had ANY effect it would have kept people in the workforce, either by ‘saving or creating’ jobs or extending unemployment so people remained counted in the ‘workforce’ while on unemployment benefits. This data proves the lie (or misinformation) being peddled by backers of a failed , liberal economic policy.

Bombshell Update: It is amazing when a State government produces a report which completely supports one of my posts. Today the state of Nevada recomputed its 14.3% unemployment rate reported by the Feds using the same basic facts as I did above:

Nevada’s worst in the nation 14.3 percent unemployment rate for July does not even begin to tell the real story of the state’s dismal job situation, a state agency reported today.

The actual unemployment rate in Nevada through the second quarter of 2010 is 21.5 percent, according to data compiled by the U.S. Bureau of Labor Statistics.

The agency said the difference in the two numbers is due to the fact that the monthly jobless report underestimates the number of unemployed. The monthly report only estimates unemployed workers who are actively seeking employment. It does not include workers who are too discouraged to seek employment and have given up searching, or workers employed part time for economic reasons.

H/T Battle ’10 at NRO. The fact a state employment agency is making the same kind of honest mathematical adjustments to report an accurate picture of unemployment is heartening. Maybe it means government’s will stop spewing political spin and get back to accurate, unbiased and transparent reporting. And the irony of this being Nevada, home of the Senate Majority leader once again proves God has a wicked sense of humor.

16 responses so far

16 Responses to “Hard Truth: Stimulus Bill Did NOT Lessen Unemployment”

  1. [...] Hard Truth: Stimulus Bill Did NOT Lesson Unemployment [...]

  2. Gesina says:

    I think it did lesson it. It just didn’t lessen it

  3. archtop says:

    I think the REAL question here is “where did all the money go?”

    There has surely been some temporary government hiring for highway and infrastructure projects, census, etc. Some of the money hasn’t been spent. And a lot of it has been wasted, no doubt.

    What this shows is that boosting government spending/hiring does NOT lead to private sector spending/hiring, which is what is needed to get the economy back on track. Meanwhile, all the massive debt we’re accumulating is going to come back to bite us.

    And finally who in their right mind is going to hire and expand their businesses knowing massive TAX INCREASES (if the Dems manage to stay in power) are just around the corner in 2011?

  4. [...] more… Go golfing, Mr. President – hotair.com 08/22/2010 Fore. more… Hard Truth: Stimulus Bill Did NOT Lesson Unemployment – strata-sphere.com 08/22/2010 Powerline has a post out today discussing evidence the [...]

  5. [...] From AJ Strata: “July’s unemployment rate is really [...]

  6. You need replacement levels of capital investment to maintain current jobs levels, as capital stocks wear out. Higher than replacement capital investment creates jobs and lower destroys it.

    The late 2007 through mid-2008 time period saw a rapid draw down on capital investment as purchasing fell off the cliff when the housing bubble collapsed.

    In Mid-2008 through November 2009 we were seeing capital investment rising with the economy as it normally does.

    Then we got Senator Scott Brown election and the screwed up Democratic House Health Care bill passed over the super majority of Americans.

    At that point, small business went to duck and cover for the duration of the Obama Presidency.

    The rising unemployment now is due to the capital disinvestment since then, pin particular by small business, which was partially hidden by the replacement of inventories that were not ordered late 2007 through early 2009.

    We have been at capital DIS-investment starting with the 2nd quarter of 2010 and it will accelerate as the Jan 2011 income tax rate increase and Obama health care taxes arrive.

    Which means next year (2011) we are going to see further unemployment and more smaller work force games by the Obama Administration to hide it.

    In short, the Obama Administration has taken a bad recession and turned it into the next Great Depression.

  7. AJ,

    See:

    “… the capital stock—the inflation-adjusted value of all business equipment and software in place in the U.S.—dropped 0.9% from 2008—its first decline since World War II.”

    From:

    http://online.wsj.com/article/SB20001424052748704164904575421403221676016.html

    AUGUST 11, 2010
    Firms Spend More—Warily
    Equipment Outlays Aim to Make Up for Cutbacks, Not to Boost Production and Jobs
    .
    By JUSTIN LAHART
    .
    Companies in the U.S. are stepping up purchases of equipment and software at the fastest pace since the late 1990s. But much of the spending is aimed at replacing older equipment after recession-related postponements or to improve efficiency—not to raise production or boost hiring.

    I have been predicted this for months.

    The American economy is now undergoing net disinvestment of capital stocks.

    Which means the economy is structural shrinking in terms of future employment.

    This is incredibly important.

    It means next year’s economy will be a flipping disaster, and Nevada’s present unemployment rate is America’s future.

  8. KauaiBoy says:

    This is the result of letting people who have never held a real job (or gotten one on their merits), run a business or made a decision with their own capital at risk make economic decisions. This stimulus had the purpose of protecting union jobs (and democrat votes) while raising the bar on government spending to such astonomically high levels that our sense of reason has been perverted.

  9. This “Recession never ended” meme is going to be hitting the general public in October 2010:

    3rd Quarter GDP Likely Negative, Recession Never Ended‏
    .
    .
    The quarterly data show that Q2 stands at a +1.1% annual rate (so look for a steep downward revision for last quarter) and the “build in” for Q3 is -1.5% at an annual rate.
    Depending on the data flow through the July-September period, it looks like we could see a -0.5% to -1% annualized pace for the current quarter. Most economists have cut their forecasts but are still in a +2.5% to +3.5% range. What is truly amazing is that despite all the fiscal, monetary, and bailout stimulus, the level of real economy activity, as per the M.A. monthly data, is still 2.5% below the prior peak. To put this fact into context, the entire peak to trough contraction in the 2001 recession was 1.3%! That is incredible.
    .
    and
    .
    Second quarter GDP will likely be revised way lower to 1.1% or so. Unless things improve, 3rd quarter GDP will contract. Amazingly, economists are still clinging to estimates of 2.5% and up.
    .
    So expect to discover the vast majority of economists will be surprised at the forthcoming downward revisions, even after we point these things out well in advance and repeat them.
    .
    Mike “Mish” Shedlock
    http://globaleconomicanalysis.blogspot.com

    And there is not a damned thing anyone can do about it, save use it as a campaign issue.

  10. kathie says:

    Did you know……

    Little-known fact: Obama’s failed stimulus program cost more than the Iraq war
    By: Mark Tapscott
    Editorial Page Editor
    Read more at the Washington Examiner

    We have a RECKLESS MAN FOR PRESIDENT.

  11. lurker9876 says:

    Cavuto predicts that Obama will not run for the second term. My prediction is that if he tries again, he will not win the nomination.

    The question is that if they refuse to nominate him, will they think twice about Hillary?

    UGH!

  12. WWS says:

    Oh Lurker, I will GUARANTEE that the 2012 dem nominee is gonna be Hillary! Who else could they go to? No one else is left standing in the Dem Party, all of their Governors are going to be wiped out this year, and everyone else is washed up! (Example – Howard Dean, HA HA!)

    I’ve got a good estimate for you on the Texas Governors race, and mark this down – I’ll show you a trick that I bet will hit the final result within a point or two. (I’ve been using this for awhile)

    latest poll is Perry 49, White 41. 10% want someone else or are undecided. Now here is the key – those who are still undecided are either not going to vote at all or will balance each other out. (this happens every time I watch for it.) 49+41 = 90

    So, from this I predict the final, election day result as:

    Perry: 49/90 = 54.5%
    White: 41/90 = 45.5%

    Like I said, watch for it – I think that’ll hit the final result within a couple of points. It’s not a landslide, but it’s not really all that close either.

  13. Fai Mao says:

    I am going to self-censor the post I was going to make and simply say that I am glad I now live in Hong Kong. Obama has removed any desire I might have had to return to the US.

  14. WWS says:

    Say Hello to our New Chinese Overlords for us.

    btw, if you’re traveling I’ve heard that you should stay away from Manila for a while.

  15. [...] The stimulus succeeded — if, that is, the purpose was to stimulate unemployment and economic stagnation. [...]

  16. [...] even mark is around 300,000 jobs created per month – something we have not seen in years. As I have posted before, the real unemployment rate is now around 11%-  assuming the work force was at its normal levels. [...]