President Obama’s “stimulus” package has been dogged by controversy since its enactment. There have been questions about the accuracy of reports of jobs “saved or created” by the stimulus spending, claims that the money really was used mostly to maintain public employee jobs and to allow state governments to defer their own deficit-reduction efforts, and an admission by President Obama that there were no “shovel-ready” projects to be funded, notwithstanding what was represented when the “stimulus” legislation was enacted.
The most recent analysis of the President’s Council of Economic Advisers, released Friday, estimates that the “stimulus” has cost $666 billion and produced between 2.4 million and 3.6 million jobs. The 2.4 million jobs estimate was developed using the “CEA Multiplier Model” and the 3.6 million estimate was based on the “CEA Statistical Projection Approach.” Republicans and The Weekly Standard have used the lower estimate, divided it into the total cost of the “stimulus,” and concluded that each of the 2.4 million jobs cost the taxpayers $278,000. The White House responds that such an analysis is biased because it uses the lower jobs estimate and does not consider the tangible items that were built using “stimulus” funds. Whose spin is closer to the truth? When you consider that both jobs numbers are based on theoretical economic models and undertake the slippery task of estimating jobs “saved,” you may as well argue about how many economists can dance on the head of a pin.
Outside the Beltway, I think there is general consensus that the “stimulus” legislation did not deliver much bang for the buck. The “stimulus” was sold as a way to massively jump start the economy, prevent high unemployment, and ensure a speedy recovery. Those things clearly haven’t happened. We’ve spent more than half a trillion dollars and we are still facing a stagnant economy characterized by high unemployment and low growth. It’s as if we’ve gone on a bender, the intoxication has worn off, and we’ve now awakened to a painful hangover and a gigantic bar tab that we really couldn’t afford in the first place.
Yesterday I heard a segment of NPR’s Talk of the Nation that discussed the housing market in America. The host and his guests discussed how housing prices may have bottomed out, how buying a home is cheaper than renting in some areas, how buying a home and making those monthly mortgage payments is a good step toward financial discipline and accumulation of personal wealth, and other factors that weigh in favor of buying a house. They seemed mystified about why American consumers aren’t flooding into realtor offices to snap up homes at bargain basement prices.
I don’t think there should be much mystery about why the housing market is in the doldrums, however. In my view, it is almost completely attributable to a lack of confidence and optimism about the future. Many people in America have been deeply rattled by the economic turmoil of the past few years. They’ve seen friends thrown out of work and bright young college graduates unable to find a job. They’ve seen the value of their 401(k) portfolio on a roller-coaster ride and, if they are an existing homeowner, they’ve seen the value of their home fall with the bursting of the housing bubble. What’s more, over the past few years they’ve heard assurances from economists and politicians about an economic recovery and confident predictions of dropping unemployment rates and robust economic growth, and those bullish assurances and predictions have consistently proven to be unfounded.
The old saying “once bitten, twice shy” applies here. Americans don’t want to bet right now on economic growth; they understand that we teetering on the brink of dropping into another recessionary period. They just want to hang on to their jobs, hunker down, and wait until things improve in the real world and not just in some academic’s econometric models. Signing your name on a 30-year mortgage is a really big step. Why would you want to do it if you don’t have any confidence that you will keep your job and that better economic days lie ahead?
The only thing surprising about this news item is that some economists are still expressing surprise that American consumers aren’t more bullish about things. Seriously, what world do these guys live in? Leaving apart the weird notion that you can gauge something intangible like “confidence” with anything approaching scientific accuracy, what has happened recently that would encourage anyone to feel more upbeat about the economy?
For those who live in ivory towers or in the canyons of Wall Street, here is what those of us out in the country are seeing. We know people who are out of work and have been out of work for a very long time. We know college graduates who have gotten their degrees from fine institutions and can’t find even an entry-level job. We know that gas and food prices have gone up since last year. We’ve watched businesses close. We’ve seen houses in the area sold at foreclosure and other houses in the neighborhood that seem to have been on the market forever.
So don’t tell us that some arcane leading economic indicator should cause us all to be doing handsprings. We’ll believe the economy is getting better when our nephew can find a job and the house down the block gets sold. Until then, understand that we are going to be cautious, and careful — and don’t be “surprised” that we are staying that way.
Equally bad, the summer job market apparently is the worst it has been in decades. As a result many American teenagers aren’t getting the opportunity to hold down a job, to learn the value of a dollar by earning their own spending money, and to develop good work habits and ethics. That fact also is likely to cause long-term problems in our society. Summer jobs are important learning experiences for new entrants to the work force; the new workers deal with their first boss, learn to get along with co-workers, and perhaps get a meaningful lesson or two in the school of hard knocks. We should be as concerned about the lack of employment opportunities for young people as we are about any of our other economic problems.
Today we got more economic news that indicates that the economy that we keep hearing is “improving” is, in reality, not doing much along those lines. The May jobs report showed that the economy added 431,000 jobs last month, but that number is not considered very good news for two reasons. First, economists were expecting the creation of significantly more jobs; estimates ranged as high as 750,000 new jobs, and the average estimate was well above 500,000 jobs. Second, the vast majority of the jobs — more than 90 percent — were temporary government jobs related to the 2010 census. In all, 411,000 of the new jobs were temporary census positions that will end later this summer, and when that happens all of those people will be back on the pavement.
The stock market plummeted on the bad employment news, as well as the unsettling debt news from Hungary. Anyone who pays much attention to the stock market these days is likely to get whiplash; the market is bouncing like a yo-yo. I think the reason is that the market is simply reacting to the daily news without much direction from underlying fundamentals. No one knows whether the recession is really over, whether the European debt crisis will be successfully resolved, or whether wars will break out in the Middle East or on the Korean peninsula. The uncertainty makes the market lurch up and down as investors try, unsuccessfully, to read the news each day as an indicator of long-term trends.
What is clear is that the economy is not “improving” — at least, not in a way that is very noticeable for the average citizens who care mostly about jobs. We would all be better served if economists kept their thoughts about the “improving” economy to themselves until we get several months of strong employment news.