Dissecting the so-called Multiplier I: Taking The White House at its Word

The White house has released estimates of the fiscal stimulus' impact on the economy through June 2009. At best, those estimates show that the fiscal stimulus has been a colossal waste of tax dollars.

The White House claims that growth rates are persistent: the negative real GDP growth prior to 2009 Q2 would have continued indefinitely if it were not for wise fiscal policy. That claim is ridiculous, and inconsistent with the rest of their calculations, but I will put that to the side until later this week. Another future topic is the private consumption impact of all of this, conspicuously absent from the Administration's analysis.

For now, let's take the Administration's estimates literally:

• More than $100 billion worth of stimulus spent in 2009 Q2 (p. 5)
• 597,000 jobs per month would have been lost in Q2 -- that's the purported "momentum" from the last quarter (pp. 8, 11)
• In fact, 436,000 jobs per month were lost (p. 9), so we have to thank the White House for the 161,000 per month that were not lost. That puts April, May, and June employment 161,000, 322,000, and 483,000 higher than it would have been without stimulus, or 966,000 job months. That's 80,500 job-years.
• The same logic for real GDP: it would have fallen at a -3.3 percent annual rate (p. 12), but in fact it fell at a -1 percent (p. 12) annual rate, so we have to thank the WH for the -2.3 percent further negative annualized growth rate that would have occured without them.
• Recall that a 2.3 percent annual growth rate actually refers to about 0.6% growth rate from one quarter to the next. So what the WH is saying is that we owe 0.6 percent of 2009 Q2 GDP to their policy, which is about 20.3 billion dollars

So, from the jobs perspective, we just spent $100 billion of taxpayer money (not counting the economic damage done to raise this money) to supposedly create 80,500 job-years: that's $1.2 MILLION per supposed job-year!! Can we agree that creating a job for a year is wonderful, but not worth $1.2 million?!

[OK Keynesians, I know that you're going to claim that those jobs are going to last a lifetime, so actually $1.2 million is cheap ... get real (don't forget, to the degree these are government jobs, the taxpayer has to pay beyond the $100 billion to keep them employed beyond June 2009)! You will also claim that those 1.2 million job-years will beget still further jobs, kind of like rabbits mating in the forest. Anyway, my next post will address this head on.]

From the GDP perspective, we just spent $100 billion of taxpayer money (not counting the economic damage done to raise this money) to supposedly raise GDP by $20.3 billion. That's the kind of public sector productivity we've come to expect!

NEXT: let's look at consumption, and unpack the "supernatural spiral of spending" that stimulus advocates would have us believe.

[NOTE: this post was edited in September to make explicit job-year calculations, rather than "job" calculations, in order to deflect the (largely irrelevant) criticism that the stimulus spending is a flow and employment are a stock. I apologize to the layment that job-years are a bit harder to grasp.]