While President Barack Obama goes on about the success of his economic stimulus, the latest policy developments suggest Democrats are finally backing away from his radical Keynesianism.
Even Democrats, it seems, have concluded that the stimulus of 2009 was a big waste of money, and that better approaches exist that can do more and cost less.
The truth is, economic stimulus is like a very expensive box of chocolates. You get a sugar high, and a caffeine rush, but when the chocolates are gone, you have nothing but fat to show for it. You are worse off than you were before and still need to find real nutrition.
According to the latest estimate by the Congressional Budget Office, the U.S. stimulus sugar high will cost $862 billion by 2019. The excessively optimistic administration estimate is that the stimulus created 2 million jobs last year. If we take that high number at face value -- there are plenty of reasons not to -- and given that roughly one-quarter of the stimulus funds have been exhausted, then each job has cost about $100,000.
To put that in perspective, if instead the government had used the stimulus to hire individuals at the going median wage of $37,115, it could have created more than 23 million new jobs.
So much for the supposed Keynesian multiplier effect. From now on, it should be called the Keynesian divisor.
Paying the Bill
Ultimately, American taxpayers are going to have to pay the bill for the stimulus, and it is a steep one. For the average taxpayer, the bill is $7,798.
Of course, the final bill will not be spread evenly across taxpayers, because the rich pay a disproportionate share. Assume the burden is distributed the same as the current income tax. If your income is between $40,000 and $50,000, you will pay about $2,600 for the stimulus. If your income is between $75,000 and $100,000, you will pay $6,500. If you are lucky enough to have an income of between $200,000 and $500,000, your bill will be $41,800.
Small wonder that Democrats are so unpopular right now, and that they are looking for a better way.
A New York Times/CBS News Poll this month found that only 6 percent of Americans believe that the year-old stimulus package has created any jobs. (A remarkably patient 41 percent said it hasn’t created jobs, but still will.) Meantime, policy makers are still looking at a catastrophically bad labor market that needs all the help it can get.
The message of Republican Senator Scott Brown’s victory in Massachusetts is clear: Voters don’t want to waste our last pennies on another expensive sugar high. They are crying out for bipartisan support for fixes that work, at a reasonable price.
The good news is that even Democrats now recognize this. There has been progress behind the scenes looking for sensible alternatives to expense-account Keynesianism. A middle-of-the-road consensus is beginning to form around pragmatic approaches to the jobs crisis that cost a lot less and carry a big bang for the buck.
My favorite example is a little-known program folded into last year’s stimulus package that is targeted for a big expansion because it actually has worked. It is based on the observation that it is cheaper to create jobs directly.
The Emergency Contingency Fund, amended to the federal program called Temporary Assistance for Needy Families, provides funding for states to temporarily cover a portion of workers’ wages in both public and private jobs. The federal program reimburses states 80 cents for each additional dollar they spend getting a person back to work. Over time, as the worker’s reattachment to the labor force becomes stronger, the federal money is taken away.
Private Is Best
As many as 29 states have or are developing employment programs funded through this program, and some estimates show as many as 120,000 subsidized jobs could be created, at a cost of only $10,000 to $20,000 each. At that rate, the government could create 2 million jobs -- the amount Obama asserts were created by the stimulus -- for somewhere in the range of $30 billion. And the best part is that many of these jobs will likely be in the private sector.
A strong sign of how much things have changed for the better is the focus of House Democrats on this limited but powerful measure. A bill sponsored by representatives Jim McDermott of Washington and Judy Chu of California would make funds available for an additional year.
Given the state of the labor market, it is hard to imagine how any sensible person could oppose such a move. It is a shame that such common sense was absent last year. If they are to be more than the party of no, Republicans need to rally around the Democrats who have shown such reserved pragmatism.
While they do, Obama can continue to crow about his amazing stimulus, but fewer and fewer people will notice.
(Kevin Hassett, director of economic-policy studies at the American Enterprise Institute, is a Bloomberg News columnist. The opinions expressed are his own.)
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