It’s likely that in the run-up to the 2012 election, we will be treated to the Republican mantra that the federal government is broke and that President Obama’s $800 billion stimulus package “failed.” By any fair measure, both of those assertions are nonsense.
"We're broke, broke going on bankrupt," House Speaker John Boehner claimed in a recent speech. How does he explain that the Treasury’s credit rating is still good enough to borrow virtually unlimited amounts of money for 10 years from investors at an interest rate of 3.22 percent, only about a tenth of a percent more than is paid by Germany, the world’s benchmark for fiscal rectitude?
For sure, the government is heavily in debt, and Congress will have to raise a record $14.3 trillion gross debt ceiling later this spring in order for the Treasury to continue borrowing. But by no stretch of the imagination is this country broke, and claims to the contrary are nothing more than politically inspired fear mongering.
Turning Reality on Its Head?
Meanwhile, Boehner and others, such as Mississippi Gov. Haley Barbour, a Republican presidential aspirant, are trying to turn the reality of stimulus on its head: More government spending destroys jobs and slashing spending creates them, they claim.
“In the last two years, the federal government spent $7 trillion and our economy lost several million jobs,” Barbour told the Chicagoland Chamber of Commerce lastweek. “I guess we ought to be glad they didn’t spend $12 trillion. We might have lost 12 million jobs.”
Of course, that’s never been the way “stimulus” has been viewed by members of the House and Senate who brought home the bacon in terms of federal spending in their own states and districts. They often flex their political muscle to get such money for their constituents.
For instance, in an effort to save 800 jobs at a plant in his Ohio district, Boehner fought hard last month to continue funding for an alternative engine for the F-35 joint strike fighter plane. Both the Bush and Obama administrations had sought to cancel the second engine to save money, and despite Boehner’s influence, it was killed.
Meanwhile, there is a newly completed federal prison in Berlin, N.H., that stands empty because of uncertainty about whether Republican attempts to cut the Federal Bureau of Prisons’ budget will leave enough money to staff it. That’s ironic, because the prison was built at the urging of former Republican Sen. Judd Gregg of New Hampshire, another fiscal conservative, to provide jobs in Berlin—a shrinking, economically depressed town hard hit when its major employer, a pulp mill, closed a few years ago.
Thus, on the local level, it seems even conservatives have no real doubt that federal spending can create jobs. What about at the national level?
The Congressional Budget Office certainly has no doubts about it. A CBO report last month said that provisions of the American Recovery and Reinvestment Act, the stimulus bill passed in early 2009, had the following effects in the fourth quarter of calendar year 2010:
* Raised the level of inflation-adjusted gross domestic product by between 1.1 percent and 3.5 percent,
* Lowered the unemployment rate by between 0.7 percentage points and 1.9 percentage points,
* Increased the number of people employed by between 1.3 million and 3.5 million, and
* Increased the number of full-time-equivalent jobs by 1.8 million to 5.0 million as additional workers moved from part-time to full-time work.
The only sense in which the stimulus failed was that the unemployment rate did not fall to 8 percent by the end of last year, as administration economists originally predicted, because the recession that followed the financial crisis turned out to be much more severe than expected.
The actual unemployment rate in the fourth quarter was 9.6 percent. The CBO analysis indicated that without the stimulus, the rate would have been between 10.3 percent and 11.5 percent. And the mid-point of the estimate for the number of additional people with jobs? More than 2 million.