James Pethokoukis

Politics and policy from inside Washington

Obama’s $447 billion reelection plan

September 9, 2011

There’s been much speculation that President Barack Obama will spend $1 billion to get reelected. Turns out those guesses were off by $446 billion.

What Americans heard last night was a $447 billion political plan, not an economic one. It’s purpose was to a) fire up the demoralized Democratic base and b) show independents that Obama is trying to do something – anything – to reduce unemployment, not just slash needed “investment” like those heartless, pro-austerity Republicans.

Now all the usual suspects will claim the American Jobs Act will create more growth and more jobs through $250 billion in temporary payroll tax cuts and $200 billion in infrastructure spending, unemployment benefits and aid to state and local government.

Take Moody’s economist Mark Zandi, a favorite of the White House and congressional Democrats. Zandi’s research says the original $800 billion Obama stimulus created or saved some 2-3 million jobs. And he likes Stimulus 2.0 just as much. He claims it would “add two percentage points to GDP growth next year, add 1.9 million jobs, and cut the unemployment rate by a percentage point.”

Really? Seriously?

1) Of course, such analysis is based on garbage in, garbage out, Keynesian economic models. The results were already baked into the cake.  Better to see what actually happened as gleaned from government statistics. In a recent paper, Stanford University economist John Taylor simply looked at whether, as a result of the 2009 American Recovery and Reinvestment Act, consumers actually consumed and whether government actually spent in a way that produced real growth and jobs. Turns out, they didn’t:

Individuals and families largely saved the transfers and tax rebates. The federal government increased purchases, but by only an immaterial amount. State and local governments used the stimulus grants to reduce their net borrowing (largely by acquiring more financial assets) rather than to increase expenditures, and they shifted expenditures away from purchases toward transfers. Some argue that the economy would have been worse off without these stimulus packages, but the results do not support that view.

2) Economists from George Mason University also looked at the real-world results of  the ARRA by surveying employers. Their findings:

Hiring isn’t the same as net job creation. In our survey, just 42.1 percent of the workers hired at ARRA-receiving organizations after January 31, 2009, were unemployed at the time they were hired. More were hired directly from other organizations (47.3 percent of post-ARRA workers), while a handful came from school (6.5%) or from outside the labor force (4.1%). Thus, there was an almost even split between “job creating” and “job switching.” This suggests just how hard it is for Keynesian job creation to work in a modern, expertise-based economy: even in a weak economy, organizations hired the employed about as often as the unemployed.

3) And let’s not forget what Milton Friedman might have to say about this sort of deal, which gets to the heart of why Keynesian stimulus doesn’t work (via Wikipedia):

The permanent income hypothesis (PIH) is a theory of consumption that was developed by the American economist Milton Friedman. In its simplest form, the hypothesis states that the choices made by consumers regarding their consumption patterns are determined not by current income but by their longer-term income expectations. The key conclusion of this theory is that transitory, short-term changes in income have little effect on consumer spending behavior.

Team Obama thinks the whole package could boost growth by two percentage points. But the  infrastructure spending and unemployment benefits will be a tougher sell. Republicans may well substitute their own stimulus ideas for those items so that the package ends up composed entirely of tax cuts.

The most likely addition is a temporary reduction in the taxes on foreign earnings brought back to the U.S. by its multinational corporations. The U.S. Chamber of Commerce estimates such a tax holiday could boost growth by a full percentage point next year. White House economists criticize idea as providing too little bang for the buck, but it could be the price for getting a deal. But an agreement can get probably get done, which would enhance perception of Obama as a leader and boost his approval ratings. Just don’t expect it to do much for America’s sputtering economic recovery.

Comments

I thought that the point that the President is willing to spend 447 billion dollars on his reelection was a brilliant point! Other than that, I thought that the President’s Plan was just more of the same old junk.

Posted by edwardlarson | Report as abusive
 

Mr. Pethokoukis, as a writer I am sure you can appreciate this? It was nice that you mentioned Mark Zandi ,a favorite mouthpiece economist of the Demoncrats & Obama, but how about those two econimists at GEORGE MASON that worked their asses off to accumulate all the statistics & theories that you so casually just TOOK without so much as even a nod to them and used in YOUR left leaning article with YOUR picture and YOUR name so prominantly displayed? Do you think that is fair or the least bit right Sir?

Posted by bocar | Report as abusive
 

Obama’s signature economic plan was his much-vaunted stimulus package, that was supposed to keep unemployment from rising above 8 percent–but didn’t. It failed = Obama failed.

Anyone who listens to Obama and takes him seriously has more loose screws than all the Home Depot stores in North America.

Posted by Jack_Davis | Report as abusive
 

Stimulus spending for temporary construction jobs is not so bad. But when national debt already exceeds GDP, then borrowing more to spend on temporary jobs is foolish, unproductive, irresponsible and downright unpatriotic.

Posted by horseSense5000 | Report as abusive
 

Mr. Obama kept exhorting everyone to pass his bill Now! Unfortunately, there is no bill to pass (just as with the Free Trade Agreement he keeps attacking the G.O.P. for not passing — which they can’t, as it doesn’t yet exist.

Perhaps our President should receive the “No Bill” prize

Posted by Playrighter | Report as abusive
 

Son of Stimulus will be a failure just like the trillion dollar mother of all stimulus. Intelligent people know the stimulus is a disaster. The trillion dollar stimulus was promised to hold unemployment at 8%, it is now 9.1%. In fact 2.3 million jobs have been lost since the Obama Democrat stimulus plan was enacted. In fact 3 mil jobs have been lost since Obama took over the White House.

Fact 1: Jan 2009 142,201,000
Fact 2: Feb 2009 141,687,000 employed mother of all stimulus passed
Fact 3: Jul 2011 139,296,000 employed

http://data.bls.gov/cgi-bin/surveymost?l n

Posted by FreddieBear | Report as abusive
 

Son of Stimulus will be a failure just like the trillion dollar mother of all stimulus. Intelligent people know the stimulus is a disaster. The trillion dollar stimulus was promised to hold unemployment at 8%, it is now 9.1%. In fact 2.3 million jobs have been lost since the Obama Democrat stimulus plan was enacted. In fact 3 mil jobs have been lost since Obama took over the White House.

Fact 1: Jan 2009 142,201,000
Fact 2: Feb 2009 141,687,000 employed mother of all stimulus passed
Fact 3: Jul 2011 139,296,000 employed

http://data.bls.gov/cgi-bin/surveymost?l n

Posted by FreddieBear | Report as abusive
 

I am convinced that Mr. Obama could care less whether our economy rebounds so long as he is re-elected.

He enjoys the trappings of power far too much.

For Barack Obama, it’s not about what’s best for America. It’s what’s best for Barack Obama.

Shameful, but true, he is our narcissist-in-chief.

Posted by eddiethegeek | Report as abusive
 

And Obama said, “let them eat cake”, as he tosses crumbs to the masses.

Here’s Obama’s real plan; “get me re-elected”.

Where’s the real stuff, policies that will make a real difference;
1) Repeal the Obama care monstrosity
2) Change our Energy policy from a type of foreign aid to a policy of using our domestic sources for our energy needs
3) Remove all the redundant and/or obsolete federal agencies; EPA, Labor, Education, Energy, etc. etc.
4) Remove excessive and redundant regulations
5) Reduce the corporate tax and capital gains tax
6) Handle China’s currency manipulations with some kind of tariff

This is really simple stuff; here are some hard facts (these are not opinions);
1) Consumer spending accounts for 70% GDP
2) Most jobs are created by small to mid-size businesses
3) Private sector drives our economy

So why are we taking money away from taxpayers and giving it government?

Well, the answers are just as simple;
1) Power corrupts and absolute power corrupts absolutely. If you think DC is just going to hand back all the power that we have given them— you are sadly mistaken.
2) The problem with socialism is that sooner or later you run out of other people’s money. I guess borrowing 40 cents of each dollar spent is not high enough yet.
3) Most people will seek the path of least resistance. So when politicians say “vote for me and I’ll take care of you”, not everyone stops to think what that really means “you are now dependent on me.”
4) The media loves simple, emotion-based messages like “vote for me and we’ll take of you”, makes for good headlines, it’s easy to understand, and feeds into their progressive ideology, so of course, the MSM backs everything that comes out of Obama’s mouth. Besides, the MSM is terrified of one word, “racist”.

Our biggest problem, bar none, is the ever increasing size and scope of the federal government.

Make sure you vote for those individuals in favor of reducing the size and scope of government. That should be the focal point.

We are the only ones that can fix this, and it can be done, as long as we all pitch in.

Posted by jvinat | Report as abusive
 

I’m certain that Obama’s latest teleprompter reading “saved” a whole lot of points on the Dow today.

Posted by Janelasdedeus | Report as abusive
 

At last an honest analysis! The ease with which other media is pretending this “jobs” plan is any different from his stimulus1 should frighten every American. Not all of the egregious misallocations from the first $864billion stimulus are exposed but rarely does a day pass without an example. That parts of his new plan have had bipartisan support in the past is irrelevant. This is now. We KNOW that Obama directing special tax breaks and construction projects for his chosen is not the solution. Business has been nearly unanimous in the call for smart but reasonable regulation. Even Dodd/Frankers are beginning to appreciate the ineffective monster they created. How does the Labor Dept demanding 2 years of complete, in detail, hourly employment records on every employee from every residential builder CREATE jobs??? I guess Obama forgot to mention that little “stimulus” or the one where the FBI with weapons drawn invaded Gibson Guitar
confiscating ebony(clearly more of a danger than “fast and furious”) or the one where NLRB prevented 3000 Boeing jobs in a right to work state or the “solar” companies going bankrupt mere months after receiving “green” stimulus1 subsidies. If the bloody media does not wake up to the Putinesque operation being run out of this WH, this country will be lost forever. Watch what this man DOES, not what he SAYS. Any citizen who thinks him/herself or business
safe from unelected bureaucrats running wild is an IDIOT. This
evil regime must be stopped.

Posted by giatny | Report as abusive
 

Pethokoukis, you are and have always been a shill. You are paid to blast out garbahe from the likes of AEI, Heritage, and the rest of the corporate media machine. NO ONE should take your analysis seriously, because you offer no serious analysis.

If tax cuts did anything for jobs, we should have seen jobs ZOOM in GW Bush’s second term. Instead, he left us another 911 atrocity on Wall Street when he left office.

You are a tool.

Posted by Wellstone | Report as abusive
 

Are we going to get a web page this time to see where all the money is going? Remember that? Is Joe Biden going to oversee the spending again? If not, a small fraction of the funds might be wasted — or given to political allies of the Regime. Imagine that!

Posted by LouieJunior | Report as abusive
 

The president’s latest plan is a car that’s run out of gas. The owner gets a can of gas and pours it on the motor hoping that will re-start the car.

Posted by humbug402 | Report as abusive
 

Just a few suggestions:
1. End Baseline Budgeting…No more across the board 7% increase for every department and agency. Make them justify every dime they ask for…They must remember if you take a $ from a citizen in Taxes it diminishes his freedom…Demand a dollars worth of value for a dollars worth of taxes.
2. Repeal Davis Bacon. We can get more bang for our buck if we are not forced into a prevailing wage situation on everything…Union Labor is only 7% of the Private Sector Workforce why should Highway, Rail and Airport construction be held hostage to the Unions.
3. Unleash Domestic Energy Production. Put the roughnecks and miners back to work let them pay taxes and spend their money. My car runs on fossil fuels, my home is heated and the electric comes from LNG and clean coal, Our food is planted using Petroleum, Our goods get to market the same way. How many of those 5 Million Green energy jobs has this President provided that he promised? How many Volts has GM sold? We have domestic energy let us produce it NOW.
4. Put a moratorium on Lisa Jackson and Ken Salazar and the other Regulators, at least until the economy turns around…
5. Have the DOJ fast track the appeal of ObamaCare to the Supreme Court. Let us get a final decision one way or the other so that Business and Individuals have some idea what is the law of the land.
I do not think any of those would require a $447 billion “Investment”.
The Narcissist in Chief imploring Congress to pass a bill they have not seen 17 times in one speech is beyond the pale. It was a Campaign Speech and he should have paid for the time and Venue. His only concern is his own re-election and yet he proves time and again he is in over his head. How do Progressives continue to defend this man?

Posted by markos1120 | Report as abusive
 

Obama’s last plan cost a trillion dollars and increased unemployment from 7% to 9.1%. This plan is smaller, perhaps the increase in unemployment it will cause will only take us to 10.3% or so.

Posted by Xdem | Report as abusive
 

President Zero is focusing his laser beam on putting the millions of Illegal Aliens that dominate the Construction industry in this Nation back to work alone with public unions members.

Great plan for the Democrat party very bad plan for unemployed Americans citizens and American!

Union leaders will charge Union Scale hire Illegal,s at 10 bucks per hour with benefits like Medical, Housing, Schooling, Food Stamps etc. all paid by the tax payer,s.

Pocket the vast profits and have lots of unions funds to buy more Democrat politicians with to continue the progress of rewarding the union thugs and Democrat politicians, while pushing the rest of the population that is not Illegal,s or Union members deeper into poverty!

Posted by BlackSaint | Report as abusive
 

President Zero is focusing his laser beam on putting the millions of Illegal Aliens that dominate the Construction industry in this Nation back to work alone with public unions members.

Great plan for the Democrat party very bad plan for unemployed Americans citizens and American!

Union leaders will charge Union Scale hire Illegal,s at 10 bucks per hour with benefits like Medical, Housing, Schooling, Food Stamps etc. all paid by the tax payer,s.

Pocket the vast profits and have lots of unions funds to buy more Democrat politicians with to continue the progress of rewarding the union thugs and Democrat politicians, while pushing the rest of the population that is not Illegal,s or Union members deeper into poverty!

Posted by BlackSaint | Report as abusive
 

Perhaps the most astounding characteristic of Obama’s
“jobs program” is that apparently those who created it don’t understand what constitutes a job. There is no indication that his plan would create one single job. Jobs are only created when there is an increased demand for goods or services. Bribing an employer to add a position does NOT create a job. I wonder whether any who do hire and take the govt money don’t immediately lay off others to compensate.
Exactly why is Obama and his planning staff so clueless?

Posted by NoCarbon | Report as abusive
 

Spending Taxpayer Money is one of the ONLY things Washington Politicians seem to understand and do.
Democrats & Obama just spend it on different things than Republicans.

Posted by SavageNation | Report as abusive
 

So what happens if we tighten our belts and cut back on spending, as Republicans unanimously want us to do? The latest IMF study estimates the effect of a cutback equal to 1% of GDP, which amounts to about $150 billion in the U.S.

http://www.imf.org/external/pubs/ft/fand d/2011/09/Ball.htm

According to both the GOP leadership and its crew of presidential candidates, this would be peanuts, a mere down payment on serious budget cutting. And maybe so. Unfortunately, a cutback of that size would lead to lower incomes and dramatically higher unemployment.

The IMF study says the effect is twice as big as when central banks can’t cut interest rates. And guess what? The Fed already has interest rates at zero. They can’t cut them any further.

In other words, the GOP’s austerity plans would probably raise unemployment by nearly a full point, which they would immediately try to blame on President Obama. So spending $447 billion to boost employment and get money back into the economy seems like a better investment than the political capital lost by Congressional Republicans on sabotaging the economy, doesn’t it?

Posted by GetpIaning | Report as abusive
 

James, didn’t your mama teach you “if it sounds too good to be true it probably is”–like the previous post–had your removed your “liberal magical spectacles” to take a closer look at this fraud you would have seen him for what he is–a complete non starter. Come to the dark side James and see the light.

Posted by flopper99 | Report as abusive
 

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