Wednesday, August 31, 2011

Sorry, while I agree with their conclusions that the Obama stimulus was a failure, I think the writers of this study are chasing the wrong dog up the wrong tree in trying to figure out how many people were hired by firms receiving stimulus dollar. Here's why:

Let's start with my outside-the-mainstream position that the conventional wisdom is wrong on what a stimulus is supposed to accomplish.

Given that recessions are the result of fear, the goal of any intervention should be to keep people from panicking and cutting back even further. This is critical for two reasons. First, left unchecked, fear can beget fear and cutbacks can beget cutbacks and the economy can go from recession to depression to collapse. Second, the economy can't go directly from shrinking to growing. Before the economy can start growing again, its slide needs to first be checked.

Thus, notwithstanding its name, a stimulus doesn't directly create growth as much as it calms the economy down, creating an positive (less fearful) environment in which growth can take place. And per this line of thinking, how the recipients of government dollars act is less important than how the economy as a whole reacts to the money being spent.

Now, on to the study. The key to analyzing a particular stimulus program isn't counting the number of people hired with stimulus dollars. Imagine if the Obama stimulus consisted of cutting individual tax rates: would the authors of the study have tried to count the number of people hired with stimulus dollars? And, presuming they weren't able to identify anybody hired with stimulus dollars, would they not have been left having to claim that stimulus was likewise a failure?

Rather, the key should be trying to determine whether a particular stimulus program led consumers and businesses to cut back less than they would otherwise have done. Did we spend more than we would otherwise have spent? Did we hold on to more employees than we otherwise would have done? In other words, did it calm us down and keep us from panicking? Or did it fail to reassure us, as evidenced by continued cuts in employment and spending?

Ah, I can hear you (and them) asking: just how do you do that without falling into the 'jobs saved or created' silliness espoused by Obama Administration spokesmen?

Subjectively, I say the answer is that the stimulus didn't fully do its job. It did (as its supporters tout) succeed in that we didn't fall into depression. The world didn't end (whether that was a realistic fear is debatable, but in the end, it didn't happen).

But it didn't create an environment in which the economy could start to really bounce back... as evidenced by the fact that the economy hasn't really bounced back.

And the big reason this didn't happen is because whatever positives might have accrued from the stimulus program were more than offset by the Obama Administration (perhaps unintended, perhaps quite intentional) terrorizing (yes, I'm using that word) businesses and successful individuals.

Make enough threats about raising taxes and passing onerous and costly regulations and is no surprise that businesses and consumers didn't calm down. When the President (and his party) repeatedly say they're coming after you, it isn't paranoid to cut back and save your money for the tough times ahead.

That is why the stimulus worked. Not just because the stimulus itself was badly designed and implemented (which it was), but because pretty much everything Obama did scared the bejesus out of us.