President Obama's Son of Stimulus: More Costs, Fewer Jobs

January 5, 2010

by Ronald D. Utt, Ph.D.

Abstract: President Obama has announced a third stimulus plan, which he presented as a "jobs plan." It promises to be at least as ineffective as previous attempts to stimulate the economy because it relies heavily on government infrastructure spending even though this has been one of the least effective components of the previous stimulus plan. The latest plan is far less likely to stimulate the economy than it is to stimulate government expansion and the federal deficit, leading to higher taxes on Americans who will receive little in return.
If nothing else, President Barack Obama's speech at the Brookings Institution proposing a third stimulus reveals his stubborn persistence in trying to demonstrate that liberal economic nostrums based on big spending can work; it just takes a lot of practice to "get it right." Of course, these multiple practice sessions come at considerable cost to the taxpayer, not to mention the growing misery and poverty among the 7 million Americans who have lost their jobs since the recession began.
With mortgage default and foreclosure rates now at a record high of 14.4 percent, each month's delay in "getting it right" means that tens of thousands more families will lose their homes to foreclosure. As Jay Brinkman of the Mortgage Bankers Association has observed, "mortgages are paid with paychecks, not percentage point increases in GNP."[1]

Same Old, Same Old

With his latest plan calling for another $50 billion in infrastructure spending (e.g., roads, trolleys, trains, and sewer systems), the President's "Son of Stimulus" plan relies heavily on government infrastructure spending, one of the least effective components of the increasingly discredited American Recovery and Reinvestment Act (Stimulus II). Government infrastructure spending is widely believed to be a quick ticket to job creation and economic prosperity. The House of Representatives acted first in mid-December by adding the Jobs for Main Street Act to H.R. 2847.
Based on the many congressional debates on the subject of stimulus spending, as well as the practical results of those debates, it appears that many Members of Congress feel that a stimulus plan must meet at least five criteria:
The policy must be ineffective, as confirmed by independent studies published over several decades.
Recent implementation of a similar policy must fall well short of expectations and coincide with soaring unemployment.
It must waste several billions of dollars and add to the federal deficit.
It must pander to influential constituencies.
It must be subject to long delays in implementation.
Learning from Mistakes
Notwithstanding the federal government's growing obsession with spending vast amounts of money on nearly everything, the President is apparently learning from some of his earlier mistakes in economic policy and is showing a willingness to reach across the aisle and embrace ideas and concepts endorsed by the opposition party.
For example, taking a lesson from Republican Bob McDonnell's immensely successful gubernatorial campaign in Virginia, during which he focused almost exclusively on jobs, President Obama now refers to his Son of Stimulus plan as a jobs plan, not a stimulus plan. Indeed, he never mentioned the word "stimulus" in his recent Brookings speech, but "jobs" appeared about two dozen times.
Similarly, the costly infrastructure projects to be funded by the policy are no longer described as "shovel-ready," but as "ready-to-go" in appreciation of the extraordinary delays in starting the Stimulus II shovel-ready projects. As the nation discovered in the months following the enactment of Stimulus II, the only things being shoveled were empty promises and vast volumes of bureaucratic paperwork.
None of these problems would have occurred if the President's economic team had paid attention to the economic literature instead of press releases from business trade associations and labor unions or op-eds by partisan Nobel laureates. As the Congressional Research Service noted in its earlier review of such stimulus plans:
To the extent that financing new highways by reducing expenditures on other programs or by deficit finance and its impact on private consumption and investment, the net impact on the economy of highway construction in terms of both output and employment could be nullified or even negative.[2]

Slow Stimulus, Slow Recovery

Compounding this pattern of little or even negative net impact are the significant delays often associated with stirring cumbersome federal and state bureaucracies into action and inducing them to do what many once believed was their unique talent: making lists and spending money.
For example, House Transportation and Infrastructure Committee Chairman James Oberstar (D- MN) publicly complained about the ineffectiveness of the Virginia Department of Transportation. The Stimulus II package passed in February delivered $695 million in road money to the state, but by August, Virginia had begun work on only 16 percent of its designated projects compared to 43 percent nationwide. Noting that many states were working to get the projects underway, Mr. Oberstar wrote to Governor Tim Kaine that "your state ranks last among all states [51 out of 51, including the District of Columbia], based on an analysis of the percentage of Recovery Act highway formula funds put out to bid, under contract and under way."[3]
Sadly, Virginia's bureaucratic bungle was not the first time the state was accused of mishandling Recovery Act money. States were first required to submit their project requests to the U.S. Department of Transportation (USDOT), and Virginia was the last state to provide its list. As The Washington Post noted:
For a state that has struggled for years to find road and transit money, Virginia would seem the least likely candidate to be the last one to ask for federal stimulus money for transportation. But state officials started submitting lists of shovel-ready projects to the federal government last month after the other 49 states had.[4]
While Virginia was last, it was not the only state that suffered delays. More than half of the projects approved nationwide had not started six months after enactment of Stimulus II. At a December hearing before the House Transportation and Infrastructure Committee, staff reported that work had begun on projects representing only 54 percent of the formula-based funds.[5]
As problematic as Virginia's performance was, USDOT's performance as the lead federal agency overseeing much of the infrastructure program was even worse. Of the $8 billion that Stimulus II allocated to higher-speed rail, none will be spent until sometime in 2010, more than a year after the law's enactment. Indeed, the states were given until October 2009 (eight months after the law's enactment) to submit their proposed projects to the Federal Railroad Administration (FRA) for possible funding. Reflecting the perennial popularity of "free" money, states requested a total of $57 billion, almost seven times more than the government is authorized to spend.
Recently, the FRA announced that the proposals were under review and that winning submissions would be announced sometime in early 2010. Once awarded, project plans must be developed in detail and then put out for competitive bid. Sometime later, the contracts will be awarded, and work will finally get underway nearly two years after the enactment of Stimulus II. Presumably, Son of Stimulus, which includes an additional $800 million for Amtrak in the House version, will be coupled to the same slow train to economic recovery.

Intentional Delays

In his speech, President Obama acknowledges the slow start in infrastructure spending, but rather than seeing it as a problem, he contends that the delays were intentional: "It was planned that way for two reasons: so the impact would be felt over a two year period; and more importantly, because we wanted to do it right" to ensure that only sound and worthy projects were funded. He then added that thanks to this scrutiny, "we're going to see even more work--and workers--on recovery projects in the next six months than we saw in the last six months."[6]
Perhaps, but if the President actually believes that these programs would make a difference in economic recovery and would create jobs, then this planned delay seems surprisingly callous toward the millions of families whose homes went into foreclosure during the scheduled delay.
This excuse, of course, will not come as a relief to the millions of people who may have believed in the plan but have still lost their jobs and houses since Congress passed the Recovery Act. Sadly, with the unemployment rate now at 10 percent, their intentional sacrifice was certainly in vain, and taxpayers are again being forced to bail out the reputations of their elected officials who now bizarrely claim ownership of this fiasco.
As the record reveals, the "do it right" claim would come as a surprise to the many journalists who have uncovered hundreds of instances of laugh-out-loud waste in Stimulus II. For example, Senators Tom Coburn (R-OK) and John McCain (R-AZ) have identified a long list of wasteful projects, including $350 million for a broadband map that duplicates existing maps, a $5 million thermal energy award to a largely vacant shopping mall, $1.57 million for fossil research in Argentina, and $50,000 to fund performances of an anti-capitalist puppet show.[7]

Conclusion

In the end, voters must wonder whether Congress and the President really care whether these repeated stimulus plans work. On one hand is the view of Rahm Emanuel, the President's chief of staff: "Never allow a crisis to go to waste.... They are opportunities to do big things."[8] In this case, the opportunity is to expand federal intrusion into the economy and the daily lives of Americans to a degree never before experienced in peacetime and to use fear of the trillion-dollar-plus deficit as an excuse for massive tax increases. On the other hand is Albert Einstein's definition of insanity: "doing the same thing over and over again and expecting different results."
In less than a year, American voters will have the opportunity to decide whether either one (or both) of these options is what they are looking for in the nation's political leadership.
Ronald D. Utt, Ph.D., is Herbert and Joyce Morgan Senior Research Fellow in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation

GOP Senators Note $7 Billion Waste in Stimulus

By Humberto Sanchez CongressDaily December 8, 2009

A GOP report released Tuesday charged that 100 projects amounting to $7 billion in waste were funded by February's $787 billion stimulus package.

"If you really want to create jobs with deficit spending, then you need to be doing it in an area that creates the most jobs," said Sen. Tom Coburn, R-Okla., at a news conference on the report. He and Sen. John McCain, R-Ariz., spearheaded the project.
Coburn pointed to a shopping mall in Oak Ridge, Tenn., that was awarded $5 million from the stimulus to provide geothermal heat.

"We take $5 million to do geothermal heat on something that is not going to be used in the future, or at least has very little likelihood of being used in the future to the full extent," Coburn said.

McCain said he was not surprised that the stimulus resulted in wasted funds because he contends the package had insufficient provisions for oversight, cost control, and competition. He criticized projects to study ant behavior at Arizona State University and the University of Arizona, which received $500,000 and $450,000, respectively.
Coburn said he believes that more than $55 billion will have been wasted once the entire stimulus is spent, citing a previous estimate by Earl Devaney, the chairman of the Recovery Accountability and Transparency Board.

The two said Vice President Biden, the Obama administration's point man on the stimulus, should take responsibility for the waste. Coburn said he was concerned when Biden was named to oversee the stimulus because "if you look at his voting record [in the Senate], he never saw a spending bill he didn't like."

Coburn and McCain said they would support using stimulus funds to pay for jobs legislation being drafted by Democrats. But Democratic leaders are leaning toward wanting to use funds from the $700 billion Troubled Asset Relief Program.
McCain and Coburn said they oppose the idea of using TARP repayment money to address unemployment, arguing that it should instead be used to reduce the deficit. Furthermore, they said, tapping any unused TARP funds would add to the deficit because the money would still have to be borrowed

The Fake Jobs of Obama's Failed Stimulus-Heritage Foundation

Forget everything bad you’ve ever heard about President Barack Obama’s $787 economic stimulus. Combing through the data on the $18 million Recovery.gov website you’ll find tons of Obama stimulus success stories from across the country. In Minnesota’s 57th Congressional District, 35 jobs have been saved or created using $404,340 in stimulus funds. In New Mexico’s 22nd Congressional District, 25 jobs have been saved or created using $61,000 in stimulus cash. And in Arizona’s fighting 15th Congressional District, 30 jobs have been saved or created with just $761,420 in federal stimulus spending.

The it-would-be-funny-if-it-weren’t-our-tax-dollars-at-stake punch line here is that none of the above Congressional Districts actually exist. Yet those jobs “created or saved” claims still sit on the Obama administration’s official “transparency and accountability” website Recovery.gov. As the Washington Examiner’s David Freddoso points out, it would have been nearly costless for the Recovery.gov site designers to limit the input fields so that non-existent Congressional Districts never made it into the public domain, but for whatever reason the Obama administration chose otherwise. Defending the fake data on his website, Recovery.gov Communications Director Ed Pound told ABC News: “We report what the recipients submit to us. Some recipients clearly don’t know what congressional district they live in, so they appear to be just throwing in any number. We expected all along that recipients would make mistakes on their congressional districts, on job numbers, on award amounts, and so on. Human beings make mistakes.”Pound is dead wrong. The problem with Recovery.gov is not human reporting error, but an error of human design. Highly trained professional economists don’t agree on how to tell when a job has been “saved or created” yet the Obama administration expects a Kentucky shoe-store owner to accurately create such data? “Just throwing in any number.” That just about sums up the accuracy of Recovery.gov. And the usually compliant mainstream press is beginning to notice.The Washington Examiner has begun tracking stories from established media outlets on bogus job claims made by the Obama administration and they have already identified 75,343 fake jobs out of the 640,000 that the Obama administration claimed. You can track Obama job fakery from around the country on the Examiner’s interactive “Bogus Jobs” map here.The lesson here is that the American people simply cannot trust any stimulus claims made by the Obama White House. Fortunately we have an objective way to hold Obama accountable.The Bureau of Labor and Statistics has been collecting accepted and standardized data employment data since the 1940s.When President Obama was selling his $787 billion stimulus to the American people he promised unemployment would never rise above 7.8% and that by 2010 the U.S. economy would employ 138.6 million jobs. The unemployment rate is now 10.2% and with only 130.8 million jobs in the U.S. economy, President Obama is now 7.8 million jobs short of what he promised the American people. That makes President Obama’s stimulus an objective failure.