Freedomnomics

Article published Monday, September 27, 2010, at Fox News.

Would Unemployment Really Have Been Worse Without the Stimulus?

By John R. Lott, Jr.

Would the economy have been in worse shape if the various stimulus packages had never seen the light of day? Or without the creation of the $1.3 trillion plus deficits? President Obama and his economists keep assuring us that his policies have saved us from even higher unemployment and a depression. Today Obama signed another stimulus bill purportedly aimed at small businesses and he promises more of the same.

The hallmark of Obama’s stimulus programs is the government, not consumers or private businesses, deciding what money should be spent on. Whether it is the massive new government spending or targeted tax breaks and loans. Small businesses face higher marginal tax rates, but they get some of their money back if they make the investments that the government wants. It is the government deciding what makes sense.

Last week, during his CNBC Town Hall discussion on jobs, the president went so far as claiming that without the stimulus: “we might have lost another 8 million jobs,” implying an unemployment rate of 14.8 percent.

When Obama became president in January 2009, unemployment stood at 7.6 percent, already a high number by historical standards. But by this past August, it had increased by a full two percentage points to 9.6 percent, with the unemployment rate remaining at least at 9.5 percent for 13 months. Indeed, the unemployment rate rose again slightly in August. The stimulus packages have hardly had the impact on unemployment and growth the Obama administration predicted, and now they are warning us that the unemployment rate won't be "coming down significantly anytime in the near future."

Well, if Mr. Obama and the Democrats are doing such a good job, no matter how bad things are in the U.S., it must be even worse in other nations, right? After all, few other countries adopted these Keynesian remedies as thoroughly and “creating or saving” millions of jobs should have a big effect. Indeed, in March 2009, the New York Times warned: “the United States has been the most aggressive country so far in its crisis-fighting efforts.” And Time Magazine reported: “European leaders have resisted the call for more stimulus.” Germany’s Chancellor Angela Merkel was particularly outspoken in her opposition. While Obama lectured leaders at the G-20 meeting in March on the need for “concerted action around the globe to jump-start the economy” with more government spending, Merkel argued that she didn’t want the talks wasting time on

of fiscal stimulus Poland went so far as to slash its top marginal tax rate from 40 to 32 percent in 2009 and actually cut government spending by 6 percent.

Germans and Poles must be pretty happy right now that they rejected President Obama's spending spree advice. Just look at how their unemployment rates have changed. From January 2009 to August this year, German unemployment fell by 0.3 percentage points. And in Poland it increased, but by less than half of the increase in the US -- it went up by 0.9 percentage points from January 2009 to July this year (the latest month available).

Even countries hard hit by the financial crisis have fared better than the US. This includes Iceland, where the entire banking system suddenly collapsed.

But these countries are not some isolated examples. According to The Economist magazine, which collected unemployment data for thirty countries in addition to the United States from January 2009 to July 2010, the U.S. increase in unemployment was worse than in 25 of those 30 other countries (see table here). Eight of these 30 actually experienced a decrease in their unemployment rate. On average, unemployment increased by 1.1 percent, about 40 percent less than the US increase.

And the August unemployment numbers for the United States suggest that the gap between the US and these other countries is only getting larger. While unemployment rates in much of the rest of the world are falling, ours is increasing still further.

Whether the results of the stimulus are measured against the Obama administration's own predictions or the results in other countries, the impact of the stimulus doesn't look good. Indeed, it is hard to avoid the conclusion that Mr. Obama's stimulus made unemployment worse. Moving around nearly a trillion dollars from where people would have spent their money to where the government wanted it spent simply moved around a lot of jobs. And workers cannot instantly find a new job when they lose their old one. The stimulus and all the new regulations generated all sorts of economic chaos.

Unfortunately, even after the chaos created by the stimulus eventually dies down, Americans will be paying off the huge new debt for generations.

John R. Lott Jr. is a FOXNews.com contributor. He is an economist and the author of "More Guns, Less Crime (University of Chicago Press, 2010), the third edition of which was published in May.".

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