Jobs 'Created' -- The White House's Dirty Little Secret

The original $787 billion Stimulus was sold as a jobs bill. Today President Obama will host a "Jobs Summit" and Congress is moving towards passing a second stimulus package. But the first stimulus bill did not work, and there is little reason to believe that a second round will be any more successful.

During his weekly radio address on January 10, 2009, Obama promised that the economic stimulus' No. 1 goal was to create 3 to 4 million new jobs over the next two years: "Our first job is to put people back to work . . . ." He repeated this promise many times. Take his first press conference as president on February 10th, he reiterated the point: "I think my initial measure of success is creating or saving 4 million jobs. That's bottom line number one."

The administration made specific predictions about unemployment. For instance, on February 28th, 11 days after the stimulus bill passed, the Obama administration predicted that the national unemployment rate was going to average 8.1 percent this year and then decline to an average of 7.9 percent next year (see Table S-8).

Obviously, with the unemployment rate at 10.2 percent in October and rising, there is little change of those predictions coming to true. When you also include the unemployed who have become so discouraged that they have given up looking for work or have only accepted a part-time job, the number is a staggering 17.5 percent, up from 13.9 percent in January. The Bureau of Labor Statistics Household Survey finds that 3.5 million jobs have been lost since February.

Now the administration wants to change why they passed the stimulus in the first place. Christina Romer, chairman of the President’s Council of Economic Advisers, wrote in The Wall Street Journal this past Tuesday: "The president's first task was to stop the economic free fall and stabilize financial markets." This is the same Christina Romer who warned on February 4th: “If we fail to act, we are likely to lose millions more jobs and the unemployment rate could reach double digits."

It is hard for the administration to argue with the worsening job numbers. But they cannot possibly swallow the idea that the stimulus was part of the problem, so they now argue that if the stimulus hadn't passed, the economy would be in even worse shape. Three and a half million jobs have been lost since February, yet the administration wants us to believe that, through the stimulus package, they "created or saved" 640,329 jobs, and that without the stimulus the total number of jobs lost would have been 4.1 million.

One problem, though, is that this goes against the forecasts made by a large number of economists back in January. Nobody was predicting that there would be the unemployment disaster we now find ourselves in by the end of the year. Instead, the general agreement was that the economy was going to start recovering by the summer. In January, business economists and forecasters surveyed by The Wall Street Journal expected the June unemployment rate to be 8.2 percent and the December rate to be at 8.6 percent. Their forecast in early February was virtually unchanged. It was only after the stimulus was enacted that their forecasted unemployment rates increased dramatically.

Moreover, during the Obama administration's first year, the United States has suffered a larger increase in unemployment than most other countries. Among the 21 countries with available data for unemployment from January to October, the US experienced the second biggest increase, going from 7.6 percent to 10.2 percent (a 2.6 percentage point change). The average increase for the non-U.S. countries was just 0.8 percentage points, just one-third what we experienced. Only Ireland faced a larger increase.

The administration's measure of jobs "created or saved" uses a simple account rule: if the money is spent on a worker, this counts as a job created or saved. But this is naive. Even without new taxes, the money the government spends on such workers has to come from somewhere. Anyone can see that such spending means one of three things: a cut in other government spending, more borrowing, or taxes, or simply printing up money. There is no reason to expect an increase in total spending or an increase in the number of jobs. On the contrary, the very act of moving people from the jobs they already have to new government-created jobs creates temporary unemployment. People simply don’t move instantly from one job to another.

The illusion is that we see the jobs the government creates but we do not clearly see the jobs that are lost from the money the government takes away from others. More government spending with a new stimulus package will again only increase unemployment.

*John Lott is the author of Freedomnomics.