Writing in the Economix blog, Casey Mulligan, an economist from the University of Chicago, makes the case that the debate about another stimulus is besides the point because Obama's first stimulus is not working at all! The costs, says Mulligan, are not commensurate even to the "the most optimistic estimate of the benefits," since $787 billion to save or create 3.5 million jobs means that each job essentially costs a quarter of a million to save or create, without the guarantee that the job will exist after the stimulus coffers are empty.
But most federal stimulus funds aren't necessarily being spent to create $250K jobs out of thin air -- they're being spent to plug in the ongoing decay in state budgets. That was the conclusion of the GAO report early this month. Here's a graph they provided breaking down stimulus spending by program:
Of the $29 billion spent this year, 90 percent has gone to assist Medicaid and to stabilize tottering state budgets, according to the report. That's not just job creation -- that's emergency rescue, a fiscal crutch propping up our humpback deficit-ridden states. So what exactly is the logic in kicking the crutch away? If you see an old man with a cane who's barely managing to place one foot in front of the other, the logical commentary seems to me to be "Thank God for that crutch," not "Well obviously that crutch isn't doing much for him, he probably won't mind if I borrow it for a while."
But we're talking about job creation, so let's take a look at shovel-ready, highway spending, which the GAO puts at 6 percent of the spent stimulus. I suppose this would be a good place to knock the administration for not spending fast enough to create construction jobs, but Conor Clarke notes here (with a chart, of course), highway spending is actually ahead of schedule is all 16 states the GAO studied for the report.
How do you square these two facts: 1) That highway spending is ahead of schedule; 2) That our unemployment is still nearly a full percentage point higher than the "without stimulus" scenario outlined in January? The simplest, Occam's razor answer is: The downturn was much worse that the Obama administration understood, and the mechanics of doling out emergency spending to states are slower than the states' need for that emergency spending. I'm a fan of sports metaphors for public policy, so I'll put it this way. In football, if you're playing defense against a intimidating passing attack and getting smoked in the first quarter, the logical conclusion is that you were ill-prepared for the opposing offense. It would make no sense to say: Covering these wide receivers is futile, I'll bench my entire secondary for the next three quarters. It's way too early in the stimulus game to pull our recession-defense already.