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Why President Obama's Economic Stimulus Plan Was a Failure
Raymond Richman, 7/6/2011

To most economists, the continuation of this recession is a mystery. They do not know why the $787 billion 2009 Recovery Act economic stimulus plan did not stimulate the economy very much, if at all. And many economists, including Prof. Summers of Harvard and Prof. Krugman of Princeton and many other Keynesian economists, believe it was not enough of a stimulus. But $787 billion was not the only stimulus. In 2008, the federal government budget deficit on current receipts and expenditures (excluding government investment) was $755 billion, in 2009 it amounted to $1.5 trillion, and in 2010, $1.5 trillion.  From a Keynesian point of view, these ought to have had a multiplier effect. As we showed in a previous contribution to this site, there is no Keynesian multiplier. As soon as the money is spent, the stimulus effect disappears; the Keynesian multiplier equals 1 not 3, 4, or 5. Or. less than 1 as in the case of the President's stimulus plan.

We offered in another contribution on this site the hypothesis that the $787 billion of Recovery Act expenditures was misspent. As we pointed out in an analysis of the economic stimulus plan, the expenditures could not have been designed by the administration to create permanent jobs. About a third went to support of states and school districts, which saved government jobs but created few new jobs. About a third went to climate change private projects  especially wind and sun and bio-energy which, while creating few “permanent” jobs, caused the loss of a great number of jobs by impeding the growth of employment in mines, drilling for oil and gas, and discouraging the building of factories here while encouraging outsourcing abroad.  

The Recovery Act expenditures to May 17, 2011 totalled$656.6 billion. The principal categories were home and building insulation and credits for autos running on electricity and gasoline. Individual tax credits amounted to $122.5 billion; education, $82.1 billion; Medicaid, $84.3 billion; Making Work Pay, $89.3 billion (a credit or $400 to each worker who worked and filed an income tax return); unemployment insurance extension, $60 billion; energy and environment grants totaling $25.2 billion; Family Services( foster care and adoption assistance, food stamps, etc.), $27.0 billion; low-income housing assistance, $15.4 billion; $250 credits to vets and railroad employees , $13.8 billion; energy incentives, $9.3 billion; health services to the needy, $13 billion. Included in the foregoing were homebuyer credits, Cobra health insurance for workers who lost their jobs, home energy efficiency and renewable energy incentives, and enhanced earned income tax credits. We’ll let the reader judge the likelihood that these expenditures would contribute significantly to the creation of new sustainable jobs.


 A study released by the Weekly Standard, a conservative magazine, reported  that the economic stimulus plan has cost $666 billion so far to keep or create 2.38 million jobs according to  the President’s Council of Economic Advisors(CEA), or $278,000 for each job. The White House did not contest the math, but said  there was more to the Recovery Act than just job creation. In a statement to Fox News, a WH spokesman said the bill was “also an investment in American infrastructure, education and industries that are critical to America's long-term success and investment in the economic future of America's working families."  The CEA attributed all of the employment created since 2009 to the Recovery Act.

In fact, the federal government deficit in fiscal 2009 was $1.5 billion and in fiscal 2010, was another $1.5 billion. This was 4.5 times as much as the $666 billion spent by the act. The cost of creating 2.38 million jobs was not $278,000 per job but 4.5 times that or $1.25 million per job.

But it gets worse. The Recovery Act and the administration’s support of  legislation and regulation to restrict carbon emissions in the atmosphere had no effect on climate change at all. The UN’s experts allege that the reason for the global cooling during the past two years (and by implication the cooling during the last decade) was due to Chinese emissions of sulfur resulting from its burning of coal with high sulfur content. If you believe that, we have a bridge we would like to sell you. But even if it were so, the hundreds of billions our government has  spent  subsidizing “green” alternative energy sources was entirely wasted. Of course, we are sure we can get a government spokesman to state how much worse the climate change would have been without the anti-global warming program.

The government spokesman who said the Act was an investment in the “economic future  of America’s working families” is entirely contradicted by the fact that the Act combined with the willful impeding of drilling for oil and gas by this administration which still hasn’t lifted the restrictions on drilling in the gulf and continues to impede drilling offshore or on public lands or in the Arctic as Russia is doing.

The Obama administration has just authorized the diversion of thousands of acres of public lands near Blythe, California to be covered by windmills and solar panels to produce electricity. No one has ever claimed that the noisy and bird-killing windmills and the thousand of acres covered by solar panels are esthetically lovely. In addition, the government  is paying for 30 percent of the costs that will be incurred by the sponsors of the project and is guaranteeing the loans made by banks and other lenders. The sponsors will get the profits while the American taxpayers bears all the risks.

If, as, and when, man-made global warming is proved to be a hoax as the former president of the Czech Republic and numerous physicists allege, the American taxpayers will be left holding the bag. As for workers, the resulting government mandated higher prices of electricity will lower the living standards of American workers and their families.

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  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

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