Jobs Saved and Destroyed

I've long described President Obama's stimulus program as an attempt to insulate governments at various levels from the effects of the recession. The great bulk of the dollars flowed to states and municipalities in order to prevent budget cuts and, therefore, salary cuts and layoffs.

The problem with seeing the "just spend" approach as a means of jump starting the economy is that the government must take its spending money from somewhere, and to the extent that it collects it immediately in taxes, it changes its productivity incentive from making a profit to making busy work. The former is clearly a more efficient way of creating wealth.

And to the extent that government borrows the money that it spends — obligating the country to repay — it is merely shifting money from future productive uses, with interest. Moreover, given the role of investing in the economy (spanning from the stock market to home buying), which is in a sense a gamble about where wealth will be in the future, that money from the future can now no longer be borrowed for more productive uses.

In other words, in principle, there's little difference between taxing and borrowing in this regard, although the degree to which each saps the private economy to benefit the public may differ dollar for dollar. That brings us to an economic study highlighted by PowerLine, finding as follows:

Our benchmark results suggest that the ARRA created/saved approximately 450 thousand state and local government jobs and destroyed/forestalled roughly one million private sector jobs. State and local government jobs were saved because ARRA funds were largely used to offset state revenue shortfalls and Medicaid increases rather than boost private sector employment. The majority of destroyed/forestalled jobs were in growth industries including health, education, professional and business services.

Stimulating the government necessarily dulls the economy, and there appears to be a reverse multiplier effect of sorts.