DID THE STIMULUS INCREASE UNEMPLOYMENT?

The general consensus is that the Federal stimulus plan at least preserved employment, at least temporarily, over what it might have been if the stimulus plan had not been passed. There are, however, the contrary views. In a paper by Louis Woodhill (http://www.realclearmarkets.com/articles/2010/07/12/what_if_stimulus_advocates_were_half_right_98569.html:)

he states:

In "The Job Impact of the American Recovery and Reinvestment Plan" dated January 9, 2009, Christina Romer and Jared Bernstein outlined the rationale for, and the expected results from, President Obama's "stimulus" program. Their report included the now-famous graph that warned that without action, unemployment would rise from 7.4% in December 2008 to 9.0% in mid-2010, after which it would begin to decline.

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If Romer and Bernstein were right about the base case, then, rather than creating jobs, stimulus actually destroyed them. By June 2010, stimulus was supposed to have "created or saved" 2.8 million jobs, on its way to a total of 3.7 million by the end of 2010. However, total employment in June 2010 was actually 3.2 million less than what Romer and Bernstein projected it would have been without stimulus.

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It makes sense that stimulus (government borrowing and spending) would destroy jobs. Government bonds are bought with investment dollars. If there is no change in incentives to call forth more output, then if the government sells more bonds, other forms of capital must be liquidated in order to buy them. Without tools (capital), workers can produce nothing and their jobs disappear.

The above is an interesting canard. The reason for the above statements is that Woodhill claims that money borrowed by the Federal government has taken away from money that could have been borrowed by the private sector (e.g. businesses). At least one problem with the hypothesis is that corporations are hoarding cash. Why shouldn't they when their plants are operating far below capacity? Why would they add more capacity in such a situation? In addition banks aren't lending. The banks have the money to lend but they claim demand is not only low but finding credit worthy candidates is difficult. So there is ample money available for funding the government debt. AND we have not taken into account above of the willingness of foreigners to buy our Federal debt (e.g China and Japan). Every graph I have seen shows overall borrowing declining, not staying the same as the article suggests (i.e., borrowing is a zero sum game. If A increases, then B must decrease).

I believe others, including some conservative economists, that the stimulus did save jobs and added some, but they tended to be overwhelmingly saving and creating jobs temporarily, such as highway construction, teachers, police, and firemen. Particularly among teachers, police, and firemen, this year these jobs that were propped up are now being lost; however, my impression is that stumulus construction jobs are increasing now that that there has been time for planning.

(Much of the above appeared as post #63572 (15 June 2010) in the Industry Discussions/Real Estate Investment Trusts: REITs board of Motley Fool.)