NCPA - National Center for Policy Analysis


January 29, 2009

House Democrats propose to spend $550 billion of their two-year, $825 billion "stimulus bill" (the rest of it being tax cuts). Most of the spending is unlikely to be timely or temporary.  Strangely, most of it is targeted toward sectors of the economy where unemployment is the lowest, says Alan Reynolds, a senior fellow with the Cato Institute and the author of "Income and Wealth" (Greenwood Press, 2006).


  • The December unemployment rate was only 2.3 percent for government workers and 3.8 percent in education and health.
  • Unemployment rates in manufacturing and construction, by contrast, were 8.3 percent and 15.2 percent respectively.
  • Yet 39 percent of the $550 billion in the bill would go to state and local governments.
  • Another 17.3 percent would go to health and education -- sectors where relatively secure government jobs are also prevalent.

If the intent of the plan is to alleviate unemployment, why spend over half of the money on sectors where unemployment is lowest, asks Reynolds?

The Obama administration claims the stimulus bill will "create or save three or four million jobs over the next two years . . . with over 90 percent (of those jobs) in the private sector."  To prove it, they issued a report from Christina Romer, chairman of the Council of Economic Advisers, and Jared Bernstein, chief economic adviser to Vice President Joe Biden.  Its key estimates, however, were simply lifted from an outdated paper by Mark Zandi of Moody's :

  • Zandi's current estimates have government employment growing by 330,400 over two years as a result of the House bill (compared with 244,000 in Bernstein-Romer paper).
  • Yet even that updated figure still amounts to only 8.3 percent of total jobs added, even though state and local governments are to receive 39 percent of the funds ($214.5 billion).
  • Spending $214.5 billion to create or save 330,400 government jobs implies that taxpayers are being asked to spend $646,214 per job.

In short, another $550 billion of deficit spending on top of a deficit already above $1 trillion is likely to prove more dangerous than helpful to an economy already overloaded with risky debt, says Reynolds.

Source: Alan Reynolds, "$646,214 Per Government Job; Spending where unemployment is already low," Wall Street Journal, January 28, 2009.

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