Study Shows Government Spending Slows Job Growth

A new research study by Harvard's Business school professors, Lauren Cohen, Joshua Coval, and Christopher Malloy shows that when government spends money in a Congressional district or state, that businesses stop growing. Imagine that, when your government spends money in your state business don't invest money in either capital improvements or in hiring new employees.

companies experienced lower sales and retrenched by cutting payroll, R&D, and other expenses. Indeed, in the years that followed a congressman's ascendancy to the chairmanship of a powerful committee, the average firm in his state cut back capital expenditures by roughly 15 percent, according to their working paper, "Do Powerful Politicians Cause Corporate Downsizing?"

"It was an enormous surprise, at least to us, to learn that the average firm in the chairman's state did not benefit at all from the unanticipated increase in spending," Coval reports.

Now, what effect did the "stimulus package" and the various bailouts have upon the economy as a whole? When the government, in a 5 month period spent a minimum of $1.5 trillion dollars to, first prop up failing corporations (banks, investment firms, and GM/Chrysler) and then in the hugely ineffective porkulus package, it literally sucked the life out of the credit industry by taking those funds that would have been used by business to grow and expand and sank it into long term government bonds. That had the effect of stifling the ability of small business and then the construction industry who need easily available credit in order to conduct day to day business operations.

Small business need credit for operating capital in order to purchase necessary materials. The construction industry does so even more...for example, a housing construction company (as well as commercial firms) need to borrow money to purchase materials to build homes...when that money is available in much smaller increments, fewer houses are built. It's the same for large construction firms as well. When you build/manufacture less, you need fewer workers...fewer workers mean fewer available jobs, that means less taxes are raised...smaller tax revenue means municipalities/counties/states have less money to operate on...

Their conclusion is simple. The government shouldn't spend money to stimulate the economy. Reducing taxes and the increase in available money for loans will...have a much more positive effect.

Our findings suggest that they should revisit their belief that federal spending can stimulate private economic development. It is important to note that our research ignores all costs associated with paying for the spending such as higher taxes or increased borrowing. From the perspective of the target state, the funds are essentially free, but clearly at the national level someone has to pay for stimulus spending. And in the absence of a positive private-sector response, it seems even more difficult to justify federal spending than otherwise.

Reason.tv: Why The Stimulus Isn't Working—Q&A with economist Richard McKenzie

Romer Want's Even More Stimulus

Today, Christina Romer, the Obama Administration's chief economic wonk admitted that the "stimulus package" had failed. She said, that in effect, it was terrible that so many remained jobless almost a year after the bill had been passed. As the Council of Economic Advisers chief she said,

"you'll get no argument from" her on the need to improve the miserable jobs picture. Council of Economic Advisers chief Christina Romer said it's devastating that some workers have been unemployed for two years and that job losses were continuing nearly a year after passage of the so-called stimulus bill."

Even so, with the jobless rate remaining above 10 percent in December as more than 660,000 people had left the workforce involuntarily. But Ms. Romer qualified her remarks by saying the loss of jobs from the market had "slowed".

"In the first quarter of 2009, when we first came in, we were losing on average 691,000 jobs per month. With these new numbers in the fourth quarter, we were losing 69,000 jobs," she said. "It's still terrible. We're still losing jobs, and we absolutely have to go from losing any jobs at all to adding them at a robust rate."

While Ms. Romer refused to predict what the job market would look like this fall prior to the mid-term election, she did say it was "still a very realistic estimate that job growth could begin in the spring."

Ms. Romer also seemed to back a Democratic Party effort to spend an additional $75 billion outside of normal spending with an additional "stimulus package," though this time it would be spent in programs like COBRA and for those who are attempting to weatherize their homes "cash for caulkers" -- energy saving retrofits.

"The sense that we need to do more is overwhelming," she said.

Though she didn't specify how the government would pay for it all...more bond sales, most likely. That would add another almost $100 billion to this years record deficit, which is on mark to reach $1,800,000,000,000.00. Just what we need.

Obama's Economist Says Bump From Stimulus Bill Over

Mr. Obama and his minions promised that unemployment wouldn't pass 8% with the stimulus. Then they promised that the depression would be over by the end of this year...but,

An interesting tidbit from Dr. Christina Romer’s testimony before the Joint Economic Committee. Citing economic analysts she says the fiscal stimulus will have its greatest impact on growth in the second and third quarters of 2009. (Editors note – those quarters are now behind us). By mid-2010, according to her testimony submitted to the committee, the “fiscal stimulus will likely be contributing little to growth.” What does that mean? Growth in the economy will be dependent on the private sector. And for those who think the recession is over – the Administration still predicts the unemployment rate won’t dip below 10% until the third quarter of 2010 – that’s next summer.

Now, the 2nd and 3rd Qtr's are gone...no more bump. So WHY ARE WE CONTINUING TO SPEND THE STIMULUS MONEY IF IT'S NOT GOING TO DO ANYTHING? I realize that our "political elite" thinks that they are smarter than we, in flyover country, are. But seems to reason, that if it ain't working, why continue? As Jennifer Rubin points out in Commentary Magazine,

The administration promised that unemployment would remain below 8 percent if a trillion-dollar (interest-included) grab bag of liberal goodies passed. It hasn’t panned out — we have the debt but not the jobs. And the administration will not, I suspect, endear itself to the American people by claiming that the results “exceeded expectations.”

Yet these are the people who want to take over health care and say they'll "save the country money." Yeah, right. Governments, and ours in particular, do nothing efficiently. Take a look at medicare. It was projected to top out early this decade at roughly $400 billion in total costs...it's above 10 times that now. Pure efficiency at work. They tell us they'll be able to control corruption, but there are factual accounts that Medicare is rife with double payments and cost overruns. The Senate, for the first time in history defeated a bill that would remove the automatic price controls that were set in place to keep Medicare from ballooning in cost...THE FIRST TIME it's ever happened!