Despite mounting a vigorous defense of its earlier count of more than 640,000 jobs credited to the stimulus, even after numerous errors were identified, the Obama administration now is making it easier to give the stimulus credit for hiring. It's no longer about counting a job as saved or created; now it's a matter of counting jobs funded by the stimulus.
That means that any stimulus money used to cover payroll will be included in the jobs credited to the program, including pay raises for existing employees and pay for people who never were in jeopardy of losing their positions.
Of course, if that was the case, the proper way to create counted jobs in this program is to give a dollar to every existent job. This will cause nearly zero extra employment, as employers just use that dollar to pay employees and pocket their own dollar, while creating perhaps more than three hundred million jobs.
The ludicrous manner in which the rule has been changed is vastly more prone to counting dollars "cannibalized" by Ricardian Equivalence.
Thanks for addressing this. For some time now, the administration's system of accounting has been a major point of discussion down here among the chattering classes.
ReplyDeleteThe administration's reasoning is invalidated by the reality of displacement. Their premise is that dollars spent in attempts to create jobs then create those jobs WITH NO OTHER EFFECTS. The reality is that the dollars used to create those jobs come out of the hands of consumers (who would otherwise be spending them creating demand that leads to other employment or saving them allowing investment that leads to other employment) or to businesses who would be investing the dollars to create more employment. At its best the administration is displacing jobs from the private sector to the public sector. In reality they are doing worse. It could be argued that the government jobs are net additions since they are deficit financed and the money has not been taken from the private sector. But this is just a different displacement - they are draining future dollars from the economy and future jobs from the future economy. Further, governments do not pay taxes on their economic activity. Private sector jobs do. Increased government activity worsens the deficit. Increased private sector activity improves the deficit. Eventually differential government sector growth has to exceed the possible taxes expropriated from the relatively diminished private sector with debt, currency debauchment and bankruptcy the result.
ReplyDeleteCorrections would offer an addendum to the statement by Student1776:
ReplyDelete"It could be argued that the government jobs are net additions since they are deficit financed and the money has not been taken from the private sector. But this is just a different displacement - they are draining future dollars from the economy and future jobs from the future economy."
If the government is taking money, digging ditches then filling the ditches in (e.g. spending that would not occur in the private market), then your point holds in its entirety.
If, however, the government is spending money that individuals would have spent on hiring workers on their own, then we see Ricardian Equivalence as being dominant. For every dollar the government spends today, I recognize I will be taxed some amount in all future periods. I therefore let the government spend the money on the same task, and put the exact amount I will have to pay in future taxes into the bank, gaining interest just as the deficit spends interest.
In this manner, the two exactly offset one another. The government hires one extra worker and charges future periods for it, but rational actors hire one less extra worker, and saves the money for all future periods for it. The net first order effect of deficit spending is zero, for "useful" projects (e.g. projects the private market would undertake on its own).