As Congress has added to the stimulus package, members have become ever more elastic in defining various kinds of spending and tax programs as GDP boosting and jobs creating. Expanded welfare payments, unemployment benefits for part-time workers and more generous tax write offs for past corporate losses to name just a few.
Economists know that real infrastructure improvements–roads, schools, internet upgrades, clean water projects, and a smarter energy grid–return more than a dollar in additional GDP for every federal dollar spent, if substantial amounts of the needed materials and components are not imported.
Unfortunately, too many imported components may deflate the benefits of financing windmills to generate electricity, for example, yet windmills are in the package.
Tax rebates that yielded no more than 50 cents of GDP for every dollar spent last May and June are now worth 98 cents according to Obama Administration economists Christina Romer and Jared Bernstein. It’s amazing how a change in political party at the White House can alter the math for tax breaks to constituents as quickly as it did the Democrat’s view of tax evasion among Treasury and Health and Human Services nominees.
But the prizes for philandering don’t go to the Democrats alone. The ever skillful drug industry is in the process of convincing the nation’s elders–leaders of both parties in the Senate–that giving the pharmaceutical industry a tax break to bring home profits on foreign operations is jobs creation. That’s right; a special subsidy for outsourcing is jobs creation.
If subsidies on foreign operations are jobs creation in the United States, then I will be playing point guard for the Detroit Pistons next season, and I am five foot six tall and sixty years old!
I admit, the stimulus package will have some positive effects on employment but it won’t create nearly as many jobs as advertised. Simply, too much is wasted on political agendas, special interests and good old fashion political payoffs.
After the money is spent, rebated and squandered, the economy will slip back into recession, because President Obama’s economists don’t counsel him to fix what is really broke–the ownership structures and compensation schemes at U.S. banks in the post-Glass Steagall era, and the huge trade deficit on oil and with China that sap demand for American made goods and services and put workers on the unemployment line. In any case, the leadership in Congress does not want to genuinely tackle banking and trade issues—that would upset too many powerful contributors in Wall Street banks, the Silicon Valley and Hollywood.
Senators representing those constituencies are all too happy to rail against Wall Street bonuses and Chinese currency manipulation, and extol the virtues of fuel efficient vehicles on Sunday morning talk shows and in town meetings, but nothing truly meaningful to fix the structure and compensation policies of the banks, the energy efficiency of America’s fleet of automobiles, or the ruinous trade deficit with China will likley pass the Senate this year.
Sophistry, nay hypocrisy, reigns supreme on Mount Olympus, as the nation’s economy falls into tatters.
PETER MORICI is a professor at the University of Maryland School of Business and former chief economist at the United States International Trade Commission.