Transition Analytics Revisited
by Elliott R. Morss
Last February, I wrote an article on how the government (primarily the Treasury and Fed) should transition from a focus on stimulating the economy to reducing the deficit. But I prefaced it with a quote from Keynes’ 1933 letter to Roosevelt on what should be done to end the depression:
…an increase of output cannot occur unless by the operation of one or other of three factors: Individuals must be induced to spend more out of their existing incomes; or the business world must be induced…to create additional current incomes in the hands of their employees, or public authority must be called in aid to create additional current incomes through the expenditure of borrowed or printed money.
In bad times the first factor cannot be expected to work on a sufficient scale. The second factor will come in as the second wave of attack on the slump after the tide has been turned by the expenditures of public authority. It is, therefore, only from the third factor that we can expect the initial major impulse.
In short, Keynes was saying the government had to provide the stimulus via spending money to end the depression. The focus here is on whether the US government has done enough to end the current so it can transition to concerns over the size of the government deficit.
For reasons that have been discussed my earlier piece, the recovery focus should be on the number employed and how it has changed. From August 2008 to the end of 2009, the US lost 9 million jobs net. So far in 2010, the number employed has increased by almost 2.2 million net.
Table 1. – US Employment Gains and Losses (in thousands)
|Year||Jan-March||April – June||July – Sept.||Oct. – Dec.||Total|
* July only.
What is the source of this job increase? Is it the President’s $787 billion stimulus package, or has the US private sector started to recover? According to recovery.gov, from mid-February 2009 through the end of June 2010, the stimulus package has created almost 2.7 million jobs.
Table 2. – Stimulus Package Jobs Created
|Health & Human Services||161,525|
The site also reports that so far, $495 billion of the total has been paid out.
Table 3. – Stimulus Package Expenditures (bil. US$)
|Category||Total Recovery Act Funds||Funds Paid Out||Remaining|
|Contracts, Grants, Loans||275||132||143|
An expenditure of $445 billion for 2,679,041 jobs means an outlay of $184,768 per job. Using that number would mean the remaining $292 billion would generate another 1.58 million jobs.
If the government data can be believed, it is responsible for creating more jobs than have been generated overall so far in 2010. That is not a promising sign. It does not suggest the recovery has a momentum of its own. The stimulus package is projected to create another 1.58 million jobs. Let’s hope that it does.
The Congressional Budget Office reports a Federal government deficit of $1.4 trillion in 2009 and is projecting deficits of $1.5 and $1.3 trillion in 2010 and 2011. Keynes would approve. This is not yet the time for belt-tightening. The primary economic responsibility of the Federal government is set forth in the Employment Act of 1946: “to promote maximum employment, production, and purchasing power.”