Fiscal Stimulus Didn't Work, Now What?

A report from the White House Council of Economic Advisers has indicated that the stimulus added 2.3 to 3.2 percent to gross domestic product in the first quarter relative to what it otherwise would have been. The same report indicated that the stimulus was responsible for 2.4 to 3.2 million jobs. This is being reported as good news.

What should we have expected from the stimulus? Actually, what we should have expected was stimulus. For $800 billion, of course gross domestic product had to go up in the first quarter and at least someone should have been employed. But and it is a big but, the stimulus should have reduced overall unemployment and brought private investment dollars into the economy that would have sustained any short term economic gains from the stimulus. The real benefit of stimulus, not simply increased spending, should be appearing in current economic news. It is not.

And what should a new job cost? If 2.4 to 3.2 million jobs cost $800 million, that is a cost of $250,000 to $350,000 per job. It makes one ask for a more precise accounting of the spending. Shouldn't we have expected more jobs?  Weren't we promised an unemployment rate of less than 8%? And there appears to be little or no sign that these jobs were not, in part, a continuation of state and city government jobs which are going to be lost in 2011 and 2012 due to state finances.

What is the solution now? Did we sell the seed corn by using up our borrowing opportunity and maxing out the nation's debt? Perhaps.