This is my final look at the Obama stimulus. Here I look at the CBO report on the costs of the stimulus bill (HR 1). I have not seen anywhere in the media a breakdown of the bill in terms of spending versus tax cuts. So I have taken the ratio of spending and appropriations versus revenue cuts as indicative what the split is: 73/27. In my calculations, I keep the stimulative multipliers of 1.4 for spending and .4 for tax cuts. I use $140,000 per new job and (a more realistic) 2/3 of $140,000 as the maintenance cost to keep a job in each succeeding year. I look at job production for the life of the stimulus.
These are the bare bones of the stimulus package. Total cost: $787 billion
2009 $185 billion
2010 $399 billion
2011 $134 billion
Spending/Appropriations-Outlays $575 billion 73%
Tax Cuts/Negative Revenues $212 billion 27%
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2009 $185 billion
Splits:
$185 billion X .73 = $135 billion
$185 billion X .27 = $50 billion
Stimulative effects:
$135 billion X 1.4 = $189 billion
$50 billion X .4 = $20 billion
Total stimulative effect:
$189 billion + $20 billion = $209 billion
Jobs ($140,000 per each new job):
$209 billion / $140,000 = 1.49 million jobs
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2010 $399 billion
Job maintenance from first year (2/3 of $140,000 per job):
1.49 million jobs X ($140,000 X 2/3) = $139.1 billion
Net Cost of Stimulus in 2010
$399 billion – $139.1 billion = $259.9 billion
Splits:
$259.9 billion X .73 = $190 billion
$259.9 billion X .27 = $70 billion
Stimulative effects:
$190 billion X 1.4 = $266 billion
$70 billion X .4 = $28 billion
Total stimulative effect:
$266 billion + $28 billion = $294 billion
Jobs:
$294 billion / $140,000 = 2.1 million jobs
Job creation first two years
1.49 million + 2.1 million = 3.59 million jobs
_______________________________________________________________
2011 $134 billion
Job maintenance from first 2 years (2/3 of $140,000 per job):
3.59 million X ($140,000 X 2/3) = $335 billion
If my assumptions are reasonably correct, then the Obama stimulus package will create 3.59 million jobs. 1.49 million in the first year and 2.1 million in the second year. The maintenance cost for these jobs alone in 2011 would be $335 billion but only $134 billion is budgeted for that year. This means in 2011 there will be a rapid loss of jobs funded by the stimulus.
I have previously noted that the economy needs on the order of 120,000 new jobs a month just to accommodate increases in population. That is 1.44 million jobs a year or 4.32 million for the first year of the recession plus the two subsequent years of the stimulus. Through January 2008, the economy also lost 3.6 million jobs and job losses are likely to continue for at least the next 3-4 months. I conservatively estimated these at another 1.5 million. So if we take the jobs needed plus the jobs lost and which will be lost and arrive at a job deficit of 9.42 million. Subtracting from this the jobs created by the Obama stimulus, the net job deficit at the beginning of 2011 will be 5.83 million jobs. So the Obama stimulus creates only 38% of the jobs needed to fill the gap. This is insufficient.
I think the hope of Obama and his economic team is that the stimulus will do a little razzle-dazzle and that as it runs out Geithner will have succeeded in loosening up credit and the economy will start expanding again.
This appears overly optimistic to me. The Geithner plan would pump another $2 trillion into a corrupt and broken financial system that has already absorbed $3 trillion from Paulson and Bernanke with no noticeable positive effects. The odds are, in the absence of an effective bank nationalization, the Geithner plan will simply pour more money down the same rathole. As a result and unless something changes, we are looking at a weak stimulus and no fix for the banking industry, or as I have been saying:
A bad stimulus + No bank nationalization = Depression in 18 months
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As I sat with a group of senior gentlemen at a nursing/assisted living facility (all union members ranging from 82-94) the last week watching the stimulus package debate/vote …I learned a great deal (mostly about old union ways). We all agreed that the Republicans had some solid points on potential waste in the stimulus bill but that the timing and hypocrisy having to do with the Republicans now being concerned about being fiscally conservative is a bit late in the game. Also the lack of oversight and in depth scouring of prior legislation having to do with the 2002 war resolution, no bid contracts, Homeland security, Wall Street bail out etc by Republicans and Democrats were reasons enough for the lack of confidence that the American people have in their Reps.
All of the old timers agreed that the focus should be on the creation of jobs. All agreed that they had never seen it like this before. A few of them had had very hard times during the depression but my pops and a few others had been well off enough for their families not to have felt that squeeze. All were enthusiastic about Obama, and at the same time discouraged about the lack of accoutability having to do with the crimes committed the last eight years.
One question that came up was about last Oct 2008 when our Reps were told by Wall Street that the time to bail out Wall Street was immediate…had to happen then. We all asked what exactly happenned in Oct? Were did that run on the banks come from? Were average Americans taking their money out of the banking system all at once in Oct? Or was there a concerted and organized effort by the fat cats move money around or take money out at that time? A run on the banking industry by fat cats?
Obviously I know little about the economy…but none of these old gents had the answer to this question.
can anyone explain just who was taking their money out of the banking system in Oct of 2008? Was Paulson the fat cats insight heist man?
Good question, and one I’ve wondered about myself. That, and why weren’t we told at the time? Panic, you say? Well that would have helped pass the TARP debacle, so why keep it quiet? I don’t know what to think about that run on the banks episode.
Hey, what happened to the “recommend” button?
When a diary gets promoted to the “Front Page” of Oxdown, i.e., left hand column, the Recommend button goes away.
When Paulson decided to let Lehman go under over the weekend of September 15, he didn’t do due diligence to look at who precisely was holding Lehman’s debt. It turned out that a lot was held by Money Market funds that do, or rather did, a lot of short term lending. They panicked and lending froze.
This led Paulson to demand $700 billion so he could bail out the banks by buying up their crap assets. Why do this when the problem originated with Lehman and the Money Markets? I don’t know, or rather I do. It was an example of the Shock Doctrine. The housing bubble blew up in August 2007. Since that time, the banks have been insolvent. So there wasn’t any need to rush in more than a year later to save them. The problem was there the whole time. It is still there. In this I agree with Galbraith at least to this extent. The banks even now could lend money (the Fed is giving it away) but they aren’t because they see the economy deflating so they can retain more of the value of the money simply by sitting on it.