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The American people were told by the Obama administration that this would be the “summer of recovery.” Joe Biden notoriously claimed that "you're going to see, come the spring, net increase in jobs every month." Thus far, the economy has lost a total of 283,000 jobs this summer alone. The latest Labor Department’s report reveals that the US lost 54,000 jobs in the month of August. The unemployment rate rose to 9.6 percent from 9.5 percent in July. Back in January 2009, the Obama administration predicted that without the “stimulus” the unemployment rate would rise 9.5 percent. Even by the Obama administration’s original measures, the “stimulus” has made the economy even worse.
Last week, the Congressional Budget Office released a report claiming that the $814 billion “stimulus” had created or saved up to 3.3 million jobs last quarter and lowered the unemployment rate by 1.8 percent. Of course, this comes to a shock to the 14.9 million people currently jobless. Where are all the jobs that the “stimulus” supposedly created?
The Congressional Budget Office’s report used the discredited Keynesian multiplier to make these false claims. This Keynesian model ignores the actual state of the economy. Instead, it claims that for every dollar the government spends, the GDP will be increased by more than a dollar. In short, the discredited multiplier irrationally says that the more money the government spends, the more jobs will be made.
Therefore, the Keynesian model would conclude that the “stimulus” created jobs no matter what. Unlike the model suggests the “stimulus” did not inject new money into the economy. The money to pay for the $814 “stimulus” was first taken away from taxpayers or borrowed out of the economy. Since the “stimulus” only transferred money from one group to another, it is impossible to justify that it created new net jobs.
To be fair, the “stimulus” likely created some new jobs. It is easy to see new workers being hired for federal “stimulus” projects. However, the evidence is clear that the “stimulus” destroyed more potential jobs than it created. The Keynesian multiplier fails to factor in the 10 million jobs that were not created in the private sector due to “stimulus” spending.
The “stimulus” merely takes away money from productive citizens—who likely would have used this money to create new jobs— to fund typically unprofitable and unproductive projects. For instance, the “stimulus” included over $700,000 to develop joke telling robots and $3.4 million to construct tunnels to allow only turtles to cross underneath a Florida road. While some taxpayers may not be able to afford the high price of a Blackberry smart phone, the “stimulus” gave $1 million worth of tax-funded smart phones to smokers to help them quit their habit.
On Wednesday, Council of Economic Advisers Chairman Christina Romer claimed that she doesn’t “fully understand why firms cut production as much as they did or why they cut labor so much more than they normally would." The reason is clear—high taxation deters job growth. Businesses are discouraged from hiring new employees since they are uncertain on how complicated legislation such as ObamaCare, the government overhaul of the financial services rules and the proposed cap and trade tax scheme will affect their costs. As House Minority Leader John Boehner said in a released statement:
We will not solve our fiscal challenges until we cut spending and have real economic growth – and we won’t have real economic growth if we keep raising taxes on small businesses.
With the largest tax hike in history just four months away, taxes on two-thirds of small businesses will increase by 13 percent. Unless we change course by cutting taxes for all Americans and rejecting more proposed “stimulus” plans, future job reports will likely be even more dismal.