Thursday, September 15, 2011

The Reliability of Proposed Economic Programs and Reality

It's an often unspoken article of faith among liberals that government economic programs, especially those designed to resuscitate an entire economy, can be effectively designed and delivered in such a way as to actually achieve the desired results.

After all, if your goal is to "solve" some large scale problem, and your solution involves spending very large resources, then you want to be able to make the case that you can, and will, actually generate successful results and have done so, as advertised, in the past.

Now this may be a fairly easy case to make is some areas.  After all, the Weather Service does a decent job of predicting and tracking hurricanes, the CDC does well in dealing with disease outbreaks like swine flu, etc.

But the results, and the efficacy of these proposals, seem to be a lot more doubtful as we get away from technical/scientific areas and into broad areas of social policy, such as economic issues.

For example, in 2009, the Administration told us that the stimulus program would keep unemployment at or below 8%; in fact, unemployment has been at or above 9% in 26 of the 30 months since the original stimulus was enacted.

We can also easily recall the recent Sloyndra scandal, involving a Federal investment of more than $500 million in a "green" industry player (a solar manufacturer), which may now have to be written off.

Now we learn of a study out of George Mason University by researchers Garett Jones and Daniel M. Rothschild revealing that only about 42% of the workers hired by entities receiving stimulus funds were unemployed at the time, and over 47% of those hired were already working at other firms and merely transferred to the firm receiving stimulus funds.  

In addition, about 2/3 of the organizations already had plenty of work to do before receiving stimulus funds.  

As the researchers note:

"This is far from the ideal prescribed by Keynesian macroeconomics. In the Keynesian ideal, spending should be targeted toward the slack sectors, and workers should overwhelmingly be hired away from unemployment lines. 

Instead, the direct job-to-job shifts for ARRA-receiving organizations were similar to the average job-to-job shift rates in the U.S. during normal economic times."

(The full report is at:

So, what's the lesson?

It may be simply that those proposing large scale and expensive government programs have the burden of presenting clear and convincing evidence that the proposal will actually produce the results claimed, such as preventing a double-dip recession (a very difficult case to make if the proposal is enacted and the feared event never happens - who knows what would have happened if it was not enacted?) or that the economy will be magically turned around.

Given the record, a dose of healthy skepticism seems warranted.

No comments:

Post a Comment