Economics21.org is taking another look at the Obama administration's 2009 unemployment predictions.
Back in January 2009, Christina Romer and Jared Bernstein produced a report estimating future unemployment rates with and without a stimulus plan. Their estimates, which were widely circulated, projected that unemployment would approach 9% without a stimulus, but would never exceed 8% with the plan...
In May 2011, using the latest figures available from the BLS, the unemployment rate reached 9.1%. In contrast, the Romer and Bernstein projections estimated that the unemployment rate would be around 8.1% for this month without a recovery plan, or 6.8% with a stimulus plan (which was ultimately passed).
I would just like to point out that the aforementioned predictions were essentially a sales pitch. The Obama administration was after more money to spend. They got it, and they spent it. The predictions served their purpose in that regard, and if the econoomic picture impoved, so much the better.
But in typical Keynesian fashion they based their projections on economic multipliers calculated with little or no regard to the microeconomic implications. They gave not the slightest thought about how individuals might make decisions in this new economic and regulatory climate. Instead, they just dusted off whatever old macroeconomic formulas they had laying around and ran the numbers. This much money equals this much economic growth, which means unemployment will be thus. According to e21,
Romer and Bernstein simply assumed that a dollar of spending would increase GDP by $1.55. If this assumption proved to be wrong, then all of the knock-on effects of the stimulus would simply not follow.
So into the candy store went the administration, a crisis being a thing not to be wasted. They ramped up hiring in the public sector. They rescued the United Auto Workers union by bailing out GM and Chrysler. By doing these and other similar things, the administration sought to secure future income streams for the Democratic party. Union dues, both public and private sector, wind up in large part in Democratic party coffers. And maybe even more important than the money is the union activism that would be brought to bear on behalf of Democratic positions and candidates. An army of paid protesters, sign carriers, and thugs to be deployed at a moment's notice.
The plan was supposed to usher in a new era of progressive politics, one that was going to last 30 or 40 years. But, as is usualy the case with progressives, they overlooked people.
When people looking for jobs find them, they get hired by other people. This concept seems foreign to the progressive intellect. Administration experts apparently didn't consider the impact that mountains of new regulations on health care, finance, and the environment would have on people who make hiring decisions — small business owners in particular. And now it looks like our era of progressive politics would have been more accurately measured in months rather than years.
The case for stimulus made by Romer and Bernstein was primarily intended to get the money into administration hands, and it did. It shouldn't be so much of a surprise that the their spending had almost exactly the opposite effect than what was intended, since their primary purpose was political rather than economic. Get the money and secure progressive majorities. The improved economy was perhaps an anticipated side effect.
But the political strategy hasn't been working so far. It may be that it just needs more time. Maybe when 2012 rolls around we'll find that Obama's strategy has worked, but his administration has overlooked the people for this long. It's hard to imagine that he'll begin to see them, now.
