Why the Stimulus failed to turn around unemployment

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Looks like a foregone conclusion of pretty much everybody that the Stimulus bill, while perhaps providing some relief, did little if anything to turn-around the main premise used to sell it...that it would cap unemployment at 8% or less.

This Harvard Business Review paper provides pretty good evidence why. Basically the researchers discovered that throwing government money at private industry merely allows them to pay bills with another revenue stream and perhaps more importantly pay no-risk dividends to their stockholders. Without that influx of government funds, the corporations would have to pay their stockholders with more risky tactics, i.e., innovative research and development and increased productivity, which incidentally are the more reliable engines for job growth.

From its conclusion

Paper wrote:

Using changes in congressional committee chairmanship as a source of exogenous variation in state-level federal expenditures, we find that fiscal spending shocks appear to significantly dampen corporate sector investment activity. Specifically, we find statistically and economically significant evidence that firms respond to government spending shocks by: i.) reducing investments in new capital, ii.) reducing investments in R&D, and iii.) paying out more to shareholders in the face of this reduced investment opportunity set. Further, we find that when the spending shocks reverse (through a relinquishing of chairmanship), most all of these behaviors reverse. Finally, we also find some evidence that firms scale back their employment, and experience a decline in sales growth.

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@slkshock7,

I think that the assumption used here is that money is given to companies (like if you give them tax breaks.) The stimulus bill did do some of that, but it also funded new projects like road construction. Those would have to increase employment. It also put more money into state coffers so that they did not have to make more draconian cuts in staffing. I think there is some merit in the paper, but it doesn't tell the complete story. I think the number that was really wrong was 8%. Two years ago, things were much worse than what the government thought.

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@engineer,

I was just got done talking to the meter reader about the news internet connected power meters that the Federal government had given the local power company a 200 millions grant to install.

Six hundreds meter readers will be out of work within a year and anyone who can get a subpoena issue from law enforcement to your wife divorce lawyer will be able to access your power uses down to the minute.

Love having the government paying millions to put six hundreds men and women out of work and open another avenue to invaded people privacy at the same time.

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@slkshock7,

The new Stimulus will fail just like the first one because Obama doesn't care about addressing unemployment in this country.

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@H2O MAN,

Quote:

Obama doesn't care about addressing unemployment in this country.

Unlike Bush Razz

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@slkshock7,

Two things stick out in my mind.
1) The Depression got pulled out by the Second World War as it created a huge demand. Next 50 million people died so the question of unemployment never arose. There was a huge rebuilding program at work in Germany and other countries in Europe and Asia. This helped Germany and Japan in the postwar period with new factories.
2) This current financial meltdown did not have the rebuilding program and also there was no population loss so the unemployment still persists. Next, GWB alienated the rest of the world so they are not buying American products. Instead they are buying Japanes or European products.

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@talk72000,

Quote:

. Next, GWB alienated the rest of the world so they are not buying American products. Instead they are buying Japanes or European products

Nonsense tell that to the people lining up in European to buy the IPAD.

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@BillRM,

Wait till a European product comes along.

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@talk72000,

Yes they did catch up with us in producing computers OS let see what is the name of the major computer OS that they had produce to date?

Linux, the Mac os, Windows.................................What was the ones that they had produce to date?

If not computer OS how about word processors software of spread sheets or........I am sure they had pass us by in some such area.

Hell with the software from word processors to OS just name one major field of consumer electronic they had taken over from the US.

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@slkshock7,

Increased government spending to make up for spending missing from the private sector seems to be the heart of stimulus, or at least any part of it that doesn't contribute to new employment. Why are you finding that so hard to understand, slkshock?

It worked in Greece, didn't it?

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Why the Stimulus failed to turn around unemployment

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