Sizing Up The Stimulus: Where Are The Jobs?4:50 PM EST Fri. Jan. 18, 2013
Economist Douglas Holtz-Eakin, who did more than his share of number-crunching as the director of the Congressional Budget Office from 2003 to 2005, says that for his money the $840 billion stimulus package simply didn't deliver the big job creation bang promised by President Barack Obama.
"It is hard to throw three-quarters of a trillion dollars at the economy and not have some impact, but we didn't get our money’s worth," said Holtz-Eakin, a commissioner with the Financial Crisis Inquiry Commission, which concluded that the crisis was the result of "human actions, inactions and misjudgments."
"We could have done better. It could have been better designed. We are going to find out years from now about all the waste in it. We know it had more than stimulus as part of its design. There was a lot of Obama domestic policy agenda in there in disguise. That was really mixing purposes and undercut the efficiency. And we got as a result what we got, which is a substandard recovery."
[Related: Five Tech Companies That Milked The Stimulus]
One sign of the failure of the stimulus: the high unemployment rate into 2010 even in the midst of astronomical government spending, said Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University, who testified before Congress on the effects of the stimulus. "They said without the stimulus unemployment would reach 8.8 percent," said de Rugy. "We did the stimulus and for over a year we stayed around 10 percent unemployment."
Holtz-Eakin and de Rugy are just two of a number of economists, industry executives and even government officials contesting estimates by President Obama and his administration that 3.5 million jobs would be "saved or created" in two years as a result of the stimulus.
The Council of Economic Advisers, an agency within the Executive Office of the president, supported the president's job numbers with an estimate that as of the first quarter of 2011, the American Recovery and Reinvestment Act (ARRA) has "raised employment relative to what it otherwise would have been by between 2.4 [million] and 3.6 million" jobs.
The nonpartisan Congressional Budget Office, meanwhile, estimated that the ARRA legislation in the first quarter of 2011 raised employment to as many as 3.3 million jobs.
A six-month CRN investigation into specifically where ARRA funds were spent on technology projects aimed to determine how many jobs ARRA created. CRN spoke with with dozens of executives and examined countless government documents and found big U.S. jobs cuts from technology companies that were receiving funding and relatively modest job growth on specific awards reported to the federal government website responsible for transparency, Recovery.gov.
In a report on companies benefiting from the stimulus, the top five technology beneficiaries of the funding profiled by CRN received $745.82 million in ARRA awards and slashed their U.S. workforces collectively by an estimated 50,000 employees over the last four years.
As for the job creation from ARRA, CRN found that a review of a select $122.29 million in prime recipient funds received by the top five companies resulted in 709.5 jobs, according to Recovery.gov. That amounts to a cost of about $172,489 per job.
That contrasts with a May 2009 report from the Council of Economic Advisers that estimates approximately "$92,000 of spending to create one job year."
NEXT: CRN Investigates
CRN's investigation found a significant amount of funds were used for hardware, software and services that had little relative job impact. For example, systems integration giant Computer Sciences Corp. received $29.02 million to put in a "high performance compute system" at the National Oceanic and Atmospheric Administration Environmental Security Computer Center and reported a single job funded for each of the seven quarters of reporting, according to the Recovery.gov website.
One of the highly visible aspects of the stimulus was the broadband component, which some industry executives claimed could have a big job multiplier impact. But the University Corporation for Advanced Internet Development, also known as Internet2, a public/private partnership aimed at interconnecting more than 30 existing research and education networks, received $52.53 million in funds of a total of $117.61 million and reported only 19.25 jobs to Recovery.gov. That amounts to a whopping $2.72 million per job.
Those figures do not match the sanguine jobs outlook with regard to the stimulus spending from President Obama and members of his administration, who have remained consistent from the outset of the economic crisis. The president said before the legislation was passed that "most of the money that we're investing as part of this plan will get out the door immediately and go directly to job creation, generating or saving 3 [million] to 4 million new jobs."
The problem with forecasts from the Obama administration is the administration used an economic model that, in effect, predicted how many jobs would be created by the government spending, stuck with the economic model regardless of unemployment data and never measured actual job creation, said de Rugy.
"After the fact, they didn't try to go and measure to see what the economy had actually done compared to what they predicted the stimulus would accomplish," de Rugy said. "They just assumed what their model predicted actually happened. It would be exactly like the weatherman saying, 'Tomorrow it is going to be sunny with chances of rain in the afternoon. And then the next day, even if it has been raining all day, they said, 'Today it was sunny and it rained in the afternoon.' "
Even government insiders contacted by CRN admit that the full time equivalent job reporting requirements used by the government made it impossible to determine how many jobs ultimately were created by the stimulus. One government official, who defended the legislation as providing critical jobs growth when the country needed it most, conceded that ultimately the "unvarnished facts" needed to assess whether the government spent "tax dollars wisely" is nowhere to be found.
The Council of Economic Advisers itself warned about the problems with the reporting methodology in a May 2009 report: "There will likely be inconsistencies and measurement error across individual reports. This limitation is present whenever thousands of recipients with very different types of projects are asked to provide information. The problem is heightened by the fact that the funds will be allocated in a wide variety of formats."
"Because of these limitations, the reported job numbers will need to be used with caution and as part of a more complex estimation strategy," the report read.
NEXT: Job Creation
In a report titled "Recovery Act Transparency, Learning From States' Experience," in a study for Harvard University's Kennedy School of Government, Francisca Rojas pointed to the lack of "consensus around job creation numbers."
"Even though capturing the number, duration and quality of jobs was a critical objective of the Recovery Act, the transparency effort did not incorporate measures of job creation that allowed a consensus evaluation of projects on the job creation question," wrote Rojas in the 64-page report. "In retrospect a better way to track ongoing employment impacts of the Recovery Act would have been to locate job creation estimates within an institution that could be judged a fair arbiter of making ongoing estimates (e.g. the Congressional Budget Office or the Federal Reserve Board) based on more sophisticated macroeconomic models.
"Although Recovery Act projects generated jobs, the underlying process was much more complicated, and expenditures worked through indirect as well as direct employment effects. Even though employment outcomes were critical to gauging the ongoing impacts of the Recovery Act, doing so through the disclosure system was almost doomed to fail because of the complexity of measuring these effects. Concerns that the administration had incentives to game such numbers led to a methodology that provided an extremely conservative measure of impact, and one with little public salience since it precluded aggregating cumulative effects over time."
In a Recovery.gov Frequently Asked Questions posting titled "Why can't I find the total number of jobs funded under the Recovery Act?" the answer was: "ecipients only report job numbers by quarter. To total the quarters would be misleading and inaccurate because some of the jobs span quarters, so they would be counted more than once. And, some recipients only report the job in the first quarter but mistakenly believe that they don't have to report the same job in subsequent quarters."
None of the top five companies named in the CRN investigation would talk about how many jobs were created from the funds they received as a result of ARRA. The CRN investigation also found that administration supporters pressing for an aggressive clean energy agenda including high-profile venture capitalists such as John Doerr, a partner at Kleiner Perkins Caufield & Byers, and Steve Westly, managing partner of The Westly Group venture capital firm, benefited from the legislation.
"If you are asking the question, 'Do you want to do stimulus?,' then why are you doing clean energy funds to begin with?" asked Holtz-Eakin, now president of the American Action Forum, a Washington, D.C., policy institute. "Or why do we have rural broadband programs which have nothing to do with stimulus? This was all about the domestic policy agenda and constituents they [the Obama administration] care about. Let's face it. That's how it works. It was a bad bill. It was a bad bill at the time it was passed. We knew it and as it has played out over time, we have, I think, been increasingly given evidence of that."
Added Holtz-Eakin: "If you have to pick between a dollar you are going to put out in a clean energy fund or a dollar of tax cuts to the American household, we know that the latter allows American households to determine where their money is spent and for what priorities. We know that the former puts the politics in charge. And I will always pick the American household over politics."
Since politicians are "not spending their own money, we know we are less likely to get reasonable or good sensible decisions about how to spend the money," agreed de Rugy, pointing to the Obama administration's green energy investments. "You pick the industry you are biased toward," she said. "In this case the government tends to believe that green energy is the way to go. So they invest a massive amount of money behind green energy regardless of whether it is a good idea or not."
Perhaps the most important lesson learned from ARRA is that "politicians make promises about what [government] spending is going to achieve and these promises are rarely fulfilled," said de Rugy. "When you use stimulus to jump-start the economy it is exactly the same as if you were trying to fix your broken arm with morphine. It may feel good when you get the morphine injection, but it doesn't fix your arm. I am sure the people who received the stimulus money, whether they deserved it or not, liked it. But it doesn't mean that it fixed the economy."