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Arthur Brooks, Peter Wallison and I will be participating in an event on barriers to job creation.  It’s available by webcast so please check it out.

What do you call a promise that is broken? A lie?

In an interview with CNBC in January, the president promised the stimulus bill would keep unemployment at 8 percent and new jobs would be created. Yet since the passage of the $787 billion stimulus in February, America hasn’t reduced unemployment. In fact, we have lost 3.2 million jobs.

President Obama argues that although jobs have been lost, the stimulus has “saved or created” one million jobs. But what is going to happen when the stimulus money dries up? Those jobs will be lost. In effect, the stimulus bill will have lost over four million jobs. This is inexcusable.

Instead of allowing more jobs to be lost, the president should take the remaining $500 billion that has not been spent from the stimulus funds, and redirect that towards cutting the payroll tax in half for two years. This cut would give every American more in take-home pay, and help businesses find room to add more employees to their payroll.

The last nine months have proven President Obama’s stimulus plan has failed. If the administration thinks that three more months of the same approach will work, they are not only gambling their party’s future, they are gambling the fate of millions of unemployed or soon-to-be unemployed Americans. Read more in my column in today’s Washington Examiner.

One of the most closely watched economic variables is the “unemployment insurance weekly claims,” released by the Department of Labor every Thursday. According to today’s report, initial claims (seasonally adjusted) decreased by 12,000 to 502,000 for the week ending November 7. The four-week moving average measure of jobless claims fell to its lowest level in 42 weeks (see chart below) and is now 139,000 below the early April peak, adding to the mounting evidence that the recession ended sometime over the summer.

As closely as jobless claims are followed as a barometer of the labor market, there’s one major problem with the way they are interpreted, especially when they are used to compare current conditions to past recessions: there’s no adjustment for the size of the labor force.

The second chart above plots initial jobless claims (brown line) against the U.S. labor force (blue line) back to 1973, and shows that the American labor force has increased from 87 million individuals in 1975 to 154 million in 2009, a 76 percent increase. The chart also shows that jobless claims were higher during the last recession than in any of the last six recessions except the 1981-1982 recession. But without accounting for the increasing size of the U.S. labor force over time, the frequent reliance on jobless claims as a measure of labor market conditions is biased and inaccurate.

The chart below adjusts monthly jobless claims for the size of the labor force and displays jobless claims as a percent of the labor force, which tells a much different story that what often gets reported in the media. Jobless claims in October (average of 531,350) were 0.345 percent of the U.S. labor force (153,975,000), down from the peak of 0.422 percent in March 2009, and at exactly the same level as at the end of the 1990-1991 recession, and just slightly above the level at the end of the 2001 recession.

This adjusted measure of jobless claims also shows that we never came anywhere close to the levels during the recessions of the 1970s and 1980s, when jobless claims peaked at over 0.60 percent of the labor force on several occasions. To reach that percentage today, we would have to have more than 900,000 jobless claims given the size of our current labor force, which is much higher than the peak jobless claims level in April of 658,750.

Bottom Line: After adjusting for the size of the U.S. economy, jobless claims as a share of the labor force during the most recent recession were higher than the peaks during the 1990-1991 and 2001 recessions, but not anywhere close to levels reached during the recessions of the 1970s and 1980s.

Last week the Congressional Budget Office’s blog had a post that described their analysis of the performance of the stimulus bill for fiscal year 2009. The analysis closely mirrors the information contained in an article I co-authored with Rachel Forward last month. The CBO confirms that the total federal spending was close to the original forecast but that estimates of the underlying categories of spending were significantly off in many areas.
 
Specifically, the federal government spent $18.2 billion more than was expected through the Department of Labor (unemployment benefits) and the Department of Education (Pell grants) and spent $16.7 billion less than was expected on all other departments. Spending by the Department of Transportation was 26 percent less than the original forecast; Department of Commerce was 54 percent less than forecast; and Department of Energy was 56 percent less than forecast. In CBO’s words, “infrastructure-related spending fell short of CBO estimates. For example, spending by the Departments of Transportation, Energy, and Commerce totaled just over $5 billion, compared with CBO’s original estimates of about $8 billion for those three agencies. Funding for a broad range of other federal agencies has [also] been spent considerably more slowly than originally estimated.”
 
In October, the Department of Transportation (DOT) did spend an additional $1.2 billion to bring their total spent from $3.65 billion to $4.85 billion, and the Department of Energy (DOE) pushed out an additional $381 million last month to raise their total to $1.16 billion. However, the stimulus bill provides DOT with $48.1 billion and DOE with $38.4 billion to spend, so “trickle” still seems an apt description of the performance of a bill intended to quickly combat a faltering economy.
 
The difference between the original CBO numbers and the actual numbers raises an additional issue about forecasting budgets in general. How should one grade the performance of CBO when they did such an excellent job on the top-line number but missed by so far on so many department-level estimates? From a macro perspective, some economists may say only the total number of dollars spent matters for the purpose of measuring the impact of the stimulus and give CBO an A+. For analysts (or politicians) concerned about “green energy” and employment in that sector or infrastructure more generally, the CBO’s forecast is quite disappointing. While it is important to remember that these numbers are just the first snapshot of the first fiscal year, the question that may matter most is will the numbers “catch up” to the CBO forecast and, if so, when? Or, will the infrastructure spending laggards be laggards forever?

Tim Kane makes a series of thoughtful observations about job creation in the present economic climate:

The good news is that new jobs will be in new sectors with arguably better pay and quality of life (i.e. I’d rather be a movie star than a coal miner … rather be a nurse practitioner than a seamstress … rather be a hammer than a nail). As jobs transition from goods-production to service-provision, workplace fatalities decline and pay rises, satisfaction rises and stress eases. The bad news … is that traditional policy remedies—based on a static notion that old employers will simply rehire the old laid-off workers when stimulated artificially or by real consumption—can only disappoint.

If any modern, depressed economy aims for faster job creation, it has to begin with a realistic understanding of new firm formation. It is much more about restructuring than recovering.

Tim’s point about old policy remedies not doing the trick was a theme in Arnold Kling’s recent essay about how we aren’t living in your grandfather’s economy anymore. Sustained job creation and what the government should be doing about it will be the topic at this upcoming joint National Chamber Foundation-AEI event. Space is limited so RSVP soon.

Paul Samuelson recently claimed in the New York Times (h/t Paul Kedrosky):

Had John McCain won that election, the present G.D.P. in the United States would have been even lower than it is now by more than 15 percent.

Samuelson also takes some shots at Milton Friedman and Friedrich Hayek (”Gone forever, one hopes, are the idiocies of Friedman-Hayek libertarian selfishness”).

I read Samuelson’s thrashing of his intellectual enemies with some amusement since I am in the process of reviewing the book “Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity” by Brian Domitrovic. The book includes a discussion of Samuelson’s treatment of economist Arthur Laffer in the early 1970s.

While working in the Nixon administration, Laffer predicted that 1971 GNP would come in at $1.065 trillion, higher than consensus forecast. Here’s a cool cartoon from that time depicting the “mad economist” Laffer.

Samuelson delivered a paper at the University of Chicago shortly after Laffer’s prediction titled “Why They Are Laughing at Laffer.” The talk ridiculed Laffer’s prediction. Martin Anderson later described the Samuelson lecture as “cruel and reckless” and “an extraordinary example of intellectual bullying.”

Cruelty and bullying aside, Samuelson turned out to be just plain wrong. Revised GNP numbers in 1976 vindicated Laffer and showed he was right on the money.

On Friday, we learned that the unemployment figures rose by 558,000 in October. This follows President Obama’s announcement that the White House saved or created 1 million jobs with the stimulus.

So who is telling the truth? The problem is that there is no economic model to calculate “jobs saved.”

AEI fellow Allan Meltzer said, “One can search economic textbooks forever without finding a concept called ‘jobs saved.’ It doesn’t exist for good reason: How can anyone know that his or her job has been saved?”

There is no way of knowing whether a firm that completed a stimulus-funded project would have been without work in the alternative.

We also have to question what will happen to those workers once the government funding is gone. Since February, the month the stimulus bill was passed, 3.2 million people have lost their jobs. How many more people will have to lose their jobs before President Obama and the White House realize that jobs saved is a lot less important than jobs created? Read more in my column with Vince Haley in today’s Forbes.

We recently wrote that much of the stimulus bill will become a permanent addition to the annual deficit; more than $140 billion a year in our estimation. As it turns out, the effort to make the stimulus bill permanent has already started.

Yesterday the Senate unanimously passed legislation that extends and expands three policies from the stimulus bill that were intended to be temporary: unemployment benefits, the home buyer tax credit, and net operating loss (NOL) carryback for small businesses.

In addition, at his confirmation hearing to become Assistant  Secretary of the Treasury for tax policy, Michael Mundaca said that the Build America Bond program from the stimulus bill is “an “extraordinarily successful program … too successful to allow to go away.”

And finally, the politically popular effort to send seniors needless and costly checks for $250 next year is also an extension of a provision established by the stimulus bill.

Bottom line: not only has the stimulus bill failed to help the economy, it shows no sign of ever going away.