What does President Barack Obama have in common with TV’s President Frank Underwood? Both think a government program can create jobs and bring down high unemployment. And both plans are absurd.
In the latest season of “House of Cards,” President Underwood, played by Kevin Spacey, stakes his political future on a $500 billion program called America Works, which aims to create 10 million jobs and bring the U.S. to full employment.
“House of Cards” is fiction. Creating full employment with 10 million jobs? It would help, but it would still be 83 million short, since there are a record 93 million Americans not participating in the workforce.
Speaking of fiction, the U.S. Bureau of Labor Statistics reported that the unemployment rate has fallen from 5.7% to 5.5%. That’s because, according to Zerohedge, “while the number of unemployed Americans dropped by 274K (and) those employed rose by 96K, the underlying math is that the civilian labor force dropped (by) 157,180 to 157,002 (following the major revisions posted last month), while the people not in the labor force rose by 354,000 in February.”
So once again, a worsening economy brings us closer to full employment in the mythical land of Keynesian America.
The bigger fiction, though, is that government spending can fix unemployment. When it comes to spending, President Underwood is an amateur compared with President Obama, whose first-term stimulus legislation was almost 50% larger than Underwood’s. And it didn’t produce anywhere near 10 million jobs – although President Obama claimed in 2008 that it would put seven million people to work, including five million in “green jobs.”
Know anyone working in a green job created by the stimulus bill? Tom Steyer, the wealthy financier who backs environmental causes, doesn’t count.
Writing last year about the fifth anniversary of the stimulus, The Wall Street Journal noted, “The $830 billion spending blowout was sold by the White House as a way to keep unemployment from rising above 8%. But the stimulus would fail on its own terms. 2009 marked the first of four straight years when unemployment averaged more than 8%.”
Forbes noted that the stimulus used overinflated Keynesian multipliers, as “Obama administration economists made outlandish assumptions that $1 of additional stimulus spending would lead to nearly $3 of additional GDP growth.”
A 2013 study by economists from the St. Louis Fed, University of California, San Diego, and the Bank of Canada finds that the government fiscal multiplier is “between 0.6 and 0.7.” In other words, $1 of government spending yields a return on investment of about 65 cents (a net loss of 35 cents), which is far from the $3 claimed by economists the government employs.
Forbes also notes that, when unemployment fell in 2014 – the largest year for job creation since 1999, it was a result of “decreased government spending following the sequester and the end of long-term unemployment insurance.” Forbes attributes those findings to a study by economists at the University of Pennsylvania, Stockholm University, and Oslo University.
In an Obama-like move, President Underwood bypasses Congress to jump-start his program in Washington, D.C. We have not seen the full season yet, but unless liberal economist Paul Krugman wrote the script, things are likely to end as badly for President Underwood as they have for President Obama.
President Underwood’s “House of Cards” may be fiction. But President Obama’s house of cards is not.
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Brenda P. Wenning is president of Wenning Investments LLC in Newton, Mass.
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