The Buie Knife

Where did the 2009 Stimulus Money Go?

Texas Governor Rick Perry says the first $787 billion stimulus, in 2009 -- representing 5% of annual GDP -- didn't create any jobs. It's certainly true that the 2009 stimulus did not do what Obama administration economists hoped it would do -- reduce unemployment to 8 percent and put the economy on the upswing growth-wise.

This largely explains the political climate of sourness and cynicism in America today, disillusionment with Obama, Americans' lack of confidence or even pessimism about the country's economic future.

So, where did the first $787 billion stimulus go?

In the spring and summer of 2011, when the first stimulus began to take effect, economic growth was at a standstill and unemployment was stuck above 9 percent. Unofficial unemployment and under-employment probably comprised closer to 15% or even 20% of the potential workforce, and it remains almost as high two years later.

More than one-third of the first stimulus went to tax cuts, and probably another third went to rescue the financial crisis in the states, to fill in the gaps in state funding due to devastating revenue losses on the state level. But now the states, facing extreme revenue shortfalls, are making cuts they delayed for two years ago. They are laying off teachers and other public employees.  

The final third of the stimulus -- about $262 billion -- went to projects like infrastructure improvements and Green Energy production.

A breakdown of stimulus projects was compiled by The New York Times.

How many jobs were created by the American Recovery and Reinvestment Act of 2009? The President's Council of Economic Advisers has estimated that between 2.5 million and 3.6 million jobs were created or saved by the stimulus through the fourth quarter of 2010. Just for the quarter April 1 to June 20, 2011, the country had a reported 555,029 full-time equivalent jobs funded by the Recovery Act," according to Politifact. Other independent economic analysts observed that between 1.3 million and 2.5 million jobs were created or saved.

The US spent another $700 billion on TARP -- the Troubled Asset Relief Program -- to bail out the banks. Former Labor Secretary Robert Reich calls it "a miserable failure" in terms of getting money to Main Street, more credit to small businesses, more loans to young people going to college, more help for people with mortgages in trouble. There should have been more regulatory strings attached to that money, he said, forcing banks to loan to people. But he does not believe TARP itself was a bad idea. Without TARP, he said, there might have been "economic Armaggedon...a terrible run on the banks." 

And clearly TARP has been at least partially successful. The government made more than $8 billion profit from the Citibank bailout, for example.

Economists Menzie Chinn and Brad Long post a chart showing how the economy would have been much worse without the stimulus. But it was essentially too small and poorly defined to have a big impact on the US economy, Laurence Kotlikoff of Boston University argues. 

While it was politically impossible for Congress to pass a much larger stimulus in 2009, in retrospect a larger stimulus would have saved the US money in the long run, reducing unemployment by a few percent and creating millions of taxpaying workers. But that didn't happen. Now Obama has proposed essentially a second stimulus to try to get employers hiring again, build consumer convidence, and get businesses to start spending some of their record earnings on new jobs.

Previous:

• Economists More Reliable Than Weathermen? Predictions for the Stimulus (2009)

New Stimulus Necessary to Restore Economic Optimism

Americans are currently pessimistic about the economy, and moving toward a Keynesian solution to stimulate job growth, according to the latest Pew poll. Without a new stimulus, we may even talk ourselves into a double-dip recession if we don't develop optimism and a positive economic vision. Click. 

Perusing Books at Barnes & Noble Restores Positive Economic Vision

I found probably two dozen books I'd purchase if I weren't leaving the country again soon. Eleven optimistic new books on the subject of economics:

• Next American Economy: Blueprint for a Real Recovery, by William Holstein.
• Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis, by Anatole Kaletsky.
• Bank 2.0: How Customer Behavior and Technology Will Change the Future of Financial Services, by Brett King
• World 3.0: Global Prosperity and How to Achieve It by Pankaj Ghemawat
• Microtrends: the Small Forces Behind Tomorrow's Big Changes, by Mark Penn
• Outrageous Fortunes: The Twelve Surprising Trends That Will Reshape the Global Economy, by Daniel Altman
• The Next Convergence: The Future of Economic Growth in a Multispeed World, by Michael Spence
• Now You See It: How the Science of Attention Will Transform the We Live, Work and Learn, by Cathy Davidson
• Physics of the Future: How Science Will Shape Human Destiny and Our Daily Lives in the Year 2100, by Michael Kaku
• This Will Change Everything: Ideas that Will Shape the Future, by John Brockman
• More than Good Intentions: How a New Economics Is Helping to Solve Global Poverty, by Dean Karlan

Opportunities for American Teachers and Other Laid-off Or Downsized Professionals in Growing Economies Abroad

Teach Away on NBC Nightly News with Brian Williams from Teach Away Inc. on Vimeo.

Despite bad economic news in the US and much of Europe, some parts of the world continue to have good economic news and strong growth.

"The spirit of capitalism - risk-taking, saving, investing, hard work - all those virtues have now migrated and are happily ensconced in China, India, Indonesia, Korea and Japan - the countries which we never thought would ever get out of poverty," Lord Desai, emeritus professor at the London School of Economics, told the BBC. "If Asia has vigorous energetic capitalism and we have tired old capitalism, we will end up paying a huge price and we will trade our prosperity for their prosperity." Capitalism has renewed itself by migrating eastwards, he observed. 

As the American dream contracts, Americans should consider looking for work in countries with growing economies. As native English speakers with a strong work ethic, Americans could be prized workers. That's what my wife and I have discovered. In 2009, we moved to Turkey to teach English. Housing, health insurance, generous vacation and annual flights back to the US were included in our package. Now we've moved to the United Arab Emirates, where the benefits are far better than what most teachers receive in the US.

If businesses are free to move around the world for the most favorable conditions, the only way to level the playing field is for workers to be mobile, too.

Turkey, Brazil,  China and Indonesia continue to have rapidly growing economies. Sure, these are what is generally thought of as "second world" developing countries, but if they keep up the fast pace of development, and if first world economies like the US and Europe continue to decline, in a few decades there will be far less of a difference.

Some economists say Turkey, Brazil, Indonesia and China are growing too fast, probably leading to either inflation or a bubble that will eventually burst. But others say these countries are controlling growth and will experience a "soft landing."

I must say I find it disconcerting that Turkey is perceived in the world press to have a great economy, but unemployment in the second quarter of 2011 was 9.9 percent, lower than the 12% unemployment of a year earlier, but still higher than in the U.S., where people are really upset by the high unemployment rate. It all depends on what you are used to, I guess. Not so long ago, Turks felt the world was passing them by economically. Turkey, like many countries, is accustomed to high unemployment. Youth unemployment in Turkey remains high, 17.9%.

Yet Turkey is growing in economic confidence because unemployment is headed in the right direction, down. And the Turkish health care and retirement systems provide universal coverage to nearly everyone without the risk of financial ruin that so many American citizens face. Indeed, health care is so inexpensive in Turkey, even without insurance, that some Americans are combining tourism with elective surgery, such as laser surgery on their eyes, which cost about 10 percent of what it costs in the USA.

Turks have quoted to me an old adage,  "When America's economy catches a cold, Turkey catches pneumonia." Having weathered the global recession well, and with one of the world's highest rates of growth now, Turks are increasingly confident that old adage no longer applies.

Gulf Oil States such as Saudi Arabia and the United Arab Emirates continue to have awesome wealth and steady growth. American businessmen and even school teachers can garner six-figure incomes there, when generous benefits are included.  To stave off political unrest, the Saudi monarchy recently announced it is spending $130 billion to pump up salaries, build housing and finance religious organizations, "effectively neutralizing most opposition," the New York Times reports.

Despite the economic problems in the Northern hemisphere, Australia's economy contines to grow, as does New Zealand's.

Working conditions remain sub-standard in developing countries. The labor movement in Turkey, for example, is weak, even by American standards. There appears to be no 40-hour-work-week regulation, no overtime pay requirements, no national minimum wage, and no guarantee of even two weeks' severance when workers are laid off.  

Yet Turks have it better than Chinese. A Turkish textile factory worker I know spent several weeks in China, advising a sister textile company on technology to upgrade to. He was appalled by the working conditions of some of the Chinese workers -- many worked such long hours that they could not even go home at night to their families for days if not weeks at a time. They slept on cots not far from the machines they worked on.

Fortunately, Americans who accept jobs in developing countries would likely be treated as elite workers, paid more money, with more benefits than the natives.

Among the world's economies, Scandinavian countries have the highest degree of prosperity, freedom, stability, social trust and security, due to a strong social safety net. "What Makes Scandinavia Such a Happy Place?" asks Charles Recknagel of Radio Free Europe.

The Legatum Institute annually publishes a Prosperity Index that ranks 110 countries according to what the countries' own citizens tell pollsters. Scandinavian countries have consistently topped the Prosperity Index since it began in 2007.

The most recent Prosperity Index, published in 2010, showed 74 percent of Norwegians believe other people can be trusted, the highest such rate in the world. Denmark came in second, with 64 percent finding others trustworthy; Finland third with almost 60 percent; and Sweden sixth, with 56 percent.

Drawing on the observations of economists and sociologists at a London conference, Recknagel writes:

Scandinavian countries -- which indisputably have large GDPs -- might hold the key to understanding what conditions in addition to wealth must be present for people to report a high sense of well-being.

Some of the conditions might seem obvious. For example: good health care, good education, and good safety and security. So, too, might economic opportunity and the freedom to start one's own business in an environment free from predatory officials and corruption.

But other conditions that lead people to report they feel their life is worthwhile might be less self-evident. And those are often the very same ones that authoritarian regimes claim are unimportant or which they themselves undermine.

Those things include enjoying the personal freedom to speak, read, vote, and worship as you want. And they include enjoying a sense of social trust -- that is, a sense that those around you trust in the society and are themselves trustworthy.

The whole article is worth reading.

Related:

• Where are the jobs? For many US companies, overseas. 
• High US unemployment for the long term
• Our blog on Turkey
• TeachAway.com

To Stay Abroad or Return to the US in 2011?

My wife and I ponder whether to return to the good ole USA this year or look for new jobs abroad, especially in Turkey or the United Arab Emirates. We have loved Turkey -- what a mind-expanding experience! -- but we probably need to move to a new city that has an English-language high school that our son Alex can attend. That's not available here in Kayseri, Turkey, unfortunately. Alex is enrolled in an online American school and attends a Turkish elementary/middle school three days a week, but he lacks many of the opportunities he would have if he were fluent in Turkish or if he attended a school that had primary instruction in English. 

US unemployment remains high and opportunities are still not expanding in the sectors where we'd qualify for jobs in the US -- education, journalism, publishing, new media or communication in general. State governments are slashing jobs, trying to curb pension contributions and other benefits.

We will eventually return to North Carolina, where we still own property and where my family congregates. But right now, it looks to me like there are more opportunities abroad than in the US. That said, one shouldn't over-generalize. Opportunities are often individualized, based more on who you know and whether you're in the right place at the right time, than the overall economic picture.

Related:

• Where are the jobs? For many US companies, overseas. 
• High US unemployment for the long term
• Our blog on Turkey

Two More Important Books on Economics

In my Economics and Investment Blog, I link to articles and books that have shaped my thoughts on the subject. Here are two more. Do you recommend others?

For an understanding of the early history of market economies, my Facebook friend Sandy Price recommends Karl Polanyi's seminal work, The Great Transformation, which describes the social and political upheavals that took place in England during the rise of the market economy. "He explains much about how capitalism came into existence, what evils it erases and what evils it cannot erase," Sandy writes. "It should be on EVERYBODY'S reading list. Check this out, then get the book! It will make you so darn smart!" http://tinyurl.com/2alwomw. She discusses the book along with "A New Year's Resolution for the Rich" on her blog, Ecocurious.

Unlike free market fundamentalists who claim an unfettered, self-regulating marketplace has led to widespread prosperity and social good, Polanyi argued that the growth of a strong central government and social protectionism were essential to the growth of capitalism because capitalism by its nature causes massive social upheaval and "creative destruction." 

"He is not anti-free market," Sandy writes. "He's a historian and his point is that capitalism solves a number of problems, but creates others and we need to be aware of them."

One of her friends says he prefers F.A. Hayek's book, The Road To Serfdom, which is critical of socialism and totalitarianism. Hayek described himself as a 19th century liberal. Hayek's book is promoted by free market fundamentalists on Fox News, but they ignore Hayek's own warnings against free market fundamentalism: ""Probably nothing has done so much harm to the (19th century) liberal cause as the wooden insistence of some liberals on certain rules of thumb, above all the principle of laissez-faire capitalism."

Both books are enlightening studies of economics.

Previous:

• How Capitalism Grew into a Major Economic Philosophy: Accumulating Great Wealth As A Sign of Virtue, Righteousness, Godliness.
• Hayak and Keynes rap about economics. 
• 12 Books That Have Shaped My Thinking on Economics

Bill Moyers on America's Plutocracy

Well said. Click.

Extend the Bush Tax Cuts Temporarily To Achieve 3 Top Economic Priorities in 2011?

I'm no expert on economics, but it seems to me the US needs to adopt two somewhat contradictory economic strategies -- one for the short term, and one for the long term.  With a very fragile economic recovery, in the short term the US has got three top priorities -- to further stimulate demand, spur economic growth and reduce unemployment. Keeping taxes low, maintaining the Bush tax rates until the end of 2011 or 2012, is the simplest way to do that, as Republicans and Democrats should be able to agree on the three most important economic objectives for 2011. 

The fourth priority -- reducing the deficit -- will have to wait until the economy is in full recovery. It just doesn't make sense to cut government spending -- jobs -- when unemployment is at nine percent.

The moral argument to eliminate the Bush tax cuts for the wealthiest so as to reduce the huge and growing gap between rich and poor is compelling (See "Our Banana Republic," by Nicholas Kristof).

But the economic and practical political arguments for eliminating the Bush tax cuts in the immediate future are less compelling. Even opponents of the Bush tax cuts concede they have some stimulative effect.  

Yes, as Kristoff argues, it would be smarter to use savings from Bush tax cuts to finance a jobs program, or to prevent layoffs of teachers. But Obama has to acknowledge losses in the mid-term elections, and that a new Congress is going to be less sympathetic to such progressive proposals.

Should Obama and the lameduck Democratic Congress let the Bush tax cuts, along with middle-class tax cuts, expire? It looks like they don't have a good option politically. They don't want to fall into a Republican trap of raising middle-class taxes in a weak economy. 

So, despite cries on the left that Obama is a wimp and a sellout, I tend to agree with Obama advisors who concede that now is not the time to reduce disposable income by eliminating the Bush tax cuts.

Keeping the Bush tax cuts is one way Obama and the Democrats can reach out to independents if not Republicans. Not that the Republicans will ever give them credit for it, or for Obama's huge $282 billion tax cut in 2009, though the voters might, if the economy is much better in 2012. 

It may be true that the US deficits are quite affordable -- only about 12% of GDP in 2010, compared to say, over 30% in 1940. But the deficits are growing rapidly each year, and are projected to be 20% of GDP by 2020 if the Bush tax cuts aren't eliminated and if government spending isn't brought under control.  

In the long run, once an economic recovery is underway, we've got to cut government spending and raise taxes (at least to Clinton-era levels) in order to address the ballooning deficit. This painful exercise will hurt both Democratic and Republican constituencies, and will test the strength of all sorts of advocacy groups. Politicians will have to do what they hate to do -- choose among friends, and decide which allies to throw overboard or under the bus. It won't be pretty. Trust in political leaders will probably decline even further.

Related:

• Five Myths About the Bush Tax Cuts
• "Our Banana Republic," by Nicholas Kristoff

Best Books About Economics?

I'm by no means a specialist in economics, but I try to maintain a layman's understanding of the subject. Here are some of the books I've read on economics. Click. What books would you add to the subject?

American Economic Optimism Returns

Do you observe optimism and vibrancy returning to economic life yet, or is this just media hype? It's refreshing to see so many articles pointing to America's economic recovery: "You're Awesome, America! Why the U.S. Recovery Will Be Bigger, Faster and Stronger than Economists and Politicians Expect," Daniel Gross in Slate, quoting Richard Florida, sociologist and author of The Great Reset: How New Ways of Living and Working Drive Post-Crash Prosperity. Florida says: "We are the most adaptive, inventive nation, and have proven quite resilient." America has seen a giant leap in productivity since 2008. Exports grew by 17% from April 2009 to January 2010. If Americans quickly embrace energy-efficiency (well-insulated homes, hybrid and electric cars like the Chevy Volts, less imported energy, alternative energy technologies that harness the wind and the sun), productivity-enhancing software, if the U.S. reimagines the auto industry (Ford is already doing so), if the U.S. exports more, reduces debt and increases capital, builds new commercial infrastructures and industrial ecosystems that incubate and propel growth, the future will be bright, Gross says. Newsweek puts this article on its cover, under the headline, "The Comeback Country: How America Pulled Itself Back from the Brink, and Why It's Destined to Stay on Top." 

David Brooks in the NYTimes: "Relax, We'll Be Fine."  "News of America’s death is greatly exaggerated. In reality, the U.S. is on the verge of a demographic, economic and social revival."

Gross: "All well and good, the skeptics note, but we've got a long way to go. To recoup the 8.2 million jobs lost since December 2007, it'll take four years of growth at 170,000 jobs per month."

Indeed, most economists project relatively high unemployment in the U.S. for several years to come.