Ignoring stimulus effects, CNN's Romans uncritically reported "safety net spending doesn't necessarily create new jobs"
SUMMARY: During a segment on the economic recovery legislation, CNN's Christine Romans asserted, "If your point is to create new jobs, the safety net spending doesn't necessarily create new jobs." But Romans ignored the connection between gross domestic product growth caused by that "safety net spending" and job creation. Congressional Budget Office director Douglas W. Elmendorf has testified that transfers to persons, such as unemployment insurance and nutrition assistance, are effective tools to stimulate GDP growth and that the stimulative effect on GDP leads to job creation.
During the February 3 edition of CNN's American Morning, business correspondent Christine Romans asserted, "Some economists have done studies that show that when you give poor people a dollar it gets very quickly back into the economy," but that "the case against it is it doesn't create new jobs. If your point is to create new jobs, the safety net spending doesn't necessarily create new jobs." But while Romans acknowledged that Mark Zandi, chief economist and co-founder of Moody's Economy.com, "has done some studies" on how such spending is "a very quick way" to get money into the economy, she ignored the connection between gross domestic product (GDP) growth caused by that "safety net spending" and job creation. As Media Matters for America documented, Zandi and Congressional Budget Office (CBO) director Douglas W. Elmendorf have testified that transfers to persons, such as unemployment insurance and nutrition assistance, are effective tools to stimulate GDP growth.
In his January 27 testimony before the House Budget Committee, Elmendorf further explained that the stimulative effect on GDP leads to job creation, stating: "[A]ll of the increase in government spending and all of the reduction in tax revenue provides some stimulative effect. People are put to work, receive income, spend that on something else. That puts somebody else to work." Elmendorf has further estimated that "it costs about $140,000 worth of GDP to get an additional job." Indeed, Christina Romer, chairwoman of President Obama's Council of Economic Advisers, and Jared Bernstein, economic adviser to Vice President Joe Biden, estimated in January that components of the economic recovery proposal that would "protect the most vulnerable" would directly or indirectly create 549,000 jobs.
In his written testimony, Elmendorf stated that "[t]ransfers to persons (for example, unemployment insurance and nutrition assistance) would ... have a significant impact on GDP." Similarly, in his July 24, 2008, written testimony before the House Committee on Small Business, Zandi stated that "extending food stamps are [sic] the most effective ways to prime the economy's pump." Zandi further explained, "People who receive these benefits are very hard-pressed and will spend any financial aid they receive within a few weeks. These programs are also already operating, and a benefit increase can be quickly delivered to recipients."
Contrary to Romans' assertion that "[i]f your point is to create new jobs, the safety net spending doesn't necessarily create new jobs," Elmendorf addressed the connection between economic growth and job creation during his January 27 testimony. After noting in his written testimony, "Historical evidence suggests that GDP growth that is 1 percentage point faster over a year (relative to a baseline forecast) will cause the unemployment rate to decline by a little more than half a percentage point (relative to a corresponding baseline forecast)," Elmendorf testified that "[o]ur estimate is that it costs about $140,000 worth of GDP to get an additional job." He continued:
ELMENDORF: How you get that much GDP -- how much government spending or tax cuts you need -- depends on the multiplier effects. But it -- so you take some amount of government extra spending or tax cuts, apply a multiplier effect, get the effect on GDP, and then, from that you can deduce the effect on employment.
Our estimates are about $140,000 per job next year. I think that's quite consistent, as best I can tell, with the estimates -- with the cost-per-job -- of the estimates given by Christie Romer and Jared Bernstein from the administration, given from some private forecasters.
From the February 3 edition of CNN's American Morning:
JOHN ROBERTS (co-anchor): Christine Romans is minding your business this morning. She joins us now for more on this.
And some people have said that the provisions for poor people are really the Democratic Party rewriting their social contract with America. Does it seem that way?
ROMANS: That's right. Well, some people say that that is exactly what they're doing; other people say that, look, this is getting money quickly into the economy. Some economists have done studies that show that when you give poor people a dollar, it gets very quickly back into the economy, because there's not a lot of other places for it to go. It has to go for living expenses. It goes to grocery stores, gas tanks, right away, and that helps the economy. Mark Zandi at Moody's Economy.com has done some studies on this and said this is a very quick way to get it in there.
There's a lot of safety net spending in here: $43 billion for unemployment benefits. This means, you're going to get about $25 extra in your unemployment check if you don't have a job, and you're going to be able to get benefits for a little bit longer. There is a tax credit for health care costs -- some 39 billion -- and 20 billion in food stamps.
What that means, you guys, for a family of four on food stamps is about $79 more per month; and if you're a single person without a disability, you'll be able to go beyond the three-month minimum -- or the maximum, rather, and you can actually get food stamps for a little bit longer.
So, there are some, you know, provisions in there that supporters say protect the most vulnerable, get into the economy quite quickly, but the case against it is it doesn't create new jobs. If your point is to create new jobs, the safety net spending doesn't necessarily create new jobs, and it might be unfocused.
For once, I would like to see a few people with actual in-depth knowledge, be allowed to go on the air and explain/debate the merits or lack there-of, regarding a particular bill like this rather than these dim-witted talking heads.
It'll never happen. If the public was ever the slightest bit educated about basic macro-economics, the republicans and their supply-side economic philosphy would quickly go the way of the Whigs. Their parroting monkey rely on the public collective ignorance of basic economics in order for thier talking oints to be effective.
"business correspondent Christine Romans..."
Er, say no more.
mmfa and liberals seem to be making the case that when people have money in their pocket, they will spend it, and jobs will be created. Seems to me that if you lower everybody's taxes, that keeps more money in their pocket out of the gate and takes the government out of redistributing it, cutting out the middle man so to speak. Or is it just thet mmfa thinks the government knows better so they should take it in the first place, and then decide where it goes, who gets what, and so on?
So, how many people do you think are not spending money because their taxes are too high?
How many who still have jobs are sitting on what they have because they're afraid they'll lose their jobs?
Could it be that giving poor people more money to spend might SAVE a few jobs, even if it doesn't create many?
We have to stop the bleeding first.
the agreement seems to be that if people have money, they will spend it. I know liberals think that rich people hoard their money and don't spend or invest it, but the mere fact remains that more money in the economy, especially in this consumption based economy that we are in, is good for consumers and the economy, for reasons detailed in this thread above. My point is why not lower everyones taxes to keep that money in the economy, thereby creating jobs and increasing payroll revenues to the government.
My point is why not lower everyones taxes
Nobody's taxes are going up because of this bill, dude. Taxes ARE going down. WTF?!
Yes, because that has worked so well for the last several years.
Good Point!
James, please try thinking and not regurtitating.
As has been stated, less well off people spend everything they have.
Rich people don't have to, so any tax break goes right into an account for savings or investment, neither of which help the economy in the near term.
Regurgitating! Sheesh!
Besides, rich people are still spending money... they need no stimulus.
skeptical,
Investing and saving do help the economy in the short run by providing funds in part for business expansion and bank lending. There needs to be both saving/investing and spending.
of course it is, good point. One of the reasons we are in this mess is because credit dried up, banks weren't lending and businesses didn't have money to invest or pay their short term committments.
which leads to cutting payroll.
Everyone cut payroll because banks stoppedlending money? Companies took out loans to make payroll?
That doesn't sound like a good business plan to me.
The only jobs I saw cut because banks stopped lending money were in the welfare sector. I've seen a few churches now who's credit line was reduced and are now not able to pay their employees to provide services to the poor. But as for other sectors? Your claim has no merit. Prove it.
Oh, it has nothing to do with the fact that consumers don't have the money to spend.
Credit just dried up, out of the blue. How could that happen with all of the tax cuts the GWB gace?
Banks just stopped lending, for no good reason, wow!
"credit dried up, banks weren't lending and businesses didn't have money to invest or pay their short term committments."
And cutting corporate taxes helps this....how?
lower taxes means more money to save, to invest, to spend, to spur the economy, to create jobs, to encourage entrepreneurs, to hire, to get more $$$ in the system where it becomes more available to lend, which cycles back to what I just said. the only downside is possible inflation, but that's not our problem now, nor is rising interest rates. look, I am not against infrastructure spending to create jobs and improve our roads, bridges, etc. but there needs to be tax cuts and restrained, smart and accountable spending.
Lower taxes does none of those things as has been pointed put if a. the company is currently not paying taxes or they are not making a profit.
How many companies do you think are in that category?
See, once again your talking points are not based in the real world economy.
What part are you missing about the current economic crisis? Banks were given tons of bailout money, what did that do for the economy?
When does the real world come into your thinking?
How quickly does an investment get put into use? When debt is a mile high, any additional money goes to pay off debt.
Throwing out theoretical niceties doesn't solve the problem.
The only cure is real spending by real people, nothing else has worked and nothing else will.
Well, so far we've seen B of A spend 10 million of that bailout on the super bowl and Wells Fargo is spending a few million at Las Vegas. To sum it up they had a tailgate party while they screwed us.
"more money in the economy, especially in this consumption based economy that we are in, is good for consumers and the economy"
I agree. Which will get it into the economy more quickly... money given to the poor or tax cuts? Why not do both?
By the way, there is no hard evidence that cutting taxes increases federal revenues. It is a long-standing Republican myth.
you just agreed that more money in the economy is good, did you not? it's good because people spend, and when people spend it creates jobs, just read mmfa's defense of that above if you don't believe me - as they take issue with Roman saying otherwise. if jobs are created then most of those workers pay payroll taxes, do they not? that means federal revenues are increased. it is no myth.
Stupid,
Everyone isn't spending! That's the problem with your logic or lack thereof.
Middle to Lower class spend. Rich do not.
See! simple, even you should understand.
you did nothing to address what I just posted, you just continue to show your lack of class and intellect and only name call. i am not impressed.
What part did I not address? You are equating giving money to rich people and to poor people.
I pointed out the fallacy in your statement.
Also, I am wounded that you are not impressed. If you come here and throw stupid statements around, expect to be called on it.
ya, you're right. there is no giving money to rich people, they earned it. your simplistic logic and nonsense is illustrated perfectly with that gem.
I'm not sure where that came from. Do you understand simple economics? If net $1,000,000 per year and your normal living expenses are $500,000 per year, how much more will you spend if your taxes are lowered and you now net $1,100,000 per year?
But if you net $40,000 per year and your current living expenses are $39,000 per year because you cut back on going out to eat and you drive less and don't but any new clothes very often, how much more will you spend if your taxes are lowered and you now net $44,000?
See James, this is what thinkingf people already know. You and AA can rely on Rush to explain things to you or you can logically think it through and see how wrong he is.
so, in your convoluted math example, $4000 going back into the economy is better than $100,000? because you continue to foolishly buy into that liberal myth that rich people don't invest or spend, they sit on their money instead. that is brilliant, better retake that simple economic class of yours, because you learned nothing the first time.
James,
How many times does this have to be explained to you. Investing or saving does nothing, absolutely nothing to stimulate the economy in the near term.
Zero, Zilch, end of story.
That $100,000 does not go anywhere right away so yes the $4000 is better for the economy.
I learned plenty in Economics class, unfortunately for you, you have zero understanding of the economy or what investing is all about or how Banks use your savings.
So wake up, stop listening to Rush or AA and learn something, then come back and we can have an intelligent disucssion.
James,
If you want tax cuts, here's what they need to be:
Tax cuts for companies buying new equipment, hiring new employees, providing health care benefits, doing real R & D, developing alternative energy sources, building US based facilities, etc., Tax cuts for education, new home purchases, conserving energy, etc.
These are things I think we can agree should be incentivised with Tax Cuts.
Just cutting taxes as you propose has proven to be a waste of time and has proven to have a negative effect.
The part you cannot prove is that the jobs created as a direct result of tax cuts generate enough revenue to replace what is lost to the tax cuts. It's just a theory. You know... like evolution.
Nerzog,
In either case you are arguing that taxes take away from job creation. There is no rule that says job increases have to make up for the uncollected tax revenue.
The key, as you unwittingly agreed, is to cut government spending to spur economic growth and job creation.
What? Cut spending to spur growth? What planet do you live on?
"In either case you are arguing that taxes take away from job creation"
Oh, really? Where? I've asked repeatedly for someone to show me how high taxes have caused this recession.
I never said that cutting taxes creates NO jobs. I'm not convinced, however, that tax cuts alone actually create enough jobs to offset the lost revenues.
For the last 8 years all we were given was tax cuts. Businesses didn't use them to create jobs, they used them to outsource jobs to the chinese, mexicans and indians. So you can argue that they created jobs, but the problem is they didn't create jobs for us.
P.S. still loving living off of your taxes as I continue to look for a new job...
Plenty of tax breaks for plenty of people are in this bill, my friend. And unlike W's trax plan, the benefits are largely accrued to the working and middle class, and not the super-rich. (90% on the country instead of 10%.) What's more - repub's mainly talk about lower CORPORATE tax rates these days... you don't hear tto much about the PERSONAL INCOME tax rate being lowered... (maybe because that's exactly what the dem's are doing?) and lowering the corporate tax rate will not create job 1, because it's only piad by comapnies turning a profit. If you're in the red (as so many companies who are cutting jobs are right now) you don't pay a dime in CORPORATE TAXES. So it wouldn't help you one bit. It would do nothing except further enrich a very few at the top (none of whom would spend any of it anyway.) So... NO.
"Seems to me that if you lower everybody's taxes, that keeps more money in their pocket out of the gate..."
Then you should feel the same way about food stamps, Pell grants etc. They act the same as tax cuts, in that they leave more money in the pockets of people who really need it.
Cutting taxes doesn't necessarily create new jobs either. Nothing is guaranteed to create new jobs.
Unless you're talking about creating new jobs to build roads, repair bridges, recruit an army of teachers or start a public art project. Then sure, there's no guarantee to create new jobs.
Just sayin' Obama's Recovery and Reinvestment bill is all about creating new jobs, as well as, getting money into the hands of the people who are truly hurting.
One thing the Luddites overlook is that this bill is just a jumpstart.
Back in the olden days, if you ran out of gas, you had to sprinkle a little gasoline in the carburator to get the car started again... to prime it. That's all this stimulus bill can do... prime the economy. It's not meant to carry it forward for the next ten years; the private sector will have to kick in and do that.