McCaughey falsely suggests state aid, unemployment benefits, food stamps are not stimulative

McCaughey: Aid to states is “enabling spending-addicted politicians.” From McCaughey's October 12 Newsmax column, also published at The American Spectator:

More than a third of the stimulus money spent thus far has gone to state and local governments. Some funds are used to expand Medicaid, unemployment benefits, and food assistance, while others are propping up state workforces and avoiding public school layoffs.

The stimulus funds are enabling spending-addicted politicians in states such as New York to avoid trimming budgets in response to lower tax revenues.

Economists agree that unemployment benefits, food assistance are stimulative. As Media Matters has previously documented, Congressional Budget Office (CBO) director Douglas Elmendorf has stated that "[t]ransfers to persons (for example, unemployment insurance and nutrition assistance) would ... have a significant impact on GDP," and economist Mark Zandi, who advised John McCain's 2008 presidential campaign, has stated that “extending food stamps are [sic] the most effective ways to prime the economy's pump.” Zandi's analysis indicates that a “Temporary Increase in Food Stamps” had the highest “Fiscal Economic Bank for the Buck” of any other potential stimulus provision he analyzed, providing a $1.73 increase in real GDP for every dollar spent, while “Extending [Unemployment Insurance] Benefits has the second highest, at $1.64.

Zandi: State aid boosts GDP by $1.36 for every dollar spent. In testimony given on July 24, 2008, before the House Committee on Small Business, Zandi noted that “General Aid to State Governments” would boost real GDP by $1.36 for every dollar spent. Zandi also testified to the benefits of providing aid to state governments, specifically in the form of expanding Medicaid funds:

Another economically potent stimulus is aid to financially-pressed state governments. This could take the form of general aid or a temporary increase in the Medicaid matching rate, to help ease the costs of health coverage. Such help appears unlikely in the current stimulus plan, but this could quickly change in coming weeks if the economy's problems grow more severe and widespread as the legislation is being fashioned.

Fiscal problems have already developed in half the nation's states. Tax revenue growth has slowed sharply with flagging retail sales and corporate profits. Income tax receipts are also sure to suffer as the job market weakens. California and Florida are under the most financial pressure, but states as far-flung as Arizona, Minnesota, and Maryland are also struggling.

As most state governments are required by their constitutions to quickly eliminate their deficits, most are already drawing up plans to cut funding for programs ranging from health care to education and cutting grants to local government. Local governments are having their own financial problems; most rely on property-tax revenues, which are slumping with house prices. Cuts in state and local government outlays are sure to become a substantial drag on the economy later this year and into 2009.

EPI: State aid “can help prevent” further economic downturn." In a January 11, 2008, report, the Economic Policy Institute noted:

During times of recession, state budgets are hit particularly hard. Reductions in tax receipts and cyclical increases in state spending put pressure on budgets -- and since most states have balanced budget requirements, they are forced to either reduce spending or increase taxes in times of decreased economic activity. These actions perversely add to economic troubles by decreasing the total demand for goods and services, and thus intensify a recession. As such, direct federal assistance to states can help prevent these outcomes and stimulate the economy. In the last recession, Congress provided $20 billion in aid to the states, split between general revenue sharing and a temporary increase in the federal match for Medicaid. The same kind of assistance should be provided to the states once again, with $30 billion split equally between a general block grant and an increase in the Medicaid match.

McCaughey cites claim that FDR's programs “did nothing to produce recovery”

McCaughey: Economists “lament that the Obama administration is making the same mistake” as Franklin Roosevelt. From McCaughey's column:

Economists who doubt that government spending can turn around a recession, and there are many who challenge that Keynesian notion, were not invited to the party.

If they had been, the range of guesstimates probably would have started with a negative number, suggesting jobs lost because of a delayed recovery.

These economists say FDR's spending programs did nothing to produce recovery during the Great Depression and lament that the Obama administration is making the same mistake.

Krugman: New Deal brought “real relief to most Americans,” but Roosevelt was “reluctant to pursue an all-out fiscal expansion,” “eager to return to conservative budget principles.” In a November 10, 2008, New York Times column, Paul Krugman criticized “a whole intellectual industry, mainly operating out of right-wing think tanks, devoted to propagating the idea that F.D.R. actually made the Depression worse,” stating:

The New Deal brought real relief to most Americans.

That said, F.D.R. did not, in fact, manage to engineer a full economic recovery during his first two terms. This failure is often cited as evidence against Keynesian economics, which says that increased public spending can get a stalled economy moving. But the definitive study of fiscal policy in the '30s, by the M.I.T. economist E. Cary Brown, reached a very different conclusion: fiscal stimulus was unsuccessful “not because it does not work, but because it was not tried.”

This may seem hard to believe. The New Deal famously placed millions of Americans on the public payroll via the Works Progress Administration and the Civilian Conservation Corps. To this day we drive on W.P.A.-built roads and send our children to W.P.A.-built schools. Didn't all these public works amount to a major fiscal stimulus?

Well, it wasn't as major as you might think. The effects of federal public works spending were largely offset by other factors, notably a large tax increase, enacted by Herbert Hoover, whose full effects weren't felt until his successor took office. Also, expansionary policy at the federal level was undercut by spending cuts and tax increases at the state and local level.

And F.D.R. wasn't just reluctant to pursue an all-out fiscal expansion -- he was eager to return to conservative budget principles. That eagerness almost destroyed his legacy. After winning a smashing election victory in 1936, the Roosevelt administration cut spending and raised taxes, precipitating an economic relapse that drove the unemployment rate back into double digits and led to a major defeat in the 1938 midterm elections.

What saved the economy, and the New Deal, was the enormous public works project known as World War II, which finally provided a fiscal stimulus adequate to the economy's needs

Baker: FDR “worried about the whining of the anti-stimulus crowd ... when the proper goal of fiscal policy should have been large deficits to stimulate the economy.” In a January 6, 2008, column, Dean Baker, co-director of the Center for Economic and Policy Research, wrote: “In reality, any careful reading showed that the New Deal policies substantially ameliorated the effects of the Great Depression for tens of millions of people. The major economic failing of the New Deal was that President Roosevelt was not prepared to push the policies as far as necessary to fully lift the economy out of the Great Depression.” Baker continued:

Roosevelt was too worried about the whining of the anti-stimulus crowd that he confronted. He remained concerned about balancing the budget when the proper goal of fiscal policy should have been large deficits to stimulate the economy. Roosevelt's policies substantially reduced the unemployment rate from the 25 percent peak when he first took office, but they did not get the unemployment rate back into single digits. [Alternet.org, 1/6/09]

DeLong: "[M]ore 'orthodox' economic policies" and attempt “to move the budget toward balance ... provide ample explanation of that downturn.” In a November 17, 2008, post on his personal blog, University of California-Berkeley economics professor Brad DeLong wrote, “Private investment recovered in a very healthy fashion as Roosevelt's New Deal policies took effect. The interruption of the Roosevelt Recovery in 1937-1938 is, I think, wel [sic] understood: Roosevelt's decision to adopt more 'orthodox' economic policies and try to move the budget toward balance and the Federal Reserve's decision to contract the money supply by raising bank reserve requirements provide ample explanation of that downturn.”

McCaughey suggests only “true believers” think stimulus created jobs -- but independent analysts agree

McCaughey attacks CBO estimate as made by “economists who claim government spending can produce recovery and job growth.” McCaughey wrote:

Still, it's a far cry from 3.5 million. The Biden report claims that “in August 2010 the non-partisan CBO determined that the Recovery Act has raised employment by up to 3.3 million jobs.” That is not what the CBO said.

The CBO could not “determine” such a thing, because the data do not exist.

Instead, the CBO called on economists who claim government spending can produce recovery and job growth to guesstimate, using their own theories and models, what the stimulus spending might yield in jobs. These true believers' guesstimates ranged from 1.4 million to 3.3 million more jobs in 2010 than if the law had not passed (with a cost-per-job of between $167,000 and $393,000).

Independent analysts agree that recovery act significantly raised employment. In its fourth quarterly report on the American Recovery and Reinvestment Act of 2009, the Council of Economic Advisers (CEA) included figures from independent analyses that also credited the recovery act with increasing employment:

WSJ: 70 percent of economists surveyed said stimulus helped. The Wall Street Journal reported on March 12 that 38 of the 54 economists it surveyed “said the American Recovery and Reinvestment Act boosted growth and mitigated job losses, while six said the legislation had a net negative effect.”

ABC News: Most on panel of economists “think the economy would be worse” without the stimulus. ABC News reported on February 18 that “most” of the economists on its panel “think the economy would be worse today without the big aid package, which totaled $787 billion and was signed into law by President Obama on Feb. 17, 2009.”

NABE: 83 percent say stimulus raised GDP. A February survey of 203 members of the National Association for Business Economics (NABE) found that "[e]ighty-three percent believe that GDP is currently higher than it would have been without the 2009 stimulus package (ARRA)."

USA Today: Surveyed economists said “stimulus package saved jobs.” USA Today reported on January 25:

President Obama's stimulus package saved jobs -- but the government still needs to do more to breathe life into the economy, according to USA TODAY's quarterly survey of 50 economists.

Unemployment would have hit 10.8% -- higher than December's 10% rate -- without Obama's $787 billion stimulus program, according to the economists' median estimate. The difference would translate into another 1.2 million lost jobs.

McCaughey uses misleading calculation to call job numbers "the definition of wasteful"

McCaughey's “arithmetic”: “Wasteful” stimulus spent “slightly less than $250,000 of taxpayers' money for each job created.” From McCaughey's column:

Last week, Vice President Joe Biden declared the stimulus legislation a success. In Biden's latest report on the American Recovery and Reinvestment Act of February 2009, the vice president boasts that it is on schedule to meet the goal of creating or “saving” 3.5 million jobs at a price tag of $787 billion.

Of course, The Washington Post fell for it, saying Biden's “report challenges public perceptions of the stimulus aid as slow-moving and wasteful.”

Not if you do the arithmetic.

It works out to slightly less than $250,000 of taxpayers' money for each job created -- and most of the jobs are temporary.

That's the definition of wasteful.

McCaughey states later in her article that a CBO estimate of jobs created by the stimulus did not include “jobs created indirectly by the projects,” but she did not note whether this also applied to the Biden report, which has not yet been publicly released.

Not all stimulus money has been spent. The Washington Post reported that “By the end of September, the administration had spent 70 percent of the act's original $787 billion.” Since not all money has been spent, McCaughey's estimate is misleading because it divides incomplete job numbers by the cost of the entire stimulus.

Calculation ignores other tangible benefits stemming from the package. In judging the package solely by dividing the Act's “price tag” by the number of jobs created or saved, McCaughey ignores other tangible benefits stemming from the package, such as infrastructure improvements and investments in education, health, and public safety. As Krugman and Baker have noted, such calculations also ignore that increased GDP caused by the package results in higher federal tax receipts, which, according to Baker, “should be subtracted from the cost to the taxpayers.”

AP on similar calculation: "[M]ath is satisfyingly simple but highly misleading." In a November 2, 2009, “fact check” article, the AP reported that “divid[ing] the stimulus money spent so far by the estimated number of jobs saved or created” is “highly misleading” because that calculation “ignores the value of the work produced” and only includes jobs produced “to date” from funds “that will fuel work for months or years”:

Beware the math. Some Republican lawmakers critical of President Barack Obama's stimulus package are using grade-school arithmetic to size up costs and consequences of all that spending. The math is satisfyingly simple but highly misleading.

It goes like this: Divide the stimulus money spent so far by the estimated number of jobs saved or created. That produces a rather frightening figure on how much money taxpayers are spending for each job.

On Friday, the White House released estimates that $160 billion in stimulus spending created or preserved 650,000 direct jobs.

By the critics' calculations, that's over $246,000 a job -- and a terrible deal for taxpayers. Why spend nearly $250,000 to employ a highway worker or a teacher making a small fraction of that?

The reality is more complex.

First, the naysayers' calculations ignore the value of the work produced.

Any cost-per-job figure pays not just for the worker, but for material, supplies and that worker's output -- a portion of a road paved, patients treated in a health clinic, goods shipped from a factory floor, railroad tracks laid.

Second, critics are counting the total cost of contracts that will fuel work for months or years and dividing that by the number of jobs produced only to date.

A construction project, for one, may only require a few engineers to get going, with the work force to swell as ground is broken and building accelerates.

Hundreds of such projects have been on the books, in which the full value of the contracts is already counted in the spending totals, but few or no jobs have been reported yet because the work is only getting started.

To flip the equation politically, it's as if the 10-year cost of George W. Bush's big tax cuts were compared with the benefits to the economy that only accrued during the first year.

Third, the package approved by Congress is aimed at more than direct job creation, although employment was certainly central to its promotion and purpose.

Its features include money for research, training, plant equipment, extended unemployment benefits, credit assistance for businesses and more -- spending meant to pay off over time but impossible to judge in a short-term job formula.

McCaughey is a serial misinformer

McCaughey repeatedly promoted misleading claims about health care reform. Media Matters for America named McCaughey its 2009 Health Care Misinformer of the Year for her relentlessly attacks on health care reform: McCaughey spread falsehoods and distortions through opinion pieces and television appearances - particularly at News Corp.-owned outlets such as Fox News, The Wall Street Journal, and the New York Post -- at nearly every stage of the debate. McCaughey falsely claimed that the health care reform bill would promote euthanasia of seniors, launched false attacks against health care policy adviser, Ezekiel Emanuel, and distorted numerous other provisions of the bill. In September, McCaughey teamed up with Newsmax to launch similar misleading attacks on health care reform.