Ignoring stimulus effects, CNN's Romans uncritically reported "safety net spending doesn't necessarily create new jobs"
Research ››› ››› JEREMY HOLDEN
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.