In an attempt to solve the nation’s current economic woes, legislators remain fixated on a single solution: federal stimulus spending. This is the wrong solution, regardless of the sweet rhetoric used by some Washington lawmakers, and is no economic stimulus.
Two days ago the Senate passed (62 to 36) another round of stimulus (this time dubbed a “jobs bill”) which, among other items, extends unemployment benefits for up to one additional year. Unemployment benefits will now extend to two years under federal law which begs the question: Are these benefits becoming a de facto welfare program?
Moreover, states and businesses have been bracing for the pain of financing these changes for a while now; State governments are already drawing on ‘loans’ from the federal government.
By 2012, States unemployment trust funds are expected to be fully depleted—at which time the federal government will have to replenish these funds with approximately $90 billion.
States are also turning to higher tax rates faced by employers in those states to cover the costs of these extensions. States like Hawaii are floating a tax-rate hike as much as 600 percent, and 35 states will likely raise the unemployment tax rates faced by businesses. Also, it will force many businesses, especially small businesses, to defense against rising costs at a time when the economy could be looking at an upswing.
Washington lawmakers have shown no restraint in financing stimulus programs with bloated deficit spending. These types of federal spending (or ‘stimulus’) programs have unintended consequences, notably, that they produce severe constraints on state budgets and higher tax rates faced by businesses. And, as Heritage scholars, James Sherk and Karen Campbell, posit:
Extended UI benefits reallocate resources within the economy; they do not create wealth or spur economic growth. Increasing the debt burden on future taxpayers may have the appearance of a stimulus, but unless it increases GDP by more than is spent, it is not… Pumping debt money into the economy may appear as a stimulus while it is being spent because it eases some liquidity constraints—but 75 to 83 cents of every dollars of that spending is lost. Therefore, once the spending stops the bubble bursts because the increases in GDP were artificial.
Was the stimulus (A) a job creation bill or, (B) a liberal spending wish list? A new Government Accountability Office (GAO) study suggests that option B is closer to the truth. Small wonder it did not bring unemployment down.
Obama publicly argued that America needed the $862 billion bill to create jobs and singled out “green job” spending as the key to an economic recovery. The stimulus itself, however, looked a lot like not letting “a good crisis go to waste” and pouring public money at liberal special interests.
Remember all the green jobs weatherizing homes that Obama said the stimulus would fund? Because Obama would not waive regulations that benefit unions the Department of Energy has weatherized just 1 out of every 65 homes they planned to.
The Davis-Bacon Act (DBA) requires contractors on all federal construction projects to pay “prevailing wages.” In theory, those prevailing wages are supposed to be market wages. In practice, the Department of Labor uses slow, error-ridden, and unscientific methods to estimate them. As a result Davis-Bacon rates typically echo union wage scales: an average of 22 percent above market wages. By law the government hires four construction workers for the price of five.
Unions love this. No one can charge taxpayers less than they do. Jobs that would otherwise go to nonunion workers instead go to them at wages no one else would pay.
Obama’s stimulus spent billions on home weatherizing and then required contractors to pay Davis-Bacon wages. That meant that the Department of Labor first had to estimate Davis-Bacon rates for home weatherizing. It took them until September to do it. Then state and local governments had to train their staff to comply with the Act’s paperwork, which meant more delays. The GAO found that these delays caused the Department of Energy to weatherize just 9,100 of the 593,000 homes it intended to last year.
President Obama could have cut through this red tape with the stroke of a pen. The law allows the President suspend the Davis-Bacon Act. Doing so would have allowed his “green jobs” programs to go forward immediately. The savings from paying market wages would have also funded more infrastructure projects and an additional 160,000 construction jobs.
But those jobs would not go primarily to union members, as they will under Davis-Bacon restrictions. So Obama kept Davis-Bacon restrictions in place. He chose to wait and to create fewer jobs in order to ensure that the stimulus spending benefited primarily union members. Which sort of answers the question of whether the stimulus was about economic recovery or spending on liberal interest groups.