Was Stimulus Worth the Cost?

The Congressional Budget Office, about as non-partisan an entity as exists within the bulging beltway of our nation's capital, has released a report on the American government's efforts to stem the tide of unemployment which swept the country after the housing bubble burst. According to the CBO, The American Recovery and Reinvestment Act (ARRA) lowered unemployment and raised GDP. Balancing out these undeniably good points is the cost; an estimated $830 billion over a ten year span.

While at the time of its passage President Obama and his friends in Congress suggested that the legislation would save or create about 3.5 million jobs, the CBO puts that figure within a range of 1.2 to 3.3 million. Doing a little back of the napkin math, this means that each job cost the American taxpayer somewhere between $250,000 and $690,000. Economists with the Fed, government officials with the Labor Department or someone at the Bureau of Labor Statistics might have some insights that we do not, some tools that could explain why such eye-popping costs are indicative of good policy, but it is hard for us to see that such numbers make sense.

Even if 3.5 million jobs had been saved as the now-obviously rosy projections suggested, the cost would still have been about $237,000 per job. Therefore, let us give decisionmakers the benefit of the doubt and use that number as an optimistic baseline. We don't have data to back this up, but we are thinking that most of the jobs 'saved or produced' don't pay as much as they cost. And, if they do, are those the people who need helping?

If those numbers don't seem particularly alarming, maybe a little thought excercise could help put them into perspective. What if the government had simply decided to instead write checks for $237,000 each to 3.5 million lucky unemployed Americans back in 2009? This would have arguably produced better results for the economy, as well as rather more interesting headlines. However, it is unlikely that taxpayers would have appreciated their contributions to the government coffers being utilized in such a way. If that is true, then why are people so accepting of ARRA?

As is usually the case, there are, of course, other factors which should be considered. For example, roads were repaired and bridges were built with the labor provided by the funds. Maybe the hole the country seems to still be stuck in would have lasted even longer without ARRA. Maybe the psychological boost of knowing that the government was at least trying something during one of the nation's darkest economic hours outweighed the admittedly simple math above. However, simple as our calculations may be, on the numbers alone, the logic would tell us that stimulus was not worth it.