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Biden Spent $1.9 Trillion on Stimulus But Created Almost No Jobs
By Jack Salmon
President Biden was quick to claim credit for last year's big job gains when the December employment report was released. The president tweeted Friday: “We added 6.4 million jobs last year” and proclaimed that “the American Rescue Plan got the economy off its back and humming again.”
While it’s true that 6.4 million more Americans were working last month than a year earlier, did the $1.9 trillion stimulus plan signed into law in March have anything to do with it? Probably not. The Biden White House predicted the plan would create 4 million jobs last year on top of the natural increase in jobs if the plan wasn’t passed. But with the 2021 numbers now in, it turns out the economy created roughly the same number of jobs that was expected if no plan had happened.
Political leaders often revel in positive employment numbers and make bold claims that they created the new jobs. But policymakers don’t create jobs, the private sector creates jobs, and it does so especially well when bureaucrats get out of the way. After COVID hit in 2020, government shutdowns and stay-at-home orders forced millions of Americans out of work. The economy has been recovering those job losses, though total employment is still 3.5 million below pre-pandemic levels.
A Big Promise
Let’s look at how Biden sold his stimulus plan. Last February, a post by two members of the White House Council of Economic Advisers claimed that the plan would boost total employment in 2021 by 4 million jobs above what was already expected. That figure came from a Moody’s Analytics report by economist Mark Zandi. That should have made the figure immediately suspect because Zandi is fond of large stimulus packages and has an abysmal track record of economic forecasts.
Nevertheless, progressive policymakers who were pushing for more stimulus seized on his number. On the floor of the House of Representatives in the weeks before the bill passed, Speaker Nancy Pelosi noted that “if we do not enact this package, the results could be catastrophic: depriving workers and the economy of 4 million fewer jobs.”
Now that total employment data for 2021 is available, we can see whether the forecast was accurate. Last February, the Congressional Budget Office estimated that without the stimulus, 6.25 million jobs would be added in 2021. Actual job growth in 2021 was 6.44 million. Far from creating 4 million extra jobs, the $1.9 trillion plan, at best, created 190,000 jobs above what was expected. In other words, each new job cost $10 million in taxpayer money or more debt.
The failure to add the 4 million jobs can likely be explained by a misplaced faith in large fiscal multipliers and their ability to create jobs. Another likely explanation is that expanding overly generous unemployment insurance, combined with stimulus checks and other extended income-support programs, meant that fewer Americans returned to work than would have been the case without the stimulus plan.
This is hardly the first time policymakers and economists misled the public about the job-creating power of a huge spending bill. In 2009, when the incoming Obama administration was pushing the American Recovery and Reinvestment Plan, a $787 billion stimulus package, one of the same progressive economists who posted about last year’s package, Jared Bernstein, co-authored a report claiming the bill would create 3 million to 4 million jobs. He forecast that if the bill passed, the unemployment rate would fall to 7% by the end of 2010. Instead, the number of jobs continued to fall in 2009, and the unemployment rate remained above 9% at the end of 2010.
The statistics that Biden heralded as good news are quite the opposite. His claim of stimulus spending drastically boosting employment growth in 2021 turned out to be unfounded. While in some respects the economy may be “humming again,” as the president put it, it’s humming along to the tune of inflation as too many dollars continue to chase too few goods—thanks in large part to the American Rescue Plan.