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Posts Tagged ‘debt ceiling’

Cost of a Job

What is the cost of a job?  Priceless… if you’re without one.

The American Recovery and Reinvestment Act of 2009 (a.k.a., the Recovery Act or the Stimulus), was enacted in February 2009 to create jobs and stimulate business investment in the recession which became severely pronounced at the end of 2008.  The original cost estimate was $787 billion. The most recent estimate is a $862 billion price tag.

President Obama and the supporters of the Stimulus argued that unemployment would exceed 9% without the Stimulus, but it would never be higher than 8% if the Stimulus was enacted.  Sadly, the unemployment rate reached 8.2% in February 2009, the month the Stimulus was passed, and exceeded 9% in May 2009. The rate has remained above 9% for over two years, except during February and March of 2011.

The Stimulus proponents have maintained that it was beneficial, and things would have been much worse without the Recovery Act.  This may be true, but it’s a difficult argument to make.

On July 1, 2011, the President’s Council of Economic Advisors released the most recent report on the progress and effect of the Recovery Act.  The report touted the Recovery Act’s success in creating or saving 3.6 million jobs.  Even if you accept the inclusion of a “saved job”, which is a controversial claim itself, the average cost per job is currently estimated to be $278,000.

The opponents of the Stimulus seized on this number to further criticize the Stimulus.  In their mind, the cost per job is highly excessive and is further proof of the government’s inability to spend money efficiently and effectively.  The White House argues the calculation was skewed, and the Recovery Act was intended to do much more than create jobs.

Despite all of the rhetoric coming from all sides of the political spectrum, the long-term benefits of the Recovery Act remain questionable.  One long-term effect is easily quantifiable – the additional debt incurred to fund the Recovery Act.  Since the government didn’t have $862 billion of extra cash on hand, we had to borrow it.  Thus, every American is responsible for an additional $3,800 of debt as a result of the Stimulus.

The effectiveness of the Stimulus may be debated a long time to come.  Whether we are better off or not, no one will ever truly know.  However, one thing is probably clear.  We’re not likely to see another $800 billion Stimulus Bill anytime soon.  With a $14 trillion debt, which is growing by over $3 billion per day, we simply can’t afford it.

If your job was created or saved as a result of the Stimulus, you probably think it was money well spent, although I doubt you actually got $278,000.  If you did, let us know how you achieved it.  Then again… maybe you better keep it to yourself.

Raising the National Debt Ceiling

Within a matter of days, the U.S. Treasury is expected to hit the ceiling on its authority to borrow money on behalf of the U.S. Government.  Treasury Secretary Geithner has already made plans to extend this timeframe by a couple of months.  Most of it involves deferring payments and accounting gimmicks to buy the President and Congress more time.

I have no doubt that the debt ceiling will be raised.  With a projected budget deficit of nearly $1.5 trillion this year, there is no way our politicians will balance the budget any time soon.  Thus, the Treasury will need to continue to borrow more money to fund the government.  The real issue is how much more borrowing will be allowed and what spending cuts and fiscal reforms will be enacted.

For the most part, the debate over raising the debt ceiling is political theater and brinkmanship.  Sadly, it’s another example of the dysfunction in Washington.  If it wasn’t so serious, it would be funny.  A couple of years ago when George W. Bush was President, the Democrats resisted raising the debt ceiling and the Republicans argued that it was necessary.  Now that President Obama occupies the Oval Office, it’s exactly the opposite.  The Republicans are balking and the Democrats are calling them irresponsible.

Most of the Members in Congress would like to raise the debt limit by $2 trillion, which would fund the government until after the 2012 election.   At the current rate of overspending, the limit would be reached shortly after the 113th Congress is seated and the President is inaugurated in 2013.

Earlier this week, Speaker Boehner said that the Republicans want to cut spending by the same amount that the debt ceiling is raised.  Given the recent agreement on the 2011 budget, it’s doubtful the Republicans will come anywhere near this goal.  While campaigning in 2010, the Republicans promised to cut $100 billion from the 2011 budget.  The final  agreement was $38 billion. Of that amount, a substantial portion included accounting gimmicks and money that wasn’t going to be spent anyway. If they couldn’t agree to cut spending by $100 million, how in the world will they ever come close to eliminating a $1.5 trillion annual budget deficit?

If you believe the U.S. Government needs some significant changes in its fiscal policy, then you must pay very close attention to what happens, and you’ll need to do some digging to get to the truth.  It’s unfortunate, but you can’t take statements by our elected officials at face value.  Most of what they say is political posturing and spin.  Rarely do they tell the whole truth.  There is often more to the story.  The real truth of the $38 million of spending cuts in the latest budget deal is a prime example.

As much as I am troubled by the growing national debt, I think raising the debt ceiling is necessary.  To immediately cut $1.5 trillion of spending from a $3.5 trillion budget is too much too quickly. However, it doesn’t mean that significant changes can’t be made.  The President and Congress need to stop patting themselves on the back for cutting less than 1.5% of total spending.  It’s a pittance in relationship to the magnitude of the problem.

Raising the debt ceiling is necessary to avoid a current crisis, and making significant cuts to the current spending and fiscal policies is needed to evade a long-term catastrophe.