Skip to comments.Romer's Prediction of 5.1% Unemployment With Stimulus Was Horribly Wrong (U3 Unemployment is 10.7%*)
Posted on 03/10/2013 3:26:52 PM PDT by whitedog57
The sequesteria (irrational fear of sequestration) continues. For example, Newark Mayor Cory Booker claims that the sequester is brunt, brutal and blind. The Obama Administration suspended tours of the White House because of sequestration. George Mason University City and Regional Planning Professor Stephen Fuller claims that 2.14 million jobs could be lost because of the sequester.
Now, take a deep breath.
* Sequestration reduces the rate of increase in federal spending. It does not cut a penny of actual spending.
* Under the sequester, total federal spending goes up, just by less than it would have gone up without sequestration. HOW is this a cut in spending?
* Total federal spending in 2012 was $3.53 trillion. The Presidents budget request for 2013 was $3.59 trillion, an increase of $68 billion (about 2%). Under sequestration, total federal spending in 2013 will be $3.55 trillion, an increase of only $25 billion (a little less than 1%).
The only way that the sequester is a cut in spending is if corporations and the government PLANNED on increased spending and it does not happen. Moral to the story: do not count your chickens until they hatch.
Well, the government has made erroneous predictions before (or oversold the impact of spending). Take for example Chrissie Romer and Jared Bernsteins prediction of unemployment with and without the economic stimulus.
As Don Adams from Get Smart once said: Missed it by that much.
To make matters worse, the U3 unemployment is actually above 10% if we hold labor force participation rate constant. And U6 unemployment is at 17.3%. Our employment recovery is really about people dropping out of the labor force (and more part-time jobs being created rather than full-time jobs).
This brings me to another mirage: the Consumer Price Index for housing (aka, the Consumer Price Index for All Urban Consumers: Owners equivalent rent of residences). According to this measure of inflation, house prices in terms of equivalent rent have been steady. But if we compare the Case-Shiller 20 City house price index, we see the mirage: house prices are far more volatile than what the Consumer Price Index leads us to believe.
While house prices have increased over the past year, mortgage purchase applications remain in the doldrums. Hence, this is really an investor/all-cash recovery. The mirage is that housing is recovering from traditional home buyers. Not so.
Another mirage is economic benefit of immigration. While immigration can lower production costs, it also stresses out the social services system. Just ask the Germans. Here is another story on Romas (Romanian immigrants) coming to Germany for the social benefits. And showing great appreciation for the charity of the German people!
The bottom line is that employment numbers, the benefits from stimulus, the Bureau of Labor Statistics measure of housing inflation and sequestration impacts are largely a mirage.
During the Bush yeas we had 5.`1 without any stimulus - why would spending trillions change anything.