Stimulus and Jobs

I found a paper addressing the effect of the Stimulus Bill of 2009 on jobs and job creation:  "The American Recovery and Reinvestment Act: Public Sector Jobs Saved, Private Sector Jobs Forestalled" by Timothy Conley and Bill Dupor, economics professors from University of Western Ontario and the Ohio State University, respectively.  The best estimate of the study is that ARRA created/saved approximately 450,000 state and local government jobs, while it destroyed/forestalled about one million private sector jobs.  The authors discuss the margin of error for their estimates and the differences with the conclusions of others in assessing the effectiveness of the program.  I am comfortable with the rigorous methodology applied to empirical data, and the impartiality of the authors.

The major conclusion to be be drawn is that the results of this traditional Keynesian prescription were not realized.  The theory is that the government sector, with its unlimited borrowing and taxing authority, should take up the slack in generating aggregate demand in the economy.  In this case, though, the policy had a negative effect of 550,00 net jobs lost.

This is not meant to be a criticism of the policy embodied by ARRA.  Rather, I bring it up to inform future economic analysis in the investment decision making process when similar policies are pursued.  That is, Keynesian spending can not be counted on to preserve private sector jobs, though it can offset those losses somewhat with public sector employment.

Special Thanks to: QandO.net