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Stimulus still just a drop in the bucket

Reuters reported today that “49,377 jobs had been ‘created or sustained’ by water, highway and public transportation projects” in June compared to slightly more than 21,000 jobs the month before.   Of course, 49,377 jobs in a country of over 300 million people is not much more than rounding error.  And it hardly makes a dent in the 467,000 jobs lost in June by the rest of the economy.

Yes, 10 jobs in the “real” economy are being lost for every 1 job purported to be created by government stimulus.  And at $338,000 of your tax dollars being spent for each job ($16.7 billion in projects divided by 49,377 jobs), this is clearly a losing proposition.  (We take these numbers directly from the Reuters press release).

The point that we have tried to make over and over again is that the government cannot spent us out of this recession.  Try as Congress might, all of the earmarks in the world cannot compensate for a sluggish consumer — who still makes up around 70% of the economy.

Faced with a long-term, deflationary downturn in consumer spending, Japan did throughout the 1990s what the President and Congress are attempting to do today.  They tried every form of stimulus under the sun…and in the end, they got very little return on their “investment.”  Today, Japan remains mired in its economic funk, but their government debt has reached over 200% of GDP — levels generally only seen in times of prolonged war.

Charles Sizemore, CFA

Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy