The Stimulus Didn't Work
The data show government transfers and rebates have not increased consumption at all.

By JOHN F. COGAN, JOHN B. TAYLOR AND VOLKER WIELAND

Is the American Recovery and Reinvestment Act of 2009 working? At the time of the act's passage last February, this question was hotly debated. Administration economists cited Keynesian models that predicted that the $787 billion stimulus package would increase GDP by enough to create 3.6 million jobs. Our own research showed that more modern macroeconomic models predicted only one-sixth of that GDP impact. Estimates by economist Robert Barro of Harvard predicted the impact would not be significantly different from zero.

Now, six months after the act's passage, we no longer have to rely solely on the predictions of models. We can look and see what actually happened.

Consider first the part of the package that consists of government transfers and rebates. These include one-time payments of $250 to eligible individuals receiving Social Security, Supplemental Security Income, veterans benefits or railroad retirement benefits and temporary reductions in income-tax withholding for a refundable tax credit of up to $400 for individuals and $800 for families with incomes below certain thresholds. These payments, which began in March of this year, were intended to increase consumption that would help jump-start the economy. Now that a good fraction of these actions have taken place, we can assess their impact.
[Taylor Chart]

The nearby chart reviews income and consumption through July, the latest month this data is available for the U.S. economy as a whole.

Consider first the part of the chart pertaining to the spring of this year and observe that disposable personal income (DPI) the total amount of income people have left to spend after they pay taxes and receive transfers from the government jumped. The increase is due to the transfer and rebate payments in the 2009 stimulus package. However, as the chart also shows, there was no noticeable impact on personal consumption expenditures. Because the boost to income is temporary, at best only a very small fraction was consumed.

This is exactly what one would expect from "permanent income" or "life-cycle" theories of consumption, which argue that temporary changes in income have little effect on consumption. These theories were developed by Milton Friedman and Franco Modigliani 50 years ago, and have been empirically tested many times. They are much more accurate than simple Keynesian theories of consumption, so the lack of an impact should not be surprising.

Indeed, one need not have looked any further than the Bush administration's Economic Stimulus Act of 2008 to find plenty of evidence that temporary payments of this kind would not jump-start consumption. That package made one-time payments and rebates to people in the spring of 2008, but, as the chart shows, failed to stimulate consumption as had been hoped. Some argued that other factors such as high oil and gasoline prices caused consumption to fall during this period and that consumption would have been even lower without the stimulus, but no significant impact of these rebates is found even after controlling for oil prices.

Consider next the government-spending part of the stimulus package. The Obama administration points to the sharp reduction in the decline in real GDP from the first to the second quarter of 2009 as evidence that the package is working. Economic growth was minus 6.4% in the first quarter and minus 1% in the second quarter, so the implied improvement of 5.4 percentage points is indeed big. But how much of that improved growth rate can be attributed to higher government spending due to the stimulus? If we rely on predictions of models, again we see disagreement and debate. According to our research with modern macroeconomic models, the increase in government spending would add less than a percentage point, a relatively small portion. The model predictions cited by the administration's economists suggest a much larger portion: two to three percentage points. Prof. Barro's model predicts zero.

So let's look at the data on the contributions of government spending and other components of GDP to the 5.4 percentage-point improvement. By far the largest positive contributor to the improvement was investment which went from minus 9% to minus 3.2%, an improvement of 5.8% and more than enough to explain the improved GDP growth. Investment by private business firms in plant, equipment and inventories, rather than residential investment, were the major contributors to the investment improvement. In contrast, consumption was a negative contributor to the change in GDP growth, because consumption growth declined following the passage of the stimulus package.

One is hard put to see what specific items in the stimulus act could have arrested the decline in business investment by such a magnitude. When one looks at monthly investment indicators such as new orders for nondefense capital goods one sees a flattening out starting early in the first quarter of 2009, well before the package went into operation. The free fall of investment orders caused by the financial panic last fall stabilized substantially by January, and investment has remained relatively stable since then. This created the residue of a very large negative growth rate from the fourth quarter of 2008 to the first quarter of 2009, and then moderation from the first quarter to the second of 2009. There is no plausible role for the fiscal stimulus here.

Direct evidence of an impact by government spending can be found in 1.8 of the 5.4 percentage-point improvement from the first to second quarter of this year. However, more than half of this contribution was due to defense spending that was not part of the stimulus package. Of the entire $787 billion stimulus package, only $4.5 billion went to federal purchases and $17.7 billion to state and local purchases in the second quarter. The growth improvement in the second quarter must have been largely due to factors other than the stimulus package.

Incoming data will reveal more in coming months, but the data available so far tell us that the government transfers and rebates have not stimulated consumption at all, and that the resilience of the private sector following the fall 2008 panic not the fiscal stimulus program deserves the lion's share of the credit for the impressive growth improvement from the first to the second quarter. As the economic recovery takes hold, it is important to continue assessing the role played by the stimulus package and other factors. These assessments can be a valuable guide to future policy makers in designing effective policy responses to economic downturns.

Mr. Cogan, a senior fellow at the Hoover Institution, was deputy director of the Office of Management and Budget under President Ronald Reagan. Mr. Taylor, an economics professor at Stanford and a Hoover senior fellow, is the author of "Getting Off Track: How Government Actions and Interventions Caused, Prolonged and Worsened the Financial Crisis" (Hoover Press, 2009). Mr. Wieland is a professor of monetary theory at Goethe University in Frankfurt, Germany.

Why it is still too early to start withdrawing stimulus

By Martin Wolf

“Our unprecedented, decisive and concerted policy action has helped to arrest the decline and boost global demand.” Thus did the finance ministers and central bank governors of the Group of 20 leading high-income and emerging economies pat themselves on the back over the weekend. They were right. The response to the crisis was both essential and successful. But it is still too early to declare victory.

Ben Bernanke, recently nominated by Barack Obama to a second term as chairman of the Federal Reserve, made the point at this year’s Jackson Hole monetary symposium: “Without these speedy and forceful actions, last October’s panic would likely have continued to intensify, more major financial firms would have failed and the entire global financial system would have been at serious risk. [W]hat we know about the effects of financial crises suggests that the resulting global downturn could have been extraordinarily deep and protracted.”

Two groups of thinkers reject this viewpoint. One argues that the economy is always in equilibrium. If unemployment has exploded upwards it can only be because, after Lehman imploded, workers chose to take a holiday. An alternative view is that depressions are the natural consequence of excess. Both the guilty and the innocent must suffer, as past errors are purged.

Rightly, policymakers rejected such views. Economies are not always in equilibrium and, while a correction of excesses in asset prices, financial markets and consumption had become inescapable, a cumulative downward spiral was neither inevitable nor tolerable.

The rescue of the financial system, unprecedented monetary easing and fiscal expansion (most of the latter being automatic rather than discretionary) have indeed put a floor under the world economy. JPMorgan analysts add to this a second, more temporary, element: a “correction by firms that planned for far worse economic and financial conditions at the start of the year than have been realised”. As a result, it now forecasts annualised growth of gross domestic product of 4 per cent in the US and 3 per cent in the eurozone in the third quarter.

Perhaps the most striking success has been the recovery of the financial sector. Indeed, this resurgence, while welcome, is embarrassing: financiers are back to their high-earning ways, while tens of millions of people have lost their jobs, economies are far below potential and public sector debt is exploding upwards. It is little wonder that bonus-bashing is on the menu.

Indicators of risk aversion in financial markets have improved markedly. As confidence has returned, stock markets have rebounded, though they remain well below past peaks. In the real economy, manufacturing output has stabilised: a substantial rebound is likely, as the inventory cycle turns. The consensus of forecasts for 2010 is now showing successive monthly improvement, with China and India leading the way globally and the US, as usual, leading among the big high-income countries. (See charts.)

So what should be done now? The G20 finance ministers were right to agree “the need for a transparent and credible process for withdrawing our extraordinary fiscal, monetary and financial sector support as recovery becomes firmly secured”. But having a credible plan is a very different matter from implementing it. Indeed, having a credible plan is the way to avoid premature reversal of policies.

Many worry about inflation. Currently, this borders on hysteria. More importantly, that danger will not be reduced by early withdrawal of stimulus. On the contrary, that could make the danger even bigger, since it could well provoke yet another round of aggressive interventions.

Why, then, is there no good reason to worry about inflation right now?

First and foremost, the world economy has massive excess capacity. This is impossible to measure precisely, particularly after recent upheavals. In its most recent Economic Outlook, the Organisation for Economic Co-operation and Development estimated the difference between actual and potential output this year at more than 5 per cent of potential output in its member countries. Growth next year needs to be at least 2 to 3 per cent for this gap to fall. On the latest consensus of forecasts, that will not happen.

Second, even heavy public sector debts are sustainable. The real interest rate paid by the US government on its debt, for example, is below 2 per cent. So servicing a ratio of net public debt to GDP as high as 100 per cent would cost 2 per cent of GDP. It is ludicrous to argue that this would be an insupportable burden. Moreover, for an economy growing at 4 per cent a year in nominal terms (surely the minimum one would expect of the US, in the long term), net public debt could be stabilised at 100 per cent of GDP with a fiscal deficit of 4 per cent of GDP. This is not a recommendation, but an observation.

Finally, the expansion of the Federal Reserve’s balance sheet, including the jump in the reserves of the commercial banks, will only generate inflation once lending and spending start to take off. But these are precisely the circumstances in which it will be easiest for the Fed to drain excess liquidity. True, it might wait too long. But it does not have to do so.

Now suppose that, instead of keeping calm, the authorities are frightened into premature monetary and fiscal tightening. Given the extreme fragility of the private sector, that could cause another economic downturn. The inevitable result would be another round of emergency fiscal and monetary measures. The point is fundamental: exceptional monetary and fiscal measures are not the root cause of the danger. The weakness of the private economy is at its root. The policy measures are a consequence.

All this makes the implementation of national and global “exit strategies” a matter of exquisite judgment. Almost certainly, errors will be made. But it is perfectly clear what the core elements will have to be: credibly independent central banks; a credible commitment to fiscal responsibility, in the long term; and rebalancing of global demand, away from dependence on the high-spending countries of old.

Is this going to be easy? Definitely not. Is it even going to happen? I fear not. But policymakers have at least given us the opportunity to discuss the exit. That is a success. Now we need to build a vigorous global recovery upon it.

The Jobless Stimulus

It's still not too late to redirect $400 billion to business tax cuts.

The recession may be over on Wall Street and Silicon Valley, but on Working Family Avenue it still has a ways to run. That's the lesson of yesterday's August jobs report that showed losses of 216,000, which believe it or not is the slowest monthly decline in a year and caused the White House to praise with the faint damn that the "trajectory is in the right direction." That's the good news.

On the other hand, the jobless rate popped up to 9.7%, the highest rate in 26 years, from 9.4%, reflecting an increase in the size of the labor force. The main concern we see going forward is the slow pace of new job creation to soak up the 7.4 million workers who have lost jobs since 2007.

View Full Image

Associated Press

Two people look for work on computers at JobTrain, an educational and training institution that also offers career counseling and job placement services.

There are now 26 million Americans who can't find a full-time job. Average weekly hours remained at an abysmally low 33.1—which is putting a strain on family budgets. And the jobless rate including so-called discouraged workers, or those who have stopped looking, leapt to 16.8% from 16.3% in July. Meanwhile, the number of Americans working part-time who want full-time work increased by 278,000 to 9.1 million, which as a share of the workforce is larger than at any time since the recession of 1982. These are the workers that employers will tend to hire first as a recovery unfolds, so it is worrisome that this cohort remains so large.

None of this does much for the credibility of the Obama Administration's stimulus spending plan, which was sold with the promise of a jobless rate this year of "below 8%" if the stimulus were passed. That was off by some three million jobs in a mere seven months. The same economists who fretted in February that $780 billion in stimulus was too small now claim that the $300 billion or so that has been spent has somehow ignited the recovery.

But a tax-cutting stimulus would have provided much more job and economic growth for the buck, and it could even now too. If the Administration really wants to fire up private job creation, how about taking the remaining $400 billion or more and using it to lower business taxes? The unspent stimulus is enough for a two-year down payment on repealing the U.S. corporate income tax, which studies show is a job and wage-increase killer.

Congress could also reconsider its July minimum-wage increase of 70 cents an hour, which almost certainly contributed to the leap in teenage unemployment to 25.5% in August. The rate was 24% in June and 23.8% in July, before the wage hike started to price low-skilled teens looking for jobs out of the workplace. Congress would be wise to suspend the increase until the overall jobless rate falls below 7%.

Of course neither of our proposals is going to happen given the current policy views in Washington, but someone has to speak up for workers who want a job, as opposed to those lucky enough to still have them.

We still believe an economic recovery is under way, and some job growth will certainly follow. But the danger is that the U.S. will recover with only European levels of job creation. The French and Germans have had a hard time bringing down unemployment even during expansions, thanks to the burden of high taxes, regulation and onerous union work rules. The economic agenda now pending on Capitol Hill includes all three of these burdens, so it's no wonder that employers are being supercautious before they add to their payrolls.

The U.S. economy is a remarkably resilient animal, and even deep recessions have always been followed by recoveries, usually strong ones. But businesses aren't going to rehire nearly as many workers amid the current policy uncertainty. The faster Congress defeats cap and trade, union card check and the House health-care bill, the better for job creation.

The Squandered Stimulus

By Robert Samuelson

WASHINGTON -- It's not surprising that the much-ballyhooed "economic stimulus" hasn't done much stimulating. President Obama and his aides argue that it's too early to expect startling results. They have a point. A $14 trillion economy won't revive in a nanosecond. But the defects of the $787 billion package go deeper and won't be cured by time. The program crafted by Obama and the Democratic Congress wasn't engineered to maximize its economic impact. It was mostly a political exercise, designed to claim credit for any recovery, shower benefits on favored constituencies and signal support for fashionable causes.

As a result, much of the stimulus' potential benefit has been squandered. Spending increases and tax cuts are sprinkled in too many places and, all too often, are too delayed to do much good now. Nor do they concentrate on reviving the economy's most depressed sectors: state and local governments; the housing and auto industries. None of this means the stimulus won't help or precludes a recovery, but the help will be weaker than necessary.

How much is hard to determine. By year-end 2010, the package will result in 2.5 million jobs, predicts Mark Zandi of Moody's Economy.com. But as Zandi notes, all estimates are crude. They involve comparing economic simulations with and without the provisions of the stimulus. The economic models must make assumptions about how fast consumers spend tax cuts, how quickly construction projects begin and much more.

Depending on the assumptions, the results vary. When the Congressional Budget Office (CBO) made job estimates, it presented a range of 1.2 million to 3.6 million by year-end 2010. Whatever the actual figures, they won't soon mean an increase in overall employment. They will merely limit job losses. Since late 2007, those have totaled 6.5 million, and there are probably more to come.

On humanitarian grounds, hardly anyone should object to parts of the stimulus package: longer and (slightly) higher unemployment benefits; subsidies for job losers to extend their health insurance; expanded food stamps. Obama was politically obligated to enact a campaign proposal providing tax cuts to most workers -- up to $400 for individuals and $800 for married couples. But beyond these basics, the stimulus plan became an orgy of politically appealing spending increases and tax breaks.

More than 50 million retirees and veterans got $250 checks (cost: $14 billion). Businesses received liberalized depreciation allowances ($5 billion). Health care information technology was promoted ($19 billion). High-speed rail was encouraged ($8 billion). Whatever the virtues of these programs, many spend out slowly. The CBO estimated that nearly 30 percent of the economic effects would occur after 2010. Ignored was any concerted effort to improve consumer and business confidence by resuscitating the most distressed economic sectors.

Vehicle sales are running 35 percent behind year-earlier levels; frightened consumers recoil from big-ticket purchases. Falling house prices deter homebuying. Why buy today if the price will be lower tomorrow? States suffer from steep drops in tax revenues and face legal requirements to balance their budgets. This means raising taxes or cutting spending -- precisely the wrong steps in a severe slump. Yet, the stimulus package barely addressed these problems.

To promote car sales and homebuying, Congress could have provided temporary but generous tax breaks. It didn't. The housing tax credit applied to a fraction of first-time buyers; the car tax break permitted federal tax deductions for state sales and excise taxes on vehicle purchases. The effects are trivial. The recently signed "cash for clunkers" tax credit is similarly stunted; Macroeconomic Advisers estimates it might advance a mere 130,000 vehicle sales. States fared better. They received $135 billion in largely unfettered funds. But even with this money, economists at Goldman Sachs estimate that states face up to a $100 billion budget gap in the next year. Already, 28 states have increased taxes and 40 have reduced spending, reports the Office of Management and Budget.

There are growing demands for another Obama "stimulus" on the grounds that the first was too small. Wrong. The problem with the first stimulus was more its composition than its size. With budget deficits for 2009 and 2010 estimated by CBO at $1.8 trillion and $1.4 trillion (respectively, 13 percent and 9.9 percent of gross domestic product), it's hard to argue they're too tiny. Obama and congressional Democrats sacrificed real economic stimulus to promote parochial political interests. Any new "stimulus" should be financed by culling some of the old.

Here, as elsewhere, there's a gap between Obama's high-minded rhetoric and his performance. In February, Obama denounced "politics as usual" in constructing the stimulus. But that's what we got, and Obama likes the result. Interviewed recently by ABC's Jake Tapper, he was asked whether he would change anything. Obama seemed to invoke a doctrine of presidential infallibility. "There's nothing that we would have done differently," he said.

RECOVERY.ORG VS. RECOVERY.GOV: HOW THE PRIVATE SECTOR, NOT THE FEDS, IS TRACKING STIMULUS SPENDING IN REAL TIME

Commerce Secretary Locke: Fine Line Between Economic Stimulus and Protectionism

By Alexis Glick

My last guest of the day was U.S. Secretary of Commerce Gary Locke, and boy did he have a lot to say about government intervention and regulation, small businesses and trade.

Earlier today he announced the creation of “one-stop shop advocacy centers” for small businesses that have trained professionals from all the Federal agencies that can help a small business owner expand his/her business.

“A business owner or entrepreneur now doesn’t have to go from five different agencies, different addresses, and different buildings or try to navigate the dozens of different Web sites of the federal government to access different services and programs that can really benefit a company.”

He cited the impact small businesses have on the health of the economy and said small and medium businesses are responsible for most of the jobs in our economy and account for nearly 90% of exports.

We also explored how the U.S. competes with China, in which he said education is crucial.

“If we want to compete, if we want jobs for our children and our grandchildren we need to make sure they have the skills necessary to get those good paying jobs.”

He also said we need to enforce our trade agreements with China to protect our inventions, intellectual property and creations that are being ripped off.

We also talked about the lack of proper government oversight that led to the current economic crisis, in which he told me the government has no intention to run GM or Chrysler and wants to turn over the day-to-day management to the private sector as soon as possible.

Locke continued to say there is a fine line between economic stimulus and protectionism. Locke referenced a recent law Congress passed that stopped Mexican truckers from bringing their products into the United States, which in turn caused the Mexican government to retaliate and hurt US farmers.

“Protectionism, once you start it it ends up in a trade war and everyone gets hurt.”

Check out the full interview below:

How Stimulating Is Stimulus?

Lee E. Ohanian

Not very. (Sorry, Paul Krugman.)

Last week's column elicited strong opinions from readers about government stimulus programs as a tool for promoting recovery, and led some to ask for another column on this topic. Strong opinions are held not only by Forbes readers, but seem to be the norm when it comes to stimulus.

There are a number of economists who strongly object to even the basic idea that government spending is a useful tool during this crisis. For example, 1995 Nobel Laureate Robert Lucas called multiplier estimates from Economy.com "schlock economics"; John Cochrane of the University of Chicago has called government spending stimulus "a fallacy"; Robert Barro of Harvard called one version of the American Recovery and Reinvestment Act (ARRA) "the worst bill that has been put forward since the 1930s."

Other economists say stimulus proponents are basing their arguments on the economics of yesteryear. Thomas Sargent of New York University and the Hoover Institution remarked that the support for the ARRA "ignore[s] what we have learned in the last 60 years of macroeconomic research," while 2004 Nobel Laureate Edward Prescott has said, "Stimulus is not part of the language of economics. There is an old, discarded theory that's been tried and failed spectacularly. The stimulus bill is likely to depress the economy."

On the other side of the debate, however, Nobel Laureate Paul Krugman has written that "first-rate economists keep making truly boneheaded arguments against [stimulus]." Others, like Robert H. Frank of Cornell, have also come out punching for stimulus.

So what are the sources of these strong differences of opinion? The arguments in favor of government spending stimulus, including the majority of those discussed in the media, come from the traditional Keynesian view that government spending increases aggregate demand--the sum of consumer, business, government and net foreign expenditure--and that increasing aggregate demand increases real output and income.

Now whether this actually works or not depends largely on the impact of higher public spending on private consumption and investment. In the Keynesian model, private spending rises in response to higher public spending, which leads to the controversial multiplier effect--one dollar of government spending increases real GDP by more than one dollar.

Spending skeptics regard the impact of government spending on private spending very differently, as the Keynesian model was replaced many years ago, at least among research economists; and many of the presumptions of the Keynesian model have changed as well. The central message from new research on fiscal policy is that the impact of government spending depends critically on what the spending is on, and how it is ultimately financed.

For these reasons, there is no simple answer to the question of how spending affects the economy, but what new research does tell us is not supportive of spending stimulus programs. Studies that include the important requirement that higher spending must be ultimately financed with higher tax rates find that government spending expansions do not expand the economy.

In some cases, higher spending can raise GDP for a short period of time if tax increases are delayed, but the greater the delay, the greater the long-run decline in employment and output that ultimately swamps the temporary gain. These findings are summarized in a new paper by Harald Uhlig of the University of Chicago, who writes that "the analysis here may lead one to conclude that the long-term consequences of massive expansions in government stimulus come at substantial costs."

And if public spending is a very close substitute for private spending, there may well not be even temporary gains from higher spending.

Edward Prescott's research presents evidence that an important reason hours worked in Northern and Western Europe are 30% lower today than in the 1960s is because of higher government spending that substitutes very closely for private spending in conjunction with large tax increases that were required to pay for this spending.

The key reason recent studies don't find a Keynesian-level multiplier is because the higher taxes on incomes or expenditures that ultimately accompany higher spending depress economic activity. And the depressing effect of these tax increases is the largest when government spending closely replaces private expenditures. Ironically, the largest temporary gains of higher spending occur when the spending is on items that have little direct value to consumers, such as military spending.

Recent military episodes are too small to cleanly detect this in the data, but my recent work with Ellen McGrattan of the Federal Reserve Bank of Minneapolis presents evidence that one reason the World War II economy boomed was because the level of war expenditures--which represent a pure drain of resources from households--was off the chart. Consequently, it is not surprising that economic activity was high during the war. If employment hadn't increased significantly in wartime, there would have been very few resources available with with households could consume.

The bottom-line thinking among many economists specializing in this area is that the current body of research doesn't warrant a $787 billion package with the goal of spurring the economy. But this doesn't imply government should never consider increasing spending during economic declines.

The standard approach for judging government spending is cost-benefit analysis, which judges a project to be worthwhile if the costs--including impact on future taxes--are less than the benefits it provides. It may be useful for government to consider accelerating spending on worthwhile programs during a downturn, since the cost of some initiatives, such as construction projects, may indeed be lower.

A more modest fiscal program founded along cost-benefit lines would have engendered support from at least some of the most vocal critics of the ARRA. And at least some of the programs within the ARRA would pass a cost-benefit test. But anecdotes from the ARRA indicate that not all would pass this test. For example, the Minneapolis City Council voted to spend $2 million in ARRA funds for developers to convert a vacant theater into a dance center. The city estimated the project would create about 48 permanent jobs, far fewer than a solar energy panel manufacturing plant that the city estimates would create 360 jobs. But that manufacturing plant was awarded just $300,000, which wasn't sufficient to warrant the plant being opened. Councilman Paul Ostrow, in a dissenting vote, said the theater wasn't creating enough jobs to justify stimulus investment, but the solar-energy plant "clearly fit the president's goals ... It was a home run."

As I noted last week, most of the ARRA funds have yet to be spent. The Minneapolis example raises questions about whether reasonable cost-benefit analysis is being used in calculating where to invest ARRA money. Let's hope cost-benefit analysis is used sensibly as the ARRA moves forward.

Lee E. Ohanian is a professor of Economics and director of the Ettinger Family Program in Macroeconomic Research at UCLA. (Forbes columnist Thomas F. Cooley returns next week.)

Sen. Coburn Targets Stimulus Jobs He Calls Wasteful

Checking Obama's Stimulus Math

Obama's Charter Stimulus

An incentive for states unfriendly to school choice to mend their ways.

The Obama Administration's $100 billion in "stimulus" for schools has mostly been a free lunch -- the cash dispensed by formula in return for vague promises of reform. So we were glad to hear that Education Secretary Arne Duncan is now planning to spend some of that money to press states on charter schools.

"States that don't have charter school laws, or put artificial caps on the growth of charter schools, will jeopardize their application" for some $5 billion in federal grant money, Mr. Duncan said in a conference call with reporters this week. "Simply put, they put themselves at a competitive disadvantage for the largest pool of discretionary dollars states have ever had access to."

Charter schools improve public education by giving parents options and forcing schools to compete for students and resources. For low-income minority families, these schools are often the only chance at a decent education. Charters are nonetheless opposed by teachers unions and others who like the status quo, no matter how badly it's serving students. As a result, 10 states lack laws that allow charter schools (see nearby table), and 26 others cap charter enrollment.

To his credit, Mr. Duncan singled out some of the worst anticharter states. "Maine is one of 10 states without a charter schools law, but the state legislature has tabled a bill to create one," he said. "Tennessee has not moved on a bill to lift enrollment restrictions. Indiana's legislature is considering putting a moratorium on new charter schools. These actions are restricting reform, not encouraging it."

On everything from test scores to graduation rates, charters in many states regularly outperform nearby public schools serving the same demographic groups. View Park Preparatory High School, for example, is a charter school located in predominantly black South Los Angeles, where the graduation rate is under 50%. Yet earlier this week View Park graduated every senior for the third consecutive year, and the entire class has been accepted to college. Charters are also much easier to shut down if children aren't learning, unlike traditional public schools that live on indefinitely regardless of student performance.

The Obama Administration's new rhetoric is certainly welcome, but the political reality is that every Member of Congress will want to see some of this money sent to his home state. So Mr. Duncan will be under intense pressure to soften or fudge his terms. A good test case will be Ohio, where Democratic Governor Ted Strickland's budget would reduce charter funding by 20% and add regulations that could make their creation more difficult.

This is one way that unions and their political allies try to kill charters by starving them rather than opposing them outright. Will these facts be considered when Mr. Duncan is determining which states are hostile to charters? And will he be willing to take on the unions in a state crucial to the President's re-election bid in 2012?

As a percentage of what the Obama Administration is spending on education, $5 billion isn't much. But it does give the federal government some leverage, and the best way to use it is for Mr. Duncan to show states that he means what he says about charters.

Cancel Rest of Stimulus Spending

45% Say Cancel Rest of Stimulus Spending

Forty-five percent (45%) of Americans say the rest of the new government spending authorized in the $787-billion economic stimulus plan should now be canceled. A new Rasmussen Reports national telephone survey found that just 36% disagree and 20% are not sure.

According to news reports, only $36 billion of the stimulus plan had been spent as of late May.

Just 20% of adults say the tax cuts included in the stimulus plan should be canceled while 55% disagree. The stimulus plan includes $288 billion in tax cuts.

While there is a wide partisan gap on the question of stimulus spending, there is little partisan disagreement on maintaining the tax cuts.

President Obama on Monday vowed to speed up the pace of stimulus spending and said the money will help “create or save” 600,000 more jobs this summer.

However, only 31% of Americans believe the new government spending in the stimulus package creates new jobs. Forty-eight percent (48%) say the stimulus spending does not create jobs, and 21% are not sure.

Americans have mixed feelings about whether speeding up the new government spending in the stimulus package will help the economy. Thirty-nine percent (39%) say the increased spending will be good for the economy, but 44% say it will be bad. Eight percent (8%) think it will have no impact.

A plurality of government employees believe speeding up the stimulus will be good for the economy. However, those who work in the private sector strongly disagree.

(Want a free daily e-mail update? If it's in the news, it's in our polls). Rasmussen Reports updates are also available on Twitter.

Only 31% of U.S. voters believe the economic stimulus package has helped the economy. That's down from 38% when it first passed in February.
For the first time in years, voters now trust Republicans more than Democrats on the handling of the economy.

Fifty-three percent (53%) of Americans believe that increases in government spending are generally bad for the economy. For nearly four-out-of-five U.S. voters, the unwillingness of politicians to control government spending is a bigger problem than the public’s resistance to more taxes.

Most voters continue to worry that the federal government will do too much in reacting to the country’s current economic problems.

As for canceling the rest of the stimulus spending, most Republicans and say cancel it while most Democrats disagree. Unaffiliated adults are more closely divided, but 44% believe the spending should be stopped. Most investors also say the new spending should be canceled.

No Republicans in the House voted for the stimulus, plan and just three GOP senators supported it. Because of the political backlash from his vote for the stimulus package, Republican Senator Arlen Specter of Pennsylvania switched parties and became a Democrat to improve his chances of reelection next year.

Most voters predicted that Congress would pass the stimulus plan without knowing what was in it, as many legislators later acknowledged. Sixty percent (60%) also believed the plan was not a bipartisan effort but was instead mostly what congressional Democrats wanted since they control both the House and Senate.

Please sign up for the Rasmussen Reports daily e-mail update (it’s free) or follow us on Twitter. Let us keep you up to date with the latest public opinion news.

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Daniel J. Mitchell debates Stimulus Jobs on CNBC

Chris Chocola Talking About the Stimulus

Recall the Stimulus

Recall the Stimulus

A Commentary by Lawrence Kudlow

Testifying before the House Budget Committee this week, Ben Bernanke said that when the time comes, the Fed will raise interest rates in order to stop inflation from building in the next recovery. He also asked for "fiscal balance" to sustain financial stability. On the surface -- in terms of keeping prices stable and restoring value to the softening U.S. dollar -- this is positive. Surely Bernanke wants to do right for America, and he's giving it his best shot.

But when you talk to traders and economists, the whisper story is that Bernanke and the Fed are no longer truly independent of the Obama White House and Treasury. As a result, Bernanke will not be able to slow down the printing presses and gradually lift the near-zero target rate in a timely and effective manner. Already the Fed has created more than $1 trillion in new cash, and the M2 money supply is growing at its fastest pace in 25 years.

This monetary explosion explains what's really driving the dollar down and Treasury rates up (alongside rising gold and oil prices). It's not huge budget deficits, but the growing fear that a less-than-independent Fed will keep pushing new money into the financial system in order to fund Obama's liberal spending policies.

This week, German Chancellor Angela Merkel launched a broadside against the Fed, saying she views the Fed's powers "with great skepticism." It was an important rebuke. Here's the elected leader of a major country actually telling a central bank to stop the printing presses and avoid creating yet another inflationary bubble during the next recovery cycle. In other words, it's the printing presses, stupid.

Rising inflation and interest rates are always a monetary problem. When Dick Cheney said a few years ago that deficits don't matter, he was basically right. There is no clear relationship between budget deficits, inflation and interest rates. In fact, for most of the'80s and '90s, and much of the 2000s (excepting the 2003-05 bubble), interest rates and inflation fell while deficits averaged over $200 billion a year and got as high as 6 percent of gross domestic product at some points. This is because Paul Volcker and Alan Greenspan restrained money-supply growth in a non-inflationary manner.

Now surely today's $2 trillion deficit -- which is 13 percent of GDP and likely to remain very high -- is a shocking number. But if the Fed refuses to monetize the deficit, inflation will stay low and long-term interest rates will normalize. Conventional economists and most politicians do not understand that excess money is the root cause of inflation, spiking rates and a bad, unwanted dollar.

Unfortunately, with the Fed purchasing Treasury bonds, mortgage-backed securities and other asset-backed bonds, the growing suspicion is that Bernanke and Co. are too entangled in Obama economic policy. Therefore, a timely Fed exit strategy is just as unlikely as a timely fiscal exit strategy to remove unnecessary budget spending and TARP money.

With clear signs of economic recovery on the horizon, some are now calling for an end to the unnecessary stimulus package and a de-TARPing across the board. Along with a big rise in the money supply, there's been a rebound in commodities, a stabilization in housing, falling unemployment claims, a booming stock market, narrowing credit spreads and rising Institute for Supply Management manufacturing reports. All this is telling us that additional stimulus is unnecessary.

Economic blogger Scott Grannis says, "Recall the stimulus." Professor Russell Roberts of George Mason notes that only $36 billion of the stimulus has been spent through May, out of a total $787 billion. And USA Today reports that $209 billion in countercyclical automatic safety-net stabilizers -- which is apart from the stimulus package -- has already been spent on unemployment insurance, food stamps, Medicaid and early Social Security retirements.

On the eve of recovery, with all this prior spending, why on earth do we need more?

Policy analyst Dan Clifton tells me that the $200 billion spending increase scheduled for 2011 to 2019 should definitely be rolled back from the Obama stimulus package, before it's built into the current-services spending baseline. And let's not forget that the Obama Democrats already passed a $400 billion omnibus spending bill for 2009. So anybody in Washington who is serious about spending and deficits can save hundreds of billions of dollars by rolling back the stimulus package and TARP. The financial system is healing, and banks want to pay TARP down anyway.

Here's the moral of this story: Excessive Fed pump-priming and over-the-top federal spending is what matters, not the budget deficit. If we keep paying people not to work by piling on more transfer payments and government subsidies, economic growth will suffer mightily. And if the Fed keeps buying bonds issued by Uncle Sam, inflation will ratchet higher.

Republicans, are you listening? Roll back the unnecessary stimulus, and restore the Fed's independence.

A Government Stimulus That Works

A Government Stimulus That Works
The Gun and Ammo Industry Is Booming

by Perry Backus

FLORENCE - Every day, Darren Newsom's three Bitterroot Valley Ammunition facilities crank out 300,000 rounds of ammunition.

It's not nearly enough.

“I'm going about 100,000 rounds in the wrong direction every day,” Newsom said. “We probably have about six months of back orders right now.” Newsom has been in the ammunition manufacturing business for more than 20 years and he's never seen demand this high.

Fearful of the Obama administration's potential to tighten gun control laws, people from all over the country are stocking up on guns and ammunition.

“I went through the Clinton years and there was a bit of a scare then,” Newsom said. “This is like the Clinton years on steroids. � On the day of the election, our phones started going nuts. It hasn't stopped since.”

As a master distributor for ATK - the world's largest ammunition business - Bitterroot Valley Ammunition supplies other ammunition manufacturers around the country with the components needed to make bullets.

“I get a million primers in every other day and most are shipped out the very next day,” he said. “I have 100 million primers on back order right now. We just can't get enough of them.”

At a recent gun show in Salt Lake City, Newsom sold somewhere between 300,000 and 400,000 rounds in the first two hours.

“It's just unreal,” he said. “Somewhere in lots of basements around the country, there are millions of rounds of ammunition being stored.”

Local businesses have felt the ammunition shortage.

At Bob Ward's in Hamilton, Mike Matteson said there has been quite a run on ammunition and reloading supplies like bullets and powder since the election.

“We are especially low right now with pistol ammunition,” Matteson said. “There are four or five calibers that we don't even have on our shelves.”

Matteson said he didn't believe manufacturers were prepared for the panic buying that's occurred since the election.

“They tell us that they're months behind on some calibers - .22 ammo is really tough to come by,” he said. “Our gun sales are up somewhere between 30 (percent) to 35 percent or better. A good percentage of those sales are pistols.”

Firearm and ammo sales aren't the only place where concerns about gun control are cropping up.

Ravalli County Sheriff Chris Hoffman has seen a marked increase in the number of people applying for concealed weapons permits since November.

Montana is a “will-issue” state for concealed weapons permits. Any law-abiding citizen who fills out the application and can show they've completed some form of firearm safety course can obtain a permit.

The county is averaging about 38 requests for renewals or new permits a month. Last year, the requests averaged about 25.

“It's definitely a noticeable increase,” Hoffman said.

The sheriff said he's hearing from people who are concerned about what might happen over the next four years with the gun control issue.

“We are being asked what would be the stance of local law enforcement if the federal government calls for the confiscation of firearms,” Hoffman said. “That's a very real concern for people.”

Gary Marbut, the longtime president of the Montana Shooting Sports Association in Missoula, said the seeds of the current ammunition shortage can be traced back almost a decade to the Y2K scare.

“Many people became concerned about their ability to get ammunition back then and they stocked up quite a bit,” Marbut said.

In the intervening years, China blossomed and bought up world copper supplies. Wars in Iraq and Afghanistan used up warehouses full of U.S. ammunition that needed to be replenished. That forced higher prices for civilian ammunition and people started using some of the bullets they had squirreled away after Y2K, Marbut said.

And now, with the current economic and political uncertainty, people are looking to restock their supplies at a time when most ammunition manufacturers aren't willing to expand their operations.

“The whole demand side of this is so flexible and the supply side is not,” he said.

The ammunition shortage is creating a bit of an economic boon for Ravalli County.

Newsom plans to open a fourth manufacturing facility in Stevensville sometime in September. He employs about 50 people right now and could add up to another 100.

“There are a lot of people out of work right now,” he said. “Two years ago, I probably couldn't find 10 people to go to work for us. Now I have 10 people a day coming in here looking for a job.”

Newsom believes the need for ammunition won't go away. This scare is creating a whole new group of ammunition customers for the future, he said.

Need proof?

Take the .380 caliber pistol. A year ago, Newsom said there was hardly a demand for the ammunition. Since then, the .380 auto pistol has become very popular with women.

“One year ago, it wasn't in demand and now it's some of the most sought ammunition in the U.S.,” he said. “There are more people getting into shooting and that's one thing about ammunition - you can only shoot it once.”

Dead People Get Stimulus Checks

Dead People Get Stimulus Checks

Andrew Roth

Stimulus Might End Up Being a Sedative

Thomas Sowell: Stimulus Might End Up Being a Sedative

Dr. Thomas Sowell shares his views on the Obama economic plan and how the U.S. economic turmoil began.

We Need an Immigration Stimulus

A recession is exactly when we want innovative outsiders.

• By L. GORDON CROVITZ

At the dawn of the Industrial Age, in 1719, the British Parliament passed a law banning craftsmen from emigrating to France or other rival countries. The law also targeted anyone who tried to entice skilled British workers to share technological information with foreigners.

"At that time the chief concern was the loss of iron founders and watchmakers," Gavin Weightman writes in his new book, "The Industrial Revolutionaries." Spies from around the world tried to uncover the secrets of British engineering, but "were often reduced to lurking around local inns, hoping to engage knowledgeable workmen in conversation and induce them to cross the Channel for some splendid reward."

This attempted protectionism of ideas was doomed by easier travel and communication. The precursor to the London Times complained in 1785 that a Briton who set up a textile plant in France had "entailed more ruin and mischief on this kingdom than perhaps even the loss of America."

Which brings us to our own era, and the debate on immigration reform beginning this week with congressional hearings that include an appearance by former Federal Reserve Chairman Alan Greenspan. President Barack Obama says he wants to address the issue by the end of the year.

It usually pays to be skeptical about immigration reform, given the alliance between nativists and labor unions for tighter borders. Still, an economic downturn is the right time to move on immigration, one of the few policy tools that could clearly boost growth.

The pace of lower-skilled migration has slowed due to higher unemployment. This could make it less contentious to ease the path to legalization for the 12 million undocumented workers and their families in the U.S. It's also a good time to ask why we turn away skilled workers, including the ones earning 60% of the advanced degrees in engineering at U.S. universities. It is worth pointing out the demographic shortfall: Immigrants are a smaller proportion of the U.S. population than in periods such as the late 1890s and 1910s, when immigrants gave the economy a jolt of growth.

Immigrants have had a disproportionate role in innovation and technology. Companies founded by immigrants include Yahoo, eBay and Google. Half of Silicon Valley start-ups were founded by immigrants, up from 25% a decade ago. Some 40% of patents in the U.S. are awarded to immigrants. A recent study by the Kauffman Foundation found that immigrants are 50% likelier to start businesses than natives. Immigrant-founded technology firms employ 450,000 workers in the U.S. And according to the National Venture Capital Association, immigrants have started one quarter of all U.S. venture-backed firms.

Banks getting federal bailouts are saddled with new hurdles to get visas for skilled workers. The wait for H-1B visas for skilled people from countries such as China and India is now more than five years, with only 65,000 visas granted annually among 600,000 applications. But countries such as Canada and Singapore actively recruit technologists and scientists. As Intel Chairman Craig Barrett has suggested, instead of sending the half million higher-education students from overseas home when they graduate, we should "staple a green card to their diplomas."

Economic recovery and immigration are closely linked, as New York City Mayor Mike Bloomberg also understands. Last month he launched a business-plan competition targeting business and engineering students overseas with winners getting cash and introductions to venture capitalists in the city. "Unfortunately, as we're moving to open our doors even wider to the world, Congress is moving in the opposite direction," Mr. Bloomberg said.

There's a strong case that we need both more skilled and unskilled immigrants. In "The Venturesome Economy," Columbia business professor Amar Bhidé showed that wherever technology is developed, it's the creative application of innovation that builds great businesses. The Web was conceived in a lab in Switzerland, but it matured in Silicon Valley. Mr. Bhidé argues that immigrants at all levels, including as "venturesome consumers," are an important reason the U.S. retains a strong lead in innovation, even as the lead in advanced technology and science has eroded.

At a time when our financial-capital markets are still reeling from the credit bust, the human-capital market remains open for business. Fewer workers will be lured to the U.S. during a recession, but the ones who come will speed recovery. There are costs to immigration, especially in border states with generous welfare programs, but the overall benefit is akin to the advantages of free trade in goods and services.

In contrast to the early days of the Industrial Revolution, when manufacturing secrets drove competitive advantage, today's information technologies thrive as innovators share new ideas and make businesses out of them. Much of this activity is being done by foreigners who want to become economically successful Americans. This makes more open immigration one of the few stimulus packages Washington can deliver with confidence that it would help.

U.K.'s Brown Denies G-20 Stimulus Split

In Interview, Prime Minister Says His Country Has Spent Enough, Emphasizes Central Banks' Solutions

STEPHEN FIDLER, JOANNA SLATER, MATTHEW COWLEY

U.K. Prime Minister Gordon Brown, facing growing pressure over the size of Britain's fiscal deficits, sought to play down a split among the Group of 20 leading nations over stimulus plans and said the U.K. was already taking big steps through a combination of government spending and interest-rate cuts.

In an interview in New York with The Wall Street Journal, Mr. Brown tried to smooth the sharp public differences among the biggest players in the global financial system before the G-20 meets next week outside London -- and also nip any dispute with his own country's central banker over whether the U.K. should spend more.

U.K. Prime Minister Gordon Brown discusses the difference in priorities for the G-20 meeting between Europe and the U.S., in an interview with Robert Thomson, managing editor of The Journal.

This week, Bank of England Gov. Mervyn King told an influential Parliament committee there is little room for further U.K. stimulus. "There is no doubt that we are facing very large fiscal deficits over the next two to three years," he said. "But given how big those deficits are, I think it would be sensible to be cautious about going further in using discretionary measures to expand the size of those deficits."

That joined a growing chorus of European leaders, including European Central Bank President Jean-Claude Trichet in an interview the Journal published Monday, who have stressed that ballooning fiscal deficits could backfire and damage public and business confidence.

On Wednesday, outgoing Czech Prime Minister Mirek Topolánek, in remarks to the European Parliament, slammed U.S. President Barack Obama's stimulus plan as "the road to hell" that European Union governments must avoid, according to the Associated Press. The Czech Republic currently holds the EU's rotating presidency; Mr. Topolánek's government lost a no-confidence vote Tuesday in the Czech Parliament.

The U.S. and U.K. have until now emphasized the need for a significant fiscal boost through tax cuts and extra government spending, while France and Germany have focused more on better regulation of financial markets. Still, Mr. Brown, in his comments Wednesday, said talk of divisions between the leading governments had been exaggerated.

He said the summit wouldn't be an attempt to strong-arm countries into announcing stimulus packages. "Nobody is suggesting that people come to the G-20 meeting and put on the table the budget they're going to have for the next year," he said, adding that the timing of such decisions was up to individual countries.

He depicted fiscal stimulus as just one of three ways the U.K. authorities are boosting the economy. He suggested they had already pursued all three, raising questions about whether a further fiscal boost was likely in the annual budget announcement due April 22.

"We're doing it by interest rates being incredibly low, we're doing it by our fiscal stimulus and we're doing it by what is probably not yet understood by the public as one of the most effective and quicker ways of getting activity moving in the economy -- by quantitative easing," Mr. Brown said. In quantitative easing, central banks inject money into the economy by direct purchases of financial assets.

The prime minister added: "If you take these three changes that have happened over the last few months together, that is where you look for results, in the combination of these three."

The U.K. government has kept plans for its April 22 budget closely guarded. Treasury chief Alistair Darling has said repeatedly that the government will do "whatever is necessary and for as long as that is necessary" to lift the economy, but he has also reiterated his government's commitment to bringing down borrowing in the medium term.

Mr. Brown said that while official interest rates in the U.S. and U.K. were lower than in Europe, he expected the European Central Bank, which sets rates for the 16-nation euro-zone economy, to cut its rates further. The ECB has trimmed its policy rate to 1.5%, the lowest in the central bank's 10-year history, from 4.25% in October, and markets expect a further quarter-percentage-point cut at its next meeting April 2.

More

• British Bond Auction Fizzles
• German Confidence Slumps to New Low
• Czech Premier Slams Obama Stimulus Plan

Mr. Brown reiterated a warning against protectionism. "The greatest danger we face as trade starts to fall is that countries will resort to protectionist measures," he said, pledging that preventing such moves would be at the top of the G-20 summit agenda.

Mr. Brown stressed that he saw more consensus than disagreement among nations on the way forward. There was broad agreement, he said, on the need for common rules regarding accounting standards, regulation of banks, and remuneration.

"A world without standards is going to be a world without stability," he said. "The purpose of the G-20 [summit] is to agree on action we can take together, not to impose a single regulator," an idea he called ridiculous.

The G-20 summit is the start of a process, Mr. Brown said, which "must end with the reform of the global institutions." He argued that institutions like the International Monetary Fund and the World Bank must change to address the challenges of a globalized economy.

Mr. Brown said he doesn't expect the G-20 to discuss the issue of a supranational global reserve currency, which has been raised recently by Russia and China.

The U.K. prime minister said that while the short-term economic focus will be on deflation, longer-term inflationary threats like higher oil prices will need to be dealt with once global growth resumes. Mr. Brown warned against falling prey to what he called "undue pessimism," joking that he had recently seen a newspaper headline that read "England collapses before lunch." "Luckily, it was only cricket scores," he said.

Old Europe Is Right on Stimulus

Treasury Secretary Timothy Geithner heads to Europe today to lobby for a "global stimulus" from the G-20 countries that are holding an economic summit two weeks hence. This follows White House economic czar Larry Summers's weekend call for a "global stimulus," which leaders in Europe roundly rejected Monday. They were right to do so.

German Chancellor Angela Merkel and the other Europeans know whereof they speak, since a number of countries have decades of experience trying to spend in a vain attempt to boost growth. The Obama Administration came into office promising to listen to its friends and allies, so when Europe says non to gargantuan spending, maybe the President and his advisers should listen.

After a meeting of Euroland finance ministers Monday, Luxembourg's Jean-Claude Juncker delivered the Continent's verdict on global stimulus. "Recent American appeals insisting that the European make an additional budgetary effort to combat the effects of the crisis were not to our liking," he said. That's putting it nicely. When the EU established the euro in 1999, it put in place strict limits on deficit spending and debt-to-GDP ratios. Those limits have not been universally honored within the currency bloc, but there's a reason they're there.

For decades, countries like Greece, Italy and Belgium had run up huge national debts trying to pay for social-welfare programs and keep their economies afloat at the same time. The chief result of these policies was a huge pile of IOUs. In Italy, the national debt stood at 107% of GDP in 1999. In Belgium and Greece it was 104%. Greece's fiscal house was so disordered that it was excluded from the first group of euro countries.

So from its founding, the euro zone insisted that countries not respond to every economic downturn by piling up debt. Budget deficits are supposed to be limited to 3% of GDP, and total debt to 60% of GDP. This has worked imperfectly, but debt ratios have for the most part come down or remained steady. Italy's debt-to-GDP ratio is now 96%. Greece is at 105%, while France and Germany have hovered around 50% and 40%, respectively. U.S. debt stood at 36% of GDP at the end of 2007 -- before the financial panic and stimulus started piling it on. (See the nearby chart.) The U.S. has run up $1 trillion in publicly held debt in the past six months alone -- that's 7% of GDP right there. Calling on Europe to follow this example is like dangling a bottle of grappa in front of a recovering alcoholic.

While he's in the U.K., perhaps Mr. Geithner should also ask his European counterparts whether any of them have ever seen a 1.5 Keynesian "multiplier" in the wild. That's the idea -- promoted by Mr. Summers -- that every $1 of deficit spending yields $1.5 in economic growth. If that were true, Italy would be the richest country in Europe, instead of merely one of the most indebted.

And if the Treasury Secretary is looking for something to read on the plane, we recommend a recent paper by a trans-Atlantic team of four economists -- two Germans and two Americans. The authors -- John Cogan and John Taylor of Stanford and Tobias Cwik and Volker Wieland of Goethe University -- subject the Administration's stimulus to the most recent Keynesian scholarship.

The White House estimates of 3.6 million new jobs is based on an "Old Keynesian" model on the impact of government spending, while the new models adjust for the rational behavioral response to the stimulus by businesses and consumers. The White House figures, by economists Christina Romer and Jared Bernstein, also assume zero interest rates for a minimum of four years. The alternative assumes, more reasonably, that as growth returns interest rates will also rise.

What the four economists found is that the Administration's estimates for stimulus growth were six times as high as they could produce under a modern Keynesian simulation. By their estimates, the stimulus would produce, at most, 600,000 jobs and add perhaps 0.6% to GDP at its peak. That's nowhere near a multiplier of 1.5 and suggests the $800 billion would have been better devoted to business tax cuts or fixing the financial system. That's $1.3 million in spending per job, for those keeping score at home.

Our guess is that the Administration is itself worried that its stimulus will come up short, while it fears Congress won't abide another round. Already the outside intellectual godfathers of the Obama plan are denying paternity, claiming the biggest spending bill since World War II is "too small." (Talk about lacking the courage of your convictions.) So now they and Mr. Summers want the rest of the world to ride to the rescue by repeating our mistakes.

The problem isn't the size of Mr. Obama's fiscal stimulus but its design. If countries in Europe want to help the recovery, they'd do better to try marginal rate tax cuts on income and investment -- the sort of fiscal policy that actually changes incentives to work and invest. Then we could watch and see which approach encouraged recovery faster. But the last thing Europe should do is follow Larry Summers and the out-of-date Keynesians down the spending road to nowhere.