President Obama claims his recently proposed American Jobs Act could provide $1.3 billion to Nevada and create nearly 10,000 jobs.
But what the historical data strongly suggests, says a Duquesne University economics professor, is that the money will do no such thing.
“The government does not create jobs. It moves jobs,” says Dr. Antony Davies, who is also a research fellow at George Mason University’s Mercatus Center.
“Yes, it is absolutely the case that when the government spends money, jobs appear,” he says. “But that’s only half of the argument.
“The other half is that the money doesn’t fall from heaven — right? You get the money by taxing somebody else. So when you’re taxing somebody else, you’re destroying jobs.
“What really happens is, you’re moving jobs,” says Davies.
So is it possible that Obama’s legislation could still move jobs to Nevada — even if equivalent jobs are being destroyed somewhere else?
That prospect appears unlikely, since — in the competition between the states for federal dollars — Nevada is a net loser, by a hefty margin: As of last year, only 65 cents of every dollar paid by Nevadans in federal taxes returned to the Silver State in the form of federal spending.
Moreover, says Davies, the longer-term historical impact of all so-called government stimulus spending is actually negative. He cites data over 50 years showing that when one looks back, from either four or eight quarters down the road after government spending, the impact of that spending on economic growth is seen to be negative (See here and here).
As multiple observers have noted, Obama’s proposed legislation greatly resembles his 2009 stimulus package, the American Recovery and Reinvestment Act (ARRA) — although the president now conspicuously avoids the word “stimulus.”
ARRA channeled more than $3 billion in federal funds into Nevada state and local governments, part of some $830 billion nationally that the administration said would “create or save” 3.5 million “shovel-ready” jobs and prevent unemployment from exceeding 8 percent.
As of June 30, according to the most recent filing on ARRA’s website, Nevada had received more than $3.3 billion from the federal government, which went to “create or save” some 3,893 government or government-funded jobs in the state over the two-year period ending June 30, 2011.
At a per-capita rate of approximately $847,675.30 — split over the two years — each job would have cost taxpayers $423,837.65.
Now, however, the White House is projecting that about $1.3 billion will “create or save” more than 9,000 Nevada jobs — more than twice as many as allegedly resulted from the ARRA’s $3.3 billion.
Specifically, the administration’s online summary claims Nevada would receive:
first responders/ educators
refurbishing/rehabilitating foreclosed homes
The resulting jobs claimed are:
first responder jobs
public school jobs
The Obama administration’s pronounced efforts to subsidize state and local government employees — very apparent in the 2009 ARRA legislation — are also noticeably present in the administration’s proposed jobs act.
One possible reason for this, a Harvard study has recently suggested, is that so-called “blue states,” where the administration’s government-employee-union allies are strong, increasingly are being seen by bond traders as at greater risk of default than so-called “red states.”
Daniel Nadler and Sounman Hong are the authors of a recent study that mathematically reveals robust correlations between the higher interest rates charged certain states in the bond markets and those states’ higher debt, powerful government-employee unions and the pronounced dominance of Democrats in the state legislature.
“We find that, all things being equal, states with weaker unions, weaker collective bargaining rights, and fewer left-leaning state legislators pay less in borrowing costs at similar levels of debt and similar levels of unexpected budget deficits than do states with stronger unions and more left-leaning legislators,” wrote Nadler and Hong in their conclusion.
Although Nevada was not one of the states cited in the study, it fits many of the criteria observed by the Harvard authors.
For example, one good indicator of union power — prevailing wage law — was the subject of a report earlier this year by Geoff Lawrence, deputy policy director at the Nevada Policy Research Institute. It showed how Nevada law has been skewed to give labor unions publicly financed wages higher than anything obtainable in a free market.
“Due to the artificially high union wage rates that prevailing wage laws effectively require, taxpayers become liable for paying inflated labor costs on public works projects,” Lawrence wrote in his Who Really Prevails Under Prevailing Wage? study. “Nevada’s prevailing wage laws forced taxpayers to pay at least $972 million extra for public works projects in 2009 and 2010 alone.”
Tax cuts and an unemployment-benefit-based retraining proposal are also included in the White House legislation and — in an exception — are expected to get support in the Republican Congress.
Tom Cargill, an economics professor at the University of Nevada, Reno, said unless the tax cuts are made permanent, the market will react negatively.
“The market knows the cuts will end at some point and businesses can’t plan long-term when they know something may end,” said Cargill. “There’s a fundamental failure of politicians on both sides of the aisle to understand the proper role of government.
“For politicians of both parties to pat themselves on the back and think D.C. creates jobs is nonsense,” he said. “There was an opportunity for a serious jobs discussion but [the administration bill] ends up looking like a political document, spending the same kind of money on the same groups.”
The Jobs Act, if passed as is, could benefit Nevada by default, according to Stephen Brown, director of the University of Nevada, Las Vegas’ Center for Business and Economic Research, simply because of the state’s high unemployment rate.
“At this moment, it’s funny because Nevada would see some benefit but I don’t think the rest of the U.S. would,” said Brown. “Standard Keynesian economists would say this is stimulus but it’s a little bit of kicking the can down the road.”
Both Cargill and Brown were skeptical about the bill’s chances of passing Congress.
Although Republicans have introduced their own American Jobs Act in the House, majority Democrats in the Senate have yet to introduce Obama’s bill.
Steven Miller is the managing editor and Kyle Gillis is an investigative reporter on Nevada Journal, a publication of the Nevada Policy Research Institute. For more in-depth reporting, visit https://nevadajournal.com/ and http://npri.org/.