Friday, June 04, 2010

Obama's Perpetual Motion Machine

The employment news for May sounded good at first - 431,000 jobs were created. The fine print tells a different story - most of those jobs were government jobs. Only 41,000 jobs were in private industry. Worse, the biggest share of the nearly 400,000 government jobs was for temporary jobs as census workers.

Remember how stimulus money was supposed to work? It is supposed to get extra bang for the buck. For every dollar spent, some of that is supposed to lead to additional economic activity which leads to more economic activity, etc. Before you know it, the economy has so much activity going that it doesn't need any further help from the government.

There is considerable question if this ever worked anywhere but it certainly did not work this time.

In a way, economic stimulus is like a perpetual motion machine. It sounds simple and elegant but it just doesn't work in real life. You cannot tax or borrow money to create stimulus and expect it to keep running.

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