Journal Sentinel misleads on stimulus

The Milwaukee Journal Sentinel sank to new lows in covering economics with an inaccurate and sensationalist front page article on the American Recovery and Reinvestment Act's job creation record.

The headline blared "Economists see no stimulus jobs."

Journal Sentinel economics reporter John Schmid wrote: "... more than two-thirds of economists responding to a a nationwide survey say the stimulus so far has failed to create jobs."

This was awful reporting on several levels.

First and foremost, it is dead wrong.

There is virtually no dispute among economists that the stimulus prevented the worst recession since the Great Depression from getting much worse by slowing the rate of job loss and saving between 1.6 and 1.8 million jobs.

The New York Times economics columnist, David Leonhardt, effectively refuted Schmid, in a column the MJS buried (on page 7 in Sunday's edition) when he wrote:

Just look at the outside evaluations of the stimulus. Perhaps the best-known economic research firms are IHS Global Insight, Macroeconomic Advisers and Moody’s Economy.com. They all estimate that the bill has added 1.6 million to 1.8 million jobs so far and that its ultimate impact will be roughly 2.5 million jobs. The Congressional Budget Office, an independent agency, considers these estimates to be conservative.

Before the stimulus was passed the nation was losing an average 650,000 jobs a month. It is widely recognized that the "widely successful "cash for clunkers" and the mortgage rebate program shave have stimulated automobile and home purchases saving thousands of jobs. Other stimulus projects have accelerated shovel ready projects and kept or put construction workers to work.

The recession began in December 2007, during President Bush’s 7th year in office. By the time President Obama was inaugurated, 4.4 million jobs had been lost. By the time the Recovery Act was passed, 5.9 million jobs had been lost. As the graph above illustrates, the job losses that were accelerating before the Recovery Act was passed have been virtually eliminated.

We should not forget the damage done to the economy before the Recovery Act. From December 2007 to March 2009, one out of every twenty private sector jobs was eliminated, a rate of destruction 50% greater than even the severe recession in the early 1980s. The economy was in a free fall. With unemployment at 9.7% today, and a record 40% unemployed for more than six months, it’s hard to appreciate how much more damage the stimulus investments prevented.

Without the two million jobs generated by the Recovery Act, the unemployment rate would now exceed 11% rather than the 9.7% rate in January.

Schmid not only misinformed his readers about the stimulus bills' impact, he also misrepresented the survey. It did not ask whether the stimulus had created jobs, but whether it had created jobs "in their firm or industry."

That's a distinction with a world of difference.

The decision to make a minor survey of a handful of business economists the lead article on the front page was a decision with real consequences. The publics' perception of the Recovery Act's effectiveness bill will shape future federal economic policy decisions including:

• Will unemployment benefits be extended for the more than two million people who are about to run out of them?


• Will the feds provide additional job training dollars so the unemployed can acquire the training they need to get back on their feet?


• Will Congress provide financial assistance to the states which face a $357 billion budget shortfall and local governments with an additional $80 billion budget deficit? Without it, state and local governments will be forced to slash spending, laying off police officers, firefighters, teachers, and other public employees or raise taxes to balance their budgets, threatening the nascent recovery.


• Will Congress provide additional health care funding so that's states don't raise eligibility limits or cut programs?


• Will Congress invest in repairing our national infrastructure, our schools, highways, the electric grid, water systems, ports, dams, and levees which must be upgraded, rebuilt or replaced if the U.S. is to remain a first class economy in the Twenty First Century?

The American Recovery Act helped reverse the nation's economic free fall, even if it wasn't large and targeted enough to stimulate a robust recovery. The economy is showing signs of life, but it remains on life support.

Private demand, consumer spending and private investment remain anemic. The only engine of growth and employment remains public demand. Without an accurate analysis of the Recovery Acts positive results, public opposition will grow, fanned by partisan opposition, and Congress will retreat from making the strategic investments our nation needs to revive the economy.

That's the real story. And its the story John Schmid and the Milwaukee Journal Sentinel missed.