Obama’s Stimulus Will Cause 'Lower Wages' for American Workers, Says Congressional Budget Office

February 17, 2009 - 6:47 PM
The CBO analysis concludes that the stimulus package signed on Tuesday will put downward pressure on Gross Domestic Product and wages after 2014.

President Barack Obama signs the economic stimulus bill, Tuesday, Feb. 17, 2009, at the Museum of Nature and Science in Denver. (AP Photo/Ed Andrieski)

(CNSNews.com) – The huge economic stimulus package that President Obama signed into law Tuesday will result in “lower wages” for American workers, according to the Congressional Budget Office (CBO). 

The CBO analysis, dated Feb. 11 and sent to Sen. Judd Gregg (R-N.H.), says the $787-billion plan will increase employment in the short-term, but will run up deficit spending which will “crowd out” private investment in the economy in the long-term. 
 
The analysis concludes that the stimulus will put downward pressure on Gross Domestic Product (GDP) and wages after 2014. (The Gross Domestic Product is the total value of all goods and services produced in the United States in one year.)

Rep. Paul Ryan (R-Wis.), the ranking Republican on the House Budget Committee, said the CBO analysis underestimates the long-term economic consequences.
 
“Number one, the spending spends out very slowly, so it doesn’t give you much of a pop,” Ryan told CNSNews.com. “Number two, it costs much more than advertised. Number three, at the end of the day, it would have been better to do nothing for the economy given that it [the stimulus package] will reduce GDP growth and wages.”
 
“I find those to be very startling estimates, very startling points and facts that simply have not been reported,” said Ryan.
 
In its analysis, the CBO predicts that the American Recovery and Reinvestment Act will increase GDP through 2014. However, in the following years, “the legislation is estimated to reduce GDP by between 0 and 0.2 percent.”
 
That decrease will not come from lack of employment, which the CBO predicts will increase by between 800,000 and 2.3 million jobs in the fourth quarter of 2009 and up to 3.6 million by the fourth quarter of 2010. 

“The effect on employment is never estimated to be negative, despite lower GDP in later years, because CBO expects that the U.S. labor market will be at nearly full employment in the long run,” the CBO report states. 
 
But the analysis adds, “The reduction in GDP is therefore estimated to be reflected in lower wages rather than lower employment, as workers will be less productive because capital stock is smaller.”
 
A previous CBO report said that with interest on the debt, the recovery package will cost $1.1 trillion. The Feb. 11 analysis says, “To the extent that people hold their wealth as government bonds rather than in a form that can be used to finance private investment, the increased debt would tend to reduce the stock of productive private capital.”
 
It continues, “In economic parlance, the debt would ‘crowd out’ private investment.” The analysis further says that “crowding out is unlikely to occur in the short run under current conditions because most firms are lowering investment in response to reduced demand, which stimulus can offset in part.”
 
Ryan said this will keep the economy from growing.
 
“When you borrow, you are going out and taking money out of the private economy, which goes to bonds,” Ryan said. “So then it’s literally taken out of the private sector and brought to the public sector.”
 
Another way this will decrease private investment is that it will indirectly lead to higher taxes, Ryan said.  
 
“It’s very clear that the kind of deficits this will produce will make it next to impossible for Congress to keep tax rates low,” Ryan said. “It’s very clear that this Congress is going to use the size of the stimulus and its resulting deficit to justify higher taxes in 2011, which will reduce private sector expansion and take money out of the private sector.”
 
When signing the bill Tuesday in Denver, President Obama hailed the legislation as the first step out of the economic recession that has faced the country for more than a year.
 
“What makes this recovery plan so important is not just that it will create or save three- and-a-half million jobs over the next two years, including nearly 60,000 in Colorado,” Obama said. “It’s that we are putting Americans to work doing the work that America needs done in critical areas that have been neglected for too long – work that will bring real and lasting change for generations to come.”
 
The White House points out that the package puts $150 billion into infrastructure improvements across the country for public transportation, upgrading the electric grid and expanding broadband. The law also allocates $19 billion to digitize health records for each American by 2014 and devotes $100 billion to renewable energy projects.
 
Meanwhile, Republicans in Congress have complained about various spending projects, such as $50 million for the National Endowment for the Arts, $300 million for golf carts and $8 billion for a rail line from Los Angeles to Las Vegas.
 
The White House estimate that the stimulus bill will create 3 to 4 million jobs comes from a transition team report completed before Obama took office and before a bill was drafted in Congress. Further, the report said there is “considerable uncertainty” about the job estimates. (See Previous Story)
 
The White House released a state-by-state breakdown of how many jobs would be created or saved. The breakdown showed that California would get 396,000 jobs; Florida, 206,000 jobs; Georgia, 106,000; Illinois, 148,000; Michigan, 109,000; New Jersey, 100,000; New York, 215,000; Ohio, 133,000; Pennsylvania; 143,000; and Texas, 269,000 jobs. (See White House estimates)
 
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