This presentation accompanied this talk by Garett Jones: http://www.youtube.com/watch?v=dm8S63Zq4IM The full research on the effectiveness of the Recovery and Reinvestment Act can be found on Mercatus.org: http://mercatus.org/publication/did-stimulus-dollars-hire-unemployed http://mercatus.org/publication/no-such-thing-shovel-ready

1. Creating a Shovel-Ready Economy
Garett Jones
BB&T Professor for the Study of Capitalism,
Mercatus Center
Associate Professor of Economics, George Mason University

2. The Next 45 Minutes
•What happened
•Lessons from the stimulus (Jones-Rothschild)
•What next?

3. Unemployment

4. And Employment

5. Recent History
• 2008:
- Lehman Default
- then TARP
- then stock market collapse.
Activism first, stock collapse second.
The reverse of the Great Depression.
• 2009: Spike in unemployment:
- Unemployment often peaks after growth returns.
• 2010-2011: Tepid recovery

6. Financial Crisis: Hard to Shake
• When banks fall apart, recoveries are weaker for years on
end.
-Not like typical recessions
-True around the world, across decades
• Why? Controversial, but maybe debt is linked to debt
-Ex: Your mortgage pays your bank, which pays insurance
policies
• Today’s weakness: Largely (mostly?) caused by 2008, not
by 2009, 2010, 2011.

7. Dollar Sales: 5% Below Trend

8. Why This Matters
• 5% fewer dollars to pay for:
- Mortgages, Leases, Salaries, Credit cards
- Traditional View of Keynesian & Monetarists:
• Don’t let total spending fall quickly
• Destroys good businesses along with the bad
- Collateral Damage to the Economy
• One Lesson: Get spending up to old trendline
- Traditional channel: Federal Reserve
- Key econoblogger: Scott Sumner, Bentley College
- Draws on work by Feldstein, McCallum, Woodford

9. Did ARRA Help? Much?
• ARRA: A mixture of temporary tax cuts & government
spending
• Recent work: Tax cuts work better (in short run) than we
used to think. A surprise to me.
- Romer & Romer (CEA Chair & author of top text)
- Blanchard (IMF chief economist, MIT) & Perotti
- Harald Uhlig (U of Chicago)
Government spending: Maybe worse than we thought.

10. Overall Effect of ARRA?
• “On the basis of its continuing review of relevant
research, CBO has decreased the lower end of
its range of estimated indirect multiplier effects
from 1.0 to 0.5….”
-CBO, 11/2011
• Meaning: $1 of ARRA may have shrunk private
spending by $0.50.
• Possible: Government grows, private spending
shrinks.

11. The Caveat Page
• The high end is still high, according to CBO: 2.5!
- If 2.5: Government spending grows private spending
- In short-run only: In the long run it shrinks private
spending
-Keynes’s hope: A man who loved the private sector
• Multiplier might be higher in a weak recovery
- Probably higher in “recession,” not enough weak
recoveries to estimate.
• Stimulus after financial crisis? A fog, no good info.

12. What’s the Normal Story for Stimulus?
Should be “targeted, timely, and temporary.”
--Larry Summers
Focus here: Targeted at weak sectors of the labor
market.
- Better chance of hiring the unemployed
- Don’t hire in “bottleneck” sectors if possible
(DeLong, Clinton economist)

13. Was ARRA Shovel-Ready?
• Facts from Jones/Rothschild stimulus studies:
-46% of stimulus workers were “poached” from
other jobs.
This was job shifting, not job creating
• Poaching more common for the highly-educated
Best person for the job probably has one
• Poached workers: Overwhelming got wage hikes
Sign of Delong-style “bottlenecks”

14. What Mercatus Did, 2010-2011
• Stage 1: Interviews with dozens of stimulus-
funded organizations
- Private & Public sector
- Food bank, Construction & Engineering Firms,
Community Development Agencies, etc.
- 5 regions around the US
• Stage 2: Mail-in surveys from hundreds of
stimulus-funded organizations and workers

15. Result: Jones/Rothschild 2011a,b
• Coauthor: Dan Rothschild
• Mercatus, now of AEI
• Media highlights
- WSJ op-ed, 9/8/11
- C-SPAN, Jones, 10/1/11

17. Who Gets Poached?
• The educated
- People with graduate degrees: 63% poached
- People with high school degrees: 38% poached
• Lessons:
- Spending on doctors  Less short-run stimulus
- Probably applies to skilled low-education workers
Craft professions: Pipefitters, lab techs, electricians

18. Didn’t the Poached Get Rehired?
• A theory, not a fact
- Only so many anesthesiologists around
• Signs point to Delongian “bottlenecks”:
Government hiring in hard-to-hire sectors
- More poaching among the educated
- Big wage increases among the poached
- ½ of organizations said hiring no easier or harder than
pre-recession
- Obligatory Solyndra reference

19. What Interviewees Told Us
• The Federal Government told them to hurry
- Result: Some firms said quality suffered
“The least useful thing…a crane and a forklift.”
“Tiny Tiles”
- Not as bad as digging and refilling ditches…
- This showed up in in-person interviews
But not in mail-in surveys.
• ARRA $: More red tape than usual
- Good intentions driving away some firms
• Lesson: Ramping up is hard to do

20. The Expertise Economy: Hard to Stimulate
• High wage jobs:
Paid for dexterity and judgment calls.
Often ultra-specialized.
Helps explain news stories and stats:
Hiring bottlenecks for “skilled” workers
When you hear “skilled,” think “specialized.”
• Low wage jobs:
Routine decisions, routine movements:
Competing with machines and with workers in less-
developed countries.

21. What Next?
• Congress may have little power on demand side, but can
improve supply-side
• Help workers & firms create relationships with each other
- Ex1: 99 weeks of UI to 52: likely creates > 100K jobs,
maybe many more.
- Ex2: Defer ACA penalties for non-insuring firms
• No reason to subsidize history majors (like me)
- We’re not developing expertise
• More experts probably create more work for non-experts
- Create more engineers, scientists—or just let them in.
- They’ll need some team members for routine labor—until
the machines are cheap enough.