There is a very good reason why the White House – even with a generally complicit media – is having trouble persuading Americans that the stimulus spending is creating jobs: There seems to be an enormous disconnect between local economic development and creating net new jobs on a national basis.
The Wall Street Journal ran a piece titled, Obama Courts Stimulus Doubters, which pointed out that President Obama is traveling around the country as part of his “Recovery Summer” campaign to persuade Americans that the stimulus has worked and that the U.S. economy is strengthening.
The article quotes many skeptical of the stimulus expenditure. More interesting, though, are the quotes from those who defend the expenditures. For example, the piece quotes a local official in Holland, Michigan, pointing out that people aren’t appreciating the stimulus because they don’t realize what the stimulus is funding:
Beyond slow hiring, another issue may be obscuring the public's view of the stimulus: some of its most potent components are practically invisible, local development officials say.
In coming weeks, workers will begin converting a long-shuttered, 287,000-square-foot General Motors-Delphi auto parts factory into a milk processing plant, said Alan G. Vanderberg, administrator of Ottawa County, where Holland is located.
The project is using cut-rate Recovery Zone Facility Bonds, financed through the stimulus, that helped leverage $31 million in private investment. A parts plant closed for a half-decade will soon employ 70 full-time workers, earning at least $19 an hour.
"Would the people have an appreciation of that as stimulus dollars?" Mr. Vanderberg asked. "I tend to doubt it."
Of course, one question is whether stimulus funds were necessary to make this project happen. If the private sector was willing to invest, it may have happened without any stimulus funds – in this case the stimulus created no new jobs.
Yet even if we give the stimulus credit for all 70 permanent jobs produced by this factory rehab – almost certainly this act of “stimulus” created no net new jobs nationally. Why? The number of people employed in milk processing is determined mostly by the consumption of milk.
Since the stimulus did nothing to boost milk consumption, if this large plant is a success, then, gallon for gallon, other milk processing plants will experience a decline in business and lay off workers or close.
In other words, if local boosters in Holland, Michigan, wanted to improve their community by converting an old auto parts plant to a milk processing plant, then more power to them. It might increase jobs and economic activity in town and get rid of an eyesore, but those milk processing jobs will come from some other areas.
There is really no reason for the federal government to be involved in this case. Certainly there is no reason to think of these 70 jobs as some net addition to the nation’s job rolls.
Yet this approach is very typical. The USDA, for example, just gave a nearly $4 million loan guarantee out of stimulus funds to a northern Nebraska produce company to build a greenhouse in which it will raise vegetables.
Yet there is no shortage of cucumbers or tomatoes in Nebraska. The area is not even short of greenhouse-grown products. In all likelihood, every tomato purchased from this new greenhouse will be one not purchased from greenhouses in Colorado, Arizona or Tennessee. No reason at all why this Nebraska company shouldn’t try to seize that market share – and no reason at all for the Federal government to help.
USDA also decided to guarantee a $6 million loan to a winery. The USDA press release points out how compelling a use of stimulus funds this is:
Meanwhile, in Dundee, Ore., the Torii Mor Winery, LLC was selected to receive a $6 million guaranteed loan that will enable the company to restructure debt and establish a working capital reserve to create and retain jobs -- including preserving nine existing positions.
Established 17 years ago, the business is in the heart of Oregon wine country and is an integral part of the local value-added agricultural economy. The winery purchases nearly 90 percent of its grapes from local vineyards, which helps sustain additional jobs and agricultural businesses in the region.
Torii Mor happens to make a nice Pinot Noir – so all is not lost. An honest man, though, must realize that there is nothing in the criteria for giving money to this winery that would not apply to every business in America.
USDA Under Secretary for Rural Development Victor Vasquez justified the loan guarantees for the Nebraska greenhouse and the Oregon winery – and a group of other food producers from a potato chip maker to a cheese factory – by explaining that “This funding will help create and save jobs and build on America's economic recovery.”
But it won’t. It can’t. It can only reshuffle jobs from other producers. The Obama administration is acting as if it doesn’t know the difference between local economic development and a national increase in jobs. Fortunately, “Recovery Summer” tours notwithstanding, American voters do seem to know the difference.