You won't find those jobs under your pillow

For those of you who still believe in the Keynesian stimulus fairy, we offer two concurrent myth busters — the lead editorials today in The Wall Street Journal and Investor’s Business Daily.

Both challenge doom and gloom predictions about the impact of a tiny cut in the federal budget proposed by Republicans in Congress, especially the conflicted figures coming from Goldman Sachs, which says the $61 billion proposed cut (less than 2 percent) would cost 800,000 jobs.

This conclusion is reached by using the old Keynesian multiplier.

The WSJ editorialists point out, “In 2009 the Obama Administration said $814 billion in stimulus spending would create three million new jobs and keep unemployment below 8%. Instead, two years later the economy has two million fewer jobs, and the unemployment rate is still 9%. GDP growth fell $400 billion short of where the White House economists promised it would be. Employment by the end of 2010 was predicted to be 137.6 million as a result of the stimulus, but instead it was 130.2 million — a 7.4 million jobs overestimate.”

Over at IBD, the editorial writers take a similar tack, “Harvard University economist Robert Barro and Stanford University's John Taylor have done separate studies estimating far lower ‘multipliers’ for government spending. Other economists have done the same.

“Their work shows that more government spending, by taking money out of the private sector, is a loss to the economy and that taking money away from government is a gain. Since that clearly reflects reality, we're inclined to agree with it.”

Both editorials point out the revolving door of personnel between Sachs and Washington, making its forecasts suspect.