Obama's pyramid scheme would make John Maynard Keynes happy

NEW YORK — Jobs, jobs, jobs. Meet the new mantra, same as the old mantra.

No longer will President Barack Obama be content to cite specious numbers about "jobs saved or created" as a result of last year's $787 billion fiscal stimulus. Now he's proposing $100 billion of new spending to "jump-start job creation," according to White House Budget Director Peter Orszag. It's part of a $3.8 trillion budget for fiscal 2011, unveiled Monday, that projects a $1.3 trillion deficit next year, following a $1.6 trillion deficit this year.

Spend money to save money. Spending dressed up as a jump-starter is still spending by another name.

The only thing missing from the energy-cleansing, rural-community-assisting, climate-change-mitigating, health-food-promoting blueprint is money for pyramid building. In Chapter 10, Section VI of "The General Theory of Employment, Interest, and Money," John Maynard Keynes advocated building pyramids as a cure for unemployment.

In fact, "Two pyramids, two masses for the dead, are twice as good as one," he wrote in his 1936 treatise.

There are no masses for the dead in the president's 2011 budget, only a few dead programs in the discretionary budget. It's the part of the budget on automatic pilot — entitlement spending on Medicare and Social Security and interest on the public debt — that has to be addressed if restoring fiscal discipline is the goal.

The budget's job-creation initiatives include funds for infrastructure investment; loan guarantees and tax credits for small businesses to spur hiring; cash assistance to states; and an extension in unemployment benefits, which is a disincentive for job seekers.

While the nation can always use better roads and bridges, a tax cut for new hires, which is popular with both parties, is more problematic and hard to implement, according to Greg Mankiw, professor of economics at Harvard and former economic adviser to President George W. Bush. How do you differentiate between employment churning — firing Peter to hire Paul — and a new hire? How do you treat new firms?

In an October blog post, Mankiw proposed a cut in the payroll tax, something simple and universal rather than complex and targeted. Any attempt to apply more favorable tax treatment to marginal jobs than existing ones "creates a range of unintended consequences," he said, not to mention an incentive to game the system.

The budget increases taxes on the rich, living and dead, by allowing the Bush tax cuts to expire at the end of the year. It eliminates capital gains taxes for investments in small firms and raises income, dividend and capital gains tax rates for individuals earning more than $200,000 a year, $250,000 for households. It imposes fees on big banks. (For some reason, the Treasury Department listed the tax cuts as bullet points under job creation and stashed tax increases under fiscal discipline and responsibility.)

In bad times, presidents let themselves be seduced by the Keynesian notion that government can tax or borrow from the public and use that money to pay people to perform work of its choosing without sacrificing something. (See Friedman, Milton: "There is no free lunch.")

The sacrifice is private-sector investment in human and physical capital. If you accept the premise that the profit-driven private sector is better than bureaucrats at delivering the goods and services people want at the prices they're willing to pay, then the trade-off isn't worth it.

How well do government stimulus programs work? Outside of some econometric model prediction, we don't know. It's impossible to run a real-world control experiment.

We do know that on Feb. 13, 2009, Congress passed the American Recovery and Reinvestment Act. While the Obama administration insists it was not a jobs bill, the first goal, according to the Recovery.gov Web site, was to "create new jobs as well as save existing ones."

Thus began the "jobs created or saved" imbroglio, an attempt to quantify something unquantifiable. On Oct. 30, the Obama administration reported that 640,329 jobs had been created or saved from Feb. 17 to Sept. 30. (The Web site has since added 20 jobs to that total.) Watchdog groups smelled a rat, sifted through the data and found jobs that weren't created in districts that didn't exist.

Shamed by revelations of bureaucratic ineptitude, the government redefined its metric. Going forward, it would tally all jobs funded by ARRA, even if they already existed.

On Jan. 30, Recovery.gov posted a second report claiming 599,108 jobs were funded in the fourth quarter of last year. While the numbers from the two reporting periods aren't comparable, the measures are so flawed and the job count so far-fetched as to render them close enough for government work, and our purposes as well.

Between Feb. 17 and Dec. 31, the government doled out $57,864,901,449 in federal contract, grant and loan awards yielding 1,239,457 jobs (no inexact rounding for this administration!). That computes to $46,686 per job created, saved, funded or fabricated.

Why not simply write a check in that amount to each new job holder? It would be a lot easier and cheaper than funding a bureaucracy to orchestrate the effort.

OK, I hear you. A job is more than the money it yields. It gives us a sense of purpose, improves our self-esteem and provides a reason to get up in the morning.

The point is, government can always put people to work. It can hire teams of men with shovels to labor for weeks doing the work one earth-moving machine and operator can accomplish in one day.

The goal is to create permanent jobs, increase productivity and contribute to the wealth of the nation. Pyramids don't cut it. But they're a good place to bury dead theories.

Caroline Baum, author of "Just What I Said," is a Bloomberg News columnist.