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Archive for February 20th, 2010

The Administration is arguing that last year’s $800 billion spending bill has created jobs. But since the unemployment rate is higher and the total number of Americans with jobs has fallen, the White House can only make this claim by arguing that the unemployment rate would be even higher without all the new spending. This argument is seductive to those (such as journalists) who don’t understand that government can’t dump money into the economy without first taking money out of the economy. But there are more reasons why so-called stimulus spending is bad for the economy and job creation. Writing for Investor’s Business Daily, Alan Reynolds of the Cato Institute points out that the recession lasted longer than average and that much of the spending was for programs that subsidize people for not working:

President Obama seized on the one-year anniversary of the American Recovery and Reinvestment Act (ARRA) as an opportunity to take credit for the belated and tenuous economic recovery. But the economy always recovered from recessions, long before anyone imagined that government borrowing could “create jobs.” And we didn’t used to have to wait nearly two years for signs of recovery, as we did this time. A famous 1999 study by Christina Romer, who now heads the Council of Economic Advisers, found the average length of recessions from 1887 to 1929 was only 10.3 months, with the longest lasting 16 months. …The bill was launched last year amid grandiose promises of “shovel ready” make-work projects. In reality, as the CBO explains, “five programs accounted for more than 80% of the outlays from ARRA in 2009: Medicaid, unemployment compensation, Social Security … grants to state and local governments … and student aid.” In other words, what was labeled a “stimulus” bill was actually a stimulus to government transfer payments — cash and benefits that are primarily rewards for not working, or at least not working too hard.

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There were many reasons to oppose last year’s so-called stimulus legislation, especially the fact that government is too big and it makes no sense to go even faster in the wrong direction. But perhaps one of the most compelling reason is that politicians and bureaucrats inevitably do really stupid things because the federal budget is a racket designed to funnel the maximum amount of money to powerful interest groups. Here’s a great example from a story I saw linked on Kausfiles.com. A city in New Hampshire wanted to stick its snout in the trough in order to subsidize a water treatment plant, but eventually decided to reject the money because the local government’s out-of-pocket costs would increase – primarily thanks to corrupt rules designed to line the pockets of union bosses, but also because of protectionist requirements and a mind-boggling $100,000 of paperwork expenses:

As stimulating as it might have sounded at the time, the city recently declined $2.5 million from the American Recovery and Reinvestment Act for its new water treatment plant because federal wage regulations would have forced the city to pay more for the project. …the low bidder — Penta Corporation — presented final cost of $21 million with the stimulus funds and $17.3 million without. So the city said thanks, but no thanks, to the stimulus funds. “It just didn’t make sense,” said Deputy Public Works Director David Allen. “It was going to cost us more money to take the money.” Stimulus funds mandate workers are paid using Davis-Bacon Wage Determination, which sets the pay scale for workers on federal projects and added $2.5 million to the bottom line. The “Buy American” provision would’ve added another $500,000 and Allen said there would have been significant administrative costs — upwards of $100,000 — for the city to track it the way the government requires over the course of the two-year project.

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With the VAT becoming an ever-bigger issue, I discuss the issue on CNBC. Interestingly, my opponent winds up agreeing with me.

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