The folks at U.S. News & World Report have posted an online debate on the never-ending topic: “Does Stimulus Spending Work?”
You know my thoughts on the topic, including my thumbs-down to Obama’s latest stimulus scheme, so it won’t surprise you to know that I think Veronique de Rugy of the Mercatus Center beat her three left-wing opponents (there was also a participant who served in the Bush Administration, but I don’t view his section as credible since he basically argued that stimulus spending is okay when GOPers are the ones wasting money).
Here’s some of what Veronique wrote.
…let’s look at the latest attempt to use government spending to jump start the economy: the American Recovery and Reinvestment Act. Three years after Congress passed that law, unemployment lingers over 9 percent, far above the promised 7.25 percent, and the economy remains weak. Clearly, the stimulus didn’t work as advertised. …The data show that stimulus money wasn’t targeted to those areas with the highest rate of unemployment. In fact, a majority of the spending was used to poach workers from existing jobs in firms where they might not be replaced. Finally, a review of historical stimulus efforts shows that temporary stimulus spending tends to linger. Two years after the initial stimulus, 95 percent of the new spending becomes permanent. …Research from Harvard Business School shows that federal spending in states causes local businesses to cut back rather than to grow. In other words, more government spending causes the private sector to shrink, the exact opposite of the intended result.
If anything, Veronique is too kind in her analysis. I would have pointed out that Keynesian stimulus didn’t work for Hoover and Roosevelt in the 1930s, Japan in the 1990s, or Bush in 2001 or 2008.
But how often do you find someone from France arguing for smaller government?
It is frightening that Obama’s economic advisors confuse myth and reality, and strongly support the myth. They think all of their spending just has to improve the economy, just has to prime the pump (as if the population is like an ancient water pump) or stimulate wealth production (as if the population were a hungry prize fighter who just needs a good steak to get up again and fight).
What if Obama’s economic team said this: “Burning $100 bills in the Rose Garden will attract Money Fairies, ending the recession and making us all prosperous. Give it time, it will work.” Of course, Obama would be laughed out of the presidency. But, he and his team routinely say something that is completely equivalent to attracting Money Fairies.
Obama’s team believes (with Paul Krugman) that all the money he is borrowing and spending is going to make us all rich, that he is sending $Trillions out into the world, and will see a 50% return on this spending stimulus investment. That is a larger return than almost all successful businesses! It is called the Keynesian Multiplier. Obama’s team thinks the multiplier is 1.5 ($100 of government spending produces $150 of wealth).
Fiscal Multipliers
If the 1.5 multiplier were true, then the government could license counterfeiting and we would all become rich. Actually, the government attitude toward printing money is very close to counterfeiting.
Let’s Counterfeit Our Way to Wealth
Our future is entrusted to a man, a team, and a majority in Congress who reason in random analogies, and are willing to dedicate our freedom and future to applying those analogies as if they were detailed, verified, analysis.
Where is the policy paper, Obama’s and Congress’s research on economic stimulus and healthcare reform?