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Blog

    Dangers of the Stimulus

    02/09/2009

    Gary Wolfram, a professor at Hillsdale College, has a great article in Human Events today.  The article argues against the stimulus package on various grounds including the speed with which it's being passed, the size, and the negative effects that it will have on the economy.  He describes "crowding out" in the third to the last paragraph:

    Even without the passage of the stimulus bill, Treasury has just announced a record debt sale in February. The market is already signaling concerns about the large increases in the US debt.  The yield on the 10 year Treasury note has risen by about 50 percent since the end of December, from just over 2% to almost 3%.  The stimulus bill will, according to CBO, increase deficits by more than $850 billion.  This increase in the supply of Federal Treasuries will drive up interest rates. This will cause the federal spending, as Friedman noted decades ago, to crowd out private investment.  While the private investment would have increased the productive capacity of the economy, the federal spending will be directed through the political process to those with the most influence. 

    Political influence costs money too.  All those lobbyists coming to Washington to get their share of the pork in the stimulus will be spending money that could have otherwise been spent elsewhere to create productive jobs