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As with medicine, the first rule of law making should be first, do no harm. The “stimulus” bill fails this test spectacularly. Among so many other reasons to tell your U.S. Representative and Senators in Washington to oppose the stimulus, the Top 10 are:
Our history is replete with examples of “stimulus” spending failing to move our economy toward prosperity—Bush just tried it, Ford tried it. Even Christina Romer, Obama’s Chair of the Council of Economic Advisers agrees. Romer wrote in a study, "Our estimates suggest that fiscal actions contributed only moderately to recoveries." The New Deal didn’t end the Great Depression and Obama’s stimulus package won’t end this recession. In fact, two UCLA economists published a study in 2004 finding FDR’s similar New Deal policies prolonged the Great Depression by seven years.
It fails because you don’t increase economic output by taking a dollar from one person and giving to another. The idea of “stimulus” spending falls for the “ broken window fallacy”—the allure of what is seen versus what is not seen. We will see the jobs created by the government spending. What we won’t see are the jobs lost because consumers have less money to spend because the government got the money its spending from us—the only place it can get money.
Japan, after a dramatic market crash and a drop in real estate prices responded with government spending not unlike what the US Congress is considering today. In fact, they had 10 stimulus bills between 1992 and 2000, spending billions on infrastructure construction, building bridges, roads, and airports as well as pouring money into biotech and telecommunications. While many countries enjoyed booming economies and falling unemployment during this time, Japan had a lost decade, seeing its unemployment more than double. They spent double the US level of GDP on infrastructure, and now have a lousy economy and have one of the highest national debts in the world.
After 10 stimulus packages, Japan has gone from having the second biggest economy in the world by a long shot, to being well behind the new number two, China, and is close to falling behind India. We do not want to follow their lead.
While we were told the stimulus bill would focus on rebuilding America’s infrastructure—mainly the roads and bridges—only 5% of the current bill goes to such projects. The rest of the bill goes to pet projects like:
These programs are just the 2008 version of the “ midnight basketball” program that derailed Bill Clinton’s attempt to ram through a “stimulus” bill in 1992. Despite that bill failing, the economy quickly recovered and the economic boom of the 1990s began.
President Bush pushed the government deep into a $1.2 trillion deficit this year, the third time he has set a record for biggest deficit ever, and President Obama’s stimulus bill follows his lead, piling on more debt. The deficit in 2008 amounted to about 8 percent of GDP. The entire debt is about 35 percent of GDP.
Even for those who do still believe in Keynesianism, it is important to remember his theory didn’t start with the government already over a trillion dollars in the hole, he was generally operating from balanced budgets.
How much is $825 billion? The Heritage Foundation has calculated that that comes to over $10,000 per American family. To further put that in context, on average, families annually spend:
If this bill were a country, it’d be the 15th largest country in world, ranking between Australia and Mexico. It is bigger than the economies of Saudi Arabia and Iran combined. In fact, the $875 billion it calls for is more than all the cash in the United States.
If centrally planned government spending on a grand scale produced economic growth, the Soviet Union would have won the Cold War. If government spending on a grand scale produced economic growth we would be in the middle of the Bush Boom right now. It doesn’t. Working, saving, and investing leads to economic output and increases in productivity lead to growth.
As economics professor Steven Horwitz said, “The stimulus plans assume consumption is the source of growth. It is not. It is the consequence of said growth.”
It was just a couple months ago when we were told if we would just quickly hand over $750 billion to the Treasury Secretary to bailout his friends on Wall Street, he would make the economy all better. That didn’t work, and neither will an additional $825 billion.
And this has nothing to do with paper money being made of cotton and linen. The only way the government gets money is through taxing, borrowing, or printing—that is, it has to take it out of the economy in order to put it back into the economy. If government borrows the money for the stimulus, then it will either have to print money later or raise taxes to pay it back. If it raises taxes to pay for the stimulus, it will, in effect, be robbing Peter to pay Paul – probably with interest. If it prints the money, inflation decreases the value of the dollar for every American – robbing Paul to pay Paul.
No matter how many times supporters of the bill say it, economists do not all agree this bill is a good idea. In fact, hundreds of economists have come out against it, including Noble Laureates, who signed a letter the Cato Institute ran as a full page ad in several major newspapers opposing the stimulus. Still more economists submitted statements to the US House of Representatives opposing the stimulus proposal.