They call it “stimulus” legislation, but the economic measures racing through Congress would devote tens of billions of dollars to causes that have little to do with jolting the country out of recession.
Yes, there are many billions of dollars in “ready-to-go” job-creating projects in President Barack Obama’s economic stimulus bill. But there are also plenty of items that are just unfinished business for Congress’ old bulls.
According to Congressional Budget Office estimates, a mere $26 billion of the House stimulus bill’s $355 billion in new spending would actually be spent in the current fiscal year, and just $110 billion would be spent by the end of 2010. This is highly embarrassing given that Congress’s justification for passing this bill so urgently is to help the economy right now, if not sooner.
The stimulus bill is also a time machine in the sense that it’s based on an old, and largely discredited, economic theory. As Harvard economist Robert Barro pointed out on these pages last Thursday, the “stimulus” claim is based on something called the Keynesian “multiplier,” which is that each $1 of spending the government “injects” into the economy yields 1.5 times that in greater output. There’s little evidence to support this theory, but you have to admire its beauty because it assumes the government can create wealth out of thin air. If it were true, the government should spend $10 trillion and we’d all live in paradise.
The problem is that the money for this spending boom has to come from somewhere, which means it is removed from the private sector as higher taxes or borrowing. For every $1 the government “injects,” it must take $1 away from someone else — either in taxes or by issuing a bond. In either case this leaves $1 less available for private investment or consumption. Mr. Barro wrote about this way back in 1974 in his classic article, “Are Government Bonds Net Wealth?”, in the Journal of Political Economy. Larry Summers and Paul Krugman must have missed it.
A similar analysis applies to the tax cuts that are part of President Obama’s proposal…
Some economists’ opinions: “Economists across the Spectrum” Continue to Flee Stimulus Bill
For Many Economists, Stimulus Falls Flat
Here are just a few other examples of the wasteful spending in the current Senate stimulus package:
• $20 million for the U.S. Fish and Wildlife Service to remove small and mid-sized fish barriers
• $1 billion for the 2010 census
• $600 million for the federal government to purchase energy efficient vehicles
• $500 million for NASA climate change studies
• $850 million to bail out Amtrak
• $100 million for the Department of Defense to purchase hybrid vehicles
• $2.25 billion for groups engaged in neighborhood stabilization programs, such as ACORN and other entities
• $335 million originally included for STD prevention (removed from the current bill…how is this considered a stimulus!?)
• $75 million for smoking cessation
Some of these have good intentions if you feel that the government is the best place for taking care of social needs to such an extreme. However, it is beginning to feel more and more as if the bill is just becoming a place for disparate groups to use it as a blank slate for requesting money. It deals less with job creation stimulus and more with creating new government programs that will keep the cost of government high long into the future. The “stimulus” bill is actually a spending bill in disguise. Fortunately, the latest Rasmussen Report shows that support for the stimulus package falls to 37% while a plurality oppose it. My opinion is that permanently cutting the corporate tax rate and maintaining the tax cuts would be great things. The U.S. has high corporate tax rates that might be hampering U.S. companies from achieving their true level of international competitiveness (not saying we’re doing too shabby right now, though). Maintaining the tax cuts is much different than the wealth distribution that Obama is proposing in which he will give money to people who don’t pay taxes. Here’s my question: If this spending bill goes through, where do I sign up to get the free money!? I’d like to start contributing to the debt of future generations as soon as I can! Furthermore, a New York Times Op-Ed article offers the advice that the “buy American” provisions in the bill is not a wise approach. They say, “The last thing the world economy needs is for governments to give a further downward shove to trade. … When the United States imposed the Smoot-Hawley Tariff in 1930, it helped set off a worldwide movement toward higher tariffs. When everyone tried to restrict imports, the combined effect was a deeper global economic slump. It took decades to undo the accumulated trade restrictions of that period. Let’s not make the same mistake again.”
Sen John McCain says in an interview with CBS News’ Couric, “No bill is better than this bill. It has so many programs in it that create no jobs whatsoever. “And it has no provisions to put us on the path of a balanced budget, once our economy has recovered.” “The Republicans can make it work for ‘half the cost,” he says, by focusing on payroll tax cuts and business cuts and spending on military construction and replacing equipment for the military.”