Another Stimulus Boondoggle
By William Shughart • Saturday July 17, 2010 4:39 AM PST •
Dr. Christina Romer of the president’s Council of Economic Advisers claims that three dollar’s worth of personal income was generated by every federal dollar disbursed under 2009’s “American Recovery and Investment Act”. Mr. Obama has been using that “result” to convince naysayers that a second stimulus package is needed to lower an unemployment rate that has been hovering around nine percent since he moved into the White House.
A government-spending “multiplier” of three is beyond comprehension. As a matter of fact, recent work by Robert Barro suggests that during the Second World War, a $1 increase in government expenditures added less than $1 to U.S. GDP.
The basis for that conclusion answers the question: what are the principal sources of the public sector’s ready money? Washington has just three ways available to it for financing spending programs: taxing, borrowing or resorting to the Treasury’s printing press, all of which suck scarce resources from the private sector. Because wealth thereby is transferred from private to public use, expansions in the number of jobs “created” in “green” industries and other politically favored sectors of the economy must be less than the number of jobs destroyed in the private businesses that are forced to finance governmental economic “stimulus” packages but receive nothing in return.
Given that the national unemployment rate barely budged after the enactment last year of the president’s initiative aimed at financing “shovel-ready” state and local governmental projects, how, exactly, is a second federal stimulus bill supposed to jump-start an obviously stagnant national economy?
Dr. Romer was not very long ago a widely respected student of economic history. Now, as Nobel laureate Joseph Stiglitz before her, she seems to have caught “Potomac Fever” and to have succumbed to the flawed Keynesian idea that deficit public spending can “create” jobs.
A sounder explanation for economic sluggishness includes the pending expiration of the Bush tax cuts, along with the uncertainties created by passage of the Obama administration’s health care and financial reform bills. A market-based economy is extraordinarily resilient, but cannot forever bear anti-business rhetoric and overweening governmental intrusion into affairs best left to the private sector.