The New York Times had some, what was to me, shocking news today. The article said that there was now consensus that the Obama stimulus plan was working. Is this the same kind of consensus that man-made global warming was settled science, despite the glaring evidence that carbon dioxide emissions continue to grow while the globe stopped warming ten years ago? This is also close on the heels of breaking stories of extraordinary misinformation if not outright deceit on how the $787 billion is being spent.
Smoke and Mirrors
Early on in the article we have this gem:
“The legislation, a variety of economists say, is helping an economy in free fall a year ago to grow again and shed fewer jobs than it otherwise would. Mr. Obama’s promise to “save or create” about 3.5 million jobs by the end of 2010 is roughly on track, though far more jobs are being saved than created, especially among states and cities using their money to avoid cutting teachers, police officers and other workers.”
There is no mechanism that exists to measure a job saved. None. So how do they do it? It goes something like this:
“Here, Mr. Stimulus Funds applicant, I have this check for you for $642,000. No can you tell me, if I give this to you, how many jobs would you create or save?”
“Create? Er, none.”
“Hmmm,” the bureaucrat mutters, staring down at the check in his hand, “what about jobs you would save? You know, if I don’t give you this nice, rather large check, how many of your people would you be forced to lay off?”
“Oh, I get it,” the potential recipient says with a wink and a smile, “probably all of them!”
The bureaucrat scribbles down a number, and hands over the check, walking away shaking his head.
That’s about how it’s done. The government surveys the people getting the money and asks them what would have happened if they didn’t get the stimulus. And what would you expect them to say? Keep the check?
Revenue Starved States
What a concept, “Revenue Starved States.” The article complains that not enough money was provided to “Revenue Starved States.” Does he mean states like California and New York? I believe the correct term is states where spending is out of control. It means states where taxes are so high that people are moving out in droves, and among them the “wealthy” people they love to tax to the eyeballs, meaning a dramatically shrinking revenue base. After all, if one of the wealthiest people in the state, who is part of the group that pays 70% of the taxes, moves out of the state or (out of the country when it gets bad enough), that means a lot of people are going to see their taxes raised to make up for it. So the statists seem to think a stimulus package that keeps these bloated bureaucracies fat, dumb and happy is the way to go, until when exactly?
The Multiplier Fallacy
The other great fraud being foisted on us is the multiplier effect, where for each dollar of stimulus money spent more than a dollar of economic activity results:
That sort of impact is what makes federal aid to state governments rank high in economists’ reckoning of the stimulus value of various proposals. Every dollar of additional infrastructure spending means $1.57 in economic activity, according to Moody’s, and general aid to states carries a $1.41 “bang” for each federal buck.
Even more effective are increases for food stamps ($1.74) and unemployment checks ($1.61), because recipients quickly spend their benefits on goods and services.
Okay, then how is this for a solution. Let’s spend $10 trillion on infrastructure, food stamps and unemployment checks, since they will result in $15 trillion or so in economic activity, because of the multiplier, right? For that matter, let’s have the government spend $100 trillion and we’ll really be rocking.
Where’s the So Called Consensus
From what I read in the article, there was only one economist that could be called a conservative, Martin Feldstein, that they were willing or able to quote, and this was his take on the stimulus.
While some conservatives remain as skeptical as ever that big increases in government spending give the economy a jolt that is worth the cost, Martin Feldstein, a conservative Harvard economist who served in the Reagan administration, said the problem with the package was that some of its tax cuts and spending programs were of a variety that did little to spur the economy.
“There should have been more direct federal spending that would have added to aggregate demand,” he said. “Temporary tax cuts and one-time transfers to seniors were largely saved and didn’t stimulate spending.”
That’s it? That’s the consensus? It seems to me that he is pointing out what was wrong with the package rather than what was right. He was in the Reagan administration and he knows what works: permanent cuts in marginal tax rates. Those dreaded tax cuts for the “rich.” The thing is that when the people above the subsistence level get to keep more of what they earn, yes it does belong to them and not to the government, they tend to invest it, which means the provide capital to businesses that grow and create jobs. Yes, capitalism. What the stimulus does is take money away from these people, or borrows it and steals it from future generations, and gives that money, as in the example above, to highway projects, food stamps and unemployment checks. The first of these may create jobs until the road project is completed, but the latter two only increase the dependency of those recipients on the government. So how exactly does the stimulus plan that puts money into a highway project and unemployment benefits, help a banker who got laid off? How does it help the unemployed executive from United Technologies? It doesn’t. It’s like a drug fix. You may feel good for a while, but then it wears off and you need another fix.
The Genius of Government
You would think that with all the examples of government planning lying on the waste heap of history, the statists will finally catch on that they can’t successfully pick the winners and losers in an economy. Government has to get out of the way and let the market work.
Government must be drastically cut down to size. Think of the popular TV show “The Biggest Loser.” Picture the governments of the United States, California, New York, New Jersey, Rhode Island, Michigan, Nevada, for starters, as contestants. Let’s see who can lose the most weight. Ready? Go.
