Sunday, June 14, 2009

The Failed Stimulus Package

Joe Biden told Meet the Press this morning that "everyone guessed wrong" about the impact the $787 billion stimulus package would have on job numbers. He stated that economists used standard formulas project the job growth the stimulus package would create - the reason they were wrong is that the economy was much worse than everyone feared.

I beg to disagree. Every Republican in the House and almost all the Republicans in the Senate voted against the bill - arguing that the historic spending would not efficiently cause job growth (and that much of the spending was just plain wasteful pork headed for favored Democrat constituents). Hundreds of noted economists came out against the bill and the overall concept that massive government spending could bring us out of recession. Apparently, Biden means that "the Democrats guessed wrong."

There are several reasons why the stimulus package hasn't worked and won't work. Every dollar the government spends must come from somewhere. Specifically, from one of three places: taxes, borrowing, or by printing money and causing inflation. If the government had not passed the trillion dollar stimulus ($787 plus interest), that trillion dollars would have gone somewhere else. It would have been invested in businesses or it would have been spent. Both spending and investment create jobs, but much more efficiently than the projects thought up by the economic wizards leading the Democratic Party: Nancy Pelosi, Harry Reid, Joe Biden and Barack Obama.

A second problem is that the market (free people making decisions about what to do with their time and money) knows that Obama's massive spending will mean much higher taxes in the future. Higher taxes slow down economic growth because government spending is less efficient than allowing free people to spend their own money, but also because it decreases the incentive to be productive in the first place. If the government takes 75% of the money you earn and provides free housing, food, education, health care, a GM car, and your retirement, it matters a whole lot less how hard you work or how high paying your job is.

The failure of the stimulus package is a surprise only to Democrats.

No comments: