Saturday, February 20, 2010

So-Called Stimulus Spending Means Fewer Jobs, Part I

The Administration is arguing that last year's $800 billion spending bill has created jobs. But since the unemployment rate is higher and the total number of Americans with jobs has fallen, the White House can only make this claim by arguing that the unemployment rate would be even higher without all the new spending. This argument is seductive to those (such as journalists) who don't understand that government can't dump money into the economy without first taking money out of the economy. But there are more reasons why so-called stimulus spending is bad for the economy and job creation. Writing for Investor's Business Daily, Alan Reynolds of the Cato Institute points out that the recession lasted longer than average and that much of the spending was for programs that subsidize people for not working:

President Obama seized on the one-year anniversary of the American Recovery and Reinvestment Act (ARRA) as an opportunity to take credit for the belated and tenuous economic recovery. But the economy always recovered from recessions, long before anyone imagined that government borrowing could "create jobs." And we didn't used to have to wait nearly two years for signs of recovery, as we did this time. A famous 1999 study by Christina Romer, who now heads the Council of Economic Advisers, found the average length of recessions from 1887 to 1929 was only 10.3 months, with the longest lasting 16 months. ...The bill was launched last year amid grandiose promises of "shovel ready" make-work projects. In reality, as the CBO explains, "five programs accounted for more than 80% of the outlays from ARRA in 2009: Medicaid, unemployment compensation, Social Security ... grants to state and local governments ... and student aid." In other words, what was labeled a "stimulus" bill was actually a stimulus to government transfer payments — cash and benefits that are primarily rewards for not working, or at least not working too hard.

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