Would You Like Fries With That Stimulus Package (because that is all it is worth)

Let's take a well deserved break from health care reform and talk about stimulus packages. There is actually talk around DC of having a second stimulus package. Is that a good idea? Me thinks not. In her Reason magazine (www.reason.com) article in the April, 2009 issue, "Stimulating Ourselves To Death", Veronique deRugy does an inventory of stimulus history and analysis:

1) In a published work in 1992, Christina Romer, chair of Obama' s Council of Economic Advisors, and David Romer examined New Deal stimulus spending during the Depression and concluded that stimulus spending did not play any role in ending the Depression.

2) Harvard economist, Robert Barro, in his 2008 book, "Macroeconomics: A Modern Approach" concluded that $1 of government spending in war time produces less than $1.00 ($.80) in GDP growth.

3) Stanford economist Bob Hall and Sand Hill Econometrics chief Susan Woodward found that government spending in wartime did not increase or decrease GDP, i.e. for every $1.00 spent a dollar in GDP resulted.

4) Japan spent over $840 billion in stimulus attempts to restart their economy in the 1990s. This resulted in a massive jump in their debt to GDP ratio, massive corruption scandals and no economic recovery.

5) The Bush administration passed two stimulus packages, one in 2001 and one in 2008. Both failed to stimulate anything.

6) Brian Riedl of the Heritage Foundation analyzed several studies and found that increases in government spending actually reduce the size of the GDP.

Ms. deRugy explains the numerous reasons why stimulus packages and government spending do not increase economic activity but the biggest reason they do not work is also the simplest reason: government cannot inject money into the economy without taking money out of the economy first. They can borrow the money or collect it with more taxes but there is no aggregate growth in market demand. All it is is a redistribution of current or future wealth by the political class who tend to spend these stimulus dollars for pet projects that satisfy their egos and reelection needs.

A final stimulus rebuttal comes from a recent Cato Institute publication (www.cato.org). It cites a January 9, 2009 Obama quote regarding the latest stimulus package, "There is no disagreement that we need action by our government, a recovery plan that will help to jumpstart the economy." Unfortunately, this was not quite a true statement (my gosh, a politician lied?). Cato surveyed many leading economists and found over a hundred that strongly disagreed with that statement, i.e. everybody did not agree. These in disagreement came from leading, major universities including the University of Chicago, Cornell, Northwestern, Columbia, Stanford, NYU, Duke, Carnegie Mellon, USC, UCLA, MIchigan, Ohio State, Auburn, Washington University, Johns Hopkins, University Of Delaware, Rutgers, FSU, University of Texas, and many more.

So, take the fries option because past and future stimulus programs will not get us much more than that.