A wish list that shifts $$ around
Stimulus package lacks economic logic: How does it create jobs or spending?
John R. Lott Jr.
is a University of Maryland senior research scientist
Democrats started celebrating last week even before the House had passed the $816 billion stimulus bill. They promise to be "creating or saving" up to five million jobs.
One news report said, apparently in all seriousness, "The Democrats vow no earmarks or special projects will be attached to the bill. The focus is on jobs." Also, "more than 90 percent of the jobs created are likely to be in the private sector."
Unfortunately, though, the "stimulus" package has nothing to do with creating or saving jobs. It has everything to do with moving jobs from pursuits Democrats don't like to those they do.
The stimulus package is just a wish list of every government program that liberal Democrats have long wanted. As Obama's chief of staff, Rahm Emanuel, put it after the election last fall: "Rule One: Never allow a crisis to go to waste. They are opportunities to do big things."
The package includes: $50 million for the National Endowment for the Arts, $335 million to stop the spread of sexually transmitted diseases, $650 million for digital-television conversion coupons, $4.2 billion for the left-wing group ACORN (Association of Community Organizations for Reform Now), $300 million for increased teacher salaries, and $1 billion to make sure that minorities are not undercounted in next year's census.
The list is long. But, whatever the merits of these programs, one wonders by what economic logic they have anything to do with stimulus. Will any of them create more spending or jobs? Hardly.
Whether this spending is funded through taxes, borrowing or printing money, it can't be in two places at the same time. The government is merely shifting money from one use to another. And this bill entails a breathtaking degree of government involvement in where money is spent.
If you want to help people out, you have two choices: Give them the money and let them decide how to spend it, or allow it to be spent only on specific items. The Democrats, who have always favored micromanaging people's decisions, have now brought the latter approach to a new level.
If we want to help, can't we just give poor people the $650 million and let them decide what their most pressing needs are?
Take television. Maybe some people want to spend the $50 it costs for the most basic converter boxes on something else. Sorry, the government money is available only for converter boxes. This subsidy could lead a person interested in buying a new TV to keep an old one.
And what about the $170 billion that will go to state and local governments? It includes $80 billion for education, $87 billion for Medicaid, and $3 billion for Medicaid regulatory initiatives. Even Democrats can't argue with a straight face that this is a new emergency stimulus idea. The Wall Street Journal noted that "state aid has long been a priority" for House Speaker Nancy Pelosi.
Of course, with her home state of California facing a $15 billion deficit this year and a $27 billion deficit next year, Pelosi's position is understandable. But why should Americans in states that have managed their finances relatively well bail out Californians?
Over the last four years, California's budget grew from $105 billion to $145 billion. If its budget had grown only fast enough to offset inflation (10.3 percent over that period) and population growth (4.65 percent), the state would instead have a $9 billion surplus. It could have used that to more than cover next year's deficit.
Would California really be that bad off if the state government spent as much per Californian, adjusting for inflation, as it did in 2004?
Last year, unemployment jumped in July - right when Democrats increased unemployment benefits. Will it go up again? Democrats seem to want to make sure that it does, at least this coming year. But they apparently feel different about the next year (when there is an election). While the stimulus package lasts two years, the $36 billion for expanded unemployment benefits lasts only until the end of this year.
With the stimulus plan, this year's federal deficit, as a share of gross domestic product, will be twice as large as the next-largest deficit since World War II. And it will be twice as large as any of the federal deficits during the 1930s.
It would be nice if we had something useful to show for all this money in the end. But the government is going to be spending a lot of money on projects that people wouldn't be spending their own money on. Ignoring this just makes us poorer.