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Stimulus Destined to Fail by Obama Administration's Own Criteria

Posted By Conn Carroll On January 23, 2009 @ 1:25 pm In Ongoing Priorities | Comments Disabled


The Heritage Foundation is no believer in Keynesian economics [1]. There simply is no credible evidence that it works [2]. But there are many in President Barack Obama’s administration that are Keynesians. And before they were in Obama’s administration, some even laid out what a stimulus package would have to have in order to be even theoretically effective. Before he was appointed to be the head of the White House’s National Economic Council Larry Summers wrote [3] (thanks to The Atlantic [4] for the link):

Poorly provided fiscal stimulus can have worse side effects than the disease that is to be cured. This suggests close attention to three issues:

Third, fiscal stimulus, to be maximally effective, must be clearly and credibly temporary – with no significant adverse impact on the deficit for more than a year or so after implementation. Otherwise it risks being counterproductive by raising the spectre of enlarged future deficits pushing up longer-term interest rates and undermining confidence and longer-term growth prospects.

As we documented this morning [5], there is nothing temporary about the deficit spending in the economic stimulus bill currently winding its way through the House. David Brooks noticed [6] the same fatal flaw today:

The bill marked up Wednesday in the Appropriations Committee is a muddled mixture of short-term stimulus haste and long-term spending commitments. It is an unholy marriage that manages to combine the worst of each approach — rushed short-term planning with expensive long-term fiscal impact.

The committee staff took the kernel of President Obama’s vision — infrastructure programs to create jobs — and surrounded it with an undisciplined sprawl of health, education, entitlement and other spending. There’s money for nurse training, Medicare, Head Start, boatyard support, home weatherization and so on. Eleven of the programs in the bill account for the vast majority of the actual job creation. The rest may be worthy or not, but they have little to do with stimulus. The total package is so diffuse, it costs $223,000 to create a single job.

So by Summers’ own early and honest criteria, the trillion dollar deficit spending package taking shape is already doomed to fail.

Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2009/01/23/stimulus-destined-to-fail-by-obama-administrations-own-criteria/

URLs in this post:

[1] no believer in Keynesian economics: http://www.foundry.org/2009/01/23/no-we-are-not-all-keynesians-now/

[2] no credible evidence that it works: http://www.marginalrevolution.com/marginalrevolution/2009/01/dumping-on-robert-barro.html

[3] wrote: http://belfercenter.ksg.harvard.edu/publication/17845/why_america_must_have_a_fiscal_stimulus.html

[4] The Atlantic: http://business.theatlantic.com/2009/01/what_would_larry_summers_do.php

[5] documented this morning: http://www.foundry.org/2009/01/23/morning-bell-nothing-temporary-about-this-stimulus-spending/

[6] noticed: http://www.nytimes.com/2009/01/23/opinion/23brooks.html?ref=todayspaper

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