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Morning Bell: What Is the Spending Multiplier on a Pack of Condoms?

Posted By Conn Carroll On January 27, 2009 @ 8:46 am In Ongoing Priorities | Comments Disabled

This Sunday, Speaker Nancy Pelosi (D-CA) created quite a stir [1] when she attempted to defend Section 5004 [2], of the House’s economic stimulus plan [3] which allows the Medicaid bailout portion of the spending plan to be spent on family planning clinics. The leftist organization Media Matters [4] came to Pelosi’s defense claiming “The National Family Planning & Reproductive Health Association says such policies are extremely popular.” But Media Matters and their leftist allies completely miss the policy point underscored by highlighting the stimulus plan’s family planning loophole. The Associated Press [5] explains why this issue goes way beyond family planning:

While the debate surrounding the overall impact of the measure pits economists and their statistics against one another, Republicans quickly seized on the family planning money as evidence that the Democrats were advancing an agenda that went beyond the economy.

The entire intellectual underpinning of President Barack Obama’s spending plan rests on the belief that certain types of government spending creates a “multiplier effect [6]” which raises national income beyond the size of government’s initial spending increase. So, for example, Mark Zandi has concocted a table [7] which purports to show that for every one dollar the government spends building “Infrastructure” GDP will grow by $1.59. There is also an entry on Zandi’s table for “General Aid to State Government” which Zandi knows for an absolute fact has a 1.36 spending multiplier. So if Obama’s stimulus plan bails out California’s spendthrift government, and Sacramento then spends that money buying condoms for Nancy Pelosi’s constituents, Mark Zandi wants us to believe that this entire transaction will increase GDP by $1.36 for every $1 in condoms Sacramento buys. Does anybody really believe this?

Again, the family planning issue is just one example of how the left is using the cover of the stimulus to advance their long-term goals of increasing the size of the federal government. The stimulus plan [3] increases Washington’s control over spending on education [8], spending on health care [9], spending on the environment [10], and even spending on local law enforcement [11]. As the Washington Post editorialized [12] this weekend: “All of those ideas may have merit, but why do they belong in an emergency measure aimed to kick-start the economy?”

They don’t. Before he had to toe the official administration line, National Economic Council director Larry Summers said that in order to be effective, any stimulus bill must be “timely… targeted … and credibly temporary [13].” As we have already proven, there is nothing temporary about this stimulus spending [14]. But new Congressional Budget Office numbers show there is nothing timely about it either. According to the CBO cost estimate [15] of the stimulus plan [3], only 52% of the spending in the bill will occur by the end of FY 2010. This is well short of President Obama’s own standard of 75% of the spending taking effect over the next year and a half. [5] The CBO details the reason for the untimeliness of the spending:

Frequently in the past, in all types of federal programs, a noticeable lag has occurred between sharp increases in funding and resulting increases in outlays. Based on such experiences, CBO expects that federal agencies, states, and other recipients of funding would find it difficult to properly manage and oversee a rapid expansion of existing programs so as to spend added funds quickly as they expend their normal resources.

Defending all the left wing spending in the stimulus bill, Speaker Pelosi told Politico [16] last week: “Yes, we wrote the bill. Yes, we won the election.” This statement perfectly reflects the attitude of those in power on Capitol Hill. They are driven to use the current economic emergency to advance their long held partisan interests. There is nothing “timely, targeted, and temporary” about the left’s agenda. By Larry Summers own criteria, this stimulus bill [3] is guaranteed to fail.

Quick Hits:


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URL to article: http://blog.heritage.org/2009/01/27/morning-bell-what-is-the-spending-multiplier-on-a-pack-of-condoms/

URLs in this post:

[1] quite a stir: http://www.politico.com/blogs/glennthrush/0109/Daily_Intrigue_Mirth_control.html?showall

[2] Section 5004: http://www.heritage.org/Research/HealthCare/wm2237.cfm

[3] economic stimulus plan: http://readthestimulus.org/

[4] Media Matters: http://mediamatters.org/countyfair/200901260006?show=1

[5] Associated Press: http://news.yahoo.com/s/ap/20090127/ap_on_go_co/obama_stimulus

[6] multiplier effect: http://en.wikipedia.org/wiki/Multiplier_(economics)

[7] a table: http://www.economy.com/mark-zandi/documents/Small%20Business_7_24_08.pdf

[8] spending on education: http://www.heritage.org/Research/Education/bg2233.cfm

[9] spending on health care: http://www.heritage.org/Research/HealthCare/wm2235.cfm

[10] spending on the environment: http://www.heritage.org/Research/EnergyandEnvironment/wm2245.cfm

[11] spending on local law enforcement: http://www.heritage.org/Research/Economy/tst011409a.cfm

[12] editorialized: http://www.washingtonpost.com/wp-dyn/content/article/2009/01/24/AR2009012401616.html

[13] timely… targeted … and credibly temporary: http://belfercenter.ksg.harvard.edu/publication/17845/why_america_must_have_a_fiscal_stimulus.html

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

[15] cost estimate: http://cboblog.cbo.gov/?p=199

[16] Politico: http://www.politico.com/news/stories/0109/17834.html

[17] “Stimulus 101″: http://www.foundry.org/2009/01/27/stimulus-101-the-pelosi-reid-obama-debt-plan/

[18] lining up for their share: http://www.washingtonpost.com/wp-dyn/content/article/2009/01/26/AR2009012602232.html

[19] lobby for a federal bailout: http://www.washingtonpost.com/wp-dyn/content/article/2009/01/26/AR2009012601171.html

[20] $16 billion bailout: http://www.washingtonpost.com/wp-dyn/content/article/2009/01/26/AR2009012602047.html

[21] global warming policies will further damage their economies: http://www.nytimes.com/2009/01/27/science/earth/27coal.html?_r=1&ref=todayspaper

[22] it would take 1,000 years or longer: http://www.latimes.com/news/nationworld/nation/la-sci-warming27-2009jan27,0,676232.story

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