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  • Questionable Short-Term Gains, Guaranteed Long-Term Pain

    Congressional Budget Office Director Douglas Elmendorf has a post up at his Director’s Blog on the Macroeconomic Effects of the Senate Stimulus Legislation. This is what he writes about the short term benefits of Obama’s Trillion Dollar Debt Plan:

    CBO estimates that the legislation would raise employment by 0.9 million to 2.5 million at the end of 2009; 1.3 million to 3.9 million at the end of 2010; and 0.6 million to 1.9 million at the end of 2011.

    Increase employment by between 0.9 million and 2.5 million? The spread between those numbers is larger than the lower bound estimate. In other words Elmendorf is admitting that the employment projections are really just wild guesses.
    But now let’s move to the long-term costs. Elmendorf writes:

    In contrast to its positive near-term macroeconomic effects, the Senate legislation would reduce output slightly in the long run, CBO estimates, as would other similar proposals. The principal channel for this effect is that the legislation would result in an increase in government debt. To the extent that people hold their wealth in the form of government bonds rather than in a form that can be used to finance private investment, the increased government debt would tend to “crowd out” private investment—thus reducing the stock of private capital and the long-term potential output of the economy.

    Do we really want to gamble one trillion dollars on short-term employment gains at the cost of our future economic viability?

    Posted in Ongoing Priorities [slideshow_deploy]

    2 Responses to Questionable Short-Term Gains, Guaranteed Long-Term Pain

    1. John D. Froelich, Up says:

      Much of the package makes no particular sense as stimulus, altho it's pretty good as political payoffs to Democratic Party interest groups.

      But, the "buy American" clause is very scary, and I would hope that it is eliminated. We do not need a repeat of the Depression and Smoot-Hawley!

    2. lynda hawkins, 226 p says:

      How can we save America? I am so upset over the stimulis bill and all the pork. My husband and i own a small business and no is paying us. what a mess. We as americans have forgotten about what God created us as a nastion for. Thanks for all your support. God Bless America.


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