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  • Morning Bell: Why the Stimulus Failed

    The Democratic Party was shaken to its core on Tuesday when Sen. Chris Dodd (D-CT), Sen. Byron Dorgan (D-ND) and Gov. Bill Ritter (D-CO) announced they would not run for re-election in 2010, all on the same day. The source of these Democrats’ fears in facing the American people at the polls is no secret: the American people believe the state of the economy is poor and getting worse. Responding to this dismal environment, Sen. Ben Nelson (D-NE) told the Fremont Tribune on Tuesday: “I think it was a mistake to take health care on as opposed to continuing to spend the time on the economy.” While we agree with Nelson that President Barack Obama’s health care priorities have been grossly misplaced, we shudder to think what more “time on the economy” would have meant from this White House.

    Just last month in a speech to The Brookings Institution, President Obama outlined his proposal for a third round of stimulus funding on top of the $787 billion stimulus he signed into law last February. Third stimulus you say? Yes, third stimulus. Any fair accounting of government deficit spending in response to this recession must also include President George Bush’s failed 2008 $168 billion economic stimulus bill. Why did these first two economic stimuli fail? For the same reason any third stimulus will also fail: government spending does not inject any new money into the economy. Heritage Foundation Senior Policy Analyst Brian Riedl explains:

    Congress does not have a vault of money waiting to be distributed. Every dollar Congress injects into the economy must first be taxed or borrowed out of the economy. No new spending power is created. It is merely redistributed from one group of people to another.

    Yes, government spending can put under-utilized factories and individuals to work–but only by idling other resources in whatever part of the economy supplied the funds. If adding $1 billion would create 40,000 jobs in one depressed part of the economy, then losing $1 billion will cost roughly the same number of jobs in whatever part of the economy supplied Washington with the funds. It is a zero-sum transfer regardless of whether the unemployment rate is 5 percent or 50 percent.

    The fact that the money for government spending does not just fall from the sky is no secret. As Senior Research Fellow Ronald Utt has detailed, multiple government entities acknowledge this fact, including the General Accountability Office and the Congressional Research Service, who concluded:

    To the extent that financing new highways by reducing expenditures on other programs or by deficit finance and its impact on private consumption and investment, the net impact on the economy of highway construction in terms of both output and employment could be nullified or even negative.

    Like government spending, the wrong kind of tax cuts can also be worthless in spurring economic growth. Riedl explains:

    Many tax cutters commit the same fallacy as do government spenders when asserting that tax cuts spur economic growth by “putting spending money in people’s pockets.” Similar to government spending, the tax-cut cash does not fall from the sky. It comes from reduced investment and a higher trade deficit (if financed by budget deficits) or from government spending (if offset by spending cuts).

    Permanent cuts to marginal to high marginal tax rates can encourage more business investment and economic growth. But Bush’s 2008 tax cuts and Obama’s 2009 tax cuts were both just tax rebates which, especially when they are given to people with no tax liability to begin with, are economically indistinguishable from government spending.

    The economy’s own self-correcting mechanisms have already begun to move the economy out of recession. Now is no time to stall the recovery before it gets going with another round of deficit spending on top of our existing $1.4 trillion deficit.

    Quick Hits:

    • After seven Senators sent a letter to the White House demanding to know what the Obama administration knew about Transportation Security Administration nominee Erroll Southers’ misleading statements to Congress about his improper personal use of FBI databases (and when they knew it), the White House admitted they did not know about Southers’ misstatements until this November.
    • Democrat Mayor Sheila Dixon of Baltimore, who was convicted of embezzlement last month, said she will resign from office in early February.
    • In his State of the State address on Wednesday night, California Gov. Arnold Schwarzenegger said the Senate health care bill was filled with “bribes, deals and loopholes” and added: “California’s congressional delegation should either vote against this bill that is a disaster for California or get in there and fight for the same sweetheart deal Senator Nelson of Nebraska got for the Cornhusker State. He got the corn; we got the husk.”
    • For the second day in a row, White House spokesman Robert Gibbs continued to dodge questions about President Barack Obama’s broken promise to the American people to have health care negotiations on C-SPAN.
    • New York City projects that the Obama administration’s decision to try Khalid Sheikh Mohammed and five other suspects in civilian court will cost them more than $400 million.
    Posted in Ongoing Priorities [slideshow_deploy]

    36 Responses to Morning Bell: Why the Stimulus Failed

    1. Ben C, Ann Arbor says:

      Again, it is a simple truth: Government does not create wealth. In Ann Arbor at the corner of US 23 and Plymouth Rd we have a new parking lot paid for by stimulus money. While a new parking lot is nice – who is going to buy it. The parking lot has no monetary resale value. Wealth has not been created. Our Congress and the POTUS does not understand this concept given most of them are lawyers or career politicinas who have never even run a lemonade stand. Business people understand exactly what I have stated and understand the consequences of the adminstrations spending habits which is unsustainable. But then this is the agenda for the Cloward – Piven strategy

    2. BoBBryan Wetumpka says:

      "Yes, government spending can put under-utilized factories and individuals to work–but only by idling other resources in whatever part of the economy supplied the funds. If adding $1 billion would create 40,000 jobs in one depressed part of the economy, then losing $1 billion will cost roughly the same number of jobs in whatever part of the economy supplied Washington with the funds. It is a zero-sum transfer regardless of whether the unemployment rate is 5 percent or 50 percent."

      This is wrong. Taking from a proven productive part of the economy and giving it to a less-than-productive (depressed) part of the economy is a nagative sum transfer. It makes things worse.

    3. Whicket Williams Kin says:

      Hey ,now it has been explained they WANT to destroy us.

    4. Ken Jarvis - Las Veg says:

      One of the readers of this MBell

      couldn't stand the TRUTH,

      and Ran and hid.

      That is the GOP and C way.

      If YOU are interested in the REAL Truth.


    5. Larry Welch, Idaho says:

      Mr Reidl's broad stroke statement that tax cuts don't help the economy defies logic; money sent to gov't that would otherwise expand a business is the prime example. Money I spend on a new boat should instead be sent to Washington???? Give me a break!!!!!

    6. Dave, Laguna Niguel says:

      Senators leaving huh? Notice when the lights come on the rats scurry? Same difference. The crooks are running while the communists are staying. Why? All crooks care about is getting away with their thefts, stealing from the dumbed-down people. The commies are idealogs and all they care about is gaining POWER through a continuous progression of LIES about helping "the people". Seen any job creation lately? Course not! Every single democrat proposal/bill is about making you stupid, uninvolved stiffs poorer and more dependent on the government for your measly handout and putting you in the hole so deep you can't climb out. Many socialists and "regular" people died and suffered in the USSR for 70 years, everything run by the criminals(wall street anyone?), nothing in that miserable existence worked properly, the people kept in the dark by a controlled media(SOUND FAMILIAR?!), and it took a super-human like RONALD REAGAN(a HERITAGE FOLLOWER!) to bring the commies to their collective knees. And who did the liberals give credit to? Gorbachev!? A man who finally had no choice cause the "commie cat was out of the bag" and everyone saw the misery being perpetrated upon the Russians, and the people had had it after 70 years! All Gorbachev did was give in, averting a civil war. Do you want to stop the communist takeoever NOW, or 70 years from now? Your choice.

    7. Richard Cancemi, Arl says:

      A draconian Health Care Bill that the majority rejects; a Stimulus Bill that has stimulated nothing of value; a host of promises that have all proven to be lies; a foreign policy that is ridiculous; an absolute disdain for the Constitution; and, a corruption in Obama and Congress' liberal-socialist Government that out-corrupts that of Boss Tweed's, can only bring about the collapse and ruin of America. But isn't that what these fools intended all along?

    8. toledofan says:

      I think the article clearly shows the negative impact of spending more and I think it's time to stop tinkering with the economy and for the government to just get out of the way. I think that the 'pain' would have been less intrusive had we let the system work. If this administration continues on its path it will get things so screwed up it will take years for us to recover. Heritage keep up the good work.

    9. Gary Cody, The UNITE says:

      I am not sure, from our socialist congress's perspective, together with their leader in the whitehouse, that the stimulus actually did fail. If your goal is to ensure government control of a large percentage of American manufacturing capacity and to repay political debts to Unions and wall street using taxpayer (well, we should say "future taxpayer's) money, then I think you would have to agree the plan worked to perfection.

    10. Dennis A. Social Cir says:

      This just proves that one can not borrow their way out of trouble. Borrowing only delays the end result, you have to pay back at some point in time. I guess the dems and obama have never experienced the pay back time. Well it is coming just like it did with the carter time in the White house, inflation at its higher, interest rates at 15% or better on homes, and even higher on vehicle loans. Yes I know many do not remember those times, or had rather not remember those times, but they are or will be here soon. Then of course obama can throw in the towel and we can fly a chinese flag when the debt comes due.

    11. Cherrilie Vonnahme, says:

      I think the Republican party in the Senate and House should protest the state of the union address. They should not attend at all because of what the Democrats and the White House are doing to them. I think it would show the people that they are standing behind them the way they are being left out of any meetings. I feel it would put a big statement if they didn't attend the state of the union address. Also it would show the people that they have a spine and are trying to do the right thing for the people. Power to the people not to the government.

    12. Cherrilie Vonnahme, says:

      That is OK but I feel we the people need to show the Democratic party that we have at least a few representatives in the Republican party. Thanks for viewing this for me.

    13. Rick Baxter, USA says:

      I agree with Gary Cody, except I am positive the stimulus did not fail – it did exactly what the democrats planned. It gave the illusion that they were trying to help the economy, while allowing them to hide hundreds of billions of unspent stimulus funds. This money (slush fund) will be used to help keep democrats in office in the next 2 election cycles – count on it. This is the only way to explain the fact that not nearly all of the stimulus money has been spent, as well as the fact that they cannot explain correctly where the expended funds went.

    14. Patti, Las Vegas says:

      I continue to cringe when I hear "government spending". I wish the media, including Heritage (which I support with money) would start saying "taxpayer spending". I think many people just don't make the connection. For example, how many "we the people" think much about the pay/benefits of government workers' of all levels (fed, state, local–including teachers & administrators) is really tax payer dollars?

      Americans will never demand pay-for-performance, reasonable benefit/pay levels, and quality/efficiency of government workers–and, this will continue to harm this great country.

      So, Heritage, why not take the lead?

    15. Da Dog says:

      We are being robbed, at the point of a literal gun, to finance political pay-offs, buy votes for people who are morally challenged, finance corrupt organizations like ACORN and to give money to terrorists who want to kill us. It is high time for a serious tax revolt. There is little value in 95% of what the Federal government spends. It is time to move things back to the states and limit the central government. It simply galls me when I think about MY MONEY being used against me.

    16. Prevailer76AZ says:

      Robert Gibbs and members of the Democrat Senate/House are very good at dodging questions. They have honed to a fine art the ability to skirt issues and speak all around the hard questions asked them. Try as an interviewer might, they hardly ever get a straight answer from these clowns.

    17. Vallejo, Ca. says:

      Business as usual ! No change,everythings the same.

      Boy what trusting Politations can get you into,are there any true Statemans (Real) that can pull us out of this downward spiral ? If you kill the Foundation the house is built on,(constitution) the House will fall. Instead of taking God Out of Country,we better try to restore it with,In God we Trust, while there is still time.

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    21. Harry, Illinois says:

      As the old Algebraic equation goes, 2 minus equal a plus. Maybe our politicians should take a refresher course in both Math and Economics.

      If you want math that adds up, then lets impose voter mandated term limits. 2 terms and their out.

      The current incumbants are getting ready to pull out all the stops in order to get re-elected. So, lets not forget the insults, lies, sneaky back room dealings and lack of honesty and "transparency" when casting our votes this year.

      Lets make this a year of "CHANGE", because if the change we are currently experiencing is what change is all about than I'd rather stick with the Status-Quo.

      Remember what the Speaker of the House said: "Candidates make all kinds of promies when running for office". In other words folks, MORE LIES TO COME.

      As our Native Americans use to say "White Man Speak with Fork Tounge" and that is becoming more and more evident everyday now in our political arena. I'd rather put my trust back in the Eagle, the Bear and the Wolf. At least I know what direction they will becoming from and not stabbing us in the back.

    22. Bobbie Jay says:


    23. luhut,, Bataks says:

      The funny fun like cutting tax is not right make the new way and put the all needed become a lines away along with global economic down will affect on global activities in your country become go down

    24. steve, belleville, I says:

      The simple truth is that governments have limitations- should regulate roads, defense, currency, etc. But it should limit the things it does that charities normally do. Governments are not the Salvation Army. There is to many "help" programs govt programs already: foodstamps, Medicaid, Medicare, No Child Left Behind; HeadStart. These programs have harmed America it's children slip more and more behind other countries in education and as population growth is encouraged in segments of the population that are destitute.

    25. Whicket Williams Kin says:

      I am going to be starving soon, if something doesn't change I was rich one year ago.

    26. Whicket Williams Kin says:

      Term limits are the way to go these idiots whine about A senator retiring when he should have hit the road years ago We gotta change this mess. we are going to wind up like russia

    27. Roger, Henderson, Nv says:

      Give 40 to 50 thousand main stream full time employed workers 50 to 55 years old $1,000,000 to never work again. The big fix. 40 to 50 thousand new jobs. 40 to 50 thousand millionaires spending lots of cash.

    28. jim smith says:

      As we look forward in 2010, we see U.S. Islamo-Fascism in its dying year. January 7 will become the newly minted "Rats Off The Ship Day". Nobama, lying boldly about the exact location of where the buck stops, plays the seldom used "Responsibility" card, taking us back to the previous administration without even knowing it.

    29. Bill says:

      Dodd will get a $multimillion$ position somewhere. Fanny Mae or Freddy Mac wouldn't surprise me since he's "collected" from them previously. He will be paid off by the demo machine because he is a loser and needs to get out of the way…. Harry Reid will make the same announcement before summer roles around…. and probably others as well.

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    31. Barbara Lowe, Utah says:

      What happened at Copenhagen Denmark, Did Obama sign the treaty? There was so much said about it and now there is no information that I have seen to let me know if he signed or didn't sign. I would appreciate any information you could send me. Thank You

    32. Andy says:

      The stimulus package is approved and handing out money. Rather than complain about it, take advantage of it. If you are not happy about the package, then don't vote for democrats at the next election. Just don't give up your fair share of the pie on whining principles.


    33. Tom Thacker, French says:

      Right on! Stop stealing our money.

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    36. Big M, USA says:

      It doesn't matter who replaces these cardboard cutouts. What the sheeple need to do is to refuse to have anything to do with this crooked, rigged federal election system.

      The CONstitution isn't legally binding on anybody, which means that the criminal syndicate in DC calling itself the federal government has neither legitimacy nor legal authority. Once people in this country decide to treat these 545 craven, treasonous mobsters the way they'd treat any other thief who tried to rob them, there just might be a chance.

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