During the debate on and after the Obama economic stimulus bill even some conservative economists were arguing the bill was needed to stabilize the economy. Similar arguments followed every successive “jobs bill” Congress has enacted, despite the growing embarrassment of self-indictment implied by these bills. It appears the economics profession may have relearned a lesson
According to the latest survey of its members by the National Association of Business Economists:
The vast majority (73%) of respondents reported the fiscal stimulus enacted in February 2009 has had no impact on employment to date. While 68% also believe a jobs bill, such as the one recently enacted into law, will have no impact on payrolls, 30% do believe it will boost payrolls moderately.
Heritage economists argued consistently, forcefully, and to the intense outrage of proponents that the Obama stimulus would stimulate the national debt, but not the economy. The reason for the failure is simply that increasing deficit spending means increasing federal borrowing and the money has to come from somewhere. It either comes from domestic sources, in which case domestic investment declines by the amount of the deficit spending, or it comes from foreign sources in which case the trade deficit rises by the amount of the spending. Deficit spending reshuffles domestic demand, but it cannot increase demand (or supply) because it cannot create purchasing power or improve incentives.
When the recession was roaring the nation had two basic policy options available to it. The one that would have made a positive difference was to cut taxes on productive activity. Given the 2008 election outcome and the low esteem in which President Bush was held nationally, it is understandable most economists dared not suggest the tax cut road. And thus remained only the left fork of increased deficit spending, even though this policy has never worked and likely would fail again this time. But there was hope. Now there is reality, a lot more national debt, and a lesson of failure remembered.