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Don’t Ignore Costs of “Stimulus”

Posted By Salim Furth, Ph.D On August 16, 2013 @ 4:30 pm In Economics | Comments Disabled

 

Newscom [1]

Newscom

Shocking new economic research [2] has shown that receiving large gifts from the federal government is actually beneficial to states.

That is not such a shock, is it? Another non-shock is that pro-stimulus journalists have misinterpreted studies [3] to use them as evidence for national stimulus benefits.

The studies are econometrically sophisticated, but stem from a simple idea: If we compare states that received greater federal transfers to states that received smaller transfers, we can estimate the benefit of transfers.

Evaluating a national policy by comparing state-level benefits cannot capture national-level costs. Who will bear the burden of paying back the higher debt? Which private-sector investments will be crowded out by greater federal stimulus? Which political interest groups will gain power over the electorate from steering more money to their constituents? State-to-state comparisons make no attempt to answer these questions.

LEARN MORE:

Research Review: What Can Be Learned from Local Multiplier Estimates? [2]


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

URL to article: http://blog.heritage.org/2013/08/16/dont-ignore-costs-of-stimulus/

URLs in this post:

[1] Image: http://blog.heritage.org/wp-content/uploads/stimulus-sign.jpg

[2] Shocking new economic research: http://www.heritage.org/research/reports/2013/08/keynesian-economics-local-multiplier-estimates-economic-downturns-and-fiscal-stimulus

[3] misinterpreted studies: http://www.washingtonpost.com/blogs/wonkblog/wp/2012/08/08/the-romney-campaign-says-stimulus-doesnt-work-here-are-the-studies-they-left-out/

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