With the economy showing some slight signs of life, liberal pundits are crowing that the Obama administration's stimulus package is working. Yet anyone who believes that — as one Internet joke has put it — filling up buckets of water from the deep end of the pool and pouring them into the shallow end will ultimately raise the overall water level betrays a perilously limited understanding of economics.
Here is Washington Post columnist Ezra Klein: "There's a legitimate argument over how effective it's been, or whether it's been effective enough given the expense. But it has been effective. Calls to repeal it are, make no mistake, calls to boost the unemployment rate and slow economic growth." Liberal pundits are looking at the slight uptick in the economy and concluding that it must be the massive $787 billion stimulus package (most of which has yet to be spent) that's responsible for it.
A look at the data by a group of Hoover Institution economists suggests otherwise. Writing in the Sept. 17 Wall Street Journal, John Cogan, John Taylor and Volker Wieland conclude, "Incoming data will reveal more in coming months, but the data available so far tell us that the government transfers and rebates have not stimulated consumption at all, and that the resilience of the private sector following the fall 2008 panic — not the fiscal stimulus program — deserves the lion's share of the credit for the impressive growth improvement from the first to the second quarter."
The bigger issue is the long-term effect of enormous government spending.
When government spends hundreds of billions of dollars, that money comes from some place. There are only three places it can come from, as Ludwig Von Mises Institute economist Shawn Ritenour explains: higher taxation from people who earn the money, which retards capital investment; debt spending, which drives up the cost of borrowing for business owners and average citizens; and inflation, which reduces buying power. None of those choices improves the long-term health of the economy even if dumping money in the economy can provide some temporary and targeted spikes.
Meanwhile, our nation grows evermore deeply in debt. The entitlement mentality grows. The government continues to consume greater portions of the economy as it pursues dubious economic policies with the apparent aim of keeping unsustainable bubbles inflated. Some day the bill will come due. You can be sure that — in the broader scheme of things — that the stimulus is not "working."
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