How Obama's stimulus failed

Falling short on every front


Mired in excruciating negotiations over the budget and the debt ceiling, President Barack Obama might reflect that things didn't have to turn out this way. The impasse grows mainly out of one major decision he made early on: pushing through a giant stimulus.

When he took office in January 2009, this was his first priority. The following month, Obama signed the American Recovery and Reinvestment Act, with a price tag eventually put at $862 billion.

It was, he said at the time, "the most sweeping economic recovery package in our history," and would "create or save 31/2 million jobs over the next two years."

The president was right about the first claim. As a share of gross domestic output, it was the largest fiscal stimulus program ever tried in this country. But the second claim doesn't stand up so well. Today, total nonfarm employment is down by more than a million jobs.

The package had three main components: tax cuts, aid to state governments and spending on infrastructure projects. Tax cuts would induce consumers to buy stuff. State aid would prop up spending by keeping government workers employed. Infrastructure outlay would generate hiring to build roads, bridges and other public works.

That was the alluring theory, which vaporized on contact with reality. The evidence amassed so far by economists indicates that the stimulus has come up empty in every possible way.

Consider the tax cuts. Wage-earners saw their take-home pay rise as the IRS reduced withholding. But as with past rebates and one-time tax cuts, consumers proved reluctant to perform their assigned role.

Claudia Sahm, of the Federal Reserve Board. and Joel Slemrod and Matthew Shapiro, of the University of Michigan, found that only 13 percent of households indicated they would spend most of the windfall. The rest said they preferred to put it in the bank or pay off debts — neither of which boosts the sale of goods and services.

This puny yield was even worse than that of the 2008 tax rebate devised by President George W. Bush. Neither attempt, the study reported, " was very effective in stimulating spending in the near term."

The idea behind channeling money to state governments is that it would reduce the paring of government payrolls, thus preserving the spending power of public employees. But the plan went awry, according to a paper by Dartmouth College economists James Feyrer and Bruce Sacerdote published by the National Bureau of Economic Research.

"Transfers to the states to support education and law enforcement appear to have little effect," they concluded. Most likely, they said, states used the money to avoid raising taxes or borrowing money.

That's right: The federal government took out loans that it will have to cover with future tax increases ... so states don't have to. It's like paying your Visa bill with your MasterCard.

The public works component could have been called public nonworks. It sounds easy for Washington to pay contractors to embark on "shovel-ready projects" that needed only money to get started. The administration somehow forgot that even when the need is urgent, the government moves at the speed of a glacier.

John Cogan and John Taylor, affiliated with Stanford University and the Hoover Institution, reported earlier this year that out of that $862 billion, a microscopic $4 billion has been used to finance infrastructure. Even Obama has been chagrined. "There's no such thing as shovel-ready projects," he complained last year.

Even if jobs were somehow created or saved by this ambitious effort, they came at a prohibitive price. Feyrer and Sacerdote say the cost may have been as high as $400,000 per job.

Based on all this evidence, we don't really know whether the federal government can use fiscal policy to engineer a recovery. We do know it can go broke trying.

http://www.chicagotribune.com/news/columnists/ct-oped-0630-chapman-20110630,0,7694073.column

Yep!

I really feel like now more than ever the movement toward smaller government with a hands off approach to foreign policy, and one that understands there should never be too big to fail is coming toward realization.

Lets make sure we can get our candidates through the primaries.

Gary Johnson and Ron Paul. They are running Republican. I urge all moderates to take a serious look at these guys.

Do not discount them just becuase they are running as republicans. They are socially liberal, they want to end the war on drugs, they want to stop the wars, they are for peace, for open trade, for ending the draconian patriot act, for a sensible economic policy that balances the budget by 2013.

43 cents on the dollar right now is beg borrowed or printed. We cannot keep this up and right now every other candidate is dodging the real issues and placating the masses.

Many people want desperately to paint Ron and Gary as radicals, but when the status quo is to run up dept to try to war with the worlds oil countries to make a profit the men who want to steer us away will be seen as radical for suggesting we stop this madness.

This country needs to get back on the path toward individual liberty. The industrial revolution in this country was founded on free enterprise, the current tax policies are moving business away from our country, the current bloat of government is what forces the hand of tax policy. The first step to correcting this is to end the wars on drugs, and wars on oil. The next step is to free up our economy and stop supporting to big to fail financial organizations that want to make themselves richer by betting against the little guys.

This movement is a peaceful movement, in places around the world many are taking up arms to solve the tyranny, not us, we can be a movement of change and still remain peaceful.

Many call Ron and Gary isolationist, that couldn't be further from the truth.

The word implies cutting off trade, placing burdens on world trade, these gentlemen are for non-interventionist strategies that bring other countries out from under the heel of US foreign policy and open up the kind of free competition that will ultimately support a fair trade, one that ends the unjust image we have created for ourselves by using force to achieve our economic goals. This will bolster the US dollar, it will bolster the image, it will bolster our recovery!

If Johnson is still in the field when we vote here in Maryland I will seriously consider him.

I thought he had a very good debate in South Carolina.

Well DUH!

Traditionally, any country's monetary system has to be backed by some precious metal, or maybe even oil in today's society to realistically be accepted as worth something.

So since there isn't really a market for such aforementioned items above in the US other than imported, I don't see how cutting off trade will do anything. And considering the folks who work in shipping ports and stuff like that, it'd actually retard our economic progress by eliminating the thousands of people who work in that industry.

I personally like the stimulus plan. They have extended the unemployment benefits, which helps when there are no damn jobs......

That money would have been better used as tax cuts, so that there would be jobs. We would be in a much better place.