Stimulus Didn't Even Come Close to Working
If government spending can stimulate economies, how did the U.S. economy ever tank in the first place?
Based on spending, our economy should be stronger than ever.
When George W. Bush became president, total federal spending was $1.8 trillion. When he left office eight years later - in January 2009 - federal spending topped $3.4 trillion. The nation saw an 83% increase in federal spending in just eight years, yet by 2009 the country was in the second year of the worst economic downturn since the 1930s.
Spending under Bush increased at more than twice the rate of spending under President Bill Clinton during the 1990s. It has continued to climb under President Barack Obama, whose fiscal 2011 budget calls for $3.8 trillion of spending.
This surge in federal spending has come on top of a surge in state and local government spending, which climbed more than $1 trillion from 2000 ($1.74 trillion) to 2008 ($2.83 trillion), according to the most recent figures in the Census Bureau's annual survey of state and local government finances.
And still we hear from some quarters that government needs to spend more, more and more in "economic stimulus."
These people apparently have forgotten that in 2008, with the downturn underway, Bush signed into law a $168 billion "stimulus" that was supposed to restore economic health. It did not.
In February 2009, Obama signed into law another "stimulus" that was advertised at $787 billion but now has an $862 billion price tag. Yet the National Bureau of Economic Research, the official scorer of recessions, told us last month the recession ended in June 2009, before virtually any of the Obama stimulus money started flowing.
Obviously, the stimulus cannot be said to have worked if the recession ended before the economy received the stimulus.
Since the official end of the recession, we have thrown hundreds of billions of dollars of stimulus money into the economy on top of the trillions of dollars that local, state and federal governments would be spending anyway. The Keynesian economic theory that stimulus supporters embrace tells us this extra government spending should have the economy roaring.
Instead, we read of this being the weakest economic recovery since World War II. We read of government leaders and central bankers around the world fearing another slide into recession. We read of an official unemployment rate that hovers between 9.5% and 10% and a real unemployment rate - which includes the unemployed, underemployed and those who are so frustrated they've stopped looking for work - around 17%.
Most of the so-called stimulus is going to government (teachers, police, firefighters, Medicaid, etc.). Even the $281 billion of tax breaks in the Obama stimulus are a failure. They're temporary, so people have tended to save the money instead of investing or spending it.
And the so-called tax breaks are really a form of government spending in that most are going to people who pay little or no federal income tax, including earned income tax credit recipients, who already receive tax dollars collected from others. It's just another income redistribution scheme, not an actual tax break.
In a way, the whole stimulus has been a massive redistribution scheme, taking resources out of the private sector and sending most of them to government.
We must remember that government exists only by using resources generated by the private sector. The more government spends, borrows and taxes, the more it drains from the part of the economy that produces economic growth.
Government stimulus spending is actually a drag on the economy. To improve the economy, end economic stimulus and shrink government.
Steve Stanek ( firstname.lastname@example.org) is a research fellow at the Heartland Institute in Chicago.