Failure of the Stimulus

When President Obama came into office, the country was in the midst of the Great Recession. Congressman Gerry Connolly supported Obama’s efforts to fund a stimulus program, calling it a “must” – a claim that he still proudly posts on his congressional website.

Obviously, the government is able to borrow money from the future to give someone a public sector job today. However, simply doing that to “create or save” a job fails to account for the cost of taking such an action. Such an act steals money from our children and grandchildren just to create a better lifestyle today. To morally justify this sort of expenditure, one must be able to point to some additional benefit. For example, one idea proposed that the stimulus would strengthen the economy enough to enable the money to be repaid through higher tax revenues. In fact, this is exactly what Connolly and Obama claimed, based on Keynesian economics.

The Keynesian theory suggests that every dollar spent by the government will result in a dollar earned by a worker. This “creates or saves” a job while increasing the size of the economy. The theory further assumes that the worker will pay taxes on the income and then spend most of the remainder – creating additional jobs and expanding the economy. Known as the Keynesian multiplier, this premise is used to justify stealing money from the future. The logic is that spending the money now will improve the economy and allow the original stimulus money to be repaid over time.

Specifically, in 2009, Obama’s economic advisors (Romer and Bernstein) suggested that the stimulus would:

• Create between 3.3 and 4.1 million jobs.
• Increase the 2010 GDP by $550 billion (2010 dollars).
• Keep national unemployment below 8 percent (it’s now 9.1 percent).

Even these numbers were too weak to justify the stimulus. None of these predictions indicated that increased tax revenues would ever repay the stimulus amount. In short, the proponents of the stimulus, including Connolly, were supporting generational theft even with these optimistic predictions.

But the Obama administration has now released its analysis of the actual impact of the stimulus program, and the actual numbers are much worse. By its own best estimates, the stimulus has resulted in only 2 million additional jobs averaged over the duration of the program. Further, the employment effects seem to be waning, with 200,000 of these jobs lost since the peak employment of 2.6 million during the summer of 2010. Thus, the stimulus has created perhaps 1.5 million fewer jobs than predicted, and the stability of these jobs is now in question. Worse, the anticipated economic growth is virtually nonexistent. The Obama administration’s own estimates suggest that the added economic growth for 2010 was only $386 billion; the total added economic growth since the inception of the stimulus only amounts to $645 billion, less than the amount spent on the stimulus so far ($666 billion). In other words, we did not even get the full value of our money, let alone the disproven, yet predicted, Keynesian multiplier.

Unfortunately, both Connolly and Obama bought into this flawed economic theory – and taxpayers are left holding the bag. This is evident when you compare Obama’s 2010 budget to his 2012 budget. Between the two documents, the Obama administration had to revise the size of the economy downwards by $500 billion, the level of employment down by roughly 3 million jobs, and tax revenues down by $500 billion for the 2011 fiscal year alone. They believed that the stimulus was their Midas touch; in reality it has just been generational theft.

You do not create real wealth by going into debt. This policy failed during the Great Depression, and it has failed today. And yet, Connolly has not learned from his mistakes. He continues to boast about his support of this program, and he supports spending bills without providing any proposal to bring the budget back into balance. The time has come for a new leader – a leader who will fight to eliminate the debt while proposing real solutions to revitalize our economy. That leader is Ken Vaughn.