The rational response when someone says, “sign this, no need to read it, just sign it, SIGN IT NOW,” is to drop the pen, slowly back away, and then run. It’s unfortunate that the majority of our Congress members weren’t that rational. If they had been, we might have been spared the largest abuse of public funds in the history of the country: the 1,071-page, almost $800 billion “stimulus” bill. Why is the stimulus bill bad? Let me count the ways.
First, it’s not clear that it was even necessary. According to President Obama, the rush to pass the stimulus bill was driven by a concern that “a failure to act, and act now, will turn a crisis into a catastrophe.” But a Jan. 8 report from the Congressional Budget Office, Congress’s own research agency, projects that even without the stimulus the economy would have begun “a slow recovery in the second half of 2009.” Only 10 percent of the spending from the stimulus occurs in 2009. Which means that the vast majority of the almost $800 billion will be spent after the economy has begun to right itself. In other words, after the horse has already decided to return to the barn and close the door on its own.
Second, even calling it a “stimulus” bill is disingenuous. The Wall Street Journal estimates that only 12 percent of the bill “is for something that can plausibly be considered a growth stimulus.” The vast majority of the spending in the bill goes to growing government. For example, increasing the budget of the National Endowment of the Arts by a third, allocating half a billion dollars for renovating buildings at the National Institutes of Health, over half a billion dollars to convert the federal auto fleet to hybrids, tens of billions of dollars to advance the nationalization of health care by creating federal bureaucracies and increasing the size and scope of Medicaid, etc., etc., etc. All worthy projects perhaps, but none that could not, and should not, have gone through the scrutiny and debate of the normal appropriations process.
In a similar vein, Gov. Tim Kaine recently announced that funding from the stimulus would be used to save 7,100 Virginia jobs. Good news, until you realize that they are all government jobs. Those jobs were on the chopping block because tax receipts from the private sector have declined as the economy has declined. Committing future tax revenue, which is what the stimulus bill does, to cover or expand government payrolls does nothing to improve the economic health of the private sector. Therefore, it does nothing to solve the underlying problem. It only postpones the day of reckoning, and by siphoning future dollars out of the economy, likely makes it worse.
Finally, if $800 billion sounds like a lot, that’s because it is. It is estimated that Franklin D. Roosevelt’s 10-year New Deal cost $500 billion in current dollars. It’s important to keep in mind that this is real money, not manna from heaven, and it will have to be paid back. Moreover, that massive increase in public obligations will coincide with the tsunami of debt that is bearing down on us as the baby boomers retire and begin collecting Social Security, Medicare, and Medicaid. Absent a change in taxes or benefits, current projections are that the Social Security trust fund will go bust in 2042, and, as bad as that sounds, the problems with Medicare and Medicaid are worse. Thus, the stimulus bill only adds to the already crippling tax burden that we are pawning off on our children and our children’s children.
In short, it appears that the stimulus bill has a lot more to do with the cynical strategy “never let a serious crisis go to waste” than with kick-starting the economy. That is to say, it has more to do with using the current crisis to rush through, without debate, an unprecedented expansion in the size and reach of government than with tackling the economic problems that the bill is alleged to address. As my mother used to say, it will end in tears.
A. Fletcher Mangum is managing partner of Mangum Economic Consulting. The views expressed in this column are that of the author and not RBS.
“The rational response when someone says, “sign this, no need to read it, just sign it, SIGN IT NOW,” is to drop the pen, slowly back away, and then run.”
Well, this is good advice. Too bad that Congress did not demonstrate such caution when the Bush Administration, led by Henry Paulson, demanded $700 billion for the bank bailout asserting that there was no time for discussion, no time for a plan, no time for conditions. At least some portion of the stimulus package is, in fact, mitigating the fiscal distress of state governments and school districts across the nation, helping to keep teachers and others employed. Whether the bailout funds have served any simlarly useful purpose is open to debate.