Are you stimulated yet?

Now that the Jobs Bill (aka Stimulus 2) is being proposed, it’s a good time to look at the results of the first stimulus and reasons why that bill failed to have effects put forth by the Obama administration.  Of the $787 billion allocated for stimulus, $186 billion has been spent.  A small of amount of this was allocated for infrastructure ($31 billion), which does have true economic benefit by increasing efficiency and productivity.  The remainder of this is simple transfer payments, largely to the states, which is the source of the “created or saved” numbers touted by administration.  The “saved” numbers includes teachers, police and fire fighters who might have been laid off without the stimulus.  Notice how pay cuts to these groups never entered the discussion, while pay cuts are always an option in the private sector.  The prime goal of the stimulus was to prevent unemployment from going above 8%.  To the administration’s surprise, it hovers around 10%.  Why is this?

Every time these large “jobs” programs are proposed, they inevitably fall prey to Bastiat’s “broken window fallacy.”  The fundamental problem with jobs programs is that they take funds from the economy at large (reducing employment generally) and put funds into politically-favored jobs.  Brian Riedl of the Heritage Foundation does a great job of exploring this phenomenon in this paper.  As anyone who has raised living entities (human, animal or plant) knows it is quite easy to stunt or kill growth and impossible to force growth.  The best that can be done is to create a nurturing environment where growth can occur, and then hope and pray for good results.  All governments that believe they can force economic growth with “jobs” and “stimulus” are arrogant, ignorant, and doomed to failure.


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