The Stimulus Plan Is Starting to Stink

I sure hope the word gets out, because it's not too late to stop the stimulus juggernaut. To begin with, there are signs out there that the economy may be turning up on its own (e.g., rising commodity prices, declining swap and credit spreads, rising equity prices), so a massive stimulus package is not really necessary. Then there is the problem with government spending in general, since it has never proven effective at stimulating an economy, but it can be very effective at wasting money.

Eric Cantor, the Republican Whip, makes some excellent observations on his blog:

Democrats have suggested that a large part of the stimulus will be spent on vital infrastructure projects that are “ready to go” or “shovel-ready”. In preparation for the stimulus, the Conference of Mayors has published a list of such projects on their website. Their list includes items such as:

$350,000 for an Albuquerque, N.M., fitness center;
$94 million for a parking garage at the Orange Bowl in Miami;
$4.5 million for Gretna, Florida, to bottle water with recyclable bottles;
$35 million music hall of fame in Florissant, Missouri;
$55 million for a mob museum in Las Vegas (described in the mayors report as “Historic Post Office Museum Rehabilitation”);
$20 million for a minor league baseball museum in Durham, North Carolina; and
$6 million for snowmaking and maintenance facilities at Spirit Mountain, Minnesota.

If the stimulus costs $1 trillion and creates or saves only 3 million jobs, that is a per job cost of $333,000.

Read the whole thing.

In short, it is simply impossible for the government to spend anything close to the numbers being bandied about in a timely manner, and in a way that doesn't result in massive waste, fraud, and inefficiency. The more we hear about such absurdities as spending $333,000 to save or create a job which most likely pays only $50,000 per year, the quicker this exercise will be revealed for the sham it really is. And the longer the arguments are drawn out, the greater the chance that we will discover that massive stimulus is no longer necessary.

If the economy really does need massive help, and I'm not sure it does, the best way to provide immediate relief and stimulus is to cut taxes on capital. When you cut taxes on something, you tend to get more of it. If we increase the after-tax return to putting capital to work in the U.S. economy, we will increase the amount of capital available to invest, and that in turn will increase the demand for labor (adding capital to an economy has the immediate effect of creating a shortage of labor, which in turn leads to more hiring). We will end up with more jobs, and they will be more productive and higher-paying jobs. The private sector is the best job-creation machine imaginable.

Comments

[Alan von Al...:]

It is not politically expedient to do arithmetic.

Jan 08 08:51 AM

[frosty:]

You're an economist alone. Your colleagues across the board, liberal and conservative, say that the stimulus is NECESSARY. Will there be some waste and inefficiency? Of course. Is there any waste and inefficiency in the private sector? No, never, nor is there any corruption. Give me a break! The private sector is precisely what got us into this mess making a fortune of sub-prime and other debt obligations. The government helped a lot with lax or no regulation. But to think that just because we have had this little bear rally in stocks and commodities that government has to do nothing is, sorry, stupid!

Jan 08 09:23 AM

[John Polomny:]

You miss the political reality of the situation. Politicians lust for power so the goal is not to create jobs per se. The goal is to appear to care and to be active in "doing something". These especailly treu after eight years of a government that was percieved to have forgotten about "working famalies". The goal is to keep your popularity above fifty percent so that you can stay in power. Seriousily is this guy Obama actually supposed to get on TV and say "America needs a Depression to clean out all the greed and malinvestment so we will let the creative destruction process take its course and in five years we will have a stronger economy" Aint going to happen. I dont agree with the stimulus nor do I like government interference in the economy but "there is the way we want things to be and then there is the way it is".

Jan 08 09:54 AM

[huangjin:]

The GOP should grow a pair and propose $1 trillion in spending cuts.

Jan 08 10:10 AM

[Umm, yeah:]

Well, if you're trying to play politics, this is a brilliant article. Criticize Obama for the stimulus plan. If the economy shows signs of strength, pick certain pork products in that stimulus and talk about how government wastes tax payer money. If there's no sign of strength or if the economy doesn't turn around or the stimulus plan doesn't get passed, go ahead and blame him for not properly handling the economy.

Jan 08 12:13 PM

[Socialism c...:]

Sorry frosty, I just can't let this one go by -- you are PLAIN WRONG. It was the GOVERNMENT who pushed subprime lending. It is *government* that does not know how to run business -- this is fundamentally true because government never has to "make money" -- it just harvests off the people via taxation.

Read these for some factual background on the subprime mess:
www.mediacircus.com/20.../

online.wsj.com/article...

It is worth noting that this took off in earnest in the 90s, during the Clinton tenure!


On Jan 08 09:23 AM frosty wrote:
> The private sector is precisely what
> got us into this mess making a fortune of sub-prime and other debt
> obligations. The government helped a lot with lax or no regulation.

Jan 08 01:11 PM

[jepittman:]

As much as I would agree with the author I'm afraid the government spending is going to happen, and yes, an awful lot of it is going to be wasted on unnecessary projects. The dems won and they have a mandate to spend. A tax cut on capital won't happen. What tax cuts we get will be for low to middle income wage earners (which is OK in my book). It beats a one time check in the mail, and its better than handing money to the cities & states ( which also is going to happen). I guess it could be worse.

We probably should be thankful they're going to do SOMETHING and maybe some of it will impact the economy and help turn it upward sooner than it otherwise would. Here's hoping whatever they do works.

Jan 08 05:17 PM

[Mr. Cynical:]

Socialism cannot compete...trying to blame the community reinvestment act for mortgage failure has been proven wrong. The subprime loans within the CRA have as low a default rate as prime loans. It was when banks saw the success of that program and increased subprime lending beyond it that they got in trouble.

Jan 08 10:23 PM

[secmaven:]

The deriding of Obama's stimulus plan and dire predictions about the economic future of the US dollar assume that the world will give Obama the same level of respect that was given to George Bush. Manifestly, that is not the case. Obama's approval ratings before the election were higher abroad than at home. So he has a strong start. We can maintain the dollar as a universally accepted currency if we properly manage the US economy going forward. Adopting bottom up spending for the newly created money in the stimulus plan coming from monetization of the the debt will be the lynch pin to his success. And ending the Bush/Paulson subsidies to well connected business' that should fail is essential. In addition, demonstrating to the world that the US operates under the rule of law, the most abject failure of the Bush administration, and is making sound investments in our future, another element of the stimulus plan, will keep the dollar riding high and the economy of the whole world on an upward trajectory.

Jan 09 12:19 PM

[momomiester:]

I like the idea of the Mob museum. Maybe memebers of congress can have a special section there devoted just for them!

Jan 09 03:29 PM

[carey_jim:]

The government could take over the American car companies and raise tariffs on foreign cars, the way they did during World War II and 'solve' all of Detroit's problems.

In times of war its called a wartime economy.

In times of peace its called fascism and history shows that, economically speaking only, it works very well.

If the workers took over General Motors and bought or stole all of the stock, that would be socialism.

Most European and American socialists don't claim that socialism is more efficient than capitalism or that capitalism doesn't 'compete' better than socialism.

Socialists admit that they want to exchange more equality for less productivity.

So your name is moot and your arguments are about fascism and not socialism.

Any fascist, from Hitler to Pinochet could say 'capitalism cannot compete (with fascism!)' and he would be right.

But free market capitalists don't want to live under fascism and socialists don't want to live in a capitalist economy.

It's that simple.


On Jan 08 01:11 PM Socialism cannot compete! wrote:

> Sorry frosty, I just can't let this one go by -- you are PLAIN WRONG.
> It was the GOVERNMENT who pushed subprime lending. It is *government*
> that does not know how to run business -- this is fundamentally true
> because government never has to "make money" -- it just harvests
> off the people via taxation.
>
> Read these for some factual background on the subprime mess:
> www.mediacircus.com/20.../
>
>
> online.wsj.com/article...
>
> It is worth noting that this took off in earnest in the 90s, during
> the Clinton tenure!

Jan 09 04:57 PM