Spending Stimulus Can't Work

1. Every dollar the government spends comes from the private sector.

Nobel Prize winner Milton Friedman famously said: "there ain't no such thing as a free lunch." Government spending is either financed through higher taxes, higher federal borrowing, or by printing money. Those are the only possibilities. They all create greater economic damage than any stimulus effect of new spending.

● Tax increases lower the incentive to work, save, and invest. There is a strong association between tax increases and reduced economic growth. In an economic crisis, tax hikes should be unthinkable. The Revenue Act of 1932 was one of the major reasons an economic crisis deepened into the Great Depression.

● Government borrowing also takes money out of the private economy—the money that bond purchasers hand over to the government in exchange for the bonds. That money could otherwise be used for business investment that would expand the economy’s productive capacity. If the funds are borrowed from abroad, our exports are lowered because U.S. dollars are being used to buy bonds instead of goods. Borrowed funds also have to be paid back, placing a burden on future taxpayers. Excessive borrowing also may increase interest rates, deepening the credit crisis.

● Inflation may be most damaging financing mechanism of all. If government spends money that it hasn’t taxed or borrowed, then it is literally creating money out of thin air. More dollars being created means that the dollars in our pockets and bank accounts are worth less than they were before. Inflation is a stealth tax that erodes the value of everything and destroys real economic growth.

2. History shows spending stimulus fails.

America experimented with large-scale expansions of government spending in the 1930s with the New Deal and again in the 1960s and 70s with the Great Society. These dramatic expansions of government spending coincided with economic failure. The long-boom that started under Reagan and continued until now with only a couple of brief, mild recessions coincided with a significant decline in federal spending as a percentage of the economy.

3. Infrastructure projects should be judged on their merits, but not as stimulus.

There is a role for government in providing certain public goods that the market cannot efficiently provide. If financing is available at favorable rates it may make sense to take a long-term view and begin projects that are legitimately justified on their merits. We should be under no misconception, however, that public works spending is stimulative, because borrowed dollars are taken out of the private sector.

The first 2009 "stimulus" bill included billions in outright pork and wasteful spending:

• $300 million for buying cars for federal bureaucrats;
• $3.7 billion for something called “green research” on military bases;
• $50 million for the National Endowment for the Arts;
• $2 billion for “neighborhood stabilization” to radical groups like ACORN;
• $1.3 billion for Amtrak;
• $10 million for"urban canals"

The Road to Government-Run Health Care

$1.1 billion for “comparative effectiveness research” that will establish a federal government board to begin rationing health care by having bureaucrats deciding which medical treatments will be appropriate for which Americans. More info here.

Overturning the Historic Welfare Reform of 1996

$264 billion for direct welfare payments while overturning the historic welfare reform of 1996. The Pelosi-Reid-Obama bill will reward states with federal welfare funds based on the number of people they put on their welfare rolls – a perverse incentive that will in effect give states “bonuses” for adding more people to welfare rolls and work requirements are ignored in this legislation.

$53.6 billion for a "state stabilization fund" otherwise known as a slush fund

This massive infusion of our tax dollars is designed to alleviate the need for genuine budget reform and cutting at the state level.

So, when you hear folks saying this Pelosi-Reid-Obama "stimulus" bill was a "compromise" that cut waste to the bone while focusing only on "shovel ready" priorities, call them on it!