Sunday, October 14, 2012

GHEI: Obamanomics Hasn’t Worked

A second term would produce economic results no better than the first

Sen. Claire McCaskill, Missouri Democrat, once told Fox News that President Obama’s $833 billion stimulus was “wildly successful.” As the Election Day draws near, it’s important to have a clear view of the impact of the president’s major legislative achievement second only to Obamacare.

According the Congressional Budget Office, the stimulus cost more than the Iraq war. The only thing it succeeded in doing was to push the country deeper into the fiscal hole, leaving us stuck with the weakest recovery since World War II. Mr. Obama promises more of the same in a second term.

It can’t work. British economist John Maynard Keynes was the father of the theory that government spending could create prosperity. Since his death in 1946, this damaging idea has resulted in the transfer of trillions of dollars of wealth away from the people who earned it and into the hands of bureaucrats. Such redistribution of income cannot result in economic growth.
Spending for the sake of spending makes no sense when it comes to a family budget, and federal budgets are no different. That extra government spending must either be financed by higher taxes or by increased debt. Higher taxes mean that taxpayers will have a lower net income, forcing them to reduce their spending. All debt has to be repaid eventually — and the most likely scenario is higher taxes will hit in the future when the debt comes due. Either way, there are no long-term gains to the economy. The only lasting result is increased debt and a larger government which weigh down the economy.

The stimulus bill, known as the American Reconstruction and Recovery Act (ARRA), provides strong evidence that Keynesian solutions are nothing more than a spending shell game. Stanford’s John Taylor, in a study published in the Journal of Economic Literature, followed the stimulus money. He found “if there had been no temporary stimulus payments to individuals or families, their total consumption would have been about the same. And if there had been no ARRA grants to states and localities, their total expenditures would have been about the same.” That is, the economy would have done at least as well had Mr. Obama’s legislation failed.

This lack of impact should have come as no surprise. When the federal government tried to spend directly, it found a dearth of the “shovel-ready” projects that were supposed to stimulate the economy. When the feds gave money to the states, those governments used the money for current obligations, either borrowing less or increasing savings, leaving their spending where it was. Families were just as smart, socking away their small, temporary windfalls as a cushion in these uncertain times.
Here we are, almost four years later, with the most optimistic projections of economic growth at less than 2 percent, with the lowest labor participation rate in many decades and a broad unemployment rate of 14.7 percent. The stimulus was a failure, and it was destined to be a failure.

Nita Ghei is a contributing Opinion writer for The Washington Times.

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