Wednesday, January 7, 2009

The stimulus plan starts 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.


dave said...

These are the so called "shovel ready" projects we hear about, that even in good times when the states were flush with revenue and spending it like there was no tomorrow couldn't get these lemons financed.

Now that state revenues are in a free fall the federal government is going to come to the rescue and finance what no one thought was worth financing with their own money.

It is always so much easier spending other peoples money.

Scott Grannis said...

Excellent point. Whatever infrastructure gets done under this plan will at most be "second best," since all the important ones have already been done. And Milton Friedman told us repeatedly that the best way to waste money is to spend other people's money on other people.

SpeakToMe said...

Obama is clearly a very smart guy -- hopefully he can be made to understand that any actions he takes on the US economy in general have big downside and little upside.

I actually don't mind him fulfilling his campaign promises, all of which are extremely harmful to me and my family, as long as he goes easy on the overall economy.

I was going to list his campaign promises, but they're too depressing. All I can say is that the only rich guys who like Obama are the ones bought off or sheep following the ones bought off.

CDLIC said...


I believe you will admire the eloquence and simplicity of the following:

"The problem with Socialism is eventually you run out of other people's money." -Margaret Thatcher

Scott Grannis said...

So true, so true.