Costly Stimulus Bill Unlikely to Work, Analysts Say

Published April 1, 2009

The federal economic stimulus bill started with an emphasis on “timely, targeted, and temporary” spending on infrastructure projects, plus sizable tax cuts, but ended as a $787 billion bill emphasizing social and environmental spending and less tax relief than originally proposed.

The American Recovery and Reinvestment Act of 2009 passed with support from only three Republican Senators and no Republican House members. Supporters called it a quick job creator and economy stimulator before the February 13 final vote, but just two days later even Obama administration members were playing down its probable effects.

“The plan we passed tonight will strengthen our economy by creating millions of good-paying jobs here at home; deliver tax relief for 95 percent of workers; and invest in America’s future by fixing our communities’ roads and bridges, improving our children’s education, and making our country more energy independent,” Senate Majority Leader Harry Reid (D-Nevada) said in a statement immediately after the vote.

Republicans Wanted Business Help

Republican lawmakers overwhelmingly took a different view.

“You cannot borrow and spend our way into prosperity,” Rep. Jeb Hensarling (R-TX) told reporters. “The Republicans want to stimulate the economy by helping small businesses. The Democrats want to stimulate big government.”

President Barack Obama signed the bill early in the week after its passage.

On Fox News Sunday just two days after the vote, Obama senior advisor David Axelrod said “it’s going to take time” for the economy to improve, probably not until the second half of the year. “The president has said [the economy] is likely to get worse before it gets better,” he noted.

Analysts Doubt It Will Help

Tad DeHaven, a budget analyst at the Cato Institute, said he doubts the stimulus will create lasting improvement in the economy.

“If federal spending is a stimulus, why are we in recession?” DeHaven said. “We saw the first $2 trillion budget under George Bush, the first $3 trillion budget under Bush, and we’re now headed to $4 trillion.”

David Williams, vice president of Citizens Against Government Waste, said the stimulus “represents a lot of what we have seen the last eight years. Obama and the Democrats are saying they are bringing change, but they’re not. Republicans spent the heck out of the budget, and we have a $10 trillion debt because of it, and the Democrats are doing the same thing.

“A couple of years ago the deficit was $400 billion, and people were rightly in shock. Those are the good old days,” Williams said. “Now we’re looking at a $2 trillion deficit. We’re pining for the days of only $400 billion in deficits.”

Economist: Problem Was Spending

Economist Mark Thornton of the Mises Institute said the stimulus package “is actually going to further disrupt the correction process that has already been too long and painful. It involves more spending. The problem that got us into this mess in the first place is excess spending and excess borrowing, largely by government but also private borrowing and spending induced by the [Federal Reserve’s] policy of low interest rates.

“Spending more and going more into debt and bailouts of failing enterprises is the opposite of what we need,” Thornton said. “I anticipate nothing good to come from this.”

Thornton said economic stimulus and direct bailouts of financial institutions are “in effect protectionism. Traditionally we have viewed protectionism as tariffs, quotas, trade restrictions, subsidies to export industries, those sorts of things. Subsidies, government investment in firms, handing out cash are just different forms of protectionism. The whole thing is essentially protectionism.”

Steve Stanek ([email protected]) is a research fellow at The Heartland Institute and managing editor of Budget & Tax News.