Obama’s Plan Could Lengthen Crash

Published March 1, 2009

While President Barack Obama proposes to restart the economy via the largest public-works construction program since the inception of the national interstate highway system a half-century ago, critics say the plan would actually pave the road to a protracted economic decline.

“While we are being told things about safe roads, getting bridges fixed, and fixing broadband, it’s just a snow job of pick-pocketing $800 billion out of the nation, and they’re just trying to come up with a way of selling it,” said economist Mark Thornton, a senior resident fellow at the Ludwig von Mises Institute.

“I see this chewing up resources like labor and capital, which entrepreneurs eventually find ways to put back to work and bring about recovery,” Thornton said.

‘New Deal’ Thwarted Recovery

Obama’s plan, which he regularly characterizes as necessary to prevent “the worst economic crisis since the Great Depression” of the 1930s, includes a huge public building plan similar to Franklin D. Roosevelt’s “New Deal” program.

FDR’s plan included the Works Progress Administration, which has been characterized as providing jobs and income to the unemployed through the construction of public buildings, roads, and other projects.

Public school textbooks credit the programs with pulling the country back from the economic abyss and spurring economic recovery, but a 2004 study by UCLA economists Harold L. Cole and Lee E. Ohanian found Roosevelt’s big-government intervention actually thwarted an economic revival for seven years.

At the time the study was released, Ohanian said a relapse of the Great Depression “isn’t likely unless lawmakers gum up a recovery with ill-conceived stimulus policies.”

When the Depression dragged on for years, it convinced many the free market could not be trusted, Cole said in an interview for this article. “Ironically, our work shows that the recovery would have been very rapid had the government not intervened.”

New Technology, ‘Green’ Jobs

Along with traditional infrastructure projects such as repairing roads and bridges, Obama’s plan offers cash to create new-era technology and so-called green jobs, aid to state and local governments, and tax cuts for individuals and businesses.

However, while Thornton and other opponents of bailouts generally approve of the tax cuts, without spending cuts the infusion of cash will provide no long-term solution, they say.

“The real solution is tax cuts, spending cuts, and balancing the budget,” Thornton said. “However, they’re doing basically the opposite: greatly increasing spending, increasing the debt, and unbalancing the budget, things that cause downturns in the economy to become protracted.”

Federal Money’s Strings

Several governors have gone to Washington seeking federal funds for various ventures.

Five Northeast governors have submitted a plan for $1 trillion in federal bailout money, including $350 billion to create jobs through building or repairing roads, bridges, and other public works. Also included in the request is $250 billion to “maintain education.”

But Sven Larson, research director of the South Carolina Policy Council, notes the requested extra $250 billion would nearly match what states already spend on education ($300 billion, $45 billion of which comes from Washington). In fact, the requested $1 trillion equals 68 percent of total state spending in Fiscal Year 2007 and would be in addition to the $405 billion provided to state governments through the Federal Aid to States program.

Not only would this result in the federal government “paying practically every dime the states [currently] spend,” such a federal infusion also would likely be accompanied by unwelcome intrusion into states’ policies, Larson said.

“Federal money doesn’t just come like manna from heaven,” Larson said. “There are strings—often pretty tough strings—attached.”

Better Way for States

Unlike his counterparts in the Northeast, South Carolina Gov. Mark Sanford (R) told a congressional committee on October 29 the states need less federal intrusion and more freedom from unfunded federal mandates, which have cost states $131 billion during the past four years, including a $10 billion price tag for the Real ID program. REAL ID is a federal mandate requiring states to impose certain security, authentication, and issuance procedures for driver’s licenses.

“Give us more in the way of control over the dollars we already have and less in the way of costs,” Sanford told the House Ways and Means Committee. “Give us more options, not more money with federal strings attached.”

Jim Waters ([email protected]) is director of policy and communications at the Bluegrass Institute for Public Policy Solutions in Bowling Green, Kentucky.