The View From 1776

President Obama, his principal advisors, and his left-wing media supporters promised that hasty enactment of the $787 billion stimulus bill would keep unemployment below 8% and would create millions of new jobs.  None of that has happened.  Unemployment has risen steadily and now is just short of the 10% level.

In its October 20, 2009, edition the Wall Street Journal reports:

Hiring always lags behind in economic recoveries, but the outlook this time is worse, many economists say. Most forecasters now expect a prolonged period of high unemployment…

There are several major factors behind the trend, which is coming on top of sharper-than-expected job cuts in the recession. Many businesses have nagging doubts about the durability of the upturn, attributing much of the recent growth in orders to a move by their customers to rebuild inventories and to [temporary] government stimulus spending, rather than underlying strength in their markets.

Businesses also face uncertainty about the potential costs of regulatory moves—such as an expansion of health care and climate legislation—that could drive up costs...

Whether the financial sector had to be bailed out by the Fed and the Treasury remains a debatable question that won’t be settled until economists in the future have had the time to sift through all records of the 2007 - 2010 period. 

Beyond question, however, is the repeated experience that government spending does not create new, productive, and permanent jobs.  It failed to work for President’s Hoover, Roosevelt, Nixon, and Carter.  Twice it failed for President George W. Bush. 

One-size-fits-all government interventions such as the president’s stimulus program fail to live up to economists’ and politicians’ promises because of the law of unintended consequences.  No council of intellectuals will ever have sufficiently broad and timely economic information to anticipate the millions of reactions by individuals who will be impacted by an intervention.

Interventions such as the stimulus bill are ineffective, because, among other things, they create uncertainty and fear in the minds of business executives.  Few are willing to hire new employees to expand production when the timing and amounts of temporary Federal spending are unknown.  Most are fearful of yet more costly regulations that reduce incentives to hire new workers.  Seeing the government’s high-handed seizure of control in major private businesses and banks, arbitrarily dictating employee compensation, adds to their fears.

Economic plans of individuals or corporations are subject to correction or failure by the same law of unintended consequences.  But their short-falls don’t affect the entire economy.  Moreover, the likelihood of individuals’ or corporations’ success is greater than that of government interventions, because individuals and corporations don’t have to pay off special interest groups, and they don’t have to worry about re-election if efforts to correct a program’s flaws result in curtailment of special-interest benefits.  Individual or corporate activities can be cancelled if they don’t meet expectations.  Killing a government program is all but impossible, no matter wasteful or ill its effects.

The cost-benefit ratio of government interventions is heavier on costs than on benefits to the whole economy.  Government spending is a transfer of income from you to someone else.  Unlike businesses that create jobs and wealth by producing products that people want to buy, government produces vast bureaucracies whose regulations nobody wants to buy.  Government interventions are more effective in rewarding special interest groups and getting politicians re-elected than in benefitting the overall economy.

The Waxman-Markey cap-and-trade bill to limit CO2 emissions, estimated at $822 billion direct government spending, is a prime example.  It panders to the mythology of Al Gore worshippers, who are prepared to inflict any degree of economic devastation to promote their misbegotten aims.

According to testimony before Congress by Heritage Foundation economist Ben Lieberman, this bill would have severe financial impacts on American families:

 
- direct costs for a household of four would increase an average of $829 per year, aggregating $20,000 between 2012 and 2035.

- adding the cost of allocations and offsets, the average cost to that family unit would rise to $2,979 annually from 2012 to 2035.

- the bill would hurt the poor the most, because they would bear a disproportionate burden of the higher energy costs the bill would trigger.

- the bill’s higher costs to the manufacturing sector is estimated cause net job losses, averaging about 1.15 million between 2012 and 2030.

- the overall gross domestic product losses would average $393 billion per year from 2012 to 2035, and the cumulative loss in gross domestic product would be $9.4 trillion by 2035.

- by 2035 it would add $115,000 to the national debt for a family of four.

John Maynard Keynes, writing in the middle of the 1930s Great Depression, preached that unemployment is the most consequential aspect of economic recessions and that government deficit spending is the only way to keep unemployment within limits that the public will tolerate.  Keynes acknowledged that government support for labor unions’ power to prevent layoffs and reduced wages, along with massive deficit spending by government, would inevitably bring about inflation.  Inflation and misalignment of industry were trade-offs, Keynes believed, that politicians were compelled to inflict if they were to be re-elected by a servile populace hooked on government hand-outs.

Keynes’s analysis of the 1930s Great Depression led him to conclude that excessive saving by individuals and corporations caused prolongation of the Depression.  Harvard economist Alvin Hansen, Keynes’s great American advocate, opined that private business had stagnated permanently, that corporate business activity would never again attain the levels of the 1920s.  His prescription was that the Federal government would have permanently to take the place of private business and assume the role of creating jobs with government deficit spending.

Reduced to essentials, Keynesian economics, the source of stimulus program doctrine, is a rationalization for expansion of the socialist welfare-state.  Every expansion of Federal power is a loss of personal liberty and a substitution of political state corporatism for private individual and corporate business.  That was the nature of Mussolini’s Fascist State Corporatism in the 1920s and one of the reasons that both Franklin Roosevelt in the 1930s and Barack Obama today found Keynesian doctrine attractive.