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Oct 31, 2010

Why the Stimulus Package Failed

Obama:  All economists agree that we needed the stimulus and that it has saved our economy.
Cato:  At least 200 economists disagree.
Obama:  I don't care about fringe economists.
Cato:  They include Nobel Prize winners.
Obama:  I don't care about fringe Nobel Prize winners.

Why the Stimulus Package Failed
10/31/10 - Open Market by Hans Bader

A roundup of articles by prominent economists who report that the $800 billion stimulus was doomed from the start. The stimulus was misapplied, even if you believe the economic justifications for doing it. The links and edited comments below are from Bader's article. See the article for even more information.

The Case Against The Fiscal Stimulus
2010 - Harvard economist Jeffrey Miron (pdf)

Dr. Miron shows the stimulus failed, even if you take for granted Keynesian liberal assumptions about economic policy. Congress spent wastefully while failing to revive the economy. Miron concludes that the stimulus was designed to reward politically connected constituencies and special-interest groups like public-employee unions.

Stimulus Spending Doesn't Work
10/01/09 - WSJ Opinion by Harvard economists Robert J. Barro And Charles J. Redlick

Our research shows no evidence of a Keynesian 'multiplier' effect. There is evidence that tax cuts boost growth.

Stimulus is probably the worst bill since the 1930s'
02/09/09 - Examiner.com by William Dupray

The Kennedy, Reagan, and Bush-43 tax cuts spurred the economy back into shape. By contrast, the FDR spendfest in the 1930's did nothing, like similar attempts in Japan and Argentina to spend their way out of recessions.

Obama's tax increases could kill economic recovery
05/14/09 - Examiner.com by Hans Bader

Harvard economist Martin Feldstein has advised Obama. He says, "the barrage of tax increases proposed in President Obama’s budget could kill any chance of an early and sustained recovery.” He compares Obama’s tax increases to the ones that contributed to the Great Depression and the “Lost Decade” of economic stagnation in Japan.

Congress Blew The Stimulus.  Beware A Double-Dip In 2010.
01/03/10 - Business Insider by Joe Weisenthal

Harvard economist Martin Feldstein  [edited]: 

I supported the $800 billion fiscal (spending) stimulus, to the dismay of my conservative friends. But, the design of the stimulus was was poorly done by Congress. It delivered much less than its price tag suggested.

So far, the stimulus has helped push the economy out of recession, but other negative forces raise questions about its durability. There is a significant risk the economy could run out of steam sometime in 2010.

Please, No More Government Spending!
The Daily Beast by Vernon L. Smith

Prof. Smith is the George L. Argyros Professor in Finance and Economics at Chapman University, and received a Nobel prize in Economics in 2002.

[edited]:  You were told that the stimulus was justified because it would start a recovery that would increase output (jobs) by more than its increased cost. But, you are skeptical that there has been any recovery, and think that you have been misled by the president and the economic experts.

Our best shot at increasing employment and output is to reduce business taxes, and reduce the impediments and cost of creating new start-up companies. Don’t subsidize them; just reduce their taxes, even as they become larger.

200 Economists Oppose the Stimulus Plan
01/27/09 - Open Market by Cord Blomquist

Mr. Obama says: "There is no disagreement that we need action by our government, a recovery plan that will help to jumpstart the economy."

The Cato Institute collected 200 economists who oppose the stimulus package, including 1986 Nobel Prize economist James Buchanan. He won for explaining how government economic policy is affected by politicians’ self-interest and non-economic forces. Those 200 signed this statement  [edited]: 

With all due respect Mr. President, that is not true.

You claim that all economists are now Keynesians and that we all support a big increase in the burden of government. But, we the undersigned do not believe that more government spending is a way to improve economic performance.

More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s. More government spending did not solve Japan’s “lost decade” in the 1990s.

It is a triumph of hope over experience to believe that more government spending will help the U.S. today. Policymakers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to improve the economy.

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