Two years of epic stimulus failures

It’s like moving money from the left pocket to the right pocket. It
doesn’t make us any wealthier. What it really stimulates is more
government, not more economic activity.

Or government can borrow money, which is simply taking money now
and promising to pay it back later with money that will come from
taxpayers who are around when “later” arrives. Government borrowing
reduces the amount of money available for private businesses and
individuals to borrow.

The federal government also can create money, which leads to price
inflation, making today’s dollars worth less than yesterday’s. We’re
already seeing the impact of a less-valuable dollar in items ranging
from gold and silver to cotton and gasoline, all of which are at or
near record prices. As high prices for essentials such as food and
energy work their way through the economy, consumers will have less
money to spend on everything else.

The nonsensical idea that government should spend more in economic
downturns stems from “Keynesianism,” which is all the rage in
government policy circles today, and for good reason. It provides cover
to people who believe in expansive, interventionist government.

Keynesianism claims government can spur demand for goods by
spending money to make up for what private businesses and consumers are
not spending. This provides an excuse to grow government, even
when—especially when—the economy is slowing or contracting, and it
gives government more power.

But if government spending can boost an economy, how did the U.S. economy ever decline in the first place?

When George W. Bush became president, total federal spending was
$1.8 trillion. When he left office eight years later, in January 2009,
federal spending topped $3.4 trillion. And by 2009 the country was in
the second year of the worst economic downturn since the 1930s.

Spending under Bush increased at more than twice the rate of
increase under President Bill Clinton during the 1990s, a decade many
Democrats now clamoring for even more government spending point to as
years of strong economic growth.

And let us not forget state and local governments. They did their
part to supposedly prevent an economic slowdown by expanding their
spending by more than $1 trillion, from $1.74 trillion in 2000 to $2.83
trillion in 2008, when the financial crisis began.

Record government spending did nothing to stop the recession. More government spending will do nothing to end it.

Ah, but what about World War II spending ending the Great
Depression, you say? It did no such thing. Keynesian economists in the
1940s warned the end of war spending and return of millions of soldiers
would result in an economy every bit as bad as or worse than we had
during the Depression.

Instead, federal spending plummeted from 40 percent of the economy
to less than 15 percent (it’s about 25 percent today), unemployment
fell to less than 4 percent, and the economy boomed—the opposite of
what many government economists said would happen, and another
refutation of Keynesianism.

The way to end this recession is for government to cut spending,
shrink the deficit, end corporate welfare, stop using taxpayer money to
bail out politically connected businesses and industries, and reduce
regulations that make investing for the future more difficult.

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute in Chicago and managing editor of Budget & Tax News.