I’ve argued for a long time that stimulus bills are poorly named; it implies that they stimulate the economy. “Spending bill” is a non-loaded term that has the added advantage of being accurate. Both parties have passed spending bills over the years in the hopes of stimulating the economy. Intentions being different than results, Democrats are finally starting to agree with me on this misuse of language, as The Hill reports:
Democrats are now being careful to frame their job-creation agenda in language excluding references to any stimulus, even though their favored policies for ending the deepest recession since the Great Depression are largely the same.
The article continues:
Recognizing the unpopularity of the 2009 package, however, Democratic leaders have revised their message with less loaded language – “job creation” instead of “stimulus” and “Make it in America” in lieu of “Recovery Act” – in hopes of tackling the jobs crisis.
Spending bills work by taking some money out of the economy and then putting it back in, minus transaction costs and political malfeasance; one can see why they don’t have much effect. The thinking is that Congress can invest money more wisely than private investors. If Solyndra is any indicator, that isn’t true.
Public opinion has soured on spending bills after some initial optimism. That same public also wants its politicians to do something, anything to get the economy going.
But the only tool available to Congress is spending. That’s why politicians insist on following the same failed policy over and over – it is their only tool. The only alternatives are doing nothing, or actively paring back spending and regulations. And those don’t look nearly as glamorous on camera.
Stimulus, spending bill, job creation bill – a rose by any other name has thorns just as sharp. And this particular rose refuses to bloom. That means it’s time to try something else. Maybe reducing spending to sustainable Clinton-era levels, which isn’t even particularly austere. Congress should also try a deregulatory stimulus sometime.
Winston Churchill observed that “Americans can always be counted on to do the right thing…after they have exhausted all other possibilities.” We may finally be seeing a small step in that direction. The Bush and Obama administrations have tried fiscal stimulus to speed up economic recovery. It didn’t work. The Federal Reserve tried increasing the money supply, which they called “quantitative easing” because it sounds much more pleasant than “printing money.” That didn’t work. Then they tried it again. That didn’t work, either. What to do?
We at CEI have been pushing a deregulatory stimulus for years. Now that all other possibilities are exhausted, the administration appears to be taking small steps in that direction. Regular readers are aware that federal regulation costs about $1.75 trillion, and that the Code of Federal Regulations is over 157,000 pages long. Both of those numbers grow every year, as over 3,500 new rules hit the books annually. This morning, OIRA chief Cass Sunstein is announcing a 30-point plan that would “save American companies billions of dollars in unnecessary costs,” according to The Washington Post.
This new initiative stems from Obama’s Executive Order from earlier this year that ordered agencies to comb their books and recommend obsolete or harmful rules for elimination. Agencies hardly have an incentive to reduce their size or scope, which is why an independent commission would be a better vehicle for getting rid of old rules. The rules Sunstein is proposing to eliminate are very modest. But it’s better than nothing.
The real savings would actually go to consumers. Because companies pass on their costs, consumers are the ones who ultimately pay regulatory costs. They will also ultimately reap the savings in the form of lower prices and more choices.
The bad news is that the regulatory savings will comprise only a tiny fraction of the $1.75 trillion cost of federal regulation. Many will hail these reforms as landmark, revolutionary, or some other hyperbole. They are nothing of the sort. It is only a first step on the road to a saner regulatory approach. But if people believe that we’ve already reached the destination, they will lose the desire to press for further reform.
The worse news is that almost all of the new rules in the pipeline – 4,225 at last count – will still hit the books. Costly new regulations from the health care bill and the Dodd-Frank financial regulation bill may well outweigh the savings that Sunstein is proposing today.
Not all the details are out yet, but there is reason for deregulators to be cautiously optimistic. For more regulatory reform ideas, see this article that Wayne Crews and I wrote for AOL News.
Tragedy struck Japan this morning. It will be some time before we know just how many lives the tsunami took, and how much damage was done. But pundits are already saying dumb things.
Larry Summers, who should know better, committed the economists’ cardinal sin this morning: he fell for the broken window fallacy. The sunny side of the destruction is that it will boost the economy. Just think of all the jobs that will be created by the rebuilding process!
Over at the Daily Caller, I gently correct Summers. Natural disasters are bad for the economy. All the rebuilding activity in the next few years will only get Japan back to where it was. If the tsunami had never happened, all that energy could be put to creating new wealth. Disasters are just that: disasters.
Posted in Economics, International, Publications, Stimulus
Tagged bastiat, bastiat broken window fallacy, broken window fallacy, cnbc, daily caller, earthquake, economic growth, japan, japan earthquake, japan tsunami, larry summers, lawrence summers, natural disaster, Stimulus, tsunami
Most people doubt Congress’ ability to spend money wisely. The stimulus has given them some proof:
-$800,000 for an African genital-washing program.
-$700,000 to create computer software that can tell jokes.
–$40,000 for ten trash bins.
-$1.6 million to irrigate a golf course inTexas.
-Thousands of dollars to replace – twice – a sidewalk “that doesn’t front any homes or businesses, and leads into a ditch”
–300 truckloads of oyster shells.
Bonus non-stimulus spending: “[T]he Census spent $23,000 on a totem pole in Alaska. Census representative Hector Maldonado says the agency thought it was a great idea. The plan was to increase participation in Alaska, but despite the totem pole, participation dropped in the state by two percent from the last census.”
A new NBER working paper from Atif Mia and Amir Sufi finds that the Cash-for-Clunkers program didn’t work. Here’s part of the abstract:
We find that the program induced the purchase of an additional 360,000 cars in July and August of 2009. However, almost all of the additional purchases under the program were pulled forward from the very near future; the effect of the program on auto purchases is almost completely reversed by as early as March 2010 – only seven months after the program ended. The effect of the program on auto purchases was significantly more short-lived than previously suggested. We also find no evidence of an effect on employment, house prices, or household default rates in cities with higher exposure to the program.
In other words, cash for clunkers didn’t change how much people spent. It only changed when they spent. Sales were higher than normal during the program, and lower than normal after.
As the data come in, they are proving what theory predicts: fiscal stimulus doesn’t work. President George W. Bush tried Keynesian stimulus in 2001. It didn’t work. He tried again in 2003. It didn’t work then, either. President Obama’s stimulus programs aren’t faring any better. It’s time for a different approach.
Telling the truth to one’s superiors is hard. Especially when the stakes are high. Christina Romer comes to mind. Brilliant economist. She’s done excellent work on the role of monetary policy during the Great Depression.
A partisan Democrat, she was summoned to Washington soon after President Obama’s election to advise him. All of a sudden she endorsed the Bush-Obama views on stimulus. This is a 180 degree turn from her previous views. Romer’s own academic research shows that fiscal stimulus’ effects are too small to do measurable good.
Romer the economist believes that most business cycles have monetary causes. Not fiscal. Monetary. Romer the economist had been very consistent in expressing that view. But that view changed as soon as she arrived in Washington and Romer the economist transformed into Romer the political advisor. Suspicious.
This is not a new phenomenon. Politicians from both parties have been using economists for as long as economists have let themselves be so used. Politicians love the air of legitimacy that pointy-headed academics can give to their proposals. And economists love the sudden rush of attention and name recognition — and the professional prestige that will long outlast the current administration. They are happy to sell out. Or is it buying in?
That thought was sparked by reading about F.A. Hayek mourning the death of some of his colleagues’ integrity back during the Reagan years:
“You can either be an economist or a policy advisor.
I have seen in some of my closest friends… how a few years in government corrupted them intellectually and made them unable to think straight.”
–Cato Policy Report, Vol. 5, No. 2, February 1983.
Posted in Economics, Stimulus
Tagged christina romer, f.a. hayek, fa hayek, fiscal stimulus, hayek, monetary policy, Political Animals, romer, speaking truth to power, Stimulus
$150,045 of stimulus money is being spent to restore a bridge that doesn’t connect to any roads and ends in an 8-foot drop.
Stimulus backers claim that the project created 1.9 jobs. That’s $78,971.05 per job created. That’s not a very good deal. Especially considering that no jobs were created on net, because that $150,000 was taken away from somewhere else in the economy.
Without the stimulus, that money would have been spent in other ways. Given that most jobs cost less than $78,971 to create, it may well be that the bridge restoration project meant fewer jobs were created than if the government had just left the money where it was originally — your pocket.