A Tragedy

Our aim is to simplify, then close the pattern ahead, affording a leg up for our readers. In Feb we labeled the American Recovery and Reinvestment Act, the administration’s trillion $ (w/ interest) "stimulus" package as not only superfluous and a complete waste of taxpayers’ money, but an act of deceit by Washington lawmakers as well. Harvard economist Robert Barro, candidate for the 03 Nobel, calls the legislation "probably the worst bill that has been put forward since the 1930s." "I mean it's wasting a tremendous amount of money," he said in an interview with the Atlantic. "I don't think it will expand the economy. . . . I think it's garbage."

The taxpayer has a growing, uneasy sense that we were right, that they’ve been taken. This is not that tough to understand. All of us have the tools at hand to judge this situation for ourselves, drawing from both history and experience. We know for example that the US economy has righted itself after each crisis, to which we will add - in spite of government intervention. Witness the Great Depression. The economy was beginning to recover before Roosevelt took office. From Lee Ohanian, director of macroeconomic research at UCLA, "Industrial production rose more than 60% from its July 1932 low until the National Industrial Recovery Act was passed in June 1933, and the industrial recovery stalled once the NIRA took effect." The problem was Washington. "The government did a lot during the Depression under the auspices of the New Deal," notes Ohanian, "and recent research is showing that some of those programs such as the National Industrial Recovery Act--which fostered cartels and raised wages far above their normal levels--substantially delayed recovery and kept employment much lower than it otherwise would have been."

So "stimulus" didn’t work in the 30's. Won’t take our word for it, doubt Prof Ohanian? Henry Morgenthau, FDR’s Sect of the Treasury testifying before the House Ways and Means Committee in May 1939: "We are spending more money than we have ever spent before and it does not work. I want to see this country prosperous. I want to see people get a job. We have never made good on our promises. I say after eight years of this administration we have just as much unemployment as when we started and an enormous debt to boot."

There is no evidence that $1 spent by the government has any net, multiplier effect for goodness sake vs the private sector. After all, where does that dollar come from? It can come from taxes or inflation or borrowing. Taxes translate to less spending for the private sector. If the Fed inflates, it means less buying power for the private sector. If the government borrows, the private sector is crowded out.

Next, even if government spending did work, providing a kick start, the last CBO study shows that through late May only about $37 billion of the $787 billion package has been spent.. For example, the Departments of Education, Transportation and Energy all have spent 2% or less of their allocations.

Finally, we know that there is ample evidence that the economy has stabilized. And a flood of freshly printed money makes a rebound all but inevitable. The Fed has cut rates to zero. M2 money supply is rising at close to a 10% rate now. Going back to WWII, a 10% rate of money growth has always led to economic growth.

A signature of the Democratic party is to erect layer upon layer of government, in which they believe all wisdom resides. Thus, the severe problems of our economy last year presented the opportunity of a lifetime for Democratic lawmakers. When Emanuel laid out his Rule Number One - "Never let a crisis go to waste," he was being nothing if not candid, exposing his and his boss’s agenda in crystal clear fashion. This is a dream come true for this bunch. Obama and Pelosi, along with their supporters are the types to see this crisis as a "great opportunity" as the president labeled it recently. They are the types, after a long period out of power, to attempt to use that "great opportunity" to push through far-reaching changes in national policy that have only a tangential connection, if at all, to the crisis but effect a weld or lock on US society that can not be undone for several generations.

What has transpired then my friends is in fact the greatest political heist ever witnessed. The bottom line is that the ARRA will leave us with a legacy of substantially rising debt without any commensurate benefit. The CBO notes that federal debt, which was about 40% of GDP at the end of 2008, is expected to rise to more than 80% of GDP in 10 years. And with no change in policy, debt could rise to nearly 100% of GDP before then. Add in the burden of unfunded government liabilities, including social security and government pensions, and the debt burden becomes truly staggering.

We expect a taxpayer revolt. As the IBD editorialized the other day regarding the ARRA, "It's as big a fraud as any perpetrated in recent years, cynically passed to take advantage of Americans during a time of economic panic and fear. Worse, it was falsely sold as stimulus when in fact it was a permanent expansion in government spending. The stimulus hasn't worked, and it won't. It should be killed off. Just throw it in the garbage, and apply the remaining $700 billion or so to cutting the expected $1.8 trillion deficit this year."

Robert Craven