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Stimulus spending fails, everywhere

Writing for the Wall Street Journal, economist Arthur Laffer drops an atomic bomb on Obamanomics, in the form of a table that tracks the relationship between government spending and GDP growth in a large group of industrialized nations, including the United States.  “Of the 34 Organization for Economic Cooperation and Development nations, those with the largest spending spurts from 2007 to 2009 saw the least growth in GDP rates before and after the stimulus,” Laffer observes.  (Emphasis mine.)

The U.S. saw a 7.3 percent increase in government spending, coupled with an 8.4 percent reduction in GDP growth.

Laffer’s evaluation of Obama’s mutated Keynesian spending philosophy is brutal:

If you believe, as I do, that the macro economy is the sum total of all of its micro parts, then stimulus spending really doesn’t make much sense. In essence, it’s when government takes additional resources beyond what it would otherwise take from one group of people (usually the people who produced the resources) and then gives those resources to another group of people (often to non-workers and non-producers).

Often as not, the qualification for receiving stimulus funds is the absence of work or income – such as banks and companies that fail, solar energy companies that can’t make it on their own, unemployment benefits and the like. Quite simply, government taxing people more who work and then giving more money to people who don’t work is a surefire recipe for less work, less output and more unemployment.

Later, Laffer explains what happens when “stimulus” theory replaces the normal incentives of the free market by saying “the transfer recipient has found a way to get paid without working, which makes not working more attractive, and the transfer payer gets paid less for working, again lowering incentives to work.”

Instead of the silly 200 or 300 percent effectiveness Keynesians promise for every stimulus dollar spent, Laffer argues the net result is actually negative when compared to what the private sector could have done, if left in control of its money.  This essential truth is hidden by two factors, one of which Laffer relates: government spending is counted as part of our Gross Domestic Product.

The other obfuscating factor I would add to Laffer’s analysis is that government spending is treated as highly significant by the media, while private investment is either ignored or criticized.  The financial papers might carry tales of business success, and once in a while the public imagination is captured by a company like Apple… but none of that compares to the front-page, above-the-fold coverage given to huge government spending initiatives.

Even the largest business investments are small compared to public spending on the scale we have become accustomed to, and the beneficiaries of private commerce are not photogenic dependency groups with well-connected advocates. The constant power of the private sector is treated as a background hum, while the flashes and sparks of billion-dollar government programs capture the headlines.  That’s why a surprising number of people are willing to give Obama credit for “trying to help” with his stimulus disaster, when they should be outraged by its negligence, graft, and waste.  No individual investor or corporation could ever dream of receiving so much credit for goodwill, even when making highly successful investments.  They also wouldn’t have a prayer of getting away with Obama’s standard excuse for his failures, which is that things would have been even worse without his wild spending spree.

The fundamental assumption of Obamanomics is that the private sector is incapable of recognizing vitally necessary investments that would stimulate national economic growth, so the government has to step in and force us to “invest” wisely.  This was always an absurd notion.  No government agency will ever be anywhere near as skilled at detecting legitimate, profitable opportunities as private investors.  The government can never match the data harvesting capabilities of millions of private citizens.  Government wears ideological blinkers, while its ears are filled with the whispers of lobbyists and rent-seekers, and its nervous system is numbed by an overdose of deficit spending, insulating it from the valuable pain of failure.

A more inept “investor” would be difficult to imagine.  If only Uncle Sam’s “shareholders” would examine Laffer’s data as carefully as real shareholders review the performance of their corporations, and demand the most comprehensive change of management in November!

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archive

Stimulus spending fails, everywhere

Writing for the Wall Street Journal, economist Arthur Laffer drops an atomic bomb on Obamanomics, in the form of a table that tracks the relationship between government spending and GDP growth in a large group of industrialized nations, including the United States.  ??Of the 34 Organization for Economic Cooperation and Development nations, those with the largest spending spurts from 2007 to 2009 saw the least growth in GDP rates before and after the stimulus,? Laffer observes.  (Emphasis mine.)

The U.S. saw a 7.3 percent increase in government spending, coupled with an 8.4 percent reduction in GDP growth.

Laffer??s evaluation of Obama??s mutated Keynesian spending philosophy is brutal:

If you believe, as I do, that the macro economy is the sum total of all of its micro parts, then stimulus spending really doesn’t make much sense. In essence, it’s when government takes additional resources beyond what it would otherwise take from one group of people (usually the people who produced the resources) and then gives those resources to another group of people (often to non-workers and non-producers).

Often as not, the qualification for receiving stimulus funds is the absence of work or income – such as banks and companies that fail, solar energy companies that can’t make it on their own, unemployment benefits and the like. Quite simply, government taxing people more who work and then giving more money to people who don’t work is a surefire recipe for less work, less output and more unemployment.

Later, Laffer explains what happens when ??stimulus? theory replaces the normal incentives of the free market by saying ??the transfer recipient has found a way to get paid without working, which makes not working more attractive, and the transfer payer gets paid less for working, again lowering incentives to work.?

Instead of the silly 200 or 300 percent effectiveness Keynesians promise for every stimulus dollar spent, Laffer argues the net result is actually negative when compared to what the private sector could have done, if left in control of its money.  This essential truth is hidden by two factors, one of which Laffer relates: government spending is counted as part of our Gross Domestic Product.

The other obfuscating factor I would add to Laffer??s analysis is that government spending is treated as highly significant by the media, while private investment is either ignored or criticized.  The financial papers might carry tales of business success, and once in a while the public imagination is captured by a company like Apple? but none of that compares to the front-page, above-the-fold coverage given to huge government spending initiatives.

Even the largest business investments are small compared to public spending on the scale we have become accustomed to, and the beneficiaries of private commerce are not photogenic dependency groups with well-connected advocates. The constant power of the private sector is treated as a background hum, while the flashes and sparks of billion-dollar government programs capture the headlines.  That??s why a surprising number of people are willing to give Obama credit for ??trying to help? with his stimulus disaster, when they should be outraged by its negligence, graft, and waste.  No individual investor or corporation could ever dream of receiving so much credit for goodwill, even when making highly successful investments.  They also wouldn??t have a prayer of getting away with Obama??s standard excuse for his failures, which is that things would have been even worse without his wild spending spree.

The fundamental assumption of Obamanomics is that the private sector is incapable of recognizing vitally necessary investments that would stimulate national economic growth, so the government has to step in and force us to ??invest? wisely.  This was always an absurd notion.  No government agency will ever be anywhere near as skilled at detecting legitimate, profitable opportunities as private investors.  The government can never match the data harvesting capabilities of millions of private citizens.  Government wears ideological blinkers, while its ears are filled with the whispers of lobbyists and rent-seekers, and its nervous system is numbed by an overdose of deficit spending, insulating it from the valuable pain of failure.

A more inept ??investor? would be difficult to imagine.  If only Uncle Sam??s ??shareholders? would examine Laffer??s data as carefully as real shareholders review the performance of their corporations, and demand the most comprehensive change of management in November!

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Written By

John Hayward began his blogging career as a guest writer at Hot Air under the pen name "Doctor Zero," producing a collection of essays entitled Doctor Zero: Year One. He is a great admirer of free-market thinkers such as Arthur Laffer, Milton Friedman, and Thomas Sowell. He writes both political and cultural commentary, including book and movie reviews. An avid fan of horror and fantasy fiction, he has produced an e-book collection of short horror stories entitled Persistent Dread. John is a former staff writer for Human Events. He is a regular guest on the Rusty Humphries radio show, and has appeared on numerous other local and national radio programs, including G. Gordon Liddy, BattleLine, and Dennis Miller.

TRENDING NOW:

YouTube Won’t Let You Watch Lauren Southern’s ‘Borderless’

FOREIGN AFFAIRS

DONKTUM: Restricting the Range of Consciousness.

CULTURE

Lauren Southern’s Borderless Deleted By YouTube. ENOUGH.

U.S. POLITICS

Farage: ‘No No to BoJo’.

FOREIGN AFFAIRS

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