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Obama‚??s failed attempt to ‚??spend ourselves rich‚??

Fiscal stimulus is counterproductive in highly indebted countries, the Fed has found. Highly indebted? That would be us.

It’s the economy, Einstein

President Barack Obama was inaugurated in the midst of the worst recession since the Great Depression. To address this crisis, he signed an $821 billion stimulus bill. This, he said, would lift two million Americans from poverty.


It was enough money to give them more than $400,000 each. Instead, it was wasted; the number of Americans in poverty increased by 9.4 million — from 39.1 million to 48.5 million.

Obama’s stimulus, he promised, would ‚??save or create‚?Ě 3.5 million jobs in 2009-2011 ‚?? during which he spent $494 billion in stimulus funds.

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If it had worked as promised, it would have cost just over $140,000 per job. In reality, there were only 816,000 more jobs in this period than would have existed without the stimulus. This means that each job ‚??saved or created‚?Ě cost more than $600,000 in borrowed money — for which taxpayers are now on the hook.

As an excuse for his failure, Obama blamed the financial crisis of 2007-2009: ‚??Throughout history,‚?Ě said the president, ‚??it has typically taken countries up to 10 years to recover from financial crises of this magnitude.‚?Ě This argument has been debunked by two studies published by the Federal Reserve Board. The first found, ‚??U.S. history provides no support for linking low employment and high unemployment in the current recovery with the financial crisis of 2007‚??2008.‚?Ě The second found that¬†‚??banking and financial crisis do not affect the strength of the economic rebound,‚?Ě and, in fact, ‚??Recoveries tend to be faster following deeper recessions.‚?Ě

In theory, increased government spending is supposed to ‚??stimulate‚?Ě private investment ‚?? but this theory is contradicted by the data: Seven years before Obama’s stimulus, the Quarterly Journal of Economics published an empirical study concluding that ‚??both increases in taxes and increases in government spending have a strong negative effect on investment spending.‚?Ě

The first empirical review of Obama’s stimulus came just nine months after it passed, in November 2009: The National Bureau of Economic Research (NBER) published a Working Paper that reviewed data since World War II. It concluded, ‚??the purchases component of the stimulus package passed in February 2009 could not possibly have closed much of the shortfall of GDP from normal levels.‚?Ě

This was followed by a study by two Stanford University economists, which found that ‚??changes in government purchases have had no material effect on the growth of GDP since the time ARRA was enacted.‚?Ě

Last year, another study in the Quarterly Journal of Economics found that greater government spending in general does not stimulate investment, but actually causes decreased consumption and investment.

In March 2011, the International Monetary Fund published a Working Paper that found the effect of stimulus spending to be negligible, or even negative. It concluded ,‚??the effect of government consumption is very small on impact, with estimates clustered close to zero.‚?Ě

It also found that ‚??in economies open to trade or operating under flexible exchange rates‚?Ě ‚?? such as the U.S. ‚?? ‚??a fiscal expansion leads to no significant output gains,‚?Ě while ‚??fiscal stimulus may be counterproductive in highly indebted countries; in countries with debt levels as low as 60 percent of GDP, government consumption shocks may have strong negative effects on output.‚?Ě (The U.S. public debt ‚?? excluding intergovernmental debt — reached 60 percent of GDP in March 2010, and has continued to grow since.)

In January, another NBER study found that, in general, stimulus spending doesn‚??t stimulate private-sector jobs, but may increase government jobs. That means it increases jobs that (on net) consume revenues, but not jobs that produce revenues. It concluded, ‚??on balance government spending does not appear to stimulate private activity.‚?Ě

Obama‚??s attempt to ‚??spend ourselves rich‚?Ě failed. Fortunately, there is a real solution: The 2011 Quarterly Journal of Economics study found that ‚??there is empirical support for the proposition that tax rate reductions will increase real GDP.‚?Ě

In a survey by the University of Chicago‚??s Booth School of Business in June, 35 percent of economists agreed that a cut in federal income tax rates in the US right now would lead to higher GDP within five years than without the tax cut. Just 8 percent disagreed.

As you pull the election lever, do so not just for Benghazi, Sandy, Fast & Furious, and all the rest ‚?? do so for the 9.4 million Americans (invisible to the media these past four years) added to the poverty rolls under this president. Vote for growth — for the sake of those who need it most.

Mark LaRochelle was contributing editor at Consumers‚?? Research and editor at National Journalism Center. He is a regular contributor to Human Events

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Mr. LaRochelle is manager of Information Services at the Education & Research Service in Washington, D.C.