Stimulus Plans: Economic Failures, But Sometimes Political Successes
So-called “stimulus packages” don’t revive the economy, but that hasn’t stopped President-elect Obama from pushing a budget-busting $850 billion stimulus package. Japan tried a similar approach in the 1990s, trying to revive its economy after a real estate bubble imploded, by spending billions on new roads, airports, and bridges-to-nowhere. That period has been called the “Lost Decade,” since all the spending just led to economic stagnation and decay.
The Obama campaign claims that virtually no economists oppose his stimulus plan, but I have economics and law degrees (including a law degree from Obama’s alma mater), and his plan seems like a fiscal disaster to me. George Mason University economist Tyler Cowen, who opposes the stimulus boondoggle, notes that contrary to what Obama’s staff are saying, there is in fact no academic consensus in favor of so-called “stimulus plans.”
During the Great Depression, the government tried to pump up the economy by borrowing money to hire unemployed people to do make-work jobs to “stimulate” the economy, but the economy didn’t experience a sustained revival until World War II came along (leading to the slowest recovery in generations), and, meanwhile, the national debt exploded.
It did get Franklin Roosevelt reelected, though, by creating the appearance of decisive action, and providing him with pork and patronage to effectively buy votes in crucial swing states. Like the politician who takes credit for the sun rising, Roosevelt took credit for the inevitable if slow and halting recovery that occurred after markets hit rock bottom, while cleverly demonizing the private sector businesses that provided most of the nation’s jobs as “economic royalists.”
In 1993, despite rising unemployment (unemployment was higher in 1993 than it is today), Senate Republicans filibustered Bill Clinton’s “stimulus package” to death, forcing him back towards the political center. The result was years of solid economic growth and falling unemployment rates. Unfortunately, nobody seems to remember that today. And unlike then, the GOP now may not have enough Senate seats to filibuster a stimulus package, no matter how costly and wasteful it may be.