The Congressional Budget Office is admitting that the $800 billion stimulus package will indeed hurt the economy in the long run.
In his testimony to the Senate, CBO Director Douglas Elmendorf conceded that the stimulus package would have “a net negative effect on the growth of GDP over 10 years.” In an exchange with Senator Sessions, Elmendorf added that the economic drag from the stimulus will continue in the following decade:
SESSIONS: And in the next 10 years, since you’re carrying that debt and paying interest on it and the stimulus value is long since gone, it would be a continual negative of some effect?
ELMENDORF: Yes, it would represent a drag on the level of GDP beyond that, if no other actions were taken.
As Reason magazine’s Peter Suderman notes, this is a disturbing indictment of the Obama administration’s eagerness to waste money, since the CBO gave the administration similar advice before passage of the stimulus, yet it went ahead with the stimulus anyway: “even the mildly Keynesian congressional scorekeeper agrees that borrowing $800 billion dollars ultimately creates a drag on the economy and a net loss in economic performance relative to what otherwise might have been. And yet the administration went ahead with the legislation anyway, arguing that it would be more or less a free lunch in the long run.”
As Sam Staley of Florida State University’s DeVoe L. Moore Center (and the Reason Foundation) notes:
Much of the support for the Stimulus package was based on a very crude Keynesian economic model that presumed that the problem with the economy was almost exclusively an artifact of depressed consumer spending. In this naive model, all you need to do is pump money into the economy so that people spend it. And, most forecasting models, don’t differentiate between productive and unproductive spending. So, literally digging ditches and filling them back in again generates “positive” economic impact. (See also my comments on economic multipliers at Planetizen.com for more on this.) Of course, as national unemployment continues to hover around 9 percent, we can pretty much recognize the crude model didn’t work.
Much stimulus money has been wasted. It has gone to prisoners and dead people, wasteful welfare spending, abandoned bridges to nowhere, and unnecessary government buildings. The stimulus subsidized foreign green jobs and wiped out jobs in America’s export sector.
Harvard economics professors Robert Barro and Jeffrey Miron have criticized the stimulus package. Barro called it “the worst bill that has been put forward since the 1930s.” The “’stimulus’ is not the road to economic recovery. It’s the problem, not the solution, writes Nobel Prize winning economist Vernon L. Smith.” Other Nobel Laureates such as Gary Becker have also criticized the stimulus package. And 200 economists signed a statement publicly opposing the stimulus package in an ad published in The Washington Post and New York Times.