Just as Professors and Economists banded together to express their dismay at the economic demerits of the $700 billion in Troubled Asset Relief Program (TARP) funding, so too many academics and economists are concerned that the pending stimulus bill, H.R. 1, focuses on Keynesian spending that will expand the national debt without actually stimulating the economy.
In a letter to President Barack Obama contradicting the president’s assertion that “There is no disagreement that we need action by our government, a recovery plan that will help to jumpstart the economy,” these experts argued this is “not true” and they do not believe that more government spending is a way to improve economic performance.”
“More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s. More government spending did not solve Japan’s ‘lost decade’ in the 1990s. As such, it is a triumph of hope over experience to believe that more government spending will help the U.S. today.”
Instead, the academics suggest the government promote “reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth.”
217 economists from 124 colleges and universities signed onto the statement, organized by the Cato Institute; an accompanying ad was published in the New York Times on Wednesday and in Roll Call and the Washington Post on Thursday, January 29, according to an article by Declan McCullagh, published online by CBS News.
“You may have heard that respectable economists, including Nobel laureate Joseph Stiglitz, say stimulus spending should be high or higher,” writes McCullagh, “But some news organizations have been less than diligent in telling you that other respectable economists are deeply skeptical of the idea, flatly oppose it or favor competing proposals such as additional tax relief.”
One such story, released by McClatchy Newspapers on January 27, actually claims that “most leading economists who are experienced in public policy generally favor the stimulus plan that the House is considering because through it the government will step up spending at a time when private-sector spending has fallen off sharply.” The author, Kevin G. Hall, claims that the CATO assembly of economists are “ideologically opposed to any such massive government plan” and argues that “Cato will advertise its list in coming days. However, that isn’t where the balance of expert opinion comes down today.”
Newsweek’s Chief Economist, Michael Mandel, asserts that economists have legitimate disagreements over both the merits and the size of an economic stimulus package. He writes on January 28 that “On one side are a very long list of pro-stimulus economists, such as Nobel winner Paul Krugman of Princeton University, who believe government spending can have a positive impact in today’s extremely weak economy. On the other side is a shorter but eminent list of economists who are skeptical about the benefits of stimulus, including Nobel winner Gary Becker of the University of Chicago and top macroeconomist Robert Barro of Harvard.”
If 217 economists, several of whom are nobel laureates, constitute a “short list,” one must wonder how long this ‘long list’ of Keynesians runs.
Official analyses of the stimulus bill show that government infrastructure and investment spending may be too slow to help the economy. The Congressional Budget Office (CBO) report, released on January 26, states that “Assuming enactments in mid-February, CBO estimates that the bill would “increase outlays by $92 billion during the remaining several months of fiscal year 2009, by $225 billion in fiscal year 2010 (which begins on October 1), by $159 billion in 2011, and by a total of $604 billion over the 2009-2019 period.”
In other words, only fifteen percent of the allocated “investment” spending would be given out by this fall, and, as the CBO states, directly or indirectly-funded government projects which “involve construction or investment activity” would “take several years to complete.”
As for government programs, the CBO predicts that “H.R. 1, some programs would receive funding that is significantly above (double, triple, or more) the amounts provided for existing or similar programs in recent years.” Therefore, “CBO expects that federal agencies [and other recipients] would find it difficult to properly manage and oversee a rapid expansion of existing programs so as to expend the added funds as quickly as they expend the resources provided for their ongoing programs.”
In his article, Mandel also claims that the “evidence is ambiguous” on whether FDR’s New Deal policies shortened, softened, or lengthened the Great Depression. As Accuracy in Academia has documented in a series of articles, Jim Powell, Amity Schlaes, and Barry Goldwater, among others, argue that FDR’s policies extended the Depression. (Barry’s comments were given during the Depression itself). His policies also disproportionately hurt African-Americans, according to author Bruce Bartlett.
A recent calculation by the Heritage Foundation shows that the stimulus bill, which will cost American families an average $10,520 in additional government debt, exceeds the amount an average family spends on food, clothing, and health care in one year (approximately $10,427).
Bethany Stotts is a staff writer at Accuracy in Academia.