Three Reasons a Spending 'Stimulus' Is a Bad Idea

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1/5/2009

Liberals in Congress and the incoming Obama administration want to spend a trillion dollars— or potentially more — of taxpayer money as part of an economic recovery plan. This is over 50 percent more than our annual defense budget, and over five times California's annual budget! And that would be on top of all the other big-government spending.

But government spending plans do not stimulate the economy. They are based on the idea that feeding “new” money into the economy will create economic growth. But the money isn’t new—it’s either taxed or borrowed. It's essentially redistributed from one group of people to another, and no new money is created. (More)

1) The private sector—not public spending—drives growth. Economic growth comes by individuals and entrepreneurs operating in free markets, not by Washington spending and regulations. Massive spending hikes in the 1930s, 1960s, and 1970s all failed to increase economic growth rates. (More)

2) Giving money to states does not increase growth. Increasing federal borrowing to keep state taxes from rising is like running up a Visa card balance to keep the Mastercard balance from rising. State taxpayers are also federal taxpayers, so those being bailed out will still have to bear the costs in the end. (More)

3) Highway spending does not create jobs. It merely transfers jobs and income from one part of the economy to another. As Heritage Foundation expert Ronald Utt has explained, "The only way that $1 billion of new highway spending can create 47,576 new jobs is if the $1 billion appears out of nowhere as if it were manna from heaven." (More)

A better way to stimulate the economy is to make the tax cuts permanent (unlike Obama's tax plan), to lower corporate tax rates, and to expand domestic energy supplies. Tax cuts give incentives to work, save, and invest, thus creating jobs and increasing economic growth. Expanding drilling for oil, shale, and natural gas will cause energy prices to fall and create private sector jobs without government subsidies.

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Question 1

Yesterday, President Obama delivered a major speech on education in an effort to garner support for his Race to the Top grant program and his push for national education standards and tests. The President’s remarks came on the heels of a speech delivered by Education Secretary Arne Duncan on Tuesday at the National Press Club, during which Duncan attempted to paint the Administration’s policies as part of a “quiet revolution.”

Question 2

Over the last four weeks, The Heritage Foundation sent multiple teams of respected energy, environment, homeland security and response experts to the Gulf to study the federal response to the oil spill. These three delegations, with more to come, have traversed the areas hit hardest by the crisis, talking to response workers, affected oil crews, fishermen, elected leaders and BP representatives. What we found is simple: President Obama’s administration has turned a crisis into a disaster, and someone needs to be held accountable.

Question 3

At the height of the debate over Obamacare, when the White House's leftist allies were in full panic mode, The Washington Post's Ezra Klein accused Sen. Joe Lieberman (I-CT) of being "willing to cause the deaths of hundreds of thousands of people." Lieberman's crime? He opposed including an expansion of Medicare in the health regulation bill. Now that the President's signature foreign policy achievement, the New START nuclear agreement with Russia, is on the ropes, the left is again back to their hyperbolic ways. Ploughshares Fund president Joseph Cirincione told The Associated Press last week: "A delayed ratification with a close vote would be a blow to U.S. leadership around the world. People would doubt the President's ability to negotiate other agreements."

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© 2009, The Heritage Foundation Conservative policy research since 1973

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Leadership for America

© 2009, The Heritage Foundation
Conservative policy research since 1973