The only thing that the stimulus stimulated was the size of government debt. You don’t have to be a Nobel Prize winning economist or an award-winning professor at a top-notch university to realize. In fact, polls of average Americans show that a strong majority of people don’t believe that the stimulus has worked to turn the economy around. A recent Rasmussen poll found that 39 percent of people believe the stimulus has hurt the economy, 22 percent say it has had no impact, and only 34 percent say it has actually helped.
But in fact we do have a Nobel Prize winning economist and an award winning Stanford economics professor saying that the stimulus was poor policy.
Christopher Pissarides, this year’s Nobel winner in the field of economics, has spoken at length about the troubling debt held by his home country, Great Britain, and the United States. He encouraged the British government to avoid the downward “spiral of uncertainty, confusion, and higher interest, forcing the government to borrow more to service its debt.” He counseled the government to avoid “getting into a Greek-style situation in which financial institutions lose confidence in public finances and start requiring higher interests rates for loans to the government.”
America should heed his warning. Although we are a much larger nation with a much bigger economy we are not immune from this disastrous cycle of debt and higher interest rates. In fact, Pissarides warned in yesterday’s Wall Street Journal that the United States’ plan to pump more money into the economy through a process known as “quantitative easing” will not cure the underlying problem, which is, in his words “fiscal indiscipline.”
Perhaps if this fiscal indiscipline was coupled by results the backlash in today’s elections would not have been so severe. Sadly, as Stanford economist John B. Taylor explains in a recent http://johnbtaylorsblog.blogspot.com/2010/10/more-evidence-on-why-stimulus-didnt.html, the government stimulus was an utter flop. He argues that the existing debate on the success of the stimulus has been too centered around the size of the “multiplier effect” – the idea that for each dollar you spend it creates more than one dollar in the economy. But missing from the debate is a study of the what multiplier effect has actually multiplied.
Using that rubric Taylor found that government purchases, the things that actually carry a multiplier effect, represent only about 2 percent of the $862 billion stimulus bill. This means that rather than increase their purchase of goods and services state have “reduced borrowing and increased transfer payments.” In other words, the money was used to prop up state and local balance sheets rather than go toward actually job creation or economic growth.
The result highlights one of the fundamental problems of the Democrats’ stimulus bill – it was so poorly planned and targeted that regardless of size it could not have the needed economic impact.
Fortunately, today is Election Day. That means you have an opportunity to rebuke a Washington that was quick to throw taxpayer money into a wasteful bill and slow to admit its mistake. Fiscal indiscipline is not something that we have to accept from our elected officials. If we want to avoid the fate of Greece; if we want legislation that delivers on its promises, then we must make a change in Washington.
So today let’s pass a new stimulus and elect new members willing to bring conservative economic principles to government.
by Brandon Greife, Political Director of the College Republican National Committee