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Why the Stimulus Failed (Social Engineering, Cronyism and Overspending)
National Review ^ | 09/24/2012 | Arthur Brooks

Posted on 09/26/2012 6:08:42 AM PDT by SeekAndFind

Ask most Americans about the big-spending government policies of the last few years, and they will tell you the programs have failed. In a February 2012 poll from the nonpartisan Pew Research Center, 66 percent of Americans said the federal government is having a negative impact on the way things are going in this country (versus 22 percent who say the impact is positive). A majority disapproves of the president’s 2009 stimulus, and according to a 2010 CNN poll, about three-quarters of Americans believe the money was mostly wasted.

Of course, the measure of economic success is not public opinion, but the factual effects of policy. The emerging evidence on various spending programs shows that Americans’ intuition is correct: The Keynesian deficit spending has been poorly designed and badly executed, and it has had little benefit for our economy.

As just one example, consider the infamous “Cash for Clunkers” program, the $3 billion federal plan that allowed people to trade in an old car in exchange for about $4,000 off the purchase of a new one. The administration argued it would stimulate the U.S. economy and improve the environment. Critics saw it as a way for the government to prop up the car companies it had recently bailed out. But whatever the motivation, the program was a bust. Economists at the think tank Resources for the Future have found in a new study that the program did not stimulate the economy, and that 45 percent of the money went to people who would have bought a new car anyway. In other words, the administration could have cut out the overhead and simply handed out $1.35 billion to random people on the street.

The ineffectiveness of this program is illustrated by rigorous economic analysis. But Americans know in their hearts that they could drop the needle almost anywhere on Obama’s Big Government Spending Album and get the same basic results: lots of spending with little to show for it.

The reason is straightforward. As many economists have found, most government spending has relatively little effect on the economy, and any effects are generally short-lived. For example, Harvard economist Alberto Alesina and his colleagues show in a new National Bureau for Economic Research study across many countries that government spending has little connection to GDP growth, making spending cuts ideal for balancing budgets without provoking a recession — but this also means that spending does little to stimulate economies. Alesina finds, however, that tax changes have large macroeconomic effects; that is, tax increases reliably depress the economy.

In a nutshell, Cash for Clunkers and all the other social-engineering programs of the past few years won’t succeed as promised to assist economic recovery, because they cannot. And the tax increases at the center of Obamanomics will dig our hole even deeper. What would work to spur our country’s financial growth is more economic freedom — not more government spending.

Again, this is not political dogma, but empirical reality. A new study published in the International Review of Economics shows that there is a direct and clear link between economic freedom and prosperity. Studying economic-freedom measures ranging from tax rates to regulation to government spending, the study authors find that from 2004 to 2008, economically freer OECD countries consistently outperformed those that were less economically free.

Is the prescription for the next administration, then, no government spending, and a move toward a minimum-tax, super-capitalist state that will gut all public services? The administration would have Americans believe that is the philosophy of today’s Ryanista Republicans. As President Obama put it in his Osawatomie, Kan., speech last December, “Their philosophy is simple: We are better off when everybody is left to fend for themselves and play by their own rules.”

This is nonsense. Conservatives today understand the importance of a reliable safety net for the truly indigent and the necessity of dealing with certain market failures. Further, there is universal support on the political right for opportunity-equalizing government policies, such as publicly funded education (ideally, administered for the benefit of children as opposed to rent-seeking bureaucrats and teachers’ unions).

But conservatives also know that when it comes to economic progress, the best government philosophy is one that starts every day with the question, “What can we do today to get out of Americans’ way?” In other words, the president should not ask what new agency or program the government can create to stimulate, bail out, or redistribute from this group to that one. That will ultimately add to our problems, rob more from our children, and make it harder to create the jobs, opportunity, and growth our country needs. The president should instead ask these questions: What tax barrier to small business can we lower; what competition-killing regulation can we rescind; what unfair crony-tax loophole can we close?

These are not new insights. Thomas Jefferson summarized them best when he famously said:

A wise and frugal Government, which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government.

Most Americans understand these truths, and the next administration must hew to them if it wants to succeed in breaking our government out of its cycle of incompetence, failure, and excuses. This is not political propaganda or an untested theory. It is practical reality based on economic truth.

— Arthur C. Brooks is president of the American Enterprise Institute and author of The Road to Freedom.

TOPICS: Business/Economy; Culture/Society; Government; News/Current Events
KEYWORDS: cronyism; spending; stimulus

1 posted on 09/26/2012 6:08:47 AM PDT by SeekAndFind
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To: SeekAndFind

FDR’s policies prolonged Depression by 7 years, UCLA economists calculate

The only paragraph that you need to read is:

“Why the Great Depression lasted so long has always been a great mystery, and because we never really knew the reason, we have always worried whether we would have another 10- to 15-year economic slump,” said Ohanian, vice chair of UCLA’s Department of Economics. “We found that a relapse isn’t likely unless lawmakers gum up a recovery with ill-conceived stimulus policies.”

The only questions to be answered:

1. IS Obama a bigger idiot than Jimmy Carter?


2. IS Obama and his Muslim Brotherhood buddies doing tried and true methods to destroy the US?

Of course, the obvious answer that everyone is starting to figure out now is #2.

2 posted on 09/26/2012 6:15:31 AM PDT by politicianslie (Obama: Our first Muslim PRESIDENT,destroying America $1 Trillion at a time! And America sleeps)
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To: SeekAndFind

Wrong,Wrong,Wrong... The Stimulus plans put forth did Exactly as intended and is continuing to pass all the worthless debt from the fraudsters (bankers) onto we the serfs, see “";. I would also add that refusing to acknowledge this is as the sole function of ALL the the Stimulus plans put forth and the continuing QE forever is being Intellectual Lazy and bordering on incompetent.

3 posted on 09/26/2012 6:16:40 AM PDT by eyeamok
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To: SeekAndFind

The stimulus worked. Congress sent wads of money to friends and supporters, and they laundered some it right back the Congresscritters’s coffers. The Democrats were especially egregious about this, and are STILL doing it...

4 posted on 09/26/2012 6:37:23 AM PDT by Little Ray (AGAINST Obama in the General.)
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To: SeekAndFind


“Socialism Is Legal Plunder” - Bastiat

Economic enslavement...(built)of the socialists, by the socialists, for the socialists.

Any questions?

live - free - republic

5 posted on 09/26/2012 6:37:45 AM PDT by PGalt
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To: SeekAndFind
Stimulus can only mitigate a downward economic cycle if the government isn't destroying capital and capital creation. And to be effective any “stimulus” program would just put capital into the greater public’s hands. What the politicians don't understand is central planning doesn't work. The more local the decision and taxing is done, the more accountable and efficient the spending is. You want a cup of starbucks coffee, your $ gets you a $ of worth. You local government will likely spend $2 to get you that coffee(on average), the state = $3 and the feds $4-6. This is why leaving $ with the people works. Besides the gov will likely give you a cup of tea instead, since they don't know what you want. That not just a snarky remark, its the economic law of information, that no entity can know what the market wants, so trying to manage the market centrally causes disalloation, inefficiency and waste reducing capital formation, economic activity and there by producing the opposite of the intended effect, the larger the spending the greater the reduction of economic activity as other non blessed markets lose out.
6 posted on 09/26/2012 6:48:38 AM PDT by waynesa98
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To: SeekAndFind
Why the Stimulus Failed (Social Engineering, Cronyism and Overspending)

WRONG. IT failed because it used the Soviet syle central planning model to plunder funds from the free market sector and place those funds in areas that politicians wanted (to buy votes, pay off campaign contributors, etc). An example of double down on stupidity and arrogance. The wealth was looted from the free market sector, hence economic opportunities were lost forever, and spent on things no one wanted thus using resources, manpower, etc on things that won't help economic growth (the Volt comes to mind)

7 posted on 09/26/2012 7:11:34 AM PDT by from occupied ga (Your government is your most dangerous enemy)
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To: waynesa98

If borrowing massive amounts of money stimulated the economy, we never would have had a recession in the first place.

8 posted on 09/26/2012 7:14:48 AM PDT by csmusaret (I will give Obama credit for one thing- he is living proof that familiarity breeds contempt.)
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To: All
The Stimulus Bombshell ^ | 1/24/12 | Craig Eyermann
FR Posted January 31, 2012 by GSWarrior


That’s really the only word we can use to describe the release of a “sensitive and confidential” 57 page memo, written by then soon-to-be U.S. Treasury Secretary Larry Summers in December 2008, about what became President Obama’s signature economic program in the first year of his presidency: the “stimulus package”.

James Pethokoukis has summarized some of the most significant aspects of the memo, which we’ve excerpted below, and which reveals the Obama administration’s thinking behind what became an over 821 billion dollar boondoggle. The bold text represents Pethokoukis’ summary of that thinking, which is directly followed by a supporting quotation from Larry Summers’ memo:

1. The stimulus was about implementing the Obama agenda. The short-run economic imperative was to identify as many campaign promises or high priority items that would spend out quickly and be inherently temporary.... The stimulus package is a key tool for advancing clean energy goals and fulfilling a number of campaign commitments.

2. Team Obama knows these deficits are dangerous (although it has offered no long-term plan to deal with them). Closing the gap between what the campaign proposed and the estimates of the campaign offsets would require scaling back proposals by about $100 billion annually or adding new offsets totaling the same. Even this, however, would leave an average deficit over the next decade that would be worse than any post-World War II decade. This would be entirely unsustainable and could cause serious economic problems in the both the short run and the long run.

3. Obamanomics was pricier than advertised. Your campaign proposals add about $100 billion per year to the deficit largely because rescoring indicates that some of your revenue raisers do not raise as much as the campaign assumed and some of your proposals cost more than the campaign assumed.... Treasury estimates that repealing the tax cuts above $250,000 would raise about $40 billion less than the campaign assumed....The health plan is about $10 billion more costly than the campaign estimated and the health savings are about $25 billion lower than the campaign estimated.

4. Even Washington can only spend so much money so fast. Constructing a package of this size, or even in the $500 billion range, is a major challenge. While the most effective stimulus is government investment, it is difficult to identify feasible spending projects on the scale that is needed to stabilize the macroeconomy. Moreover, there is a tension between the need to spend the money quickly and the desire to spend the money wisely. To get the package to the requisite size, and also to address other problems, we recommend combining it with substantial state fiscal relief and tax cuts for individuals and businesses.

5. Liberals can complain about the stimulus having too many tax cuts, but even Team Obama thought more spending was unrealistic.

As noted above, it is not possible to spend out much more than $225 billion in the next two years with high-priority investments and protections for the most vulnerable. This total, however, falls well short of what economists believe is needed for the economy, both in total and especially in 2009. As a result, to achieve our macroeconomic objectives—minimally the 2.5 million job goal—will require other sources of stimulus including state fiscal relief, tax cuts for individuals, or tax cuts for businesses.

6. Team Obama thought a stimulus plan of more than $1 trillion would spook financial markets and send interest rates climbing. To accomplish a more significant reduction in the output gap would require stimulus of well over $1 trillion based on purely mechanical assumptions—which would likely not accomplish the goal because of the impact it would have on markets.

9 posted on 09/26/2012 7:54:07 AM PDT by Liz ("Come quickly, I'm tasting the stars." Dom Perignon)
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To: All
FOURTEEN TRILLION DOLLARS Behind The Real Size of Obama's Wall Street Bailout; A guide to the abbreviations, acronyms, and obscure programs that make up the $14 trillion federal bailout.
Mon Dec. 21, 2009 12:23 PM PST

The price tag for the Wall Street bailout is often put at $700 billion—the size of the Troubled Assets Relief Program. But TARP is just the best known program in an array of more than 30 overseen by Treasury Department and Federal Reserve that have paid out or put aside money to bail out financial firms and inject money into the markets.

To get a sense of the size of the real $14 trillion bailout, see our chart at web site. Below, a guide to the pieces of the puzzle:

Treasury Department bailout programs
(Remember that Obama's Treasury Dept was controlled by his then-COS Rahm Emanuel---a savvy, connected G/S lobbyist in the WH)

Money Market Mutual Fund: In September 2008, the Treasury announced that it would insure the holdings of publicly offered money market mutual funds. According to the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), these guarantees could have potentially cost the federal government more than $3 trillion [PDF].

Public-Private Investment Fund: This joint Treasury-Federal Reserve program bought toxic assets from banks and brokerages—as much as $5 billion of assets per firm. According to SIGTARP, the government's potential exposure from the PPIF is between $500 million and $1 trillion [PDF].

TARP: As part of the Troubled Asset Relief Program, the Treasury has made loans to or investments more than 750 banks and financial institutions. $650 billion has been paid out (not including HAMP; see below). As of December 21, 2009, $117.5 billion of that has been repaid.

Government-sponsored enterprise (GSE) stock purchase: The Treasury has bought $200 million in preferred stock from Fannie Mae and another $200 million from Freddie Mac [PDF] to show that they "will remain viable entities critical to the functioning of the housing and mortgage markets."

GSE mortgage-backed securities purchase: Under the Housing and Economic Recovery Act of 2008, the Treasury may buy mortgage-backed securities from Fannie Mae and Freddie Mac. According to SIGTARP, these purchases could cost as much as $314 billion ---SNIP---.

LONG READ---go to web site to read more and checkout the shocking financial charts.


10 posted on 09/26/2012 7:55:24 AM PDT by Liz ("Come quickly, I'm tasting the stars." Dom Perignon)
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To: All
2008 Candidate Barack Obama told us on the campaign trail: " The problem is, that the way Bush has done it over the last eight years is to take out a credit card from the Bank of China in the name of our children, driving up our national debt from $5 trillion for the first 42 presidents, # 43 added $4 trillion by his lonesome so that now we have over $9 trillion of debt that we are going to have to pay back, $30,000 for every man woman and child. That’s irresponsible. It’s unpatriotic."

REALITY CHECK Obama presided over the biggest political heist in US history. The Obamanations (insiders and politicians) sucked up trillions under the guise of inheriting the "Bush financial crisis."

THIS MADE ME LAUGH OUT LOUD Obama COS Rahm Emanuel "suddenly" discovered he wanted to be Chicago's mayor---the little turn went before the mics and announced his campaign "raised $10 million in just a few weeks." Rahm also controlled the US Treasury as COS.


In a fair accounting, President Obama is responsible (along with the then-Democratic Congress) for the $1.3 trillion in deficit spending in 2010 and the estimated $1.6 trillion in deficit spending in 2011. He [Obama] should not get credit, moreover, for the $149 billion in TARP (Troubled Asset Relief Program) repayments made in 2010 and 2011 to cover most of the $154 billion in bank loans that remained unpaid at the end of the 2009 fiscal year—loans that count against President Bush’s 2009 deficit tally.

The Treasury Department says that all but $5 billion of the TARP bank loans has now been repaid. The portion of repayments that was for loans issued in 2009 should be deducted from Bush’s deficit tally, not credited to Obama as deficit savings. There is some astounding number crunching in this article, and a chart of modern day president’s “average annual deficit spending” ........a frightening conclusion of what happens if Obama has an 8 year term.

11 posted on 09/26/2012 7:59:28 AM PDT by Liz ("Come quickly, I'm tasting the stars." Dom Perignon)
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