Stimulus: throwing away tax proceeds or borrowed money to perpetuate the myth that politicians make good things happen

(My take: This assessment of the stimulus bills is right on, but it omits one of the major motivations. Stimulus plans tend not to work. In this supposed recovery period, they have failed spectacularly. Yet, politicians remain loyal to more and more stimulus bills because they don't want to be accused of throwing away money on previous efforts. The longer the stimulus bills fail, the more committed the politicians become. As the recession grinds on, another motivation takes hold. The recession is bound to end some time. It behooves politicians to have enacted enough stimulus bills to be able to point to one they can claim triggered the recovery.)

The Democrats are pushing for yet another stimulus package to revive our moribund economy. As of this writing, they have been unable to round up the requisite 60 votes to push the package through the Senate. President Obama has urged deficit-wary moderates to get on board, calling the bill “essential” to addressing the ongoing economic “emergency.” A handful of senators stand in his way, unopposed to the spending in principle but unwilling to vote for another bill that adds to this year’s $1.3 trillion deficit.

If the Democrats prevail, it will be the third time that Congress has extended provisions of the 2009 stimulus bill since its passage in February of last year. Counting the stimulus bill that President Bush signed into law in 2008, it will be the nation’s fifth round of fiscal stimulus since the first flickers of the subprime-mortgage conflagration began to appear at the edges of the economy. It will bring the total amount we have spent on such measures to $1.085 trillion — more than we have spent on the wars in Iraq and Afghanistan combined.

From 2008 to now, the composition of the stimulus bills has changed, from mostly tax rebates intended to boost consumer demand to mostly income transfers from the employed to the unemployed and from the federal government to the states. Though the stimulus machine’s architects would be loath to admit it, this transformation represents the failure of its stated purpose, which is to create jobs and to jump-start sustainable economic growth. The unemployment rate is stalled out at around 10 percent, and no growth model that relies on continued infusions of borrowed money is sustainable. The stimulus machine is designed to provide the illusion of growth in the absence of a solution to the jobs problem, and since no one in Washington seems to know how to solve that problem, it is going to be very difficult, as a matter of politics, to turn the machine off.

The mechanics of the machine are simple. Politicians feel an irresistible compulsion to “do something” about persistently high unemployment, yet they lack the will or the ability to do things that might actually work: so they give away money. Republicans are not exempt from the laws that govern this system: The Economic Stimulus Act of 2008 passed with the support of 169 House and 32 Senate Republicans and was signed by a Republican president. Granted, this was the least objectionable of the five stimulus bills. It consisted mostly of individual tax rebates and temporary enhancements to business-tax deductions, and was intended to provide a “booster shot” to the economy by encouraging spending and hiring.

But consumers and businesses tend to make spending and hiring decisions based on long-term income expectations, not short-term windfalls, as the late economist Milton Friedman explained. And as Friedman would have predicted, the 2008 stimulus had little effect on economic growth, and it certainly failed to prevent the economy from spiraling into a recession as large problems in the banking sector came to light. The best that can be said for the 2008 measure is that policymakers minimized the inefficient allocation of resources by giving the money to the private sector instead of spending it themselves. For the most part, that was not the case with the stimulus bills that followed.