Obama ignores what works, doubles down on what doesn't work

Let us review the recent record on federal spending stimulus and its relationship to GDP growth, about which data are freely available from the Bureau of Economic Analysis. In February 2008, $165 billion—for the most part, dollar transfers to the states and increased federal outlays—was spent as economic “stimulus.” In 2009, the infamous $862 billion Obama stimulus package was enacted, comprising spending increases of $574 billion and various tax reductions of $288 billion. Over the last few months, with the looming elections and monstrous polling numbers concentrating the minds of White House and Congressional leaders, proposals for $100-200 billion in additional “stimulus” spending have been prominent.

And so the increase in the national debt has been gargantuan; but has there been any resulting “stimulus,” that is, enhanced economic growth? The following charts show the respective contributions of private investment, personal consumption, net exports, and government spending to GDP growth for the last three years.

Investment changes explain most of the recession and recent recovery. Changes in personal consumption have an effect that is important but smaller, while changes in net exports seem to explain only some of the smaller GDP changes in 2008. What is of greater interest is the contribution of government outlays: They have had virtually no effect at all (with a simple “correlation” with GDP growth of only about 5 percent).