Second Stimulus?

In the face of a stagnant jobs economy, the media-academia complex is ginning up a second stimulus. Saturday’s New York Times reported that the original $800bln stimulus package was both “worthy” but “way too small;” translation: it’s time for more spending. Of course, more wasteful spending designed to entrench budget bloat is very unpopular outside of elite circles. Democrats remarkably see their future in extremely unpopular programs like card check, socialized health care, cap and trade, and now more stimulus. Contrary to their Keynesian religion, no stimulus package has ever worked, and the larger the stimulus, the longer the recession. Stimulus packages actually make recessions worse.

The general justification for the lack of evidence that stimuli help is that, without a stimulus, things would be even worse. The current anemic recovery is one more data point suggesting that this conceit holds no water. Even in the housing sector, the area most propped up by stimulus, new construction starts continue to fall – an indication that the smart money sees no recovery for at least another 12 months. GM, the auto company that received the biggest bailout, is struggling compared to Ford, which received relatively little support. Indeed the GAO predicts that GM will never repay its debt – a de facto second bankruptcy.

While the US recession has ended, unemployment remains far higher than Pres. Obama promised as a part of his $800bln stimulus. The European economy is out of recession without the aid of such a massive stimulus. China is also back on track with only an insignificant $20bln stimulus package. The US stimulus had no positive effect considering the performance of its competitors.

Indeed, stimuli make matters worse. The longest recessions coincide with the biggest stimuli. The Great Depression was a ten year recession from 1929 through 1939, with a double dip in 1938. This, despite the biggest works project in history. Japan lost an entire decade of economic growth in the 1990′s, despite a works program proportionately even larger the Obama’s current boondoggle. If a full decade of failure cannot convince Washington socialists of stimulus’s folly, what hope can there ever be? By contrast, Pres. Reagan stood firm during the 1981-2 recession. Reagan temporarily became one of history’s least popular presidents as he refused to ‘do something’ about the recession. Instead, his broad based tax cuts ushered in the greatest wave of prosperity ever, essentially lasting through 2007.

Why wouldn’t stimulus harm the economy? After all, government spending is essentially the redirection of material and labor from their best uses to ones chosen by politicians. Further, stimulus temporarily props up the prices of material and labor, making them less affordable for private sector uses. Without stimulus, the falling prices of resources would eventually activate projects the country needs. Instead, stimulus redirects resources to pork the common voter reviles. Of course stimulus also redirects money from its best uses in the form of government taxation and borrowing, making business growth even harder.

Not only does the empirical evidence suggest that stimulus slows economic recovery, the simple logic of government manipulation and incompetence is that stimulus is worse than doing nothing. With the Democrats in Washington proposing another multi-billion dollar stimulus jobs package, voters should let them know that giving the free market a try is really the best approach.

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