By Isaac MacMillen
This week, House Speaker Nancy Pelosi (D-CA) is expected to announce a $300 billion economic stimulus package to help bolster the U.S. economy. In fact, it will do anything but. Band-aids don’t staunch hemorrhages.
Nonetheless, this is the latest attempt by the Washington political elite to attempt to solve a problem by throwing money at it.
First came the $152 billion economic “stimulus” package of February. Then the Fed gave JP Morgan a $29 billion loan to purchase Bear Stearns. Not to mention the interest rate reductions by the Fed throughout the year. Next was Congress’ foreclosure “prevention” act of $300 billion. The government then staged a de facto takeover of Indy Mac at a cost of $9 billion. Following that, the Fed pumped an $85 billion loan into AIG, Inc. Then another $38 billion to AIG. Also, upwards of $200 billion for Fannie Mae/Freddie Mac was appropriated by Congress. And to top it all off, the $800+ billion dollar bailout bill.
Add on the proposed $300 billion “stimulus”—with no off-setting spending reductions—and you have over $1.8 trillion thrown at the problem. And to what end? What are the results?
For starters, let’s look at the first “stimulus” package given out by Congress. It provided about $120 billion in rebates to American citizens, and additional tax cuts to businesses and private companies. The total cost of the measure was over $152 billion for fiscal year 2008.
Did it jump-start the economy as was hoped? Well, economists are still watching, but all appearances point to the same answer: No. Instead of spending the tax rebate as expected, many Americans—not trusting their future to an insolvent government—instead chose to save the money. While this might help the economy in the long run, the short-term effects (which Washington was hoping for) did not materialize.
And yet they think another “stimulus” package, this one at double the size, will do any better at providing short-term relief?
It is worth noting that Japan faced a similar crisis at the end of the ‘80s. The government responded with nearly $1 trillion in economic stimulus packages, as well as government intrusion into the banks. The Japanese economy remained stagnant for about a decade thereafter.
But wait—there’s more! Pelosi’s “stimulus” bill plans to do more than dish out money in the hopes that Americans will spend it. It also includes sums set aside for government spending projects—infrastructure—and hand-outs to states struggling to balance their budgets.
Combining the $700 billion bailout and the proposed $300 billion stimulus package, the national debt—which is already astronomically high, beginning the fiscal year at just over $9 trillion—could eventually grow by up to $1 trillion.
Cato senior fellow Gerald P. O’Driscoll, Jr., stated the obvious (except to the political elite):
“Thrift and fiscal restraint, both individual and governmental, are the only long-term solutions to the current crisis. As a nation and as individuals, we will need to recognize that debt-driven prosperity is illusory. Personal and government consumption must fall. It will do so through prudent restraint on spending, or inflation that reduces the real value of all economic magnitudes.”
And thus he points out the only real solution—fiscal restraint. But that is the last thing on the minds of congressional leadership as they prepare to waste yet more taxpayer dollars on band-aids that just don’t work, won’t work, and never really have.
Isaac MacMillen is a contributing editor of ALG News Bureau.
