Stimulus Spending Still Doesn’t Work

I love the public option… and stimulus spending has also saved the economy. Obviously (if you’ve read this blog before) neither of those things are true. Government economics and fiscal directors have been claiming the recent uptick in the economy is due to stimulus spending and the president’s economic policies. It’s hard to understand how this could be true since the stimulus spending was suppose to have unemployment capped at 9%, which it rose above a long time ago. Not to mention most of it hasn’t been spent yet, and much of what has been spent hasn’t filtered through the economy to effect GDP. Beyond this are the hard economic numbers on why stimulus spending doesn’t really work. Economist Robert Barro and a former student of his Charles Redlick have a piece in WSJ today concluding:

The bottom line is this: The available empirical evidence does not support the idea that spending multipliers typically exceed one, and thus spending stimulus programs will likely raise GDP by less than the increase in government spending. Defense-spending multipliers exceeding one likely apply only at very high unemployment rates, and nondefense multipliers are probably smaller. However, there is empirical support for the proposition that tax rate reductions will increase real GDP.

It would be nice if the government could release the power within and just spend our way to economic health. But in fact, with stimulus spending, discombobulation abounds at every turn. Limiting government is our road to recovery, not increased spending.