The Fallacy of “Fiscal Stimulus”

In a new column, Reason Foundation’s Adam Summers writes:

The trouble with conventional wisdom is that it is not always wise. The recent calls for government bailouts and an “economic stimulus” package-by which advocates mean pouring hundreds of billions, or even trillions, of dollars into failing industries and into public works projects-is an excellent case in point. Congress has already authorized enormous bailouts for banks, insurance companies, mortgage companies, the ‘Big Three’ U.S. automakers, and so on. These actions have enriched those in failing businesses at the expense of more productive businesses and everyone who pays taxes. Now state and local governments are asking the federal government for a bailout of their own. Last month, the National Governors Association estimated that the states have $136 billion in infrastructure projects ready to go. Gov. Arnold Schwarzenegger’s office has said that California has $28 billion in projects the federal government could fund during President Barack Obama’s first 120 days in office (ignoring the fact that the state’s voters approved $42 billion in infrastructure bonds just two years ago). Not to be outdone, the United States Conference of Mayors recently presented its own wish list of 11,391 “shovel ready” pork-er, “infrastructure”-projects totaling more than $73 billion. The list of projects includes such critical infrastructure needs as sports complexes, museums, tennis courts, bike paths, and median landscaping. But when Uncle Sam has racked up so much debt that the fiscal house of cards inevitably collapses, who will bail out the American taxpayer? The truth is that the idea that government spending can somehow cure economic ills does not work. It didn’t work during Japan’s “Lost Decade” of the 1990s, it didn’t work during the Great Depression, and it will not work today.

Read the rest of the column here. An archive of Summers’ work is available here.