While the rest of the country talks about the urgent need to reduce the crushing debt burden and get the U.S. fiscal house in order, Senators such as Harry Reid (D–NV) and Charles Schumer (D–NY) propose spending even more.
But unlike the main character in the musical “Spend, Spend, Spend,” these stimulus advocates didn’t recently win a fortune. On the contrary, President Obama’s $787 billion stimulus package increased the federal deficit and took the country deeper into debt without delivering on the promise to create jobs. Faced with the failure of his stimulus package, the President even joked recently that “Shovel-ready was not as shovel-ready as we expected.”
Yet the President’s statement misses the bigger picture. It’s not just that stimulus projects weren’t as shovel-ready as the President had hoped—government spending does not stimulate economic growth or job creation, period.
The money the government redistributes must come from somewhere. Whether government stimulus represents current or future taxes, the story remains the same. By sucking money out of the private sector to hand to favored industries, the government reduces long-term productivity as scarce resources are transferred to less productive sectors and firms. As The Heritage Foundation explains:
Congress does not have a vault of money waiting to be distributed. Every dollar Congress injects into the economy must first be taxed or borrowed out of the economy. No new spending power is created. It is merely redistributed from one group of people to another. …In fact, large stimulus bills often reduce long-term productivity by transferring resources from the more productive private sector to the less productive government. The government rarely receives good value for the dollars it spends. However, stimulus bills provide politicians with the political justification to grant tax dollars to favored constituencies.
Ironically, news of the new “stimulus” plan came the same day that the Congressional Budget Office released its long-term budget report confirming the dire fiscal situation. But growing deficits and debt don’t seem to concern these Senators enough to actually get serious about spending cuts. According to Reuters:
A senior Democratic aide said the job-creation idea Senate Democrats are now pursuing represented a pivot in the deficit-reduction negotiations.
He said the idea presented to the White House has three components to help create jobs: new infrastructure spending, a payroll tax cut and support for clean energy jobs.
He did not say how large the infrastructure spending proposal would be.
Instead of wasting more of taxpayers’ hard-earned money on cronies and not-so-shovel-ready projects, Congress and the President should pursue policies that actually stimulate the engines of economic recovery and growth. As Heritage fiscal policy expert J.D. Foster explains:
They can do so by improving incentives to produce and to work: for example, by reducing regulations and tax distortions. They can do so by reducing the uncertainties surrounding future policy. They can do so by expanding foreign markets for domestic goods and services. Recent efforts to stimulate the economy have been unsuccessful because they did little or none of these things. Regulations have increased. Uncertainty has increased. Tax distortions have been left in place or even increased in some areas. And efforts toward free trade have been anemic, at best.
If Congress and the President want to get serious about creating jobs, they should take the approach of no-cost stimulus. Real growth policies don’t require more government spending. Rather, they reduce barriers to job creation for America’s businesses and entrepreneurs—the true engines of economic growth.