More Economists Agree: Stimulus Failed

There’s a growing consensus amongst economists that Barack Obama $820 billion “stimulus” legislation failed to stimulate the economy. The most recent economists to come to that conclusion are John Taylor of Stanford and Robert Barro of Harvard.

Taylor, who holds a Ph.D. in economics from Stanford University and has advised presidents going back to the Ford Administration, writes:

Individuals and families largely saved the transfers and tax rebates. The federal government increased purchases, but by only an immaterial amount. State and local governments used the stimulus grants to reduce their net borrowing (largely by acquiring more financial assets) rather than to increase expenditures, and they shifted expenditures away from purchases toward transfers. Some argue that the economy would have been worse off without these stimulus packages, but the results do not support that view.

Taylor concludes that while Obama thinks we’re “winning the future”, the reality is we’re “losing the future”.

Meanwhile, Barro of Harvard — who earned his Ph.D. from the university in 1970 and has authored graduate-level text books on the subject — writes:

“In the long run you have got to pay for it. The medium and long-run effect is definitely negative. You can’t just keep borrowing forever. Eventually taxes are going to be higher, and that has a negative effect,” [Barro] said.

“The lesson is you want government spending only if the programmes are really worth it in terms of the usual rate of return calculations. The usual kind of calculation, not some Keynesian thing. The fact that it really is worth it to have highways and education. Classic public finance, that’s not macroeconomics.”

Turning to the $600bn (£373bn) to $800bn US package, he added it was “mainly a waste of money”. Stimulus programmes, he said, offer little more than “rearranging the timing” of economic growth. “Possibly you could make an argument that it’s worth it. But it’s going to be a negative-sum thing overall, so you have to think it’s a big benefit for boosting the recovery.”

Barack Obama promised that unemployment would remain below 8% if only Congress — completely controlled by his own party at the time — passed the $820 billion package. We now suffer from a 9.1% unemployment rate. The package failed by his own standards. Economists are recognizing as much now.

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