Editor’s note: The following essay is adapted from “Rich is Not a Four Letter Word” (Crown Forum, April 19, 2016).
To understand how liberal progressive policies have undermined American wealth, let’s go back to the beginning.
President Obama’s first legislative initiative, the stimulus act, was passed by Congress on February 17, 2009, less than a month after the president’s inauguration.
It was the biggest economic recovery package in the nation’s history, originally $787 billion in stimulus spending (it would blossom to $830 billion later) that was supposed to pull us out of the Great Recession. Instead, it turned into a hopelessly mismanaged giveaway that failed in its fundamental objective: bailing the economy out of the biggest downturn since the Great Depression.
The idea was to use government spending to create economic demand where none exists. That idea came from John Maynard Keynes, a British economist of the early twentieth century who believed that recessions should be fought with taxpayer dollars.
In fact, according to his theory, it didn’t matter much what the government was buying. What mattered was that government was spending, a nd spending big. Imagine workers being paid to dig a hole and then refill that hole. Over and over. Workers get paid, so goes the Keynesian argument, and then spend that money in the economy, which creates demand for grocery store owners, butchers, and the like.
Economic activity is supposed to bubble up like a pot of water boiling on the stove with the govern men t providing the burner. But that didn’t happen for two reasons.
First, the money didn’ t reach its destination; much of it was wasted. Second, Americans who did receive stimulus dollars didn’t react in the way Keynes anticipated. They didn’t spend; they saved.
Despite the president’s promise that stimulus dollars would ” help those hardest hit by our economic crisis,” ProPublica, a left of center nonprofit journal, reported that spending was not correlated with need.
Stimulus dollars didn’ t go to the poorest parts of the country or even the places where joblessness was the most concentrated. The emphasis was getting the money out the door quickly.
Echoing Keynes, Vice President Joe Biden called on local politicians to spend on “stupid things.” And that is what happened. Much of the stimulus money went to the government and education sec tors, where unemployment was low, but only 10 percent went to infrastructure, though unemployment in construction was running in double digits.
Then there was the out-and-out waste. Former Senator Tom Coburn , a famed tracker of wasted government dollars, issued a report 18 months after the bill was signed, detailing 100 projects in which taxpayer dollars were squandered. There was half a million dollars for new windows at the Mount St. Helens visitors center in Amboy, Washington.
The building had been closed since 2007, and there were no immediate plans to reopen it. Nearly $7 million went for repairs to an 1846 brick fort at the end of the Florida Keys even though few people could visit the remote national park unless they hired a seaplane or took a four-hour round-trip boat ride. Money also went to research projects: $2 million to send researchers from the California Academy of Sciences to islands in the Indian Ocean to study exotic ants, $296,000 for a study of dog domestication at Cornell University, and $141,000 to send students from Montana State University to China to study dinosaur eggs.
The fact that spending didn’t target need didn’t happen simply because government bean counters were ineffective or incompetent. There was a method to the spending stimulus madness, according to research by John Lott, a research scientist at the University of Maryland. Instead of states with high bankruptcy, foreclosure, and unemployment rates, Lott wrote, states with powerful Democratic representatives or ones that had voted for Obama in the presidential elec tion got more money. States that had entirely Democratic congressional delegations received $460 more in stimulus dollars per person than did states that did not. The states in which Obama won by the largest margin in 2008 got the most money. Lower-income states got less. States with higher bankruptcy rates got less. States with high employment got less. Lott called the stimulus program a massive wealth transfer, but it was also doomed from the beginning because the money went to political cronies rather than to the peo ple who needed it. Stimulus spending in other words was a waste.
As a result of this mismanagement, anniversaries of the stimulus spending hill came and went nd still the president had little to show for the unprecedented outlay of taxpayer money. Five years after President Obama signed the American Recovery and Reinvestment Act the economy was still in dire straits. He said the spending would mark “the beginning of the end” of the nation’s economic troubles. When the stimulus was passed the goal was to get unemployment to 5 percent. Six years later that goal was achieved, hut only because millions of Americans dropped out of the workforce and others accepted part-time work.
Even the part of the stimulus that went directly to Americans didn’t provide a Keynesian push to the economy. Even though payroll tax reductions put money immediately in people’s hands, most saved that money rather than spending it. Stanford economist john Taylor theorized that this occurred because the tax cuts were temporary, not permanent. States used the money to pay down deficits or to save for a rainy day even though the expectation was that they would spend the money on new equipment and capital purchases that could goose the economy.
The president tried to rewrite his stimulus history again and again. On the campaign trail in early January 2015, he laid the groundwork for a State of the Union address later that month in which he would argue that his policies, partic ularly the stimulus spending, had turned the U.S. economy a round. His first trip was to a Ford pla nt in Wayne,Michigan, a suburb of Detroit, where he said that the $80 billion infusion of taxpayer money into automakers in 2009 had rescued the industry. “There is no doubt that thanks to the steps that we t ook early on to rescue our economy we a re entering into the New Year with a new confidence tha t America is com ing back,” the president said.
True enough , the industry had enjoyed impressive sales the previous year, bu t it wasn’ t due to the bailout. The recovery in auto sales happened because of building demand among A mericans who had held on to their cars for an average of 11 years, an all-time high. The economy recovered because of real need for products rather than a government program. Moreover, Ford was the one American automotive company that turned down the TARP (Troubled Asset Relief Program) money. Ford, under Alan Mulally, turned around Ford.
Even so, the president soldiered on, claiming his policies were successful. But the pictures told a different story. The Ford plant the president chose to speak from was closed because of lack of demand for the compact hybrid cars made there. About 5,000 workers had been l aid off at that plant. At the same event, the president touted the fact that the deficit had been cut by two-thirds. What he didn’t say was that under his watch the nation’s debt had risen by $ 6 trillion. The true legacy of stimulus spending is not a stronger economy; it’s much larger debt. As a country, we now owe more than $18 trillion, a figure that will burden taxpayers for decades to come.
If the stimulus program’s main goal was to create work for Americans, it failed miserably. According to University of Maryland economist Peter Morici, by early 2015, one in six men of working age was unemployed. Obama had managed to create 7 million jobs (whereas 8.7 million had been lost in the recession), whereas President Ronald Reagan created 11 million jobs in a much smaller economy. In a rare meeting of the President’s Jobs and Competitiveness Council, the president admitted that the plan to generate shovel-ready jobs wasn’t a success.
“Shovel-ready was not, uh , as shovel-ready as we expected,” he said.
Reprinted from “RICH IS NOT A FOUR LETTER WORD”: How to Survive ObamaCare, Trump Wall Street, Kick-start Your Retirement, and Achieve Financial Success.” Copyright © 2016 by Gerri Willis. Published by Crown Forum, an imprint of Penguin Random House LLC.
Gerri Willis joined Fox Business Network (FBN) in March of 2010. Willis is an anchor and personal finance reporter for the network.