Why the Stimulus Is a Failure
This NYTimes article offers a perfect explanation of why the stimulus bill was doomed for failure. The massive infusion of federal cash into the economy wasn’t enough to offset the money not circulating through the economy:
ST. CLOUD, Minn. — It was just five months ago that Vice President Joseph R. Biden Jr. made the New Flyer bus factory here a symbol of the stimulus. With several cabinet secretaries in tow, he held a town-hall-style meeting at the factory, where he praised the company as “an example of the future” and said that it stood to get more orders for its hybrid electric buses thanks to the $8.4 billion that the stimulus law devotes to mass transit.
But last month, the company that administration officials had pictured as a stimulus success story began laying off 320 people, or 13 percent of its work force, having discovered how cutbacks at the state level can dampen the boost provided by the federal stimulus money. The Chicago Transit Authority did use some of its stimulus money to buy 58 new hybrid buses from New Flyer. But Chicago had to shelve plans to order another 140 buses from them after the state money that it had hoped to use to pay for them failed to materialize. The delayed order scrambled New Flyer’s production schedule for the rest of the year, and led to the layoffs.
The federal infusion of cash was supposed to stimulate the economy but it didn’t. It didn’t because other levels of government had to cut spending because they were running big deficits.
If ARRA had been done right, it would’ve put a higher priority on cutting business taxes and infrastructure construction. Cutting business taxes would’ve given businesses an incentive to put their money at work, which would have increased tax revenues for both the federal and state levels.
Here in Minnesota, we’re expecting another big deficit for the next biennium. I suspect that’s because Tom Stinson isn’t expecting the economy to dramatically improve in that time. If the stimulus plan had set better priorities, the economy would likely have improved by then. Since it wasn’t designed to create jobs, states started factoring in lower revenues for the next budget cycles.
Another thing that isn’t being talked about is something that President Obama quietly did recently regarding prevailing wages:
To ensure that many of the jobs funded by the stimulus bill go to unionized workers, the Obama administration is pursuing two courses of action. First, the Department of Transportation has issued guidelines directing all construction work on infrastructure projects to be subject to Davis-Bacon prevailing wage determination, which requires federal contractors to pay the “prevailing” wage in a given locality as determined by the Secretary of Labor. Because this has typically been equivalent to the prevailing union wage, the law makes it harder for non-union contractors to compete.
Second, the administration is requiring contractors who want to bid on large federal construction projects to be subject to project labor agreements (PLAs), which impose burdensome requirements on non-union contractors. PLAs typically require non-union employers, even those who provide their own benefits, to pay into union benefit plans. This can entail paying into underfunded union pension funds, which can impose huge liabilities on companies. PLAs may also require contractors to employ workers from union hiring halls, acquire apprentices from union apprentice programs, and require employees to pay union dues.
This might help unionized construction companies but it’ll hurt non-unionized companies. At a time when we want to get as many people working as possible, this rule seems counterproductive from an economic standpoint. (It makes perfect sense from a political standpoint, though.) Still, the goal should be job growth, not union empowerment.
Putting these things together, it isn’t difficult to say that President Obama’s economic policies are bassackwards. His priorities are understandable from a political standpoint but they’re foolish from an economic perspective.
We can rationalize playing political games when the economy is hitting on all eight cylinders. It’s impossible to justify playing political games when the economy is sputtering like it is now. Economics must trump politics right now.
Setting a higher priority on achieving political goals rather than on putting us on a path to economic prosperity is unconscienable when 15,000,000 people need a new job.
Technorati Tags: Stimulus, Joe Biden, New Flyer, Buses, Unemployment, Layoffs, Economy, Prevailing Wage, Political Payoff, Unions, Construction, Job Growth, Dave Kleis, Infrastructure, Transportation, Democrats
Cross-posted at LetFreedomRingBlog
September 5th, 2009 at 11:31 am
Econ 101: a capitalist economy does not run on government money, and any money infused by the government into the economy will, in the end, drag the economy down geometrically by the amount of the infusion as a part of the GDP.
But such is lost on the 25-watt bulb in the White House and the 10-watters at Treasury and the Fed.
September 5th, 2009 at 2:58 pm
Wonderful post!
Thanks for sharing it.
But remember: You are just begging to be tagged as a racist if you keep up with this sort of thing. There’s an article along these lines that you might get a kick out of. It’s posted at Fire Breathing Christian and titled “You’re Surely a Racist, If…”
Here’s a link:
http://firebreathingchristian.wordpress.com/2009/09/03/youre-surely-a-racist-if/
Keep fighting the good fight!
September 5th, 2009 at 3:08 pm
Yes, but, but, they feeeel good about it. They are prooving once again how much more compassionate then you they are by using, er . . that is being the friend of the working man.
Can you say Pharisee. Oh Lord, I thank you I am not like the rest of men, extortioners, unjust, adulterers , even as this republican. I fast twice every week, I tithe of all that I possess.