TCS Daily


The Great Recession

By Alan W. Dowd - October 1, 2009 12:00 AM

Given the dark economic outlook this time a year ago, it was hard to find a business or household that had the confidence—or audacity—to predict growth by the end of 2009, let alone double-digit growth. But that's what Washington's spending spree has done for the U.S. government. In fact, federal spending in the United States will mushroom from $2.98 trillion in 2008 to $3.93 trillion by the end of this year—an increase of 32 percent.

The spending binge began under President Bush—$700 billion for the TARP behemoth and $17 billion-plus in automaker bridge loans were anything but pocket change—but it exploded under President Obama.

Dubbed the American Recovery and Reinvestment Act (ARRA), Obama's so-called stimulus package was staggering in its size and scope. Even the statist New York Times called it "the most expansive unleashing of the government's fiscal firepower in the face of a recession since World War II."

It would be wrong to say that the ARRA promised a little of everything, because it actually promised a lot of everything:

  • $87 billion to help states with Medicaid costs
  • $53 billion for education and training
  • $39 billion for energy programs
  • $35.9 billion for roads and bridges
  • $20 billion to increase food stamp benefits
  • $15 billion spread around to 60 million Social Security beneficiaries, in the form of $250 checks
  • $8 billion for high-speed rail to provide "an environmentally sustainable alternative to flying or driving"
  • $7.2 billion to expand broadband Internet access
  • $6.3 billion for energy grants to state and local governments
  • $5 billion for weatherization
  • $2 billion to stabilize neighborhoods affected by foreclosures
  • $1.5 billion to prevent homelessness
  • $1 billion for "prevention and wellness interventions."

The stimulus package even included $84 million to fund a special board to oversee—you guessed it—stimulus spending. Plus, most projects paid for with ARRA dollars will be emblazoned with signage that reads: "Project Funded by the American Recovery and Reinvestment Act." The cost of these signs ranges from $400 to $8,000.

All told, the stimulus package is costing taxpayers $787 billion. Is all this money being put to good use? No.

First, the vast majority of it isn't being put to any use at all. According to the government's own watchdog website, recovery.gov, only 12 percent of this so-called emergency funding had been paid out by late September.

In other words, the promised "shovel ready" work simply hasn't materialized. Related, the promised jobs are not being created. As the Heritage Foundation has pointed out, the administration argued that the stimulus would lower the "nation's unemployment rate below 8 percent by this August." Yet the unemployment rate hit 9.7 percent in August.

As Kevin Hassett of the American Enterprise Institute argues, "The stimulus bill had two parts, and neither has succeeded. The government-spending part has yet to occur, and the individual-tax part appears to have been saved" rather than spent.

The negligible impact of the ARRA should come as no surprise. Stimulus spending seldom does what its advocates claim it does, namely, stimulate the economy. As Veronique de Rugy of the Mercatus Center at George Mason University explained in February of this year, "Between 1992 and 1999, Japan passed eight stimulus packages, totaling roughly $840 billion in today's dollars." The result: a rising debt-to-GDP ratio, "massive corruption scandals," and an economy that "never recovered."

In fact, recent U.S. history reveals that stimulus bills often become law after the recession they are intended to counter has ended. As the Congressional Research Service has reported, stimulus legislation was enacted in April and July 1958 to deal with a recession that ended in April 1958; stimulus legislation was enacted in May 1961 and September 1962 to deal with a recession that ended in February 1961; stimulus legislation was enacted in August 1971 to deal with a recession that ended in November 1970. The pattern was repeated in the mid-1970s, early 1980s, and early 1990s.

Worse, Vice President Joe Biden warned in June that "Some of this money is going to be wasted," candidly conceding, "Some people are being scammed already."

"Some people" are the taxpayers, as Sen. Tom Coburn (R-Okla.) detailed in his report on stimulus waste:

  • Florida is spending $3.4 million to build an underground trail for turtles.
  • $800,000 in stimulus funds are being spent on an airport in Pennsylvania "that virtually no one uses." The airport serves about 20 passengers a day.
  • The stimulus package funneled $2 million to a nonprofit organization to expand weatherization programs in Nevada. The problem is that this same nonprofit was "terminated for bungling a federal weatherization program" a year earlier.
  • A region in Oklahoma received $1.15 million "to construct a new guardrail for a lake that does not exist."
  • A town in Pennsylvania has been ordered to spend $9.38 million to renovate a train station that has been vacant for more than three decades.
  • Ten thousand of the aforementioned $250 Social Security checks were sent to dead people.

And fittingly, the government's vaunted recovery.gov website had to be redesigned five months after its launch—at a cost of $9.5 million-plus.

To be sure, the dollar values here are tiny relative to the 12-figure stimulus package, but this snapshot reflects bigger problems with big-government spending.


A "Responsible" Government


Soon after he signed the supersized stimulus bill into law, Obama unveiled his budget blueprint—laughably titled "A New Era of Responsibility"—which made it clear that far from a one-time emergency, the stimulus spending binge was a harbinger of things to come.

One gets the sense that amid the mortgage meltdown, bank bailout, automaker bridge loans, and TARP and stimulus monstrosities, Americans became numb to the number of zeroes attached to the price tag for their country's "recovery." Perhaps the administration took advantage of this in sketching out its budget plans, which even in a time of plenty would be considered excessive. In a time of contraction, however, they seem downright reckless.

Consider that Obama's budget blueprint called for a $630-billion reserve fund amassed over 10 years to finance healthcare reform; a 34-percent increase in spending for the Environmental Protection Agency; $3.9 billion for a clean water fund; a billion-dollar annual expenditure to prod states to invest in high-speed rail; $1.3 billion for telecommunications upgrades in rural areas; $800 million for upgrades to the air-traffic control system; a 118-percent increase over four years for the Corporation for National and Community Service, best known for its AmeriCorps program.

In addition, the centerpiece of the energy bill Obama has endorsed is "cap and trade"—an innocuous sounding plan that uses market language to disguise a regulation-and-tax scheme which will trigger a $646-billion tax on energy. As one Heritage analysis concludes, the total cost of the energy bill and its cap-and-trade provisions "works out to an average of $2,979 annually from 2012-2035 for a household of four."

Finally, healthcare reform, the signature project of Obama's domestic agenda, comes with a price tag of somewhere between $1 trillion and $1.6 trillion over 10 years. Of course, it pays to recall Washington's poor track record when it comes to out-year projections. The Wall Street Journal reminds us that in 1965, Congress estimated that Medicare would cost $3.1 billion in 1970; the actual cost was $6.8 billion. Two years later, Congress predicted that Medicare would consume just $12 billion in 1990. In fact, it was $110 billion.

As they come to grips with the cost of an expanded government role in health care, the president and his congressional allies have begun exploring what they euphemistically call new revenue streams—otherwise known as taxes. Specifically, they are considering a "tax surcharge" on high-earning households, taxes on businesses that do not provide health benefits, a tax on soda and other sugary drinks, and a nationwide value-added tax.

Ironically, if the Obama administration fails in its bid to take over the nation's healthcare system, it may have only itself to blame. The gargantuan size of the ARRA has constrained the administration's ability spend, due to deficit fears among centrist Democrats, and the ARRA's anemic impact has called into question the administration's ability to deliver on its promises.

Obama's supporters—and his predecessor's critics—are quick to point out that Bush was a big spender, too. True. Of course, it pays to recall that Obama has quadrupled the deficit he inherited from Bush. Bush reduced the tax burden by $2 trillion; Obama will raise taxes by $1.4 trillion, as the Heritage Foundation's Brian Riedl notes.

Moreover, federal spending will represent about 28 percent of GDP this year. In 2008, it was 20 percent of GDP, which was very much in line with the previous three decades: 19.9 percent in 2005; 20.49 percent in 1995; 21.59 percent in 1990; 22 percent in 1985; and 20.28 percent in 1975 (see here and here).

As government spending spirals upward, the government workforce is also expanding. A Washington Post analysis concluded in March that Obama "will need to hire tens of thousands of new federal government workers to realize his goals." Estimates range between 100,000 and 250,000.

Washington's regulatory reach is also growing. Not only is the Obama administration running GM, trying to cap what energy companies can produce and moving to nationalize 17 percent of the economy by taking over the healthcare system, the president has launched a plan to "establish comprehensive regulation of financial markets." Among other things, Obama's regulatory expansion aims to create a Financial Services Oversight Council "to identify emerging systemic risks," a National Bank Supervisor "to supervise all federally chartered banks," and a Consumer Financial Protection Agency to further regulate how firms interact with consumers in providing mortgages, credit cards and checking accounts.


The Agent of Our Happiness

In Democracy in America, Alexis de Tocqueville's timeless commentary on the people and government of the United States, the closing pages are devoted to his concerns about the rise of a paternalistic state—an "immense and tutelary power, which takes upon itself alone to secure [the people's] gratifications and to watch over their fate."

Tocqueville observed that "for their happiness such a government willingly labors." It "provides for their security, foresees and supplies their necessities, facilitates their pleasures, manages their principal concerns, directs their industry, regulates the descent of property, and subdivides their inheritances."

But the tradeoff, as we are reminded each day in this age of audacity, is that government becomes "the sole agent and the only arbiter of that happiness."


Alan W. Dowd writes about public policy and national security.
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3 Comments

Off topic: Both side fear Palin....good
"Former McCain campaign manager Steve Schmidt aired his grievances with Sarah Palin at the Atlantic's "First Draft of History" conference today, saying that a 2012 Palin presidential nomination would be "catastrophic" for the Republican Party. "In the year since the election has ended, she has done nothing to expand her appeal beyond the base," Schmidt stated, arguing that she will not be able to capture the independent vote in 2012. While Schmidt was one of the advisers who encouraged McCain to choose Palin in the first place, he has since changed his position on the rogue Republican and has been blamed for many of the leaks about her reckless behavior on the campaign trail. Schmidt is now the highest-ranking member of the McCain campaign to publicly criticize Palin.'

http://slatest.slate.com/id/2231361/entry/3

Both parties play the people for fools. It's about time the people fought back and that frightens the power structure.

Ok, first of all...
ANYBODY on the McCain campaign that badmouths Palin is automatically suspect.

Why? Because a successful Palin campaign in 2012 (or any time) directly contradicts their spin-doctoring that Palin cost McCain 2008. A Palin win in 2012 PROVES it was McCain and -- by extension -- McCain's campaign homeys who lost 2008.

So, I automatically write these turkeys off.

There are 'republicans' who don't like Palin.
The republican party should do what ever it takes to rid themselves of the country club republicans.

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