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Wednesday, February 04, 2009

Economists Against Governor Rendell

In his budget address, Governor Rendell cited "conservative" economists who support the stimulus package and his spending proposals, even though they don't. Here is Rendell:

Economists from all around the world agree that it is critically important to invest in programs that help our economy. Even the ultra-conservative Martin Feldstein, who served as Ronald Reagan's Chairman of the Council of Economic Advisors and as a principal economic advisor to John McCain, has said: "Another round of one-time tax rebates won't do the job ... The only way to prevent a deepening recession will be a temporary program of increased government spending."

I agree with that advice. Here in Pennsylvania, the key to recovery lies in putting our citizens back to work through continued infrastructure investments, including the ongoing efforts to repair our bridges, roads and mass transit systems, improve our water quality and delivery systems, and expand our rail freight capacity.
Yet Feldstein recently penned an op-ed in the Washington Post calling the stimulus, "an $800 billion mistake." Here is Feldstein:
Postponing the scheduled increase in the tax on dividends and capital gains would raise share prices, leading to increased consumer spending and, by lowering the cost of capital, more business investment.

On the spending side, the stimulus package is full of well-intended items that, unfortunately, are not likely to do much for employment. ...

The largest proposed outlays amount to just writing unrestricted checks to state governments. Nearly $100 billion would result from increasing the "Medicaid matching rate," a technique for reducing states' Medicaid costs to free up state money for spending on anything governors and state legislators want. An additional $80 billion would be given out for "state fiscal relief." Will these vast sums actually lead to additional spending, or will they merely finance state transfer payments or relieve state governments of the need for temporary tax hikes or bond issues?

A large fraction of the stimulus proposal is devoted to infrastructure projects that will spend out very slowly, not with the speed needed to help the economy in 2009 and 2010.

All new spending and tax changes should have explicit time limits that prevent ever-increasing additions to the national debt. Similarly, spending programs should not create political dynamics that will make them hard to end.
Yeah, so he doesn't seem to agree with Rendell at all. Nor is it true, as Rendell claimed, "Respected economists of every ideological stripe agree that it [a massive government stimulus] is the only choice for our economic recovery." As David Boaz writes, there are "exactly zero libertarian or conservative economists on that much-touted spectrum." Hundreds of economists have opposed the stimulus plan , which Rendell is mimicking in his budget.

And Neal McCluskey and Adam Schaeffer note that Higher Education spending has not delivered economic returns:
[T]he overall trend for state and local expenditures per full-time-equivalent college student held steady at around $7,000 over the past 25 years. Enrollment, however, increased by more than a third, inflating the overall taxpayer bill. And student aid - most of which came through government - nearly tripled, hitting $10,392.

What are the returns on this outlay? Nada or negative. ...

Of course, we did get a few things for our money, like campus-based rock climbing walls, nicer dormitories, and ballooning administrative ranks. But these don't increase human capital or confer economic benefits. In fact, economist Richard Vedder has shown that greater state expenditures on higher education are correlated with lower economic growth.
Six years of Rendell's stimulus is enough.

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