Is the Stimulus Working?

Over at Cato, Chris Edwards asks Is the Stimulus Working?, taking a look at the components of GDP. As Edwards notes, "Government expansions usually cause private sector contractions" and the data indicates that trend has held up - since 2008, consumption is down, government spending is up, and private investment is plunging.

So the stimulus might be said to be “working” by keeping government fat while productive private investment falls off a cliff.

But is that what Americans really want in an economic recovery? Do we want an economy that ”recovers” with a bigger government workforce and a smaller private workforce? Do we want a ”recovery” where the government directs more of the nation’s investment and private businesses less of it? It certainly doesn’t sound like a prescription for long-term growth to me.

Where Were These Guys a Few Months Ago?

At a recent town-hall meeting, Federal Reserve chairman Ben Bernanke said he had to 'hold my nose' over bailouts. I wish he had expressed some of those misgivings when lobbying for the bailouts last year, instead of the "do it now!" testimony he actually gave.  (On a side note, here is a video of Bernanke in 2005 saying there is no housing bubble, housing prices would not decline, and in 2006 that housing would not have a drag on the economy, while car sales would climb; and in 2007 that the subprime market was not a problem.  Just point this out because a lot of intelligent folks seem to trust Bernanke's judgment more than their own).

In a similar story, Treasury Secretary Tim Geithner insist that the path to economic recovery is through lower deficits. It is too bad that earlier in the year, he was advocating that the path to economic recover was through a $787 billion in a deficit-funded stimulus bill.

Thanks guys.

Pennsylvania Has 6th Best Stimulus Website

Good Jobs First has released state stimulus website rankings for all states. Unlike other state rankings, Pennsylvania does well, relative to its peers. Unfortunately, Pennsylvania gets 50 out of 100 possible points for the level of informational available on its stimulus site.

The Maryland site gets the top overall grade, and while I haven't perused it enough to see how much detail I can get on their stimulus spending, it sure does look pretty.

Your $28 Million Dollar Pork Dinner…No, Really!

With growing criticism of the effectiveness of President Obama $787 billion dollar economic stimulus plan mounting, several recent purchases by the Department of Agriculture have American taxpayers in a furor.

According to Recovery.gov, the DOA spent over $28 million dollars on 760,000 pounds of ham, 837,936 pounds of mozzarella cheese and 4,039,200 pounds of processed cheese plus other food items, including, ironically, “canned pork”. With these purchases posted on conservative blog The Drudge Report early this morning, the Department of Agriculture rushed a press release in an attempt to justify their actions by claiming the food “would provide a modest economic benefit of benefiting Americans working at food retailers, manufacturers and transportation companies as well as the farmers and ranchers who produce our food supply.”

If you are skeptical of just how much of a “modest benefit” this feast is really providing our economy, you are not alone…

Obama Reverses On Stimulus Promises

The GOP has a pretty hard hitting video on Obama's stimulus promises.  First it shows Obama's promises that the stimulus would have an "immediate impact" on creating jobs.  Then it features Obama's recent defense, given the failure of the stimulus to have a positive impact to date, that the stimulus couldn't possibly be expected to work in months (Hat Tip to Tony Phyrillas).

If only someone had warned Obama and lawmakers that the stimulus would not create jobs.

Will "State-Related" Universities Get Stimulus Funding, No Stimulus Funding, or No Funding at All?

On June 26th the Governor submitted his application for federal stabilization funds, including the following phrase:“The Commonwealth’s “state-related universities” are excluded from all calculations for purposes of the State Fiscal Stabilization Fund." While these four institutions (Penn State, University of Pittsburgh, Temple and Lincoln University) receive limited taxpayer support, they do so through a non-preferred appropriation which is defined as “an appropriation to any charitable or educational institution not under the absolute control of the Commonwealth”.

On July 7th, Rendell told (1:10:50) the US House Republican Committee on Oversight and Reform,"Understand, the four state-related schools, Penn State, Pitt, Temple, etc., are getting stabilization money. The cuts that they are receiving would be much worse without the stimulus. Much worse."

Confused? So are we.

In reality, an 18% cut in state subsidies should not dictate a necessary increase in tuition given that the subsidies make up a small part of the universities' overall budgets, and as we note in our policy brief on higher education - increased government subsidies are partly to blame for tuition increases.

Yesterday the House Democrats threw another monkey wrench into this, when they tweaked the Governor's budget proposal to take higher education out of the state budget entirely, until a new revenue source is found.

Taxpayers Guide to the Stimulus

Reason Foundation put a new "Taxpayers Guide to the Stimulus" last week that is informative, and an easy-to-digest guide to where all the stimulus money is going.  They also feature links to other sources of info for tracking stimulus money.

‘Stimulus’ Kills Pennsylvania Steel Jobs

Redstate notes how the "buy American" provision of the so-called stimulus bill is already putting some Pennsylvania's out of of work.  See the original Canadian Press article here.

Stateside, the sting is also being felt. As many as 600 steelworkers in Pennsylvania, whose union lobbied for the Buy America law, are slated to lose their jobs at Duferco Farrell after the company lost orders from its biggest customer because some of its goods are partly produced abroad.

Bob Casey Still Needs to Read the Stimulus Bill

Sen. Bob Casey - in remarks designed to counter the facts laid out by the Commonwealth Foundation, namely that Pennsylvania school districts will get a dramatic increase in funding, considering both state aid and federal stimulus money - says "They're cutting a hole out and filling it with federal recovery money, which was not the intent of that money" (emphasis added).

Oh really?  The American Recovery and Reinvestment Act lists five purposes for the legislation; number 5 reads, "To stabilize State and local government budgets, in order to minimize and avoid reductions in essential services and counterproductive state and local tax increases"  (emphasis added).

It sounds to me like the intent of the stimulus legislation was exactly to fill in the gap and avoid tax increase.  Look, I know no one in Congress read the bill before voting on it, but this appears on page 2.  Really?  You couldn't make it to page 2, Senator?

Who Watches the Watchmen?

From Plato’s Republic to…well…The Watchmen (2009), the question of “Who watches the watchmen?” has remained unanswered. This problem continues with the government’s stimulus plan with its lack of oversight in spending and accountability for results.

While it’s impossible to know how the economy would have responded without the government’s recovery plans, this didn’t stop the president’s economic advisers from projecting the unemployment rate through 2014 both with and without the recovery plan.

Source.


Will the government see this as a failure of the recovery plan? No, rather than admit failure, the administration will likely proclaim the economy was in a worse position than originally estimated.

The government may never own up to its policy mistakes in the light of quantitative economic evidence, but greater transparency in spending can still be achieved, as Auditor General Jack Wagner publicly stated that Pennsylvania is not ready to oversee stimulus spending despite the fact that the costs of government spending databases are well below expectations.

HT: Greg Mankiw

Stimulus Money to Help Deal with Pension Crisis?

A number of Pennsylvania House Republicans are proposing using a portion of the federal stimulus money to pay into PSERS, the retirement fund for school employees.  The $435 million payment would be only a drop in the bucket of the unfunded pension liabilities - expected PSERS pension contributions are expected to increase by  roughly $3 billion per year in 2012 (and contrary to the metaphor of a "spike", for several years thereafter) - and this proposal certainly does not eschew the need for reforming the pension system.

That said, this is one of the best ideas for using the stimulus money.  Rather than create a new program, or increase spending on existing programs - which will require state taxpayers to pick up the tab once the temporary stimulus funding ends in two years - paying off some of our obligations, and reducing the need for future tax increase is a better deal for taxpayers.

Over $4 Million in PA Unemployment Fraud

WGAL has a story on reports from the Pennsylvania Department of Labor and Industry of over $4 million in fraud in unemployment compensation benefits.  You can assume there is more fraud than has been uncovered.

This should be expecially disconcerting, given the state is currenlty borrowing money to pay the current unemployment compensation costs, and because the federal stimulus package would require the state to increase benefits for unemployment compensation.  Governor Rendell has admitted this will be an additional cost to the state, but intends to take the money anyway, as most of the burden on PA taxpayers will hit under the next governor.

The PA Chambers has some ideas for unemployment compensation reform, and the Institute for Full Employment has some state comparisons and policy suggestions for Pennsylvania on unemployment insurance.

How PA Should Use Its Stimulus Money

Lawmakers in Missouri announced they are foregoing pet projects in order to temporarily lower the state's personal income tax from 6% to 5.5%. (HT NTU)

Governor Rendell would be wise to follow suit, or at least pay down our mountain of debt, or at the very least contribute to enormous unfunded liabilities including pensions and health care.

Overspending created the budget deficit, and no amount of new spending is going to plug it.

Rendell's Pants are on Fire

Governor Rendell, in comments made today about Sen. Specter, claimed that Specter is "being criticized by his party for voting for the stimulus ... which is something every conservative economist said was necessary, including President Reagan's former economic advisor." Immediately afterwards, his pants burst into flame.

As I have pointed out before, Rendell is either lying, or completely misinformed. The Cato Institute has compiled hundreds of economists who opposed the stimulus.

And the Reagan adviser Rendell points to is Marty Feldstein, who initially supported the idea of a stimulus (mainly one featuring cuts in tax rates), but opposed the stimulus that passed, even writing an, editorial in the Washington Post calling the stimulus, "an $800 billion mistake."

As David Boaz pointed out "the count of Republican or conservative or libertarian economists who support Obama’s biggest-spending-bill-in-world-history stands at . . . zero"

Audit: PA Not Ready for Stimulus Oversight

Auditor General Jack Wagner believes Pennsylvania is ill-suited to provide transparency and oversight on the stimulus money coming to the state in a letter he sent to the federal Government Accountability Office.  See stories in the Pittsburgh Tribune-Review and the Patriot News.

Governor Rendell's spokesman expressed outrage as such accusations, touting the state recovery website - which I have to say I'm not impressed with - and the stimulus oversight commission.  Curiously, the Auditor General is not on the stimulus oversight commission, which may be a sore spot, but it is also pretty much his job description to evaluate how taxpayer money is being spent., whereas the people on the oversight commission are largely the spenders, or the recipients, of the money.

On the bright side, the private sector has developed a user-friendly website, which allows users to search for project by state, county, and city at Recovery.org.

Even more on taxes, spending, and the stimulus

Americans for Tax Reform has a new fact page on "Tax Bites" - showing how much taxes take up for the cost of goods and services we buy, from cigarettes to meals, and airfare to wireless telephone services.

Heritage has a blog post responding to Obama's speech on his tax policies - noting specifically that his "tax cuts" are in fact income redistribution, that his tax cuts do not affect "the most workers" of any tax cut in history, that his plans won't "stimulate anything", and that his numbers of jobs he will create is a fabricated estimate.

On the economic stimulus, Reason Magazine talks to a number of economists on their perspective of the stimulus.  Specifically they answer the questions about what are the problems with the stimulus, what in the stimulus will work, and even whether "doing nothing" is a better option for the economy.  My favorite comment is from Robert Higgs, who says that all of the stimulus will work - work to reward every special interest allied with the Democratic Party.

Finally, Chris Edwards writes of the ballooning number of federal subsidy programs - which has been going on for decades - and that we have now reached 1,804 such programs.  He also offers a small sample of the subsidy programs added since 2000, a myriad of large, small, and bizarre programs.  He does not offer a list of government programs that have been discontinued.  I wonder why.

Which Tax Cuts Have Stimulated the Economy?

"'We tried that, and it didn't work,' Obama and his partisans sneer in response to arguments that tax cuts are the key to restoring economic growth." 

But as Peter Ferrara writes in the American Spectator cuts to marginal tax rates and capital gains rates - such as the tax cuts of John F. Kennedy, Ronald Reagan, George W. Bush in 2001 and 2003 - all resulted in accelerating (or "stimulating") economic growth.  Other tax cuts - namely credits, rebates, and redistribution through the tax code, such as those pushed by Bush in 2008 and Obama in 2009 - don't do anything to stimulate the economy. 

Such tax rebates or tax credits do not work to stimulate economic growth because they do not change the fundamental incentives that govern the economy. A $500 tax credit or tax rebate involves the government either explicitly or effectively sending you a check for $500. But after that you and everyone else still face the same tax rates and same economic incentives. 


Tax cuts do not expand the economy by "putting more money in people's pockets," thereby leading to increased spending. Increased welfare benefits would put more money in people's pockets as well. But this is an outdated Keynesian rationale from the 1930s that increasing spending will increase growth to meet the demand. That does not work for two reasons. First, the government has to borrow or tax the money from someone else in the economy to give you the tax credit or increased welfare check. So, if it takes $500 out of the economy to give you $500 through the tax credit or increased welfare, it has not added anything to the economy on net. Secondly, again, there is no change in fundamental incentives. ...

As of this month, we are in the longest recession since World War II. The National Bureau of Economic Research scores this recession as having started in December, 2007. Yet, from the beginning we have followed old-fashioned, Keynesian tax cut stimulus policies, first under Bush, but then continued under Obama, rather than the amazingly successful tax rate cut policies of Kennedy and Reagan. That is why this is the longest recession since World War II, with still no end in sight, and unemployment persistent and relentlessly climbing. 

Big Business Still Loves Big Government

HT to Joe Collins for pointing me to Timothy Carney's article in the Washington Examiner.

Despite the oft-repeated rhetoric that free market advocates are the puppets of big business, an accusation sometimes directed at the Commonwealth Foundation, Carney notes that big business - namely the US Chamber - prefers lawmakers who support big government.  

[Low-Scoring Senators] Kyl, Inhofe, DeMint, and Sessions were four of the eight senators to vote Nay July 31 on the “College Opportunity and Affordability Act,” creating $34 million in new subsidies for colleges, probably driving up tuition at taxpayers’ expense rather than making college more affordable.

These four also voted against the Chamber’s position by opposing President George W. Bush’s February 2008 stimulus bill that sent checks to taxpayers. The “rebates” were one-time tax credits that excluded higher-income earners but included some people with no income tax liability.

Conservatives instead proposed long-term, broad-based tax cuts—for example, making permanent the 2001 tax cuts set to expire in 2011—as opposed to one-time stunts turning the IRS into a welfare agency.

And, of course, DeMint, Inhofe, and Sessions upset the Chamber by voting against the massive $700 billion Wall Street bailout—which has since grown into a Detroit bailout, and a tool which the Obama administration is using to tell banks and carmakers how to run their businesses.

The Great Wall Street Bailout will prove someday to be the crucial victory for government control over the economy, and for voting Nay on a rushed vote to pass this unprecedented measure, some conservative lawmakers were scorned by the business lobby.

Sessions, Inhofe, and Kyl also voted last April against a package of tax deductions for “renewable energy”—effectively corporate welfare for unprofitable technologies.

On the House side, it’s a similar picture. The Republican with the lowest Chamber score was [Ron] Paul. Even Rep. Barney Frank, D-MA, who wants to regulate everything except Fannie Mae, scored 14 points higher than Paul on the Chamber’s scorecard.

FASB Eases "Mark to Market"

The Federal Accounting Standards Board voted to ease "mark to market" accounting rules, which forced financial firms to markdown the value of their assets.  This is pretty wonkish, but its kind of a big deal.  If some firms were selling off "toxic" mortgages at bargain prices, other firms would have to lower the reported value of the mortgages they held, even if they had no intention of selling them in the near future.

This represents the first "deregulation" of an over-regulated financial sector in a long time.  More from Competitive Enterprise Institute, Heritage, and Free Market Politics on the reform. 

You will note that ending "mark to market" was one of the Free Market Alternatives to the Bailout outlined here in Sept.  It takes a long longer for good policy ideas to percolate than bad ones (e.g. bailouts, stimulus, bonus taxes, etc).

PA Governor Releases April Fool's Joke Too Early

Governor Rendell has a great April Fool's gag, announcing a Pennsylvania "Stimulus Czar" (like anyone would think that's a real job) that pays $120,000 per year for part-time work.

Rendell's gag press release goes on to make lots of jokes about what the stimulus funding will do:

"It won't be long until you will see more and more people packing their lunch pails and heading back to work," Governor Rendell said. "Federal stimulus money is starting to flow into Pennsylvania to help put people back to work and stabilize our economy. There’s a surge going on in our economy. It’s not a tsunami yet, but it is building.

"In addition to creating jobs for hard working Pennsylvanians, the stimulus money will help us to achieve energy independence, reduce the cost of health care and improve public schools while stabilizing property taxes, and keep the costs of state government down and manageable in the long term."

Hilarious, no one could fall for this. He might as well have gone on about how the stimulus will cure cancer, end racism, and buy happiness.

But I can't understand why he released it on March 31. Doesn't make much sense to me. Now wait a minute ...