Phony Stimulus-The Congressional Budget Office Tells It As It Is

John A. Quayle blueoval57 at VERIZON.NET
Tue Feb 24 19:27:19 MST 2009

Free Congress Foundation Commentary

Phony Stimulus­The Congressional Budget Office Tells It As It Is

By Marion Edwyn Harrison, Esq.

February 24, 2009

In move hailed in so much of the media as a victory which will re-ignite 
the American economy and create millions of jobs, President Barack H. Obama 
recently signed H.R. 1, the American Recovery and Reinvestment Act of 2009, 
or, as it is more commonly known, the “Stimulus Bill.”  Lobbyists, states 
and various groups now are lining up to claim their piece of the pie, while 
the Obama Administration has modified its rhetoric about the impact the 
bill will have upon the economy.   White House spokesman Robert Gibbs 
stated, “[The economy] has not yet bottomed out.  [It is] probably going to 
get worse before [it] improves.  But this is a big step toward making that 
improvement and putting people back to work.”  Gibbs also hinted at the 
prospect of another, similar bill should the economy not recover in the 
near future.

What remains to be seen are the consequences of the Stimulus Bill.  Prior 
to its enactment, the Congressional Budget Office (CBO), the Congressional 
non-partisan research branch, prepared two separate analyses of the 
legislation.  In its initial report, issued February 11, it noted that “the 
macroeconomic impacts of any economic stimulus program are very uncertain,” 
particularly for a large fiscal stimulus, which rarely is 
attempted.  Despite the uncertainty of a precise outcome, CBO noted that in 
the short run the stimulus legislation probably would raise Gross Domestic 
Product (GDP) and increase employment.  Over the coming years, however, the 
legislation likely will reduce output, primarily because it will result in 
a dramatic increase in Federal Government debt.  Notes the report, “To the 
extent that people hold their wealth as government bonds rather than in a 
form that can be used to finance private investment, the increased debt 
would tend to reduce the stock of productive private capital.”  In other 
words, this legislation will vastly increase the size of government while 
reducing the private sector, the fundamental source of any economic 
recovery (and a healthy economy, for that matter).

The report further states, “In principle, the legislation’s long-run impact 
on output also would depend on whether it permanently changed incentives to 
work or save. However, according to CBO estimates, the legislation would 
not have any significant permanent effects on those incentives.” The 
problem is that the Stimulus Bill as signed into law contains vastly 
excessive government deficit-spending and too few tax cuts for businesses 
and individuals, which cuts would encourage both to invest in the economy.

Two days after the initial report, CBO issued another statement on the 
Stimulus Bill.  In this second report it estimated that between 2009 and 
2019 H.R. 1 would cost American taxpayers $787.2 billion, more than any 
other single piece of legislation in history.  Such debt ultimately will 
reduce GDP, leading to lower wages for American workers because “
dollar of additional [government] debt crowds out [from the market] about a 
third of a dollar’s worth of private domestic capital.”

Nor is the Stimulus Bill the only spending bill Congress will pass this 
year, as various appropriations must be enacted into law to keep various 
government programs and departments functioning. Early estimates suggest 
that these appropriations may reach $410 billion.  In addition, President 
Obama has proposed $75 billion for homeowners who cannot pay their 
mortgages.  Many economists are predicting that the budget deficit for 
Fiscal Year 2009 (October 1, 2008-September 30, 2009) alone will reach $1.6 
trillion, about three times the size of last year’s Federal deficit.  Such 
unprecedented deficits undoubtedly will create myriad and major problems 
for the economy.

We must return to a policy of fiscal restraint and balanced 
budgets.  Otherwise, our economic recovery could be much smaller and come 
to fruition in a far distant future.

Marion Edwyn Harrison is President of, and Counsel to, the Free Congress 


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