National Review (The Corner), January 29, 2009

Some Stimulating Reading [John Hood]

With the bloated, ramshackle, pork-laden, grotesque corruption of a “stimulus bill” now headed to the U.S. Senate, here’s a handy list of arguments and sources as we debate America’s new lurch towards European-style social democracy:

• The Pacific Research Institute’s Robert Murphy explains the economic-policy mistake that underlies the legislative monstrosity—the idea that recessions are a symptom of too little consumer spending, so government should step in to prop up consumption artificially to keep people in their current jobs.
  

No, recessions are really the result of a mismatch between what firms are currently producing and what consumers want to buy at current prices. Inevitably, some firms and their workers need to stop making widgets and start making wadgets, or the machines that make wadgets, or the networks that sell and service wadgets. That requires new investment in capital formation across the board: financial, physical, and human (retraining and redeployment of labor). There is no shortcut.

Pretty basic stuff, but many Americans and most of their elected officials need a refresher course.

• Both the Heritage Foundation and the Cato Institute have wonderful omnibus-stimulus sites where you can go for updates, backgrounders, videos, and more. One recent Heritage paper offers a devastating critique of the job-creation numbers the Obama administration is peddling. The administration’s report is “supposed to lend academic creditability to a plan based on political considerations, but the estimates created are founded on loose assumptions that lack academic rigor,” the authors write. “The report should not be relied upon as an accurate measure of the impact of the Obama fiscal stimulus plan because it relies on rules of thumb and other back-of-the envelope calculations rather than sound economic analysis.” Heritage has also provided an estimated cost of the stimulus bill: about $22,500 for every American family with children.
  
  

Over at Cato, Lawrence White and David Rose are blunt about Washington’s current infatuation with interventionism: “Out of political cowardice, the federal government is attempting to produce a solution that is penny-wise and pound-foolish. You can't solve an excessive spending problem by spending more. We are making the crisis worse.” It's important not to allow the Left to claim to be bold and courageous here. The stimulus bill is neither. It's simply a “get it while the gettin's good” bill.

• Philip Levy of the American Enterprise Institute opens up another front against the fast-moving stimulus legislation—that its protectionist provisions will increase in the cost of funded infrastructure projects and invites unfavorable trade-policy responses from overseas. “In his campaign last year, President Obama called for a multilateral approach to foreign policy and a restoration of America's image in the world,” Levy writes. “It may fall to other world leaders to remind him of the role that global trade plays in US international relations.”
  
  
• The Competitive Enterprise Institute calls attention to a sound alternative stimulus package from Sen. Jim DeMint of South Carolina. It would slash corporate tax rates, block future income-tax hikes, allow businesses to deduct their expenses more rapidly, and target wasteful spending (which creates an immediate stimulative effect if entrepreneurs and investors believe it augurs well for future tax rates). CEI also suggests regulatory reform as a forward-looking stimulus.
  
  
• My John Locke Foundation colleague, Jon Sanders, writes in his Townhall column that misguided politicians in Washington would be well-advised to read Henry Hazlitt’s classic explanation for why government interventions inevitably come too late, spend too much, and target the wrong problem:
  
  

Yes, we like picturesque analogies down South.