One year ago today the Democrats forced a huge, bloated, pork-barrel spending bill through Congress that they called an “economic stimulus.” When the legislation was conceived they thought it would sail through with 75 or 80 votes in the U.S. Senate. Instead the American people rose up, took to the streets, and protested. President Obama went back out on the campaign trail and spent his then-considerable political capital to get his stimulus bill passed.
In the end, the Democratic Congress, aided by three Republicans--Olympia Snowe and Susan Collins of Maine and the now-former Republican Arlen Specter, squeaked through a bill hated by the American people. President Obama and Congressional Democrats claimed their bill would save our economy. A year later the verdict is clear: Obama and the Democrats were wrong, and the American people were right.
Many of the claimed jobs "created or saved" (an inherently dishonest construct, since no matter how bad the employment situation is you can always claim to have saved it from being even worse still) were in fictitious congressional districts, and reports of fraud and abuse are piling up.
While the White House claims a different inflated number of "jobs created or saved" or now simply points to "jobs funded" just about every day, the overall numbers tell the story. When President Obama signed the bill, the unemployment rate was at 7.6 percent, and the president promised it would never go above 8 percent. Instead we've spent much of the past year with unemployment hovering above 10 percent. The current rate sits just below that level at 9.7 percent.
Retiring Democratic Senator Evan Bayh spoke the plain truth on Monday when he said: "If I could create one job in the private sector by helping to grow a business, that would be one more than Congress has created in the last six months."
Of course, the idea of government spending making us richer was doomed to failure from the start, even if there hadn’t been abuse and incompetence. The simple fact is every dollar the government spends comes from the private sector. Government spending is either financed through higher taxes, higher federal borrowing, or through inflation. Those are the only possibilities, and they all create greater economic damage than any stimulus effect of new spending.
Tax increases lower the incentive to work, save, and invest. There is a strong association between tax increases and reduced economic growth, as Obama’s own advisers admit. In an economic crisis, tax hikes should be unthinkable. Even Christina Romer, the chairman of Obama's Council of Economic Advisers, who co-wrote a 2009 paper on the subject found that "tax increases are highly contractionary."
Government borrowing also takes money out of the private economy—the money that bond purchasers hand over to the government in exchange for the bonds could otherwise be used for business investment that would expand the economy’s productive capacity.
Inflation may be most damaging financing mechanism of all. If government spends money that it hasn’t taxed or borrowed, then it is literally creating money out of thin air. More dollars being created means that the dollars in our pockets and bank accounts are worth less than they were before. Inflation is a stealth tax that undermines investment and destroys real economic growth.
Yet in the face of all the facts and the tragic experience of the past year, President Obama and Democratic leaders in Congress are still insisting on pursuing yet another round of stimulus, but this time they’re using a poll-tested name, they’re calling it a “jobs bill.” The American people, however, know government spending is no solution to our economic problems, and President Obama may not have the political capital to force Congress to swallow yet another pork-barrel stimulus.