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How the ‘stimulus’ hurts the economy

July 8, 2009 | By Nathaniel Ward

Last February, Congress passed the largest spending bill in history, a $800 billion "stimulus" package that they claimed would kick-start the economy, "create or save 3.5 million jobs" and keep unemployment at or below eight percent.

Shortly before its passage, Heritage Foundation President Ed Feulner joined millions of Americans in asking "what will this spending accomplish?" His answer: "Not much."

It's now July, and it is increasingly evident that Feulner was right. Not much has come from the government's spending plan. Not much, that is, aside from skyrocketing unemployment rates and astronomical increases in government debt.

The unemployment rate for the month of June came in at 9.5 percent, following sharp increases each month since the "stimulus" passed. "The stimulus must be judged a failure," writes Heritage economist James Sherk. "Unemployment has risen not only above what the President's advisors predicted would happen if the stimulus passed, but above what they estimated would occur without the stimulus."

In an interview on Sunday with ABC's George Stephanopoulos, Vice President Joe Biden acknowledged that the "stimulus" hasn't had the predicted effect on the economy: "The truth is, we and everyone else misread the economy. The figures we worked off in January were the consensus figures and most of the blue chip indexes out there."

Many proponents of the bill attempt to qualify these admissions by arguing that the "stimulus" package is too slow or too small. But the truth remains that massive government spending does not jolt the economy, it stifles it.  As one FoxNews reporter explains, "the stimulus made things worse."

The many economic benefits the administration promised with this $800 billion spending plan "remain invisible," writes Sherk. It is nothing more than what Feulner in February called a "sham 'stimulus.'"

- Amanda Reinecker

Yet another North Korean provocation

North Korea celebrated America's Independence Day with a July 4 fireworks show of their own devising. The communist country shot seven short-range missiles into the Sea of Japan, in defiance of United Nations resolutions.

These recent escalations demonstrate the "the futility of relying on U.N. actions to constrain North Korean belligerence," Heritage Asia expert Bruce Klingner writes.

On June 30, the United States imposed unilateral sanctions against two North Korean companies involved in proliferation. Klingner applauds these measures as a "commendable first step in using financial constraints to address the North Korean WMD threat." This firmer policy should be expanded to apply to "any company, bank, or government agency complicit in North Korean proliferation."

Unfortunately, even these sanctions may not be sufficient. To ensure Americans are fully protected from a North Korean missile attack, President Obama should encourage greater preparedness in national security by supporting and fully implementing missile defense.

- Amanda Reinecker 

Other Heritage work of note

  • Dozens of conservative members of Congress visited The Heritage Foundation on Tuesday night for a mini-retreat to discuss today's most important issues with Heritage experts.
  • President Obama continues his push for a government-run health care "option," claiming that such a plan would encourage efficiency and honesty among private insurers. But "who would keep the government honest?" wonders Heritage fellow and former congressman Ernest Istook. Istook cites a number of cases — a fraction of the total — where government management was utterly incompetent. "Government-run plans don't save money; they add costs," explains Istook. "Those who claim otherwise ignore history."
  • Placing the once-cordial relations between the U.S. and Honduras in jeopardy, the Obama administration has sided with the likes of Venezuelan dictator Hugo Chavez to defend ex-Honduran President Manuel Zelaya, who was ousted for acting beyond his constitutional bounds. "The U.S., anxious to send a pro-democracy message, finds itself running with a dangerous crowd -- one whose agenda is not necessarily dedicated to defending democracy," warns Heritage Latin American studies expert Ray Walser. As Mary Anastasia O'Grady writes in the Wall Street Journal, "this is a moment when the U.S. ought to be on the side of the rule of law, which the Honduran court and Congress upheld."
  • "There are no easy answers to the question of what to do with the [Guantanamo Bay] detainees suspected of being highly trained terrorists," writes Heritage senior legal scholar Cully Stimson and co-chairman of the Center for Law and Counterterrorism David Rivkin. Congress's hesitation to support the President's speedy timeline to close the facility has led the Obama administration to consider an executive order authorizing "prolonged military detention" of the detainees. Instead of going it alone, however, Stimson and Rivkin encourage the President to "challenge Congress to devise a system of military detention for those …who cannot be prosecuted or let go."
  • When swine flu broke out in Mexico in April, some legislators recommended closing off our southern border. But this would have done little to stop the disease, Heritage domestic policy expert James Carafano explains. "The idea of sealing off an entire country is wildly impractical," and could potentially wreak serious economic havoc. Carafano urges legislators to reject such schemes and instead focus on preparedness.

In other news

  • ABC News reports that the Obama administration is in such a rush to make a treaty with Russia that they're considering "temporarily bypassing the Senate's constitutional role in ratifying treaties by enforcing certain aspects of a new deal on an executive levels and a 'provisional basis' until the Senate ratifies the treaty."
  • A new study proposes a radical plan to combat global warming, which Reuters explains as "basing targets for emission cuts on the number of wealthy people, who are also the biggest greenhouse gas emitters, in a country." This would amount to little more than an international tax on hard work and success.
  • NASA's plan to send man back to the moon is expected to cost a whopping $35 billion of taxpayer money, a huge expense at a time when the government is already deep in the red. So the space agency has proposed to cut the cost down to a little under $7 billion, which is still more than $10,000 per mile. Still unexplained is why the government needs to fund stunts like this at all.

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Nathaniel Ward is the Editor of MyHeritage.org—a website for members and supporters of The Heritage Foundation. Amanda Reinecker contributed to this report.