Economic Stimulus: More Harm Than Good

My thoughts on economic stimulus were published in the Oregonian.  If you read the column on their web site, you get to see their readers' comments.  If you're too lazy to hit a link, here's the article:

Expediency over economic need speeds stimulus

by Bill Conerly, Guest opinion

Saturday January 10, 2009, 6:38 PM

Bill Conerly

More harm than good. That's the sad case of the economic stimulus
proposals from Gov. Ted Kulongoski and President-elect Barack Obama;
they reflect political expediency rather than economic need.

The argument for public works projects or other fiscal stimulus is
much weaker than our political leaders suggest. Classroom explanations
of stimulative policy talk about "multipliers" of four or five —
meaning that each dollar we spend leads to four or five additional
dollars in the economy. The best empirical estimates are much lower,
with some economic research finding trivial net gain.

Stimulus effects are temporary. The old metaphor was "priming the
pump," suggesting that a small amount of water added at the right time
could lead to many gallons coming out later. The better analogy is
pouring liquid into a toilet: It adds a little to the water level now
but is soon flushed away.

Remember the stimulus checks that the IRS mailed
out last summer? Can you feel them stimulating the economy today? No,
neither can I.

The timing of fiscal stimulus is usually too late. The fastest we
could expect to see any stimulus spending is the second half of this
year, and even that would be pushing the bureaucracy and planners
pretty hard. By that time, though, the economy will be expanding

The consensus of the economic forecasting profession, as surveyed by
the Philadelphia Federal Reserve and The Wall Street Journal, is that
economic growth will resume this summer. This point may need some
explanation, because many of us have trouble believing that things will
ever be different. (Digging out from a major snowstorm it's hard to
believe that we'll be sweltering come August.)

Here's how the economic recovery will unfold. First, the economy
tends to be self-correcting. If not, we would have spiraled out of
control many times already. Second, the Federal Reserve has pushed a
tremendous amount of stimulus into the economy. There's a long time lag
between cause and effect, but monetary policy always works — it just
appears not to be working for months before it finally kicks in. Third,
consumers are cutting their spending disproportionately to the decline
in incomes. Eventually, the money they are saving will burn a hole in
their pockets, leading to a resumption of spending.

At the state level, stimulus efforts run into another problem:
leakage. A good deal of the money we spend in Oregon goes out of state,
even out of country. Not only do we buy steel and cement from companies
in other states, but we even buy labor from outside of Oregon. One of
the engineering contracts for Oregon's bridge rebuilding program went
to a Dutch company. If you want to see the stimulus, take a trip to

What's the harm in trying? After all, our estimates of the timing of
recovery, the multiplier and the other issues are somewhat uncertain.
However, there's good reason not to go overboard. Spending decisions
should result from a vigorous debate about costs and benefits. When the
president or governor plays the recession card, he's trying to
short-circuit that debate.

Let's talk about the most cost-effective way to solve our
transportation challenges rather than railroading a spending bill
through the Legislature.

Errors in stimulus decisions are damaging to our economy. Wasting
resources on poorly conceived projects leaves us worse off. Borrowing
money now will slow growth in the future. The recession is no
justification for bad public policy.

Bill Conerly is the principal of Conerly Consulting LLC and chairman of the board of Cascade Policy Institute.