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The War on Prosperity

SINCE THE PRESIDENT SIGNED THE STIMULUS PACKAGE into law the economy has lost 2.7 million jobs and unemployment has reached 9.8 percent— nearly two points higher than what the administration predicted if the stimulus wasn’t passed. The $789 billion he asked from Congress was only a down payment. The CBO estimates running deficits over the next decade will top $7 trillion. Considering that Obama said last February, “My initial measure of success is creating or saving 4 million jobs,” one wonders how these jobs will be created given the ever- mounting burdens on the job-creating sector of the economy.

And the burdens keep coming. By their own estimates, healthcare reform—whether it’s Baucuscare or Obamacare—promises to add anywhere from $800 billion to $1 trillion in additional spending.  The tab for the various proposals for cap-and-trade legislation— whether Waxman-Markey or  Boxer-Kerry—have been estimated by Patrick Michaels of the Cato Institute to run $9.4 trillion from 2012 to 2035, or over $408 billion a year for 23 years. And all of this is in addition to the additional hit when this administration allows the Bush tax cuts to expire in 2011.

The assumption behind the administration’s thinking is that government spending can replace  private spending and that this will create new employment. This multiplier effect means that every dollar of government spending will result in more than a dollar of new national income.  As appealing as this sounds, economists have always had their doubts. Evidence from various parts of the world in fact shows the opposite: Government spending generally hurts the economy. In fact, the multiplier effect, more often than not, is negative. Garrett Jones and Veronique de Rugy, two economists at the Mercatus Center at George Mason University who have studied the effects of stimulus spending, found that it mostly transfers jobs from the private sector to the public sector and in worst cases it actually destroys jobs and halts economic growth. This is confirmed by Robert Barro, a Harvard economist who studied the effect of military spending and found a multiplier of 0.8—in other words, the economy shrank by 20 cents for every dollar spent.

With his rhetoric and policies, Obama has decided to demonize private enterprise, just as FDR did, as a way to present government as the great savior. The trouble is, even FDR’s Treasury Secretary, Henry Morgenthau, realized the New Deal wasn’t working. “We’ve tried spending money,” he wrote in his diary in 1939. “We are spending more than we have ever spent before and it does not work.”

One cannot make a country rich by looting taxpayers and paying people to dig ditches for shovel-ready programs. These activities amount to capital consumption. Wealth is created by private enterprise using technology and ideas fueled by entrepreneurs. Government doesn’t have the money to spend in the first place. It must borrow, tax or print it (or a combination of all three). Admittedly, this may seem foreign to an administration staffed by lawyers and academics, without a single cabinet member or senior administrator anywhere in its ranks who has ever had to meet a payroll.

This is not about ideology. President Bush had a dumb stimulus plan of his own, although mercifully it was on a relatively more modest scale. It was pathetic that Republicans in Congress went along with it. The fact that Obama has outdone Bush by swinging for the bleachers in blowing a hole in the country’s pocket will not endear him to future historians regardless of what the chattering classes may say now. The danger of a selfrighteous man who doesn’t know what causes prosperity and thinks he can create it by fiat is clear: Do enough of this nonsense and you can cripple the livelihoods of an entire generation.

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