The Ultimate Laugh

Martin Hutchinson explodes fallacies concerning the stimulus package. First, the fallacies of the political right:

It’s not true that government expenditure is in all cases less productive than private expenditure [emphasis added]. Much private expenditure goes to McMansions and casinos, things society would be better without. [comment from your humble blogger: this is one sentence I disagree with. I’d rather have the people decide what is good for themselves instead of a high-cultured Europhile decreeing that certain products valued by the hoi polloi are (sniff) worthless.]

On the government side, there are a very few functions – defense and the administration of justice – that are more efficiently carried out by government. There are also a few cases of expenditures where a private sector operation does not capture the external benefits of a project. [emphasis added]The Interstate Highway System was one such; its "social rate of return," including all the benefits to society from its construction, was many times its economic rate of return, even had all the highways been toll roads.

The principal fallacy of the left is that the beneficial characteristics of the Interstate Highway System can be readily replicated in other government programs.

The bad news is that such projects are extremely rare. Even viewed in the most favorable light, the House version of the stimulus program doesn’t have many of them, if it has any at all.

The bottom line:

Of the roughly $850 billion in expenditures and tax rebates outlined above, only roughly $81 billion in expenditures and $13 billion in tax reductions would have any economic spin-off effect or supply-side effect respectively. That's 11% of the total, much of it being spent in 2011 or later. All the remainder would have a Keynesian multiplier of 1.0 or less, in other words run the risk of being on a net basis damaging to the economy by sucking resources out of other more productive uses.

We had to expect that a liberal President and overwhelming Democratic Congressional majorities would result in trillion-dollar deficits. Did we expect the money to be spent wisely? In victory why should they act contrary to their nature? The 2008 elections represented the triumph of hope over experience. We forget that experience more often has the ultimate laugh.