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Thursday, February 05, 2009

Congressional Budget Office part of the Do-Nothing Crowd -- stimulus bill worse than doing nothing in the long run

Small government conservatives and libertarians have been urging a reduction in the size and scope of government and a lowering or elimination of certain taxes as their solution to the current economic woes facing the U.S. and Canada. Alternatively, they've urged that the government do nothing at all. Eamon Javers and Jim Vandehei delightfully dubbed the latter camp the Do-Nothing Crowd.

Now the non-partisan U.S. Congressional Budget Office is adding punch to the Do-Nothing Crowd by insisting that the "stimulus" package proposed by Obama (and we can probably safely extrapolate their findings to the "stimulus" package proposed by the Conservative Party) is worse, in the long run, than doing nothing at all:

President Obama's economic recovery package will actually hurt the economy more in the long run than if he were to do nothing, the nonpartisan Congressional Budget Office said Wednesday.

CBO, the official scorekeepers for legislation, said the House and Senate bills will help in the short term but result in so much government debt that within a few years they would crowd out private investment, actually leading to a lower Gross Domestic Product over the next 10 years than if the government had done nothing.

CBO estimates that by 2019 the Senate legislation would reduce GDP by 0.1 percent to 0.3 percent on net. [The House bill] would have similar long-run effects, CBO said in a letter to Sen. Judd Gregg, New Hampshire Republican, who was tapped by Mr. Obama on Tuesday to be Commerce Secretary.

Here's the right solution for our economic woes: At a minimum, do nothing at all. Change nothing, alter nothing, sit on your hands. Better: Cut taxes, slash government spending, programs, and departments. Deregulate. All for the sake of getting the government off of the back of the economy, so it can move again.

Maybe that's not politically feasible. If it isn't, that's only because too many voters are clueless about economics. But, at least in Canada, I think it would have been politically feasible, especially given the political situation at the time.

Posted by P.M. Jaworski on February 5, 2009 in Economic freedom | Permalink


I still think there is an important structural difference between the US and Canadian strategies. Excluding all the little, micro-managed cash giveaways for specific projects that were included in Budget 2009, the main theme of the Budget was, "we are making available a large pool of cash that municipalities and organizations can apply for, presuming they meet the necessary criteria and agree to appropriate oversight." In theory (we'll see how it works in practice) applicants can be turned down if they don't measure up to appropriate standards. In theory, recipients can have their funding cut off if they fail to comply with the contract. In theory, if economic conditions improve and stimulus is no longer needed, the money does not have to be spent. The budget merely makes the funds "available", in many cases. I fully realize that I'm being optimistic to the extreme if I actually think this fantasy is how events will actually play out. The point is, however, that Budget 2009 to a large degree was not a "bailout" like what they're doing in the US. It wasn't, "you've screwed up your business and we're going to clean up the mess." The Canadian model, in theory, allows for flexibility should conditions change, requires recipients accept reasonable oversight, and tries to honour the concept of individual choice. These principles would not have been central to a Coalition budget. Not by a long shot.

Posted by: anonymous | 2009-02-05 3:00:25 PM

"we are making available a large pool of cash that municipalities and organizations can apply for, presuming they meet the necessary criteria and agree to appropriate oversight."
Posted by: anonymous | 2009-02-05 3:00:25 PM

I'm not sure if you mean the US or Canada, but I know in the US the banks who have been given billions are just sitting on it. They are saying the money will help "them" weather the storm and put "them" in a position to make acquisitions as they become available.

The US stimulus policy will not stimulate and it has no actual policy. The Canadian one will prove itself just as flawed by way of the fact that you can't fix infaltion, with inflation...

Posted by: JC | 2009-02-05 9:18:19 PM

Or inflation either :)

Posted by: JC | 2009-02-05 9:19:00 PM

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