One of the most controversial bills Congress has passed recently was the stimulus package. The bill stipulates $787 billion of public spending in order to create jobs. The argument is whether or not government spending can even stimulate the economy. Did the stimulus bill work?
Since the spending bill is complex, it is difficult to gauge its effectiveness in creating jobs. However, one way of measuring is by comparing it to the Cash for Clunkers program. The controversial 2009 program gave taxpayers a $4,500 credit to buy a “new, fuel-efficient car” if they turned in their “clunkers”.
Opponents of the program say that it creates artificial demand that simply was not in the market to begin with. With the economic downturn, the majority of people were not looking to buy new cars. Under the program, economic demand for cars was artificially shifted, which means that the program was simply a short-term fix for a long-term program. As a result, people who might have been in the market to buy cars in a few years will now not be. Because of this, car dealers will possibly see an artificial drop in sales over the next few years.
There are a few differences between the Clunkers and the stimulus bill. For example, the stimulus bill is basically government spending to other government programs. However, the implications are similar. Where Cash for Clunkers fails to create real demand and cause real change within the markets, the stimulus bill fails to create demand in the private sector while sustaining public jobs. As was the case during Roosevelt’s New Deal, the effects of massive public spending and additional public programs are still hotly contested; and New Deal policies should not be used as a template for pulling nations out of economic decline.
The underlying theme is that government spending on this scale cannot naturally affect the markets, and can only serve as a short-term fix. And with unemployment at 10.4% as of February 2010, the short term effects do not seem to be enough. Indeed, the stimulus bill has funded several public projects, including infrastructure projects. While the projects are needed in this country, it did not need to take a $787 billion bill to get them.
At the end of the day, the stimulus bill offered jobs that simply are not there even a year after the bill’s passing. Unemployment is still high, and the private sector is still trying to recover from the economic turmoil that arguably resulted from government intervention in the first place.