Why The "First" Stimulus Was More Than Just A Mistake

Stuttering Stimulus

By INVESTOR'S BUSINESS DAILY | Posted Monday, July 06, 2009 4:20 PM PT

Stimulus: "The truth is, there was a misreading of just how bad an economy we inherited," Vice President Joe Biden told ABC News. Really? What about the "worst economy since the Great Depression"?

Those who pushed through this year's $787 billion fiscal "stimulus" seem to be counting on the American people's short memory. Wasn't it just last year that we were told, repeatedly and with stark emphasis, that this economy was the "worst" since the Great Depression?

That was the pretense for not only the stimulus, but for the federal takeover of the U.S. auto industry and the quasi-takeover of the U.S. financial industry. It's also the underlying premise for both nationalized health care and massive new taxes to cut CO2 emissions.

If the stimulus passed, the White House vowed, unemployment would peak at 8%. Today, it's 9.5% — and rising.

"The truth is, we and everyone else misread the economy," said Biden. He used that phrase — "the truth is," or something similar — at least three times in a talk with ABC's George Stephanopolous. But the "truth is" something quite different.

Many voices — including ours — were raised in opposition to the stimulus when it was debated. We didn't "misread" the economy. We knew from history that, left alone, it would get better without government meddling.

Instead, Americans were promised "shovel ready" projects would put stimulus money to work right away creating jobs. For the record, since February, the month the stimulus was passed, the U.S. has lost 2 million jobs. The stimulus is clearly a failure.

Yet, says Biden: "The truth of the matter was, no one anticipated, no one expected that the recovery package would in fact be in a position at this point of having to distribute the bulk of the money."

But that's not the "truth of the matter" at all. Many economists and conservative politicians warned explicitly about this very problem. So did IBD. And so did numerous other media outlets. The notion that no one brought it up is simply false.

Of $157.8 billion "made available" under the stimulus, only $56.3 billion has been paid out — or 7% of the total $787 billion. And according to ex-Treasury Department economist Bruce Bartlett, "just 11% of the the discretionary spending on highways, mass transit, energy efficiency and other programs involving direct government purchases will have been spent by the end of this fiscal year."

Based on this, there are only two possible conclusions: One, the stimulus has been the most inept public waste of money in history. Or two, it was a cynical attempt by the Democrats to vastly expand the scope of government during a time of crisis. Or maybe it's both.

After all, how else could a government seize major parts of a once-private economy with nary a peep? How else could it boost spending to record levels, then blame earlier administrations for their fiscal incontinence? And how else could they add $10 trillion to the nation's debt in just 10 years and still claim fiscal prudence?

Yet, faced with this, economist Paul Krugman and others on the left argue that a second stimulus is needed. Asked about it, Biden — who oversees the stimulus, by the way — refused to reject it.

This is a little like a medieval barber bleeding his patients to improve their health, then bleeding them again when they fail to improve. At some point we'll all wake up and use modern medicine. Until then, why double-down on failure?

Those who argue doing nothing wasn't an option are wrong. We would now be emerging from this recession if the government had left well enough alone. The Fed's interest-rate cuts to zero last December would have been plenty.

Instead, we're facing the worst recovery since the Depression, and the entrepreneurs who fuel job growth are hunkering down to weather planned tax hikes in the trillions of dollars.