The Anatomy of (Stimulus) Failure ; Obama's Plan Wasn't a Mistake, It Was a Hoax From the Beginning

Summary

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It was the economy that drove the Democrats out and a Republican majority in. Specifically, it was the failure of President Obama's "stimulus" package to stimulate the economy enough to bring the unemployment rate down. Now a lame-duck 111th Congress is going to have to decide what to do. The Republican-led 112th Congress will confront the same questions when it convenes in January. Before making more decisions about economic stimulus, we should be absolutely clear why the huge stimulus program failed.

Failure in this context doesn't mean that the stimulus program didn't create any jobs. That's a silly proposition. Every student who completes Economics 101 knows that an increase in government spending or a cut in taxes will give the economy a short-run shot in the arm. The failure of the Obama package was that the actual demand stimulus was absurdly small in relation to the amount of money ($827 billion) spent. Spending even more money in the same way, as many liberals advocated, only would have added to that failure. The failure resulted not from a shortage of money, but from two fundamental flaws in the program's design.

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The Anatomy of (Stimulus) Failure ; Obama's Plan Wasn't a Mistake, It Was a Hoax From the Beginning

The first flaw was the choice of policy levers. Fiscal stimulus can be generated from either increases in government spending or tax cuts. From the outset, Mr. Obama was adamant about his preferences. He characterized the tax-cut option as the "ti...

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