An overoptimistic stimulus plan – The Boston Globe

Budget analyst Brian Riedl of the Heritage Foundation points out that “mountains of academic studies show how government expansions reduce economic growth.” A 1997 study in Public Finance Review, for example, concluded that “higher total government expenditure, no matter how financed, is associated with a lower growth rate.”

Real-world evidence of the inefficacy of pump-priming abounds. For starters, there was last year’s massive increase in federal spending, including $105 billion in tax rebates and more than $300 billion in “emergency” spending, not to mention passage of the $700 billion financial-sector bailout. None of it revived the economy. In the 1990s, Japan tried without success to deficit-spend its way out of recession, enacting 10 “stimulus” bills in eight years and spending trillions of yen on public infrastructure. Yet unemployment grew worse, the economy remained anemic, and Japan was left with the largest national debt in the industrialized world: 170 percent of GDP.

Will we follow Japan’s lead? US government spending is at record-busting levels, budget deficits have never been greater, and the national debt is closing in on a once-unimaginable $11 trillion. We are in over our collective head in debt, and our economy is reeling. Borrowing even more heavily will not make things better.

Next: A new New Deal?