Why the stimulus won't work

The reason the so-called stimulus bill will not achieve the goals set for it is twofold: Ideology plus the Democrats' lack of understanding of how the economy works. Democrats do not seem to grasp the concept of the “money multiplier effect”. It’s important what you spend money on, not just the spending in itself. Spending needs to actually increase the size of the economy, and not merely be a transfer money from one sector to another.

** To “soak the rich” in the name of “fairness” shrinks the economy. Every $100 the government takes in taxes, only $65 ever makes it back into the economy, the rest is absorbed in bureaucracy. Punitive tax rates also discourage business (and jobs) formation, making the viability of proposed projects harder to achieve. That is why government to an economy is like mistletoe to an oak tree: it burdens the tree and leaches out its vitality. Yet the “economics challenged” Democrat public sector types will raise taxes to “get the corporations who have millions” and mumble “Justice! ” with great satisfaction.

** Vast portions of the spending have been earmarked for things like “bailing out the States”, (keeping the mistletoe healthy but not the tree) extending Medicare benefits (40% of which is absorbed in paperwork and HIPPA Compliance reporting requirements), more unemployment benefits, repairing Federal office buildings or constructing parks and public recreation centers. Infrastructure spending is beneficial, but it will take years. It addresses years of neglect and deterioration rather than adding to our capital stock. In all these cases once the money is spent the economic activity peters out. The ultimate result is filled medical waste bins behind hospitals, more housing project sewage, cleaned up Federal office buildings, fewer potholes, and empty new parks and recreation centers. None of this spending results in sustained increased economic activity! English major Democrat activists fail to understand or grasp this. They think any spending will do.

** The Government spending multiplier effect is typically less than one: $100 taken in taxes goes to $65 in spending which quickly peters out once the contractors finish their government projects. And another aspect: sometimes it takes government contractors months to get their money: (the layer of bureaucracy that “safeguards” the public purse must be satisfied). The “stimulus” then languishes in slow pay Accounts Receivable, pushing some contractors into bankruptcy.

** Real stimulus is in starting businesses. When a business starts, it generates jobs and demand for goods and services. The spending ripples through the economy sometimes at a ratio better than ten to one! Every dollar spent on a business results in ten dollars of economic activity in the economy. But this would entail “tax breaks for the rich”, ideologically unacceptable to the Marxist Progressives who now run the country. They cannot tolerate money NOT funneling though their hands and the power that goes with it. Yet with no understanding of the “multiplier effect”, they will continue pour resources into projects that will increase the size of government (the leaching mistletoe) and shrink the economy. Democrats are setting the stage to break the Japanese record for “stagflation “and misery. They will blame everything and everyone but themselves.