The Wall Street Journal asks,
Whatever happened to the great neo-Keynesian “multiplier,” in which $1 in government spending was supposed to produce 1.5 times that in economic output?
Well, the “multiplier” isn’t multiplying:
The multiplier is an illusion because that Keynesian $1 has to come from somewhere in the private economy, either in higher taxes or borrowing. Its net economic impact was probably negative because so much of the stimulus was handed out in transfer payments (jobless benefits, Medicaid expansions, welfare) that did nothing to change incentives to invest or take risks. Meanwhile, that $862 billion was taken out of the more productive private economy.
Almost everything Congress has done in recent months has made private businesses less inclined to hire new workers. ObamaCare imposes new taxes and mandates on private employers. Even with record unemployment, Congress raised the minimum wage to $7.25, pricing more workers out of jobs. The teen unemployment rate rose to 26.4% in May, and for those between the ages of 25 and 34 it rose to 10.5%. These should be some of the first to be hired in an expansion because they are relatively cheap and have the potential for large productivity gains as they add skills.
The “jobs” bill that the House passed last week expands jobless insurance to 99 weeks, while raising taxes by $80 billion on small employers and U.S-based corporations. On January 1, Congress is set to let taxes rise on capital gains, dividends and small businesses. None of these are incentives to hire more Americans.
Ms. Romer said yesterday that to “ensure a more rapid, widespread recovery,” the White House supports “tax incentives for clean energy,” and “extensions of unemployment insurance and other key income support programs, a fund to encourage small business lending, and fiscal relief for state and local governments.” Hello? This is the failed 2009 stimulus in miniature.
Government can spend an economy into the ground. Congress is well on its way to accomplishing exactly that.