Smith Faculty Opinion Article
The 30 Seconds Outlook
July 1, 2010
“History clearly shows the government that stimulates the best, taxes,
spends, and intrudes the least.”
—Jason E. Taylor and Richard K. Vedder, The Orange County Register, May 24,
2010
Huge differences exist between Obama’s Keynesian economists and
macro-economist Robert Barro on the impacts of the stimulus. In sum, Barro’s
research indicates the long-term results of the fiscal stimulus will be
negative---“public spending crowds out private spending.” On the other hand, we
are experiencing what Obama’s policies have created.
Evidence concerning the damage of the stimulus and related governmental
actions is seen in the following examples:
- Unemployment has remained at very high rates for a long period of time.
- ObamaCare increases labor costs and the deficit.
- Cap and Trade would increase labor costs and the deficit.
- Fear of Fed induced inflation through loose monetary policy has caused
large increases in gold prices.
- The costs of ObamaCare have been grossly underestimated and they will
push annual deficits to more historic highs.
- Increases in length of unemployment insurance coverage also lengthen the
period until the unemployed seek jobs.
- Consumer and business confidence have experienced large declines.
- Stock prices in real terms have declined with increased government
involvement in the economy and with expectations of increased inflation.
- Current high levels of government spending and the resulting increases
in already huge annual deficits are on an unsustainable path.
- The economy and markets are fearful the Fed’s loose monetary policy with
very low interest rates over several years foretells hyper-inflation---and
that the Fed will use inflationary measures to finance the deficit.
Taylor and Vedder conclude: “. . . [T]he lesson from 1945-57 is that a sharp
reduction in government spending frees up assets for productive use and leads to
renewed growth.”
John A. Haslem
