Economists John F. Cogan and John B. Taylor analyzed both the Bush (2008) and Obama stimulus spending to see whether increased government spending had the desired "multiplier" effect that Keynesian theory posits. Keynesians argue that when government spends money, say on construction workers, the workers then go out and buy products such as refrigerators and thus, goose economic activity. It didn't work either time. Both in 2008 and 2009, stimulus spending had no affect on consumption. Individuals and states used the money to pay down existing debt instead.
Of the vaunted $862 billion stimulus in 2009, which Obama had claimed would build roads and bridges and "invest in the future," Cogan and Taylor found that only $4 billion was devoted to infrastructure projects as of January 2011. Fully half of all stimulus spending went to fund Medicaid -- which may or may not be good social policy but is hardly a stimulant to economic growth. And arguably, the strings the federal government attached to Medicaid funds -- insisting that states could not restrict eligibility rules or reduce benefits -- was bad policy.
Further, as John Lott observes, the stimulus funds were hardly targeted to help "those hardest hit by the economic crisis" as Obama had promised. Instead, "the states hardest hit by the recession received the least money. States with higher bankruptcy, foreclosure and unemployment rates got less money. And lower-income states also received less." The key was politics. "Having an entirely Democrat congressional delegation in 2009, when the bill passed, increased the per capita stimulus dollars that the state receives per person by $460. In addition, the states that Obama won by the largest percentage margin in 2008 got the most money."
Large Democratic donors did well, too, including Solyndra owner George Kaiser, Tesla Motors owners Leon Musk, Larry Page and Sergey Brin, NRG Energy owners Warren Buffett, Steven Cohen and Carl Icahn, and Fisker Automotive's Al Gore.
The Obama economic policy did not help those who were worst off, failed to revive the economy, sank the U.S. more steeply in debt, and rewarded Obama's friends and supporters. By all means, let's focus on it.
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