Thomas Sowell

Abraham Lincoln once asked an audience how many legs a dog has, if you called the tail a leg? When the audience said "five," Lincoln corrected them, saying that the answer was four. "The fact that you call a tail a leg does not make it a leg."

That same principle applies today. The fact that politicians call something a "stimulus" does not make it a stimulus. The fact that they call something a "jobs bill" does not mean there will be more jobs.

What have been the actual consequences of all the hundreds of billions of dollars that the government has spent? The idea behind the spending is that it will cause investors to invest, lenders to lend and employers to employ.

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That was called "pump priming." To get a pump going, people put a little water into it, so that the pump will start pumping out a lot of water. In other words, government money alone was never supposed to restore the economy by itself. It was supposed to get the private sector spending, lending, investing and employing.

The question is: Is that what has actually happened?

The stimulus spending started back in 2008, during the Bush administration, and has continued under the Obama administration, so it has had plenty of time to show what it can do.

After the Bush administration's stimulus spending in 2008, business spending on equipment and software fell-- not rose-- by 28 percent. Spending on durable goods fell 22 percent.

What about the banks? Four months after the Trouble Asset Relief Program (TARP) poured billions of dollars into the banks, the biggest recipients of that money made 23 percent fewer loans than before. A year later, the credit extended by American banks as a whole was down-- not up-- by more than $20 billion.

Spending in general was down. The velocity of circulation of money fell faster than it had in half a century.

Just two weeks ago, the Wall Street Journal reported, "U.S. banks posted last year their sharpest decline in lending since 1942." You can call it a stimulus, if you want to, just as you can call a tail a leg. But the actual effect of what is called a "stimulus" has been more like that of a sedative.

Why aren't the banks lending, with all that money sitting there gathering dust?


Thomas Sowell

Thomas Sowell is a senior fellow at the Hoover Institute and author of The Housing Boom and Bust.

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