How will we know if President Obama's must-have "stimulus" program succeeds? Politicians grab credit for everything, so we should come up with a way to measure success. Obama said, "I expect to be judged by results." Let's oblige him.
It won't be easy. Obama promises to "save or create" 3.5 million jobs, but if the unemployment rate is unchanged in four years, do we credit Obama for saving 3.5 million jobs that would have been lost?
If new jobs are created, should stimulus get the credit? If the gain is in the government sector or in areas fed by taxpayer money, how do we know that the job creation didn't crowd out the creation of more and more productive jobs?
If the gain is in the private sector, Obama's boosters will claim credit on the basis of the "multiplier effect." It's a favorite theory of politicians and their court economists that government spending has a bigger economic jolt than cutting marginal tax rates does. But not everyone is so sure. (Harvard economist Gregory Mankiw, for one.)
The bottom line is that a lower unemployment rate will not prove that Obama's "stimulus" worked.
Given time, the economy, unless totally crippled by government intervention, will regenerate itself. That's because an economy is not a machine that needs jumpstarting. It is people who have objectives they want to achieve. They will not sit on their hands forever waiting for government to "fix" things. Instead, they work to overcome obstacles to get what they want. Some banks are struggling, but there are still people who want to lend money and people who want to borrow it. They will find each other without government help.
During the Great Depression, many Americans kept producing in spite of the burdens imposed by the FDR's New Deal. (Amity Shlaes calls these "the forgotten man".) Likewise today, economist Steven Horwitz writes, "[T]he American people are already doing something to create wealth and hasten the recovery, even if we are the ones forgotten in the battle over what Washington should do. Americans are going to work every day and providing for their families ... increasing their savings rates, making much needed capital available to the private sector ... imagining new and more efficient ways to use valuable resources."
We should make sure that President Obama and his congressional colleagues don't take credit for what we do. It wouldn't be the first time a "leader" ran in front of a crowd and claimed to have led the way.
What if the economy is still in bad shape a year or two from now? Will we get apologies from Obama and the stimulus advocates in Congress? Not a chance. Their excuse is already prepared: The stimulus was too small.
On the day Obama signed the bill, his aides put out the word that another may be needed. The blame will not be put on the folly of stimulus, only on the meagerness of the spending.
It's important to remember that government has no resources it hasn't first commandeered from the private economy. Anything it does to stimulate economic activity necessarily preempts private activity. Where is the gain?
Worse: Since monopoly bureaucracies are not as efficient as competitive businesses, government efforts won't get as much bang for the buck as private efforts. They will likely destroy wealth.
Ah, say the Keynesians, people aren't buying, and that's why businesses aren't investing and hiring. Only government can jumpstart the economy.
But people didn't just wake up one day and decide not to consume and invest. They hold back because the economy is uncertain. Then they hold back more because they don't know what activist government will do next. Will it prop up housing or other prices? Will it nationalize the banks?
The way to get private activity going again is to let markets adjust to reality and set prices accordingly. Only then will economic activity resume and unemployment recede.
If, through your perseverance, things begin looking up, credit belongs not to President Obama and Congress. It belongs to you.