We're just finishing up a panel titled "Why the Stimulus Won't Work", and I thought they did a great job of shooting down a lot of what Obama said about spending last night.
Burton Folsom, a history professor at Hillsdale College and author of "New Deal or Raw Deal" gave a great talk about exactly what the New Deal accomplished for our economy - which is next to nothing. In fact, he even quoted Roosevelt's Treasury Secretary, Henry Morgenthau, who said in 1939 that "it (the New Deal) doesn't work" and "we have never made good on our promises". He brought up a lot of specific instances where the News Deal backfired, and I'd love to see how much more of them are in his book.
One of the biggest screw-ups he cited was the Agricultural Adjustment Act - which paid farmers not to produce. The idea was to caused production to fall, hence aligning consumption and production. But then the farmers taking the money started sneaking extra production, which meant that inspectors had to be brought in - then those officers took bribes, necessitating the hiring of inspectors to inspectors to inspect the other inspectors. After 5 years (1935), we were having to import all of the stuff we were paying people to not produce (cotton, wheat, etc).
He also took on the notion that public works create jobs (really relevant). In actuality, he proclaimed, the programs resulted in Democratic politicians directing the money to pork project in their own districts. These politicians, such as Maine Governor Louis Brann and Pennsylvania Senator Joseph Guffey, were then able to campaign on the idea that the money would only keep flowing if the people elected Democrats who had good contacts with FDR.
The New Deal did not solve unemployment problem, Folsom said, but it did coalesce subsidized groups around the Democratic Party. It also made it possible for Roosevelt to use expanded government programs against his political opponents. For instance, the editor of a Republican newspaper was slapped with IRS fines and sent to jail. Meanwhile, the the editor of a rival Democratic paper got a million dollar government bailout loan. Folsom
The Heritage Foundation's JD Foster argued that that stimulus will do exactly what it's supposed to do - spend lots of money on pork, raise debt, and shore up Obama's support. That's what it's designed to do, and it WILL work. It won't stimulate the economy, however. [# More #]
He also attacked the idea that New Deal spending and WWII spending brought us out of the Great Depression. Actually, there was a brief recession after the war, and a lot of fear that depression would return after the government stopped spending - but the contraction of government spending didn't hurt the economy much at all. In addition, he noted that rises in debt-to-GDP ratios will put pressure on interest rates - and that four trillion dollars of spending over the next two years will jack up the ratio and send interest rates a full percentage point higher (when we should be taking pressure off of interest rates).
Arnold Kling of the CATO Institute said that we are dealing with a "big bill, but not a big stimulus" that the primary purpose of the bill was to transfer funds to favored constituents of the Democratic party. Instead of doing that, he proposed a 50% cut in the employer portion of the payroll tax - which is what he said would be done if economist rather than politicians were writing the stimulus bills.
Personally, I like Kling's idea a lot - and I wish we would have been smart enough to have economist write this bill rather than Nancy Pelosi's office.