President Bush’s February 2008 program totaled $152 billion. President Obama’s bill, enacted a year later, was considerably larger at $862 billion. This money went to individuals and to local governments; very little was used by the federal government to buy goods and services. After Keynes, it is assumed that an increase in available money results in increased spending and increased GDP. After more than three years since the crisis flared up, unemployment is still very high and economic growth is weak.
The following graph shows disposable personal income--with the addition of the stimulus--beside consumption expenditures. (It includes a little blip in the silly "Cash for Clunkers" idea and how it did virtually nothing in the economy.) What is obvious is that increasing income did not increase expenditures.
Why? Why didn't the money, 1.14 trillion dollars, stimulate the economy? Why didn't the Keynesian prediction come true?
Nobel Prize–winning economists Milton Friedman and Franco Modigliani explained years ago that individuals do not increase consumption much when their income increases temporarily. Instead, they save most of the funds or use the money to pay back some of their outstanding debts.
So the federal government borrowed 1.14 trillion dollars and gave it to households and local governments who then used the money to pay down their debts.
In essence, the increased money the federal government borrowed was used to reduce net borrowing by households and local governments.
One of the qualities of Progressivism is confidence in management techniques. Management, leadership, vision--these are all aspects of the movement that relies upon expertise in government, that defies the cynicism that the governmental world is too complex for definitive management. This stimulus idea--from both parties--has been a gigantic failure and should give the citizen caution, if not their politicians.
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