Posts tagged with: economic stimulus package

As Kishore Jayabalan noted yesterday, the fallacy of “broken windows” is, unfortunately, ubiquitous in discussions of public finance and macroeconomics. Though we are told that government spending and public works have a stimulating effect on economic activity, rarely are the costs of such projects discussed.

Such is the case with several stimulus projects in my own hometown of Atlanta, GA. The Atlanta Journal-Constitution reports on a list that Sen. John McCain and Sen. Tim Coburn drew up, criticizing wasteful stimulus projects throughout the country:

Their list includes Georgia Tech professors who received federal stimulus funds to understand how jazz, avant-garde art and Indian classical musicians improvise. The report cites an Atlanta Journal-Constitution article that describes the $762,372 study, which involves using brain imaging to learn how musicians do their work.

[….] The senators also highlighted a $677,462 research project at Georgia State University to study “why monkeys respond negatively to inequity and unfairness.” Asked about the project, the university sent the AJC a news release from last year that said the research “will hopefully answer questions about the evolution of responses to reward inequality — including those responses in humans.”

Georgia Tech has fired back:

Georgia Tech issued a statement in response, saying such research is “necessary for the long-term economic success of our state and our nation.”

But how can one verify such claims? As Kishore has pointed out, the mere fact that money is being spent is not enough to claim that the economy benefits from such expenditure. The hidden costs of stimulus money are the jobs and services that would have otherwise been funded by the private sector.

In order to actually determine whether an investment is truly beneficial to the economy, one must be able to subject it to the cost-accounting of profit and loss. A product or service that makes losses has consumed resources that could have otherwise been put to more productive uses in the economy. But since government expenditures are funded not through any kind of voluntary market exchange, but through taxation, this kind of mechanism cannot be used to evaluate them.

So we can be pretty sure that stimulus projects, in fact, are not as conducive to economic growth as we have been led to believe, since such projects would probably not withstand the profit-and-loss test of the market.

But this is not to say that funding any of this kind of scientific research is not worthwhile. Activities such as philanthropy and charitable giving do not produce any kind of profitable return, but are nevertheless recognized as noble and praiseworthy. There may be good reasons for funding these projects, but economic growth is not one of them.

“Power permits people to do enormous good,” Lord Acton once said, “and absolute power enables them to do even more.”

This wisdom from the nineteenth-century’s champion of state prerogative applies as well today. Politicians are crippled by the lack of the one thing they need to yank our hobbled economy out of the mire of recession: adequate power. It is our duty to grant it to them.

Yes, from time to time this commentary space has been critical of government meddling in economic affairs, surmising, for example, that trying to cure poverty by funneling more money through Washington would do less to assist the poor than to pad the salaries of middle-class bureaucrats. We have emphasized the effectiveness of private and faith-based charity, of its capacity at once to use resources efficiently and to respect the individual’s dignity. We have argued that persons, morally formed, acting freely, and operating within the context of a rule of law, will generate a bountiful and equitable economic environment without counterproductive interference by the state. We have posited that our current difficulties derive from a combination of moral turpitude and government bumbling.

We were mistaken. (more…)

In a recent Wall Street Journal column, W. Bradford Wilcox looks at the “boost” that President Obama will give secularism through his rapid expansion of government. An Associate Professor of Sociology at the University of Virginia and a member of the James Madison Society at Princeton University, Wilcox is also a 1994 graduate of the Acton Institute’s Toward a Free and Virtuous Society program. Excerpt:

… the president’s audacious plans for the expansion of the government — from the stimulus to health-care reform to a larger role in education — are likely to spell trouble for the vitality of American religion. His $3.6 trillion budget for fiscal 2010 would bring federal, state and local spending to about 40% of the gross domestic product — within hailing distance of Europe, where state spending runs about 46% of GDP. The European experience suggests that the growth of the welfare state goes hand in hand with declines in personal religiosity.

A recent study of 33 countries by Anthony Gill and Erik Lundsgaarde found an inverse relationship between religious observance and welfare spending. Countries with larger welfare states, such as Sweden, Norway and Denmark, had markedly lower levels of religious attendance, affiliation and trust in God than countries with a history of limited government, such as the U.S., the Philippines and Brazil. Public spending amounts to more than one half of the GDP in Sweden, where only 4% of the population regularly attends church. By contrast, public spending amounts to 18% of the Philippines’ GDP, and 68% of Filipinos regularly attend church.

Read “God Will Provide — Unless the Government Gets There First” on the Wall Street Journal’s Opinion page.

Thanks to Clear Channel Radio, I was able to attend Dave Ramsey’s event in Grand Rapids last night. I used to listen to Ramsey on the radio quite a bit as a seminary student in Kentucky and I was always impressed by how much he was inspiring American families to live within their means and become better financial stewards of their resources and income. His own personal faith testimony is very real and inspiring and that brings me to another point concerning his presentation last night.

Last month, Acton’s director of communications, John Couretas, wrote a commentary titled “Obama and the Moral Imagination,” where he asked “If religious conservatives and free market advocates are to oppose Obama on those issues where there is fundamental disagreement, they will have to craft their own counter-narrative to ‘change the trajectory.’ No small task.”

One of my immediate impressions about Ramsey is his mastery of the narrative style of teaching and motivating. He effectively uses his own personal testimony to motivate people. By using his story in the fashion that he does, he disarms possible objections to his teachings and allows attendees to embrace and connect their story to Ramsey’s story. And I mean, not only his financial story, but also his own faith story as well. I would also add that his humor is far wittier and funnier perhaps than any stand up comedy I have ever heard.

How does this then relate to fiscal conservatism and the importance of free markets? Several times last night Ramsey stressed this by saying that “you are not going to spend like Congress anymore.” He uses the story and behavior of Congress to powerfully contrast that with a new found ability of a person to budget, save, and invest. Ramsey even expressed his strong desire to see Congress overturned. He expressed confidence in the long term benefits of the market, while simultaneously denouncing the stimulus bill. Here is a you tube clip of Ramsey on his radio show railing against what he calls the “spending bill.” Ramsey made a good point I stressed last week on a radio appearance of my own, and that is this: “When America is more financially responsible, they will demand more financial responsibility from their leaders.”

The entire event is a creative introduction to his financial teachings, what he calls the seven baby steps to get your financial future on track. He ended the event by sharing more about his relationship with God, and stressing that it is relationship with God that matters most, and it is the greatest life changing principle he teaches.

Blog author: mvandermaas
Friday, February 13, 2009

Washington is all atwitter about the “Stimulus,” which is currently being pushed through Congress (without being read by most members). Acton’s own Michelle Muccio has come up with a plan of her own, and did a bit of independent research to see if her proposal would find any support:

Blog author: jcouretas
Thursday, February 12, 2009

In my Winter 2007 article on economic globalization for AGAIN Magazine, I quoted economist Wilhelm Roepke. (AGAIN is published by Conciliar Media Ministries, a department of the Antiochian Orthodox Christian Church of North America). Roepke:

Economically ignorant moralism is as objectionable as morally callous economism. Ethics and economics are two equally difficult subjects, and while the former needs discerning and expert reason, the latter cannot do without humane values.

In light of all that has happened with the U.S. economic meltdown in the last few months, I continue to subscribe to the following statement from the same article:

… there is no real understanding of “social justice” without an understanding of basic economic principles. These principles explain how Orthodox Christians work, earn, invest, and give to philanthropic causes in a market-oriented economy. Economic questions are at the root of many of the problems that on their face seem to be more about something else — poverty, immigration, the environment, technology, politics, humanitarian assistance.

I remain a convinced believer in the market economy, which is a different thing than saying that I believe in the “free market” (a misnomer for industrialized economies that have always been subject to heavy regulation) or laissez faire economics (not a good idea and, again, a term that refers to something that doesn’t exist).

The climate of fear and panic that has been raised first by the Bush administration and now President Obama (we’re in a “crisis that could become a catastrophe” he claims) should have us all screaming not “help!” but “stop!” The alarm we raise should be about the fantastic expansion of government control — in some cases outright nationalization — over what was one of the freer markets in the world. And let’s recall that most Orthodox Christian immigrants came to this country for economic opportunity — in many cases a chance to put their entrepreneurial gifts to work in a growing and prosperous country. How much opportunity will be left once Washington gets finished with its top down central planning project? If this current crisis has taught us anything, it is the importance of economic growth and sustaining that growth in a humane way over the long haul.

So, I go back to Roepke for guidance on what’s being proposed in Washington. In particular, I turn to his 1957 book, “A Humane Economy: The Social Framework of a Free Market” (ISI, 1998). Page numbers in brackets:

On the necessity for economic liberty [104]: “Since liberty was indivisible, we could not have political and spiritual liberty without also choosing liberty in the economic field and rejecting the necessarily unfree collectivist economic order; conversely, we had to be clear in our minds that a collectivist economic order meant the destruction of political and spiritual liberty. Therefore, the economy was the front line of the defense of liberty and of all its consequences for the moral and humane pattern of our civilization.” (more…)

The WSJ reports, to the relief of the White House and Capitol Hill, no doubt: “U.S. retail sales increased in May, rising double the rate expected in a sign consumers were using stimulus payments and that the economy might not be as weak as feared.” Whether or not this is really evidence of the “success” of the government stimulus package, you can be sure that it will be proclaimed as such from on high over the next days and weeks.

We can have a good debate about the best place to send your charitable dollars (and the Samaritan Guide is a great place to start that conversation), but at least here’s an example of someone who didn’t run right out and buy an air conditioner or a flat-panel HDTV.

(Marc, it looks like the government’s fears may have been misplaced. You can finally rest easy.)