Can We Afford All This Spending? No We Can’t.

President Obama says that “our economy is badly weakened,” partly because of “our collective failure to make hard choices.” And that when government programs don’t work, “programs will end.” Yet he continues to press for a spending program that apparently only begins at $825 billion.

In 1993 a Democratic Congress failed to pass President Clinton’s request for a $16.3 billion stimulus package. A year ago Congress passed a $150 billion stimulus bill proposed by President Bush, a fitting cap to Bush’s massive increase in federal spending.

It had no apparent effect.

And now, in a continuing ratcheting up of spending levels, President Obama and Congress propose to spend the not-very-long-ago unimaginable sum of roughly a trillion dollars. As Chris Edwards wrote recently, we’re already looking at deficits of two trillion dollars in fiscal years 2008 and 2009. If that much deficit spending doesn’t do the Keynesian trick, do we really expect that another trillion dollars will?

Political leaders talk about making the hard choices and laying the groundwork for the future, but their actions demonstrate a different approach. They try to solve problems – or at least to be seen to be solving problems – today without in fact thinking about the long term.

Where will this new spending come from? It could come from raising taxes; but even President Obama seems reluctant to raise taxes during a sharp economic slowdown, indicating that he does know that taxes reduce work, investment, and production. And would anyone propose to raise taxes by $825 billion? Or by the $3 trillion that it would take to cover the already-projected deficits and the current proposed spending? And of course money taxed away from those who earn it is taken out of the economy, only to be reinjected by politicians and planners rather than by consumers and investors. That means, as the Washington Post reported on Tuesday, “It will fall to Obama and his subordinates to decide winners and losers in the banking, financial services, automobile and other major industries, a span of control that dwarfs President Harry S. Truman’s attempt to seize control of steel production.” That’s not good for freedom or for economic growth.

If not taxes, of course we could borrow the money. Assuming a government plunging further in debt to the tune of a trillion dollars a year can still borrow. But again, borrowing just transfers money from private investment to political investment. What we’ll actually probably do is create the money out of thin air on the books of the Federal Reserve. More money injected into the economy surely means inflation, maybe a lot of inflation given the size of the spending already undertaken or now in the works.

Those are the costs. Now what are the benefits? Where will all this money go? I intended to list in this blog item all the programs that make up that $825 billion. But it turns out that even the summary list of the gravy runs 13 pages (and I’m sure the Democrats appreciate our having linked to their advertising flyer three times now). The Wall Street Journal printed a graphic on January 16 (apparently not online) showing the different programs piled up like boxes in a Hillary Clinton Christmas campaign ad: Hundreds of billions of dollars to state government, in a completely useless shuffling of taxpayers’ money. Plus more billions for education, which also means for state and local governments. Money for certain highways, favored kinds of energy projects, politically popular research, specific forms of technology. As the Post said, “Obama and his subordinates [will] decide winners and losers.” And just a bit – maybe not more than, you know, $100 billion – for welfare programs, which are hardly economic stimulus but will no doubt be popular with recipients. You can find the complete bill at http://readthestimulus.org/, where they encourage people to join the effort to comb through the 334 pages and report what’s in there.

Man, if you can’t get some of that boodle, you need a better lobbyist. Because of course, as James Q. Wilson noted in his review of a book on lobbying, that’s what lobbyists do: they get their clients a piece of government programs. And the more programs there are, and the more money is appropriated for them, the more work there is for lobbyists.

Once it’s allocated, how will the money be spent? Can the federal government, even with the assistance of a new Chief Performance Officer, promptly and effectively spend $825 billion? One of Greg Mankiw’s readers worked on the new Department of Homeland Security and reports:

you cannot juice up a government agency’s budget by tens of billions (or in the case of the stimulus package, hundreds of billions) and expect them to be able to process the paperwork to contract it out, much less oversee the projects or even choose them with any kind of hope for success. It’s like trying to feed a Pomeranian a 25 lb turkey. It’s madness. It was years before DHS got the situation under control and between the start and when they finally assembled a sufficiently capable team of lawyers, contracting officials, technical experts and resource managers, most of the money was totally wasted.

Linda Bilmes, coauthor with Joseph Stiglitz of The Three Trillion Dollar War: The True Cost of the Iraq Conflict, analyzes the massive problems in three somewhat smaller government projects – the Iraqi reconstruction effort, Hurricane Katrina reconstruction, and the Big Dig artery construction in Boston – and finds that “in any organization that starts to increase spending very rapidly there are risks of waste, fraud and inefficiency.”

Can we afford all this spending? Can we spend it effectively to create growth? No we can’t.