The faux stimulus bill will be signed into law today by President Obama. The bad news is that making government bigger will hurt the economy. The good news is that sooner or later there will be a recovery from the current downturn. The real issue is whether long-run growth will be robust. Unfortunately, the evidence strongly suggests that an increased burden of government spending is among the policies that harm long-run economic performance. In a new video, I review the Fraser Institute’s Economic Freedom of the World and highlight the policies that expand freedom and increase prosperity:

Not that it needed it — lobbying was one industry that kept on growing during 2008 — the Washington influence business is getting a boost from the Obama-Pelosi-Reid massive spending bill. In a graphic on page A6 of the February 13 edition, not available online, the Washington Post reports that “A Washington Post analysis found that more than 90 organizations hired lobbyists to specifically influence provisions of the massive stimulus bill.” The graphic shows that the number of newly registered lobbying clients peaked on the day after Obama’s inauguration and continued to grow as the bill worked its way through both houses of Congress.

In the accompanying article, the Post notes that — unsurprisingly — the $800 billion spending bill “is not free of spending that benefits specific communities, industries or groups, despite vows by President Obama that the legislation would be kept clear of pet projects.” My favorite, as I’ve noted before, is

a controversial proposal for a magnetic-levitation rail line between Disneyland, in California, and Las Vegas, a project favored by Senate Majority Leader Harry M. Reid (D‑Nev.).

Here are some other recent headlines from the political class’s newspaper of record: “THE INFLUENCE GAME: Lobbyists work stimulus to end”; “A Lobbying Frenzy For Federal Funds”; “Ohioans Seek Slice of Stimulus Pie”; “Lobbyists Get Around Obama’s Earmark Ban”; “Certain Firms, Industries Got Last-Minute Gifts in Stimulus.”

More on the frenzied efforts to get a piece of the taxpayers’ money in the spending bill here and here.

If you want money flowing to the companies with good lobbyists and powerful congressmen, then the stimulus bill may accomplish something. But we should all recognize that we’re taking money out of the competitive, individually directed part of society and turning it over to the politically controlled sector. Politicians rather than consumers will pick winners and losers. That’s not a recipe for recovery.

George Will reminds us of the global disaster that faced us back in the 1970s:

In the 1970s, “a major cooling of the planet” was “widely considered inevitable” because it was “well established” that the Northern Hemisphere’s climate “has been getting cooler since about 1950” (New York Times, May 21, 1975). Although some disputed that the “cooling trend” could result in “a return to another ice age” (the Times, Sept. 14, 1975), others anticipated “a full-blown 10,000-year ice age” involving “extensive Northern Hemisphere glaciation” (Science News, March 1, 1975, and Science magazine, Dec. 10, 1976, respectively). The “continued rapid cooling of the Earth” (Global Ecology, 1971) meant that “a new ice age must now stand alongside nuclear war as a likely source of wholesale death and misery” (International Wildlife, July 1975). “The world’s climatologists are agreed” that we must “prepare for the next ice age” (Science Digest, February 1973). Because of “ominous signs” that “the Earth’s climate seems to be cooling down,” meteorologists were “almost unanimous” that “the trend will reduce agricultural productivity for the rest of the century,” perhaps triggering catastrophic famines (Newsweek cover story, “The Cooling World,” April 28, 1975). Armadillos were fleeing south from Nebraska, heat-seeking snails were retreating from Central European forests, the North Atlantic was “cooling down about as fast as an ocean can cool,” glaciers had “begun to advance” and “growing seasons in England and Scandinavia are getting shorter” (Christian Science Monitor, Aug. 27, 1974).

Will George Will or his successor do a similar column around 2039 about the hysteria over global warming?

Will Paul Krugman?

At a Heritage event, Arnold Kling said:

Back in September when they were talking about taking $700 billion dollars to unclog the financial system I wanted to yank Henry Paulson out of the TV screen and say to him: “Keep your hands off my daughter’s future.” But he got away with it. For me it felt like sitting there watching my home being ransacked by a gang of thugs. And now we’ve got a new gang of thugs and they are doing the same thing.

Careless blogging and hyper-ideology twisted that into a knock on President Obama and imputed racism to Kling. Krugman incorporated it all into a column decrying the “ugliness of the political debate” over Obama’s stimulus.

Well, Paulson’s TARP and Obama’s stimulus are ugly, and so evidently is the cacophony in the echo chamber where Krugman gets his information. But not Kling.

… or does he?

Friday afternoon, the White House blog announced that the American Recovery and Reinvestment Act of 2009 was posted online for public comment. This looked like good evidence that the President intends to honor his campaign promise to post legislation online and take public comment for five days before signing it.

But it’s not great evidence of that.

The White​house​.gov post went up at 2:05 pm, but the House didn’t vote until 2:24 pm and the Senate voted at 05:29 pm. (Click on the “votes” to see how your representatives did.) As of Saturday afternoon, the Thomas legislative tracking system doesn’t indicate that the bill has been presented to the President yet. And news reports indicate that the President will sign the bill on Monday, three days after it was “pre-posted.”

Regular order, Mr. President. When a bill is presented to you, post it online (at a consistent place on your Web site, not just at ad hoc URLs as you’ve done up to now). Then wait five days, reviewing the comments of the public as you promised to do when you asked the public to elect you.

The steps the White House has taken toward implementing the President’s promise are good steps. (In this Cato daily podcast, I characterized the President’s record on transparency so far as “mixed.”) But the promise is not fulfilled until bills receive five days online airing after they have been presented.

Presentment is a distinct, constitutional step in the legislative process. Until every non-emergency bill is posted online for five days after presentment and before signing, President Obama will look like he’s being driven by events and maneuvered by his elders in Congress.

Over the past two decades, U.S. cities have wasted close to $200 billion on high-cost, low-performance rail transit projects. But that will nothing compared to the plans rail nuts have for high-speed intercity rail.

Last November, 52 percent of California voters approved $9 billion in funding for a San Francisco-to-Los Angeles high-speed rail plan. The total cost of the plan is expected to exceed $45 billion, and California expects Uncle Sam to pick up at least half the tab. If it does, Florida, Illinois, Texas, and a few dozen other states will all want federal funding for their own high-speed rail plans.

The House version of the stimulus package included no money for high-speed rail. The senate version included $2 billion. Thanks to Senator Harry Reid (D‑NV), who wants a Las Vegas-to-Los Angeles high-speed rail line, the final version of the bill included $8 billion. (Conservatives have attempted to portray this as an earmark, but Reid says the $8 billion will be distributed through competitive grants.)

Earmark or not, $8 billion won’t even cover the down payment on a high-speed rail network. Based on the projected costs of California’s system and the length of high-speed rail proposals in the rest of the U.S., I estimate that a national high-speed rail network will cost the U.S. well over $500 billion. By comparison, the Interstate Highway System, adjusted for inflation to today’s dollars, cost $450 billion.

What will high-speed rail do? As my Cato policy analysis reveals, studies in California and real-life examples in Europe shows that its main effect will be to put profitable airlines out of business. It will only take about 3 or 4 percent of cars of the roads in rail corridors. Though costing more than interstate highways, a national high-speed rail network will never carry even a fifth as many people as the interstates, and virtually 0 percent of the freight. High-speed rail operations might save a little energy, but the energy cost of construction will more than wipe out any long-term operational savings.

Adding $8 billion to the stimulus bill will do nothing to stimulate the economy, as there are no shovel-ready high-speed rail projects in the country. But it does put us one more step down the path of wasting another half trillion or so dollars on an obsolete form of transportation.

From “the best-selling Principles of Economics textbook [which] has been teaching students in a clear, unbiased way for 40 years.” Campbell R. McConnell, Economics: Principles, Problems, and Policies. McGraw-Hill, 7th edition, 1978.

The Last Word: The Impotence of Fiscal Policy

Some economists feel that fiscal policy is an impotent and unpredictable stabilization tool.

Well, as I wrote in a 1977 Tax Review article (reprinted 1w permission of the Tax Foundation, Inc.):

The real question is whether or not conventional fiscal policy works as advertised. If fiscal policy works, and its impact is properly measured by the size of the full employment deficit, then it should be possible to find some correlation between either the level or direction of the full employment budget and some measure of current or subsequent economic activity. George Terborgh tried to find some such link back in 1968, in The New Economics, but found only a weak correlation that turned out to be perverse. That is, larger full employment surpluses were associated with faster economic growth. More rigorous tests by economists at the St. Louis Fed, and again at Citibank, had no more luck in uncovering the magical properties of the full employment budget. A sharp shift toward larger full employment deficits did not prevent the recession of’ 1953–54, for example, nor the mini-recession of 1967. In 1946, a $60 billion reduction of Federal spending (equivalent to $400 billion today) was followed by a vigorous boom, and a combination of tax cuts and higher spending in 1948 (the equivalent of S75 billion today) was followed by a sharp recession.

The theory of fiscal policy is almost as messy as the evidence. If deficit spending is financed by borrowing from the private sector, there is no obvious stimulus-even to that undifferentiated thing called “demand.” Whoever buys the government securities surrenders exactly as much purchasing power as is received by the beneficiaries of Federal largess. There would be a net fiscal stimulus only if there were no private demand for the funds needed to cover the added Treasury borrowing. Otherwise, lendable funds are just diverted from market-determined uses to politically determined uses.

There may be a stimulus in some circumstances if the deficit is financed by a more rapid increase in the money supply, but this is really a monetary stimulus, not a purely fiscal effect.

In the long run, resources allocated through the government must displace those allocated through markets, and growth of government spending must be at the expense of the private sector. The government has only three sources of revenue — taxes, borrowing, and printing money — and increasing any one of those must reduce the private sector’s command over real resources. Although deficit spending may at times be a short-run stimulus to nominal demand, it is also a long-run drag on real supply-siphoning resources from uses that would otherwise augment the economy’s productive capacity, and instead diverting those resources into hand-to-mouth consumption through government salaries, subsidies, and transfer payments.

So, the theory and evidence suggests that fiscal policy is essentially impotent, or at least unpredictable, except as a device to promote inflationary monetary policy and/​or to reduce investment and growth.