Is the Stimulus a Bad Investment?

February 19, 2009 • Commentary
This article appeared on National Public Radio on February 19, 2009

President Obama says the $787 billion stimulus package he signed into law this week will provide “direct investment” that will “help our economy grow again, now and in the future.” Put me down as skeptical.

For one thing, only a third of that spending will occur this year. Two‐​thirds won’t occur until 2010 and thereafter. Both the Congressional Budget Office and a Wall Street Journal survey of economists predict the economy will be growing again by then, even if Congress does nothing. President Obama committed us to borrow and spend $524 billion to fight a recession that will already be over.

True, the CBO also predicts that the stimulus law will make GDP grow even faster. But GDP is a funny thing. If you and I paid each other $100 to dig holes and then fill them up, that would accomplish absolutely nothing. But GDP would go up by $200.

So how much of that $787 billion borrow‐​and‐​spend package passes the cost‐​benefit test, and how much is just make‐​work? Consider the billions allocated to health care.

We desperately need research on the effectiveness of medical treatments, and the law includes $1 billion for that. Yet experience suggests the benefits of taxpayer‐​funded research may be zero. Historically, every time a federal agency produces research that questions the value of some medical treatment, health care providers convince Congress to shoot the messenger. I’ve been meaning to look this up, but that may be the only reason Congress ever eliminates federal agencies.

We also need better health information technology. For one thing, IT that keeps track of the images from your first MRI can avoid the expense of a second MRI. Yet the law’s $33 billion for electronic medical records also fails the cost‐​benefit test. The CBO estimates it would be cheaper just to do the second MRI.

The law includes $115 billion in health insurance subsidies. Economists have no clue whether that passes the cost‐​benefit test either. Half the money will likely go to people who would have had health insurance anyway. And one‐​third of medical spending does nothing to make patients healthier or happier — though we still count it in GDP.

Other provisions make even make‐​work look good. The law will finance expanded COBRA benefits with a $65 billion hidden tax on other workers’ health insurance premiums. That hidden tax will actually reduce wages and job creation.

Some may say the time for debating the stimulus package has past because that train has left the station. But has it left the station? Or is it just spinning its wheels?

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