How the Stimulus Prolonged the Recession

President Barack Obama told us in February that, unless Congress passed a $800 billion stimulus bill immediately, unemployment, then 7 percent, would exceed 8 percent.  He implied that if Congress did pass the stimulus, then unemployment would stay below 8 percent. Unemployment is now at 9.5 percent and will likely exceed 11 percent.

Others have commented that the President was wrong in his prediction of the stimulus’s effect.  I won’t.  I will say the President intentionally deceived millions of Americans in order to wrestle more power away from people and into Washington.

Today’s Wall Street Journal carries an op-ed by Mort Zuckerman.  Zuckerman explains two things:  1) the economy is far, far worse than you think; and 2) the stimulus did nothing to help.  Zuckerman ends by asking the President to preside over another stimulus. 

Hogwash!

First, Zuckerman is right about the economy, but wrong about the details.  Unemployment is not the only problem facing the country.  There’s also the tsunami debt.  Of the two, the debt is far more dangerous.  The debt is driving a run-up on bank stocks as economists realize that big banks will benefit in the short run by managing trillions of dollars of debt.  That debt management will not translate into consumer spending, but it will pad the balance sheets of Obama’s favorite banks.

Second, Zuckerman doesn’t go far enough in describing the effects of the stimulus.  He is right in pointing out that 90 percent of the money went to pork and to bail out states that have over-promised their lazy, greedy, cowardly citizens. But, again, he misses the deleterious effect of trillions of dollars of deficit spending.  The debt monster is real, it will require a 44 percent tax increase across the board (according to Robert Samuelson), and those facts are driving both corporate and consumer decisions today.

Finally, Zuckerman errs wildly by asking Obama for a second stimulus.  No matter how well targeted stimulus spending might be, another $800 billion in new debt might be enough to break the camel’s back right now. 

Instead, Congress should repeal the stimulus immediately, begin the phased elimination of all un-Constitutional spending, such as Social Security, Medicaid, and Medicare, demand immediate repayment of TARP funds, and lay on the table both Cap and Tax and Healthcare reform.  Then the nation can down to the serious of business of behaving like we’re a democratic-republic instead of hungry sparrows demanding bits of worm from mamma’s beak.