Why the 'Stimulus' is Bad Policy

Yesterday, I discussed why it would be politically advantageous for Republicans to oppose the new bailout (supporting this would make it impossible for them to soon regain the fiscally conservative mantle).

Today, I want to discuss a bit deeper why the new "stimulus" package simply will not work.

First, it is important to note that government should not be in the business of picking winners and losers. ... And some of the "winners" to come out of this stimulus will surely be industries that need to change or adapt -- and CEOs who frankly, because of mismanagement, don't deserve government handouts.

This, of course, has long-term implications, inasmuch as it creates perverse incentives, meaning if we reward businesses for failure, we are then encouraging bad behavior in the future. This may mean (in the case of Circuit City, providing shoddy service), or it may mean taking dangerous risks.

Fundamentally, though, the mistake is in believing that government spending will help. It won't. Never has. Never will. Even Obama's tax relief will not work, inasmuch as it is a Keynesian solution. Tax relief only leads to growth if marginal tax rates on productive behavior are lowered.

What is more, the stimulus might actually be prolonging the recession by creating instability. Markets thrive on predictability, but the prospect of continued stimulus packages essentially postpone business decisions. Suppose you were a business owner who wanted to build a new factory. Would you make any decisions before finding out what Congress and the president are going to do?

Of course, I could forgive the Democrats for merely being wrong if they had good (if misguided) intentions. Unfortunately, there are other -- more disturbing -- motives at play here:

Rahm Emanuel's admonition that you should "Never let a serious crisis go to waste. What I mean by that is it's an opportunity to do things you couldn't do before" -- is at play now, as it appears Democrats are using the stimulus to push for nationalized health care. In short, the Democrats see this crisis as an opportunity to advance their liberal ideology in other spheres of government and life.

Of course, Democrats are warning of near-Armageddon results if we do not do exactly what they say...and now. This sort of fear mongering could essentially be used to pass any bill they want to pass (give me all your money -- or a Depression will start!).

Second, even if you believe in Keynesian economics, much of the spending requests wouldn't even theoretically stimulate the economy. We've all heard, by now, about Pelosi's contention that birth control will "reduce costs" -- as well as the money to sod the National Mall, but did you know about 50 million for the National Endowment of the Arts?

When this stimulus package predictably fails, Republicans will take solace in the fact that they were not part of this corrupt bargain.