Another $50 Billion Stimulus Rush?

Fresh from his recent White House-sponsored jobs summit, President Obama is pushing a new economic stimulus plan intended to soften the pain of a 26-year-high unemployment rate that sees one in ten Americans out of work.

Against all expectations, $200 billion of the money originally appropriated by Congress for bailing out financial institutions under the Troubled Asset Relief Program (TARP) either remains unspent or has already been repaid to the U.S. Treasury.

Will wonders never cease?

Rather than use that $200 billion to either pay down the monumental federal debt or, better yet, return it to the taxpayers, President Obama proposes spending $50 billion to “create” additional jobs. As such, some of the TARP “surplus” money now will be used for, among other things, financing tax credits for companies that hire new employees, subsidizing public infrastructure projects that were not previously “shovel-ready” and providing tax deductions to individuals who improve energy efficiency in their homes.

Heroin addicts experience a “rush” immediately after main-lining their drug of choice. They do not at the moment grasp the long-run consequences of their health-degrading habits. With an unemployment rate unexpectedly falling to 10 percent from 10.2 percent in the past month, the Obama administration and many pundits have fallen into the same trap. But if Washington injects a trillion dollars or more into the U.S. economy, things are bound to improve in the short run.

Yet any such taxpayer-financed economic stimulus must, by definition, be temporary. The federal government has no resources of its own. It therefore can finance its spending programs in three ways only: by taxing the private sector, by borrowing from it, or by printing money. All three options impose burdens on ordinary Americans, who must pay higher taxes either now or in the future, or see the values of their investments eroded by continued declines in the value of the U.S. dollar.

It pays to employ someone only if his or her contribution to market value exceeds the employer’s added cost in the form of wages and fringe benefits. Jobs credits reduce the after-tax cost of hiring new workers, but do not make what they produce worth more. A business guided by the profit motive rationally will fire people they would not have otherwise have hired when the subsidy expires, as it must eventually do.

And tax credits can affect employers’ incentives counterproductively. Why not fire a current employee now and rehire the same person later to take advantage of the proposed tax credit? How about claiming the same credit by cutting the hours of one or more existing workers to create a full-time, tax-credit-eligible vacancy? Some workers simply may be shifted from jobs that do not qualify for the credit to those that do, with no net effect on total employment.

President Richard Nixon once said famously that “We are all Keynesians now.” Although Barak Obama and Federal Reserve Chairman Ben Bernanke seem to have swallowed that adage, America’s taxpayers should not be bamboozled. There is no such thing as a free jobs lunch.

Job creation is something that can happen only in the private sector. But that requires government to get out of the way by reducing taxes across-the-board and eliminating oppressive regulations. If it does not adopt such market-friendly policies soon, America might as well be France or Germany, with permanently higher unemployment rates, less adaptability to change and slower rates of economic growth.

William F. Shughart II is Research Fellow and Senior Fellow at the Independent Institute, the J. Fish Smith Professor in Public Choice at Utah State University, past President of the Southern Economic Association, and editor of the Independent book, Taxing Choice: The Predatory Politics of Fiscal Discrimination.
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