Stimulus Slows Our Economy – Murray & Bier

Why does government stimulus spending fail? When considering the success of economic programs, the 19th-century French economist Frederic Bastiat urged us to look at both “what is seen and what is not seen.” Now a program at the Department of Commerce provides ample evidence of Bastiat’s prescience. The Economic Development Administration (EDA) provides a strong warning against future stimulus spending: When it comes to stimulus, the unseen costs are often greater than the visible benefits.

Government spending fails to stimulate economic growth because, quite simply, we do not see that it depends on resources taken from elsewhere in the economy. That’s how EDA economic grants work. Consider the recent case of its $2 million grant to Visalia, Calif., in the San Joaquin Valley. The EDA claimed the project would create 250 jobs and attract $10 million in private investment. When VWR, a medical supplies manufacturer, decided to build a 500,000-square-foot warehouse in Visalia’s newly expanded industrial zone, the EDA claimed the spending was a success.  […]

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