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ARRA was all about income redistribution



From a supply-sider's perspective, it's no wonder that the American Recovery and Reinvestment Act didn't do much to stimulate the economy. Fully 63% of the "stimulus" spending was income redistribution in disguise (i.e., tax benefits and entitlements). And if you reclassify things such as education, housing assistance, and health as transfer payments, then over 75% of the $840 billion allocated to "stimulus" was essentially income redistribution. Only 8%—$65.5 billion—went for transportation and infrastructure (i.e., the "shovel-ready" projects that would put American back to work). Not a dime went to increase anyone's incentive to work harder or invest more.

Taking money from one person (e.g., those who bought all the Treasury debt issued to fund the deficits created by the "stimulus" spending) and handing it out other people so that they can, for example, more easily buy a house, trade in their old cars, reduce their tax owed, or buy food, all on a one-time basis (thus not effecting permanent or long-lasting changes in people's willingness to work or invest) can hardly be expected to grow the economy. Growth of the kind that raises living standards requires more than just spending money or boosting demand; it requires spending money in a way that results in utilizing existing scarce resources in a more efficient manner: e.g., working harder, working smarter, making more with less, creating new products and services. A bureaucratic reshuffling of income is highly unlikely to unleash the miracle of growth; only the private sector can do that.

In short, ARRA was a laboratory experiment in the power of the government spending multiplier to grow the economy by "stimulating demand." It ended up proving that the multiplier is way less than one. American taxpayers borrowed $840 billion only to learn that the payoff was only a small fraction of the additional debt incurred. We wasted almost a trillion dollars of the economy's scarce resources, and that's a big reason why the recovery has been so disappointing. If we had instead "spent" the money on lowering tax rates for everyone (e.g., we could have eliminated corporate taxes for three years with the ARRA money spent) in order to give them a greater incentive to work and invest, the results could have been dramatically better. The tax cuts might even have paid for themselves in the form of a stronger recovery over time.

You can see all the distressing facts and figures at recovery.gov. I've reproduced some key charts and a summary of the data below (click each to enlarge):





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