Obama Presidency

Stimulus Will Likely Slow Economic Recovery

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With Bozeman’s boom fading or gone, focus turns to the likely impact of the stimulus upon employment. Naturally, some recall FDR’s Works Progress Administration (WPA) of 1935. This was one of many New Deal programs known by their letters and widely appreciated for their results. We still benefit from Forest Service trails and structures constructed by the Civilian Conservation Corps (CCC).
 
The WPA’s goals were to fund and construct projects of public benefit, provide employment, and revive industry. It allocated $3.3 billion to these purposes, $225 billion in today’s dollars. The WPA is credited with building 78,000 bridges and viaducts and constructing 572,000 miles of rural roads. It also built or improved 39,000 schools and 2,500 hospitals.
 
Between 1933 and 1945 federally trained carpenters built 2,309,239 sanitary privies, including one at the historic Grant-Kohrs Ranch near Deerlodge, Montana. I’ve known men who worked under WPA auspices. This is what I learned from them about WPA privy construction. Consider the context before disparaging this program.
 
Labor unemployment was nearly 50 percent for boys and men between the ages of 15 and 25, and wood was cheap. Many rural homes lacked sanitary outhouses, leading to serious diseases. The opportunities foregone by using these idle resources were minimal and the benefits substantial.
 
The common WPA privy was 4 feet by 5 feet, on 2x4 studs with a shed roof sloping to the back. They rested on pre-formed, poured concrete foundations. It took a three-man team about 20 hours to construct one. The cost of materials ranged from $17 to $30 and the federal government paid for labor.
 
Not only did the public benefit from improved hygiene and comfort, the carpenters earned weekly paychecks for their labor. Perhaps of greater importance, they learned the use of tools, including the carpenter square, a remarkably sophisticated instrument.
 
The skills learned on this job were transferable to many others. This program helped men and their families ultimately escape from the dole, a highly constructive, morale-enhancing result. Thus, by building simple privies, the WPA improved health, infrastructure, and human capital.
 
Clearly the WPA made positive contributions to America¹s physical and human capital. However, there is a substantial danger when the government acquires substantial discretionary control over economic matters. Skilled politicians normally highjack the process and channel the results away from the announced public purposes and direct it to private and partisan purposes. That process characterizes today’s Stimulus Bill.
 
In contrast with the WPA, it appears that a major result, if not the explicit goal of the ‘09 Stimulus Bill, will be to increase the scope of government and the number of people dependent upon it for the long term.
 
The Stimulus Bill is largely a package of pork sold to the public as one way to get unemployed Americans back to work by funding public works projects. Perhaps a tenth of the Senate package concerns infrastructure. The rest represents pay-offs and rewards to special interest groups.
 
This unprecedented level of government spending in the stimulus plan is likely to inhibit savings and investment and perhaps postpone economic recovery. Spending borrowed money on inefficient and wasteful programs surely implies lost opportunities and high future costs. And this bill surely stokes inflation.
 
President Obama claims that failure to act means more economic decline.
Further, he repeatedly asserted that all economists agree “we need action by our government, a recovery plan that will help jumpstart the economy.”
 
Given the President’s intelligence, experience, and the quality of his advisors, I was surprised by his claim that “all economists agree.” They seldom agree on macroeconomics, and surely not this.
 
Two hundred highly respected economists, including many from his schools, Harvard and Chicago, and three Nobel laureates, signed a statement published in the New York Times and Wall Street Journal opposing the stimulus.
 
These economists “do not believe that more government spending is a way to improve economic performance.” And “More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s.”
 
While the stimulus may not help the economy, it surely will increase the proportion of Americans dependent on government programs. This is a major move toward the European welfare state.

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John Baden is Chairman of the Foundation for Research on Economics & the Environment (FREE), based in Bozeman, MT.

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