The $884.5-billion economic stimulus bill now being debated in the Senate and an $819-billion version passed by the House should be called what they are: the largest government spending bills in U.S. history. The bills are not a pure stimulus but rather piles of money thrown at things that Congress seems to debate every year, now cloaked with the seemingly beneficial argument that the federal government is doing something good for the economy.
There are many things that good government policies can do, like creating a positive environment for all business activity or identifying and executing public-works projects necessary for the good of the people. Those policies can be pumped up in bad economic times to help the economy, but not punctured. The failure of previous stimulus and bailout efforts is being used as the rationale for more of the same kind of attempts. Japan made that mistake in the 1990s and actually may have prolonged its pain.
Some economists maintain that government cannot effectively establish economic activity but only redistribute income and wealth created by the private sector. If stimulus efforts are deficit-funded, they must be carefully tailored to maximize results so the cost is offset by wealth created and does not have to be paid with future taxes that act as a counterstimulus. Current legislation simply does not measure up.
The problem with the current bills is that the pressure to push money out the door has relaxed the legislative criteria for choosing among competing alternatives. There are items with legitimate connections to the overall economy, thrown in with slabs of pork for special interests. Such legislation tends to make an inefficient government-managed economy in which the private sector must compete for scarcer resources and pay for government’s decisions.
The goal of many policymakers is to create free markets in a global economy because the resulting interconnectivity contributes to long-term peace and prosperity. One of the greatest errors Congress can make is to revive and expand the Buy American Act of 1933, which required the federal government to favor U.S.-made products in all purchases. Since 1982, steel producers have enjoyed this preference on federal transportation projects, with some exceptions. That bias is extended to all infrastructure projects in the House bill and even further by the Senate.
Today, it is hard to tell what an American-made product really is. Multinational firms operating facilities across the globe blend components and materials from many nations. "Buy American" provisions spurred a protectionist trade war in 1933, and it will again.