Why the Stimulus Failed

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The Democratic Party was shaken to its core on Tuesday when Sen. Chris Dodd (D-CT), Sen. Byron Dorgan (D-ND) and Gov. Bill Ritter (D-CO) announced they would not run for re-election in 2010, all on the same day. The source of these Democrats’ fears in facing the American people at the polls is no secret: the American people believe the state of the economy is poor and getting worse. Responding to this dismal environment, Sen. Ben Nelson (D-NE) told the Fremont Tribune on Tuesday: “I think it was a mistake to take health care on as opposed to continuing to spend the time on the economy.” While we agree with Nelson that President Barack Obama’s health care priorities have been grossly misplaced, we shudder to think what more “time on the economy” would have meant from this White House.

Just last month in a speech to The Brookings Institution, President Obama outlined his proposal for a third round of stimulus funding on top of the $787 billion stimulus he signed into law last February. Third stimulus you say? Yes, third stimulus. Any fair accounting of government deficit spending in response to this recession must also include President George Bush’s failed 2008 $168 billion economic stimulus bill. Why did these first two economic stimuli fail? For the same reason any third stimulus will also fail: government spending does not inject any new money into the economy. Heritage Foundation Senior Policy Analyst Brian Riedl explains:


‘Congress does not have a vault of money waiting to be distributed. Every dollar Congress injects into the economy must first be taxed or borrowed out of the economy. No new spending power is created. It is merely redistributed from one group of people to another.’