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Stimulus in the real world

As I noted yesterday, four government agencies account for 86% of the $110 billion the government has managed to spend since the “stimulus” bill was enacted last February–HHS, Labor, Education and Social Security. This is not exactly the shovel-ready type spending that economists and politicians invoked when the Keynesian fantasy multiplier of 1.57 was invoked as a reason for urgently spending money.

I also noted in passing that the government as spent LESS THAN HALF of the money that has been budgeted and is available. Bryan Caplan observes, beautifully:

I’ve long scoffed at government inefficiency, but it never occurred to me that a full pork barrel could be so slow to empty.

But we both missed the real irony. The Keynesian argument for spending like a drunken sailor is that consumers are being too thrifty. They’re hoarding. They’re uncertain about the future.They keep money under the mattress instead of investing it. Banks do the same thing–instead of investing the money, they hoard it because they’re uncertain about the future. Entrepreneurs are cautious about taking new risks because of the same uncertainty. So, the argument goes, government spending needs to take up the slack and boost aggregate demand.

Guess what? Government is actually staffed by human beings. It is not something called G that economists or even politicians can move up and down at will. Bureaucrats are cautious. They’re uncertain about what is going to happen to their budgets in the future. They’re uncertain about what the best thing is to do with the money they’re given. They’re worried about being accountable for their actions. So what do they do? They hoard. They hestiate. They put the money in the equivalent of a mattress.

I’ve always said that government is more efficient than the private sector in two areas–waging war and spending other people’s money. What governments are actually good at is building armies and collecting other people’s money. They’re not so good at waging war and they’re not even good at spending money quickly, let alone wisely.


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