Don’t Ignore Costs of “Stimulus”

A sign announces a section of road work funded by the American Recovery and Reinvestment Act U.S. economic stimulus plan in the Denver area

It’s not hard to look around and find waste with stimulus.
Check it out:

Shocking new economic research has shown that receiving large gifts from the federal government is actually beneficial to states.

That is not such a shock, is it? Another non-shock is that pro-stimulus journalists have misinterpreted studies to use them as evidence for national stimulus benefits.

The studies are econometrically sophisticated, but stem from a simple idea: If we compare states that received greater federal transfers to states that received smaller transfers, we can estimate the benefit of transfers.

Evaluating a national policy by comparing state-level benefits cannot capture national-level costs. Who will bear the burden of paying back the higher debt? Which private-sector investments will be crowded out by greater federal stimulus? Which political interest groups will gain power over the electorate from steering more money to their constituents? State-to-state comparisons make no attempt to answer these questions.



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