Tags: Laffer | Stimulus | Depressant | government

Former Reagan Adviser Laffer: Government ‘Stimulus’ a Depressant

Monday, 06 August 2012 12:57 PM

Government spending intended to stimulate the economy has the exact opposite effect, says economist and former Reagan advisor Arthur Laffer.

"Policymakers in Washington and other capitals around the world are debating whether to implement another round of stimulus spending to combat high unemployment and sputtering growth rates," Laffer writes in The Wall Street Journal.

"But before they leap, they should take a good hard look at how that worked the first time around," he wrote.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

"In country after country, increased government spending acted more like a depressant than a stimulant."

Of the 34 nations in the Organization for Economic Cooperation and Development, those with the largest spending increases from 2007 to 2009 experienced the least growth in gross domestic product rates before and after the stimulus, Laffer notes. Moreover, Estonia, Ireland, the Slovak Republic and Finland, the four nations with the biggest stimulus programs, had the steepest declines in growth.

The United States saw spending increase 7.3 percent, followed by a decrease in growth rates of 8.4 percent.

“Still, the debate rages between those who espouse stimulus spending as a remedy for our weak economy and those who argue it is the cause of our current malaise,” says Laffer. “The numbers at stake aren't small.

“Federal government spending as a share of GDP rose to a high of 27.3 percent in 2009 from 21.4 percent in late 2007,” Laffer observes.

“This increase is virtually all stimulus spending, including add-ons to the agricultural and housing bills in 2007, the $600 per capita tax rebate in 2008, the [Troubled Asset Relief Program] and Fannie Mae and Freddie Mac bailouts, ‘cash for clunkers,’ additional mortgage relief subsidies and, of course, President Obama's $860 billion stimulus plan that promised to deliver unemployment rates below 6 percent by now,” he says.

“Stimulus spending over the past five years totaled more than $4 trillion.”

Presumptive Republican presidential nominee Mitt Romney told CNN that he does not support the Federal Reserve enacting a new stimulus program to boost the economy because previous efforts by the nation's central bank did not have a major impact.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

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