Doug Bandow at Cato@Liberty points out the Congressional Budget Office’s recent conclusion on the stimulus bill:
In contrast to its positive near-term macroeconomic effects, the legislation will reduce output slightly in the long run, CBO estimates. The principal channel for that effect, which would also arise from other proposals to provide short-term economic stimulus by increasing government spending or reducing revenues, is that the law will result in an increase in government debt. To the extent that people hold their wealth as government bonds rather than in a form that can be used to finance private investment, the increased debt will tend to reduce the stock of productive private capital. In economic parlance, the debt will “crowd out” private investment.
The reduction in GDP is therefore estimated to be reflected in lower wages rather than lower employment, as workers will be slightly less productive because the capital stock is slightly smaller.
So, to sum up: lower GDP in the long-term, lower wages, and a smaller capital stock. I would add that this will probably decrease income equality, as the lower end of the income scale is probably more susceptible to the lower wage phenomenon.
This is a dynamic analysis, so I think it is important to distinguish between the two stated purposes of the stimulus (they commonly get confused even by those in charge at the White House) and whether or not they accomplish the goal. First, the stimulus is supposed to paper-over the current downturn and ensure that it is shallower than it otherwise would be. You can argue about this, but I’ll give the White House and CBO a pass and say it will in fact accomplish this goal. Second, the stimulus is supposed to ensure a long-term economy-transforming, egalitarian, green-energy-for-the future change that will put us on a more sustainable and higher growth glide-slope.
But this is exactly what the CBO argues it does NOT do. True, the CBO argues later in the document that:
The crowding-out effect will be offset somewhat by other factors. Some of the legislation’s provisions, such as funding for improvements to roads and highways, might add to the economy’s potential output in much the same way that private capital investment does. Other provisions, such as funding for grants to increase access to college education, could raise long-term productivity by enhancing people’s skills. And some provisions will create incentives for increased private investment. According to CBO’s estimates, provisions that could add to long-term output account for between one-quarter and one-third of the legislation’s budgetary cost.
But despite this caveat, the CBO sticks to its guns and says:
Beyond 2015, the legislation is estimated to reduce GDP by between zero and 0.2 percent.
Perhaps that looks like a small amount. It’s the difference between our GDP doubling every 40 years or every 36 years (assuming a baseline average 2% increase). But shouldn’t it make us ask the questions: why are we doing this? Aren’t we covering over short-term pain in order to inflict a probable long-term short-coming in growth? Is that trade-off worth it? Finally, can we please stop with the bold-new-green future rhetoric? At best, we end up back where we started.