A failure can make for a valuable learning experience, and the stimulus package is no exception.Clearly the stimulus has not worked, and from its inception many economists doubted the wisdom of the federal government trying to spend our way into prosperity.But putting aside questions about the merits of spending as means of sparking an economic recovery, it appears that the feds were not even able to dole out the money in a timely manner.The culprit — regulatory red tape.
Several studies conducted by the Department of Energy’s Office of the Inspector General (here , here , and here) have concluded that many of the stimulus-funded projects related to energy were very slow to get off the ground.For example, DOE’s investigation of one program dealing with block grants for energy conservation projects concluded that “as of August 2010, more than one year after the Recovery Act was passed, grant recipients had expended only about 8.4 percent of the $3.2 billion authorized for the Program.” Not exactly the “shovel ready” boost to the economy we were promised.
Regulatory delays were the reason. In its most recent report, DOE’s Inspector General concluded that “various regulatory requirements had slowed spending,” including “the Davis-Bacon Act, National Historic Preservation Act, Buy American provisions of the Recovery Act, and National Environmental Policy Act (NEPA).”
Granted, the programs funded by the stimulus are a big waste of taxpayer dollars, and it is a good thing that the feds can’t squander our money more quickly.But the point is that even the big government proponents of the stimulus package are finding out what it is like to get tripped up by — big government.Whilst hoisted on their own petard, one can hope that the legislators who supported the stimulus might figure this out.
Perhaps they will learn the critical lesson that can lead to real economic growth.Just as stimulus spending faces a regulatory gauntlet, so does private investment.Efforts by large and small businesses to expand — the real source of an economic recovery and job growth — are hampered by the regulatory state at least as much as are the government projects highlighted in the DOE reports. Streamlining or eliminating these regulatory hurdles would do far more to help the economy than all the stimulus spending in the world.
A little government can do a lot of good. A lot of government can do little good.
Rules protecting life, liberty, and property can create the stable conditions that entrepreneurs need to flourish. It works best when these rules are simple, clear, and few. But problems emerge when government takes on other missions.
Rules that are complicated, opaque, and numerous create instability. Entrepreneurs are less likely to invest or innovate if they fear the rules of the game might change tomorrow on a whim. Complying with regulations takes up time and effort that could be spent creating wealth. When governments get involved in business, businesses will involve themselves with government. This is an invitation to corruption, rent-seeking, and regulatory capture. Many backs get scratched, but economic growth suffers.
Dan Mitchell‘s latest video introduces the Rahn Curve, named after top-notch economist Richard Rahn, to illustrate that concept visually. Most academic studies on the subject estimate that governments that take up 15 to 25 percent of GDP is about the right size. The U.S. government consumes roughly 40 percent of GDP. That wide range is because different government policies have different effects, and because the complexity of even the smallest economies makes any macro-level study uncertain.
The academics might be guessing too high, though. Historical data from the 19th century show that the best-performing economies had governments around 10 percent of GDP. That includes the U.S. and most of Europe.
Returning to that size government wouldn’t even be particularly austere. the U.S. government would have a $1.4 trillion budget. Roughly what we had during the Clinton years.
I hope you’ll take a few minutes to watch. The Rahn curve contains valuable insights.
Consumption of resources is rising rapidly, biodiversity is plummeting and just about every measure shows humans affecting Earth on a vast scale….A growing band of experts are looking at figures like these and arguing that personal carbon virtue and collective environmentalism are futile as long as our economic system is built on the assumption of growth. The science tells us that if we are serious about saving Earth, we must reshape our economy.
Is there any doubt over the prescription? “Expect tough decisions on wealth, tax, jobs and birth rates,” intones one of the entries. As CEI’s Fred Smith has noted, the greens think there are too many people, too much production and consumption, and too much technology. Thus the environmentalist prescription too easily boils down to “death, poverty and ignorance.” Sustain the “Earth” (requisite reverent tremble in the voice here), but people? Who needs ‘em.
Coming from the UK, CEI Senior Fellow Iain Murray knows a little something about the history of political empires. Today, however, we find ourselves faced with a new era of eco-imperialism, particularly in the field of global warming policy. Iain explains:
“Eco-Imperialism” = efforts by the developed world to impose its environmental priorities on the developing world. Developed countries seek to pressure the Third World into reduce greenhouse gas emissions “for the sake of the planet,” regardless of its impact on the standard of living and prospects for economic growth in those nations. Cost-effective energy use is critical for Third World people, and is the fastest path toward ending poverty.
This, and other great videos, are also available at the new online multimedia destination CEI On Demand.
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