The bottom-line is the federal government borrowed funds from the public, transferred these funds to state and local governments, who then used the funds mainly to reduce borrowing from the public.
Got that? The net impact on aggregate economic activity was zero.
"There are no shovel-ready jobs" - Obama
This behavior is a replay of the failed stimulus attempts of the 1970s. As Gramlich found in his work on the antirecession grants to state and local governments: "A large share of the [grant] money seems likely to pad the surpluses of state and local governments, in which case there are no obvious macrostabilization benefits."
The implication of our empirical research and Gramlich's is not that the stimulus of 2009 was too small, but rather that such countercyclical programs are inherently limited. The lesson is to beware of politicians proposing public works and other government purchases as a means to stimulate the economy. They did not work then and they are not working now.
Not only did the "stimulus" fail to reduce unemployment, it's higher than it was forecast to be had the government done nothing
. Millions of families have been economically devastated by months of unemployment, their skills growing less valuable with each passing day, diminishing their possibility of ever finding another job. Businesses not fortunate enough to leave the US for good have been permanently wiped out in bankruptcies and liquidations. Spending money we don't have has degraded our currency and our credit worthiness around the globe. It has enslaved future generations with the unsustainable burden of paying for it, while the specter of Obamacare hangs like a sword of Damocles over our future.
Until this month, Obama got everything he wished for in his first two years on office. Nearly everything he has done has resulted in misery. Such are the consequences of his actions. We are now experiencing our ninth straight month with unemployment above 9%.
The Fed can print all the money Obama wants to fulfill his big-government fantasies, but it can't print jobs.
Bad enough? It gets worse. The housing market continues to be so bleak that states and municipalities are facing a revenue shortfall so unwieldly it now threatens the bond market. A bond market crash is now perceived as inevitable.
Treating this sick economy will take drastic action. Merely continuing the current tax structure is not enough - the income tax is inefficient, immoral, and has destroyed economic growth
. It must be abolished.
Spending must be cut in dramatic fashion, and no one will be spared its effects. A decade or two, or three, from now, the US may once again reclaim its status as a world leader. Maybe. Continuing our present course is certain to guarantee its destruction.