Why The Stimulus Did Not Work

$787 billion is a lot of money. So why did it fail to "stimulate"? The promise was that unemployment would not go over 8%. Yet years after the stimulus package was approved by congress, the unemployment rate continues to languish well above 9.5%.

The simple answer is that there was no vision and defined purpose. The thought was that a massive infusion of money would be enough to get the economic engine running again. As a result, it was spread way too thin over a broad array of objectives that never provided the much needed traction for the economy.

Let's take a look 48 years earlier when JFK was faced with the threat of losing the space race after the Soviets celebrated putting the first man in space. On May 1961, President Kennedy committed to the Apollo program and committed to put a man on the moon before the end of the decade. Government set the priority, funded the proposal ($24B) and got out of the way. According to the NASA Langley Research Center, the Apollo program at its peak employed 400,000 and required the support of over 20,000 industrial firms and universities. The stimulus package could have funded 32 Apollo programs.

The United States was laser focused on the growing Soviet threat and engaged to win the war in space. The $787 Billion stimulus was a classic redistribution of wealth where everyone was given just a little; certainly not enough to create momentum. Remember the press conference when Americans were told they would receive a $400 tax credit? Yep, the return on investment was a whopping $8 per week for all tax payers.

President Reagan inherited an economy that was in stagflation - a period when unemployment and inflation are both very high. In his inaugural address he made the famous statement: "In the time of crisis, government is not the solution to our problem; it is our problem."

The Cato Institute analyzed the Reagan economy. Here is a portion of their findings:

This study assesses the Reagan supply-side policies by comparing the nation's economic performance in the Reagan years (1981-89) with its performance in the immediately preceding Ford-Carter years (1974-81) and in the Bush-Clinton years that followed (1989-95).

On 8 of the 10 key economic variables examined, the American economy performed better during the Reagan years than during the pre- and post-Reagan years.

Reagan focused his administration on reducing non-military spending and cutting taxes.

President Obama focused his administration on growing government by expanding programs such as healthcare and tax policy ambiguity. Additionally he chose to spread the stimulus thin utilizing a centralized government approach rather than allowing the free market to work or establishing a vision and funding the proposal. Government creates incentive for job growth, not creation. The failed stimulus will be a case study and debated for years.