Stimulus, One Year Later

 

They say money can’t buy happiness. Money can’t replace happiness either, and with the "stimulus plan" of early 2009, that is exactly what we tried. As this plan nears its one-year anniversary, it is legitimate to evaluate the plan’s success, and judging by an unfazed unemployment rate, it would seem there hasn’t been much. I think a basic failure to comprehend happiness explains a great deal about the disappointment.

To be sure, some highways have been expanded. Municipal water systems have been improved. Stimuluswatch.org offers many examples. However, each time work such as this is done, the workers go home. This activity doesn’t cause anything about the larger economy to gel.

Indeed, the very flaw in the stimulus plan could be heard in the highest hopes expressed by those who advocated it. Stimulus money would be directed at "shovel-ready" projects, they said. And it was. However, the very phrase "shovel-ready" implies something—the existence of a project that is somehow worthy of going forward, but not worthy enough to have attracted support on its own. Might the contradiction suggest that the real worth of this project—the real value to the people affected—is still in doubt? No matter. Stimulus plods ahead. Under the theory of "shovel ready," any activity is worth funding as long as we know where to start digging.

Not all activities are the same, though. If I buy a lathe because I want to make a product, then two are made happy. The lathe is the means to what I want to do, and selling the lathe is the means to what the machine tool supplier wants to do. By contrast, if I find money on the sidewalk and buy a meal with it, then I am happy (as is the restaurant owner), but the person who lost the money is miserable. The net happiness of this transaction is much less—and quite likely zero.

Government expenditures aimed at "stimulating" almost always resemble this latter exchange. Some people are beneficiaries of the federal gifts, while others are miserable because they (or their children) have to pay through higher taxes.

We could spare ourselves this. In the end, happiness is truly what drives the economy—not cash—because the realistic hope of greater happiness is what encourages people to spend.

Dreamers leverage dreams off other dreamers. The mutual leveraging of different desires speeds both parties in their separate directions, accelerating all of the many trajectories in a healthy economy. Stimulus spending, by contrast, seeks to own the trajectories—giving momentum to some while sapping the speed from others. The net acceleration is, again, zero.

That is why another trillion won’t have a lasting positive effect. Nor will the next trillion after that. Economic activity instead requires allowing the economy to be active. A recent news item cites a small example—expensing and depreciation rules that relax the tax system’s grip on capital investment. To truly encourage job creation, we need many more steps like this—ever-bolder measures that treat citizens as the dreamers they are, not as day laborers.