Why Obama's Stimulus Failed: A Case Study of Silver Spring, Maryland

High, persistent unemployment and a sluggish economy underscore what all but the most-dedicated supporters of Barack Obama know to be true: The president's 2009 stimulus program was a massively expensive bust.

Understanding why the stimulus failed is an important step in understanding how the government can—and cannot—goose economic recovery. To get a better sense of how and where the stimulus went wrong, Reason.tv focused on Silver Spring, Maryland, a suburb of Washington, D.C., that's home to a large number of government contractors and other recipients of money earmarked for the sorts of "shovel ready" projects that were going to bring the economy back to life.

President Obama's top economic advisor Larry Summers laid out ground rules for how stimulus dollars should be spent: The funds must be "targeted" at resources idled by the recession, the interventions must be "temporary," and they needed to "timely," or injected quickly into the economy.

None of that turned out to be true. "Even if you were to believe that government spending can trigger economic growth," says Veronique de Rugy, Reason columnist and senior research fellow at the Mercatus Center, "the money is never spent in a way that's consistent with the conditions laid out by the Keynesians for it to be efficient."

Reason.tv identified four basic ways in which the stimulus was doomed almost before it was put into operation. For the full discussion of those areas and links to supporting data, go to http://reason.com/blog/2011/12/08/why...

Written and produced by Jim Epstein, who also narrates.

Approximately 8 minutes.

Go to http://Reason.tv for downloadable versions and detailed links and text. Also subscribe to Reason.tv's YouTube Channel to receive automatic updates when new material goes live.

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  News & Politics

[SirTenenbaum]

"Only the federal government has the resources to jolt the economy out of the recession"?!? Where do you think the federal government get its resources?!? Holy Christ!

[Kevin Morton]

"Even if you were to believe that government spending can trigger economic growth, the money is never spent in a way that is consistent with the condition laid out by the Keynesian for it to be efficient." -Wonderful insight. Thank you Veronique de Rugy.

[Fallkenn]

So wait, you can't get something for nothing? Who would have known.

[TheMilesev]

A society can become twice as wealthy as it is now, but if employment levels are 90% they can never be twice as high as it is now. Employment levels are just one aspect of economic health, focusing on it and ignoring all the other aspects is a recipe for workers digging holes with spoons when shovels are available and nobody wants that.

[TheMilesev]

I realize this comment is old but I've always wanted to say this. The income people don't spend is invested. That's the critical flaw in Keynesian thinking, it ignores it's effects on investment. Governments borrowing money so they can spend it just moves money from private investment into government spending. It's like trying to raise the water level of a lake by taking buckets of water out of one side and dumping the buckets out in the other side.

[dapras]

The biggest crooks and thieves...Politicians, but only the stupid and the black one's get jail time.

[Majlerin]

Again, how do you measure growth? GDP is the most used measure. Some abstract idea of potential innovation is not a measure of economic growth.

As for "long run economic growth factors", that sounds like pop talk. One thing is certain: economic contractions and recessions are detrimental to "long run economic growth"

[James Carlyle]

I think you're missing the general principle of how growth works. I started this discussion by explaining that economic prosperity derives from growth, and so we should look at what contributes to economic growth. If you were to just google long run economic growth factors, you would see what I'm talking about. And no, nowhere does it say transfer payments, stimulus, shovel ready projects, or high intractable debts and higher tax rates contribute to growth.

[Majlerin]

"The trouble with most stimulus proponents is they tend to equate jobs with economic health. This is wrong."

That's funny because workers disagree :)

[James Carlyle]

Your actually wrong. The majority of research and innovation does not occur from government. But even if i were to grant you that, this innovation is not resulting from stimulus, especially if you look at where the stimulus money is going. I might concede stimulus makes some sense if it went toward innovation, but it doesn't