In a recent Wall Street Journal piece, Robert Barro examines the stimulus after its one-year anniversary. Barro is one of the world’s top economists and perhaps possesses the most specialized knowledge on stimulus spending.
Barro counts not just the “quantity of goods or services that the government purchased or the number of people that the government hired,” but he measures the stimulus’ impact on the productivity of the private sector.
“We need to ask whether the government’s spending reduced or enhanced private spending and whether public-sector hiring lowered or raised private hiring,” notes Barro.
In the short run, the spending appears to be good. Government stimulus spending outweighs the decrease in private investments. However, over the long run, the spending doesn’t look so good. We’ll spare you the wonky math and cut straight to the point:
…viewed over five years, the fiscal stimulus package is a way to get an extra $600 billion of public spending at the cost of $900 billion in private expenditure. This is a bad deal.
