I am pretty sure this qualifies as heresy. At least Paul Krugman has the decency to call French classical liberals cockroaches when discussing their relevance to fiscal multipliers. But Scott Sumner alerts us to page 33 of the Obama Administration’s 5-year report on the American Recovery and Reinvestment Act (ARRA), aka the Obama Stimulus Package passed in early 2009:
The Recovery Act and subsequent jobs measures also contained a large number of
provisions that were aimed at strengthening long-term growth. In designing the Act, the
Administration believed that it was not just the quantity of the fiscal support that mattered, but
the quality of it as well. In this sense, the Administration took to heart a lesson that has been
pointed out by many but can be traced back as early as the 19th century to a French writer and
politician named Frederic Bastiat. Bastiat (1848) wrote of a shopkeeper’s careless son who broke
a window in the storefront. When a crowd of onlookers gathered to inspect the damage, Bastiat
took objection to the discussion that ensued: “But if, on the other hand, you come to the
conclusion, as is too often the case, that it is a good thing to break windows, that it causes money
to circulate, and that the encouragement of industry in general will be the result of it, you will
oblige me to call out, ‘Stop there!’”
For this reason, the Recovery Act was designed not just to provide an immediate, short-
term boost to the economy, but also to make investments that would enhance the economy’s
productivity and overall capacity even after the direct spending authorized by the Act had phased
out. The Act’s investments in expanding broadband infrastructure and laying the groundwork for
high-speed rail, to take two examples, are a far cry from the broken window in Bastiat’s parable
because they do so much more than simply restore things to how they once were. Rather, these
types of investments will raise the economy’s potential output for years to come, from a rural
school that can now offer its students and teachers high-speed Internet access, to a business that
has a new option to transport its goods more quickly.
Note that the formatting is from the original, including the omission of “é”‘s from his name. They were trying to save taxpayers money, I’m sure.
Last thing: In the Executive Summary, they claim that the ARRA directly provided $674 billion in “fiscal support through 2012,” and that it saved or created “about 6 million job-years” of full-time employment through 2012. That works out to $112,000+ per job. Did all those beneficiaries get (or keep) jobs that paid an average of $112,000 in annual salary? If not, what would the numbers need to look like for the Administration to report, “Man we wasted a lot of money.” ?
(And of course I dispute the figures from the outset; I think the ARRA reduced employment. I’m just pointing out that even on their own terms, this was a very inefficient use of money.)