Wedges and myths of the Right

Wedges and myths of the Right

- in Fitzsimon File

When the folks on the Right aren't spreading misinformation about President Obama's health care proposals, they are busy trying to convince us that the federal stimulus package is not working in North Carolina and will cost the state jobs.  Everything the government does is bad, remember.

The Pope Civitas Institute issued a report last week written by a conservative economic consulting firm claiming the stimulus plan will result in the loss of 67,000 jobs in the state. It starts with a dubious correlation between the amount of federal spending and the private economy to support the assertion that the $787 million stimulus package is "de-stimulating the economy and will actually worsen the fiscal health of the country."

The report calls that relationship between government spending and business outputs the "government expenditure wedge" a phrase used often by the Right to attack public investment. The bigger the government wedge, the theory goes, the worse things are for the economy, so the stimulus plan must be a disaster. 

One finding in the report that the Civistasers didn't tout was that "North Carolina currently imposes a lower government expenditure wedge than most states."  That's going to be hard to work into the talking points about the state having a spending problem.

Wedginess aside, the report defies common sense and barely explains what the stimulus package actually funds.  Roughly one-third of the money went back to taxpayers in the form of payroll tax cuts and direct payments to social security recipients, railroad retirees, and veterans.  

Conservative economists tell us all the time that cutting taxes jumpstarts the economy. The stimulus plan cuts taxes. 

Roughly another third of the money went to increase food stamp payments, extend unemployment insurance benefits, and help states address huge budget shortfalls without laying off thousands of workers and slashing services to people who need them.

As Rob Schofield pointed out last month in Setting the Record Straight, even an economist affiliated with the John Locke Foundation says that money spent on food stamps or unemployment directly stimulates the economy because people almost always spend it.

report released Wednesday by the Center on Budget and Policy Priorities exposes five common myths about the stimulus package. The first one is the Civitas claim that it results in job loss.

The Center cites the consensus view among the President's Council of Economic Advisers, the Congressional Budget Office, and private firms like Goldman Sachs and Moody's that the stimulus plan  "has added between 2 and 3 percentage points to baseline real GDP growth in the second quarter of 2009 and around 3 percentage points in the third quarter."

It quotes economist Mark Zandi of Moody's saying that "the stimulus results in approximately 2.5 million more jobs by the end of 2010 than would have been the case without it."

That seems pretty clear. So is the evidence that states like North Carolina were able to avoid laying off teachers and other vital state personnel because of the stimulus money.   The federal funding both created jobs and saved them.

The final piece of the stimulus money is now creating jobs by funding construction and renovation projects across the state, from roads to weatherization to airport improvements.

The bottom line is that despite the desperate attempts of the Right to discredit the stimulus, it is making a difference.  Without it, as the Center's report explains, the economy would be worse, more people would be out of work and states would have cut off far more services to their most vulnerable residents. 

Thank goodness the public sector stepped in—with its wedge against economic disaster.

About the author

Chris Fitzsimon, Founder and Executive Director of N.C. Policy Watch, writes the Fitzsimon File, delivers a radio commentary broadcast on WRAL-FM and hosts "News and Views," a weekly radio news magazine that airs on multiple stations across North Carolina.
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