The Stimulus Package Revisited

By Richard Vedder

Readers may be bored with my rants about the stimulus package, but it is, by far, the most important thing going on in public policy today --and much of it is higher ed related. As the Senate bill has become known, the contours of the Dems proposal is becoming pretty clear. Whether Senate Republicans have enough fortitude and principles to force some moderation into the package is debatable, but I am pessimistic, John Boehner's sensible comments notwithstanding.

Billions of money is supposed to flow to schools. Most of it, I think, is a payback to the teachers unions and the academic community for their heavy support for President Obama. It has very little to do with stimulus. Giving money to increase the National Endowment for Humanities or increase NSF grants, for example, would not be considered effective short-term stimulus by most economists, I suspect. The same probably is true of increasing Pell Grants, giving tax credits to allow colleges to raise tuition rates more, etc. This is, of course, in addition to the fact that the empirical evidence is overwhelming that stimulus packages seldom work.

Liberals --and make no mistake about it, Barack Obama may be the most liberal president in American history-- love to capitalize on crises to expand government. We are entering the fourth big crisis in American history. The first one was World War I, an era that gave us the income tax. The Second was the Great Depression/World War II that gave us Social Security and massive government regulation of business. The third was a wholly manufactured crisis, the so-called poverty crisis of the 1960s, that gave us the Great Society, Medicare/Medicaid, EPA, etc. Today's crisis is the fourth, and is designed to give us womb to tomb government medical care, all sorts of growth destroying items to protect us from global warming (it is below zero outdoors where I am writing this, by the way), etc., etc. I predict this effort may be politically successful but will seriously damage the country economically, and put us in roughly the shape that western Europe is in --little growth, much angst and malaise. My economic modeling and political predicting leads me to expect bear markets for years to come --much like the bear markets of the 1960s and 1970s.

And, I repeat, colleges will be allowed to avoid taking big steps towards restructuring and rationalizing to make themselves lean, efficient, and accountable. Don't pack your bags to move to New Zealand yet --but it might be a good idea to be sure your passport is up to date.