Advocates of ever-increasing economic "stimulus" never seem to look at the cases where their preferred economic policies are actually put into effect. By the way, those advocates include essentially all of the cognoscenti as far as I can tell -- the entire governing class in Republican administrations (GW Bush) and Democratic (Obama), the IMF, the Fed, Krugman, all Krugman-wannabe economists, etc.
So Kevin Williamson does a major service with his cover article in the current issue of National Review, titled Bankruptcy Boricua. (Looks like it costs a quarter to buy the article. Or you could subscribe to the print edition like I do.)
There are lots of statistics in the article. The bottom line is that in Puerto Rico they have tried and tried for decades to buy a growing economy with more and more government spending, and the result is vast dependency and a per capita income level only about half that of the otherwise lowest state (Mississippi). By 2008 Puerto Rico's government was running an official on-budget annual deficit of $3.3 billion, 44% of revenues. A new governor elected at that time, Luis Fortuno, cut on-budget spending 20% and got the official deficit down to 7% of revenues. He also cut taxes and to some degree went after the public sector unions. Needless to say, he only lasted one term. Under the new guy, the deficit and tax rates have resumed their increases. Meanwhile, it turns out that Fortuno was only really dealing with the official part of the budget. They also have a bunch of off-budget public agencies, like the University of Puerto Rico and the Government Development Bank. When you combine the deficits of the agencies with the official budget, what's the real combined deficit? Williamson says that a recent audit came up with the number $39 billion. For comparison, that's approximately equal to the entire budget of the state of Connecticut ($37.6 billion), which has about the same population as Puerto Rico (both are around 3.6 million). But Connecticut is a lot wealthier.
But surely all this deficit-spending "stimulus" has created lots of jobs through the famous "multiplier" effect? Not really. Williamson reports these discouraging numbers: 15.2% unemployment; 30% of employed people work for the government; and 51% of residents receive some form of welfare. And did I mention that Puerto Rico's population has been declining since 2000? It's off about 200,000, or almost 5%, from a peak over 3.8 million in the 2000 census. Everybody who can is moving to the mainland.
You would think that there would be some level of empirical evidence that government spending cannot buy economic success that would eventually sink in to even the densest skulls. Well, on that subject my memory is jogged by seeing the op-ed in this morning's Wall Street Journal by one Martin Feldstein, noted economist certainly not of the Krugman ilk, Harvard professor and one-time head of the Council of Economic Advisers under Reagan. Certainly not a liberal shill, you would say. The subject of Feldstein's op-ed is not fiscal stimulus, but rather how the Fed should give guidance on monetary policy. However, a couple of weeks ago I attended a monetary policy event put on by something called E21, and Feldstein was the featured speaker. After his speech (the subject of which was much like his op-ed today) somebody asked him, OK, what do you think should be done about today's sluggish economy? And his answer? He said that the government should increase the amount of fiscal stimulus. I'm not making this up. This is the unbelievable power that fallacious Keynesian groupthink is holding over economic policy today. It's actually worse. Feldstein went on to say that the government should do what he called "real" stimulus, which he described to mean the purchase of goods and services, as in the building of infrastructure, as opposed to transfer payments like the last round of Obama stimulus. The reason he gave was that transfer payments are not measured as such in GDP, whereas purchase of goods and services go into GDP at 100 cents on the dollar. OH MY GOD he has been taken in by the single most obvious and blatant fraud practiced on the people by the government. I have written about this many times, for example here. Martin: The inclusion of government purchases in GDP at 100 cents on the dollar is just a completely fraudulent measurement convention, and does not make the measured increase remotely real. Help!!!!!