Could the stimulus damage us?

Posted at 1:55 PM on March 23, 2009 by Paul Tosto (0 Comments)
Filed under: Economic stimulus

It's $800 billion of love, right? The massive federal stimulus package is supposed to bring more than $4 billion in new spending to Minnesota. Projects are already laid out for greater Minnesota with the expectation that 66,000 jobs will be saved or created here.

So shouldn't we feel confident it will help turn the ship? Maybe not.

A recent paper co-written by University of Minnesota economist and Minneapolis Fed consultant Tim Kehoe looks at the experiences of countries hit by depressions in the 20th century and concludes that "massive public interventions in the economy to maintain employment and investment during a financial crisis can, if they distort incentives enough, lead to a great depression."

Ouch. That runs counter to the current political wisdom, anyway. Federal Reserve Chairman Ben Bernacke backed the stimulus package and said recently it "should provide a boost to demand and production over the next two years as well as mitigate the overall loss of employment and income that would otherwise occur."

Kehoe's been a consistent voice on the dangers of massive government intervention.

In case you're wondering about his politics, he tells Bloomberg News Service he's a lifelong Democrat who voted for Obama.

Know anything about projects or programs paid for with stimulus dollars? Tell us.

-- Paul Tosto

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