The stimulus fallacy

President Barack Obama and the majority Democrats in Congress have put Utah, and other states, in the delicate position of deciding whether to accept another round of "stimulus" money to aid cash-strapped public education budgets. Utah Gov. Gary Herbert has until Sept. 9 to declare whether he wants the $101 million the federal government has set aside as Utah's portion of what amounts to $26 billion in funds distributed nationwide. If he says yes, the state Legislature would have to convene a special session to grant its approval. Some conservative groups, as well as some lawmakers, have said the state should just leave the money alone and walk away.

But the state would gain little by standing firm on principle, especially considering how much stimulus money it already has received. If Utah rejects its portion, the money would simply go to another state. It would not go back into the pockets of taxpayers. The problem has nothing to do with whether Utah accepts the money — it has everything to do with how some politicians believe they can help the economy by offering it.

Utah could use the money to save an estimated 1,400 to 1,500 school jobs. The money, however, would be a one-time fix for an ongoing problem. The state would have to hope the economy rebounds sufficiently during the next year to continue funding those jobs, otherwise layoffs would be only postponed a little while.

And that is the problem. To date, the Obama and Bush administrations have succeeded in pumping $1.2 trillion worth of direct federal stimulus spending into the economy. What do they have to show for it all? Virtually nothing. The official unemployment rate remains perilously close to 10 percent, while the actual unemployment rate, including those who have been out of work so long they have lost hope, is as high as 22 percent, by some estimates.

Much of the federal stimulus money has been used to fund government jobs and projects. That does not help the economy recover. While it has saved some jobs, the government has had to take that money from someone else. Even if the money is borrowed, not taxed, there is a net effect on taxpayers that negates the gain.

The best way to stimulate the economy is to encourage private-sector investment. At the very least, this means not letting the Bush tax cuts expire, not even on the wealthiest Americans. If investors regain their confidence, and if businesses have more money with which to expand, the end result will be an increase in tax revenues. That would allow schools to rehire their lost employees and feel confident that those jobs will be permanent.

The public education stimulus appears to be little more than a favor to teacher's unions, which traditionally support Democrats. Utah won't reverse that decision by rejecting the money. Lawmakers ought to accept the state's share. But for the economy to recover, Washington needs to understand that stimulus bills won't do the trick.