Leaky Federal Spending

Monday's Wall Street Journal published an editorial recalling the economic advice of JFK advisor Arthur Okun. Okun was the architect of the now-famous Kennedy tax cuts. Editorialist George Melloan wrote,

"Okun has been called the first supply-sider- one who worked for Democratic presidents no less. In his day, he would have been called a classical economist."

Melloan attributes to Okun the term "leaky bucket," whereby wealth transfers from high income earners to lower income earners "leaks out and is wasted."

One of the largest sources of leaks comes from the simple fact that government 'stimulus' spending replaces that of private capital, and, thus, substitutes political calculations for profit motives, the latter tending to assure that investments of capital actually pay off for society.

Melloan writes,

"The central defect of government bailouts and stimulus packages is that the money is allocated through a political process. It goes to recipients who have the most political influence. Private entrepeneurs and even big business, by contrast, employ investment to earn a profit. The record shows that the latter yields greater economic efficiency, and hence creates real jobs."

With up to $1.5T of new Federal stimulus spending, between Wonderboy's new program, and the second half of the TARP, imagine how much taxpayer money is about to be sloshed around on pet political projects, rather than truly economically vital needs?