[Congressional Record (Bound Edition), Volume 155 (2009), Part 3]
[Senate]
[Pages 3354-3355]
[From the U.S. Government Publishing Office, www.gpo.gov]




                              THE ECONOMY

  Mr. GRASSLEY. Madam President, one of the arguments we have heard in 
support of the proposed $1 trillion stimulus bill is that our economy 
is performing below its potential. It is argued we have a gap between 
what we could produce and what we are producing.
  There is no question our economy is producing less than it could. It 
is quite obvious we are in a recession. But that does not mean a 
massive, temporary increase in Government spending can fill the gap and 
thus restore our economy to its full potential. In fact, the opposite 
is true.
  The proposed $1 trillion increase in Government spending will impede 
recovery and reduce future growth. The Congressional Budget Office--
which I want to remind people listening, as well as my colleagues who 
tend to forget it--is a nonpartisan group of people who are 
professionals in making judgments about Government programs and what 
they cost. The Congressional Budget Office reported last week that the 
stimulus bill will create temporary jobs that cost as much as $300,000 
apiece, and then it will reduce jobs permanently compared to no 
stimulus bill at all.
  Economists often talk about the economy in terms of a circular flow. 
The circle assumes a continuous flow between production and 
consumption. Businesses hire workers who produce goods and earn a 
salary in order to buy the goods they produce. According to this world 
view, whenever production declines, the solution is to increase demand 
and thereby boost production.
  In reality, the economy is not a circle. Production involves a series 
of steps in which raw materials are transformed into intermediate goods 
which are transformed into finished products. This process takes time 
as value is added at every step. That is what production is all about: 
adding steps to the process until you get to a finished product.
  For example, to make bread, we need to grow wheat. To grow wheat, we 
need to work the land. To work the land, we need tractors. To build 
tractors, we need plastic, steel, rubber--and you know all the other 
components. Nearly every step of this process relies on trained 
individuals with unique skills and unique knowledge, people who utilize 
tools and material designed to meet their very specialized needs.
  Given the complex structure of production, an increase in the demand 
for bread cannot instantaneously bring about an increase in the supply 
of all the things needed to produce more bread. Likewise, a reduction 
in the demand for bread cannot instantaneously convert all of the 
people's places and things previously used to produce bread into some 
other productive alternative.
  At a given point in time, our economy is comprised of a specific set 
of goods and services, each with its unique factors of supply and 
demand. When market conditions change--either because of fickle 
consumers or maybe foreign competition or maybe rising oil prices or 
maybe a stock market bubble or a housing bubble, which we all know 
about now--some of the goods and services that existed before the 
change are no longer suitable to meet the market conditions that exist 
after that change. Those are some conditions we are in right now.
  The unemployed workers and idle resources that exist today are 
largely the result of the decline in home prices and the associated 
turmoil in the financial markets. Most everyone in this body knows 
that. I think most people at the grassroots know there were problems 
with housing that brought about our credit crunch and the unemployment 
and recession we have now because our housing market was overleveraged, 
overpriced, and unsustainable, bringing about a great deal of 
unemployment caused by changes in the economy and adjustments to that 
economy going on and not going on in a very likeable way.
  The bursting of the housing bubble has not only affected 
homebuilders, realtors, and mortgage brokers, it has also spilled over 
into other areas of our economy. For example, falling housing prices 
have reduced the ability of many homeowners to finance nonhousing-
related spending through the use of home equity loans.
  As workers become unemployed and resources idle, it is said that our 
economy has fallen below its potential, and we all know that. However, 
that does not mean a massive temporary increase in Government spending 
can fill that gap that we all realize exists and, hence, cannot 
necessarily restore our economy to its full potential because massive 
temporary increases in Government spending does not have that effect. 
Spending for the sake of spending, then, is not a solution.
  Every dollar the Government spends does, in fact, have a cost, 
regardless of whether the dollar comes from taxes, from borrowing or 
through the printing press. When the Government spends money, what does 
it do? It diverts workers and resources from alternative uses. We may 
not think about that, but that is the impact of the Government on the 
free market economy we have. During a recession, when workers are 
unemployed and resources are idle, it is argued that this diversion is 
a good thing. However, the stimulus bill is not restricted just to 
unemployed workers and just to idle resources. Moreover, the stimulus 
bill is supposedly temporary.
  Consider the implications of unrestricted, temporary Government 
spending. I wish to have my colleagues consider those. In one case, 
unemployed workers obtained temporary make-work jobs and, therefore, 
delay their search for meaningful, long-term employment. In the other 
case, employed workers are diverted from their current employment into 
temporary make-work jobs and thereby reduce the output of other goods 
and services. Thus, if you think about temporary make-work jobs, they 
add little or no value to the economy, while diverting employment from 
other jobs, probably other jobs that are very long term and productive. 
As a result, the money paid to these workers increases the demand for 
goods and services while reducing the supply. We know what results 
then: more inflation and less growth.
  The only way the Government can increase economic growth is by 
spending other people's money more efficiently than those individuals 
would. But instead of arguing the Government can spend money better 
than everyone else, the supporters of the stimulus bill

[[Page 3355]]

are relying on the argument that Government can spend money faster than 
everyone else can. As President Obama said last week in Williamsburg, 
VA:

       So then you get the argument, ``Well, this is not a 
     stimulus bill, this is a spending bill.'' What do you think 
     stimulus is? That is the whole point.

  However, that is not the whole point. What matters is whether we are 
producing goods and services that people want to buy or whether the 
Government is paying people to engage in activities that have less 
value than the private sector alternatives.
  Let me be clear. Not all Government spending is wasteful and 
unnecessary. Government spending designed to meet a critical need can 
be beneficial, and we can list a lot of things the Government does that 
are beneficial but not necessarily the things that are in this stimulus 
bill or at least not all of them. We could go to building the 
interstate highway system, for example. It increased our ability to 
travel and transport goods across the Nation. However, the economic 
benefit is derived from the transportation services that result from 
the interstate highway system and not from the jobs that created the 
interstate highway system.
  If the goal of infrastructure spending is jobs, then why not give 
everyone a shovel or a spoon or even build roads by our hands. We could 
create millions of jobs. Now, no one has proposed that--at least not 
yet--but the point ought to be very clear. When Government spends money 
in order to create as many jobs as possible, as fast as possible, we 
end up with Government boondoggles instead of sound economic policy.
  As an aside, I would point out that repairing our existing 
infrastructure is a necessary expense; however, such activity causes 
increased traffic congestion and delays. The loss in productivity and 
output due to increased travel time and fuel consumption is an 
unavoidable cost of maintaining an existing benefit, which the 
interstate highway is or which all our highways and streets and roads 
are. There may be a cost-benefit analysis that shows we would benefit 
from spending more to build and maintain our infrastructure; however, 
this analysis would also show that cost is ongoing over a long period 
of time.
  I ask unanimous consent for 1 more minute.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. GRASSLEY. We should not waste valuable resources on needless, 
temporary projects, nor should we fool ourselves into believing that 
truly useful projects can be funded on a temporary basis. Any 
worthwhile investment will involve an ongoing expense.
  Those who claim all the spending in the stimulus bill will be 
temporary are essentially admitting it will have no lasting value. 
Alternatively, those who claim it will have a long-term benefit are 
essentially admitting the spending will not be temporary. Clearly, both 
these claims cannot be true. Contrary to what some people might have us 
believe, a massive increase in Government spending for the purposes of 
creating temporary make-work jobs is not a sound economic recovery 
plan.
  I yield the floor.
  The PRESIDING OFFICER (Mr. Warner). The Senator from Louisiana is 
recognized.

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