“The government pretends to be endowed with the mystical power to accord favors out of an inexhaustible horn of plenty. It is both omniscient and omnipotent. It can by a magic wand create happiness and abundance. The truth is the government cannot give if it does not take from somebody.”
During the Great Recession, Oklahoma City received $48.7 million in stimulus to use in reducing the effects of the 2008 economic downturn. Some of the money went to starting new projects that would inevitably need future funding, which contributed to a funding gap in 2014 (fiscal year). This means city officials had to make hard choices, evaluating which programs were worth spending city funds after the federal funding had been exhausted. Oklahoma City’s economy weathered the Great Recession better than most of the country. Why then did they take federal money to start programs they would not want in the future? This was not free money.
The state of Oklahoma is in the same position Oklahoma City found itself in over a decade ago. While the state’s economy has had downturns resulting from the current crisis, it has bounced back surprisingly well. From the beginning of the current downturn (February 2020) to June 2021, Oklahoma employment (non-farm) had a modest decrease of just 3%. The Gross Domestic Product (GDP) has gained from the first quarter of 2020 to the first quarter of 2021. Oklahoma’s unemployment in June was 2 percentage points lower than the national average. While Oklahoma had some economic uncertainty before the current crisis, the state’s economic issues have been dwarfed by the current economic predicament of the world economy and in comparison, is doing fairly well.
Though Oklahoma is doing okay comparably, it was given $1.9 billion of the American Rescue Plan funding to help with problems caused by Covid. Because the state’s economy is doing fairly well, this is an astronomical sum. If the funds are spent in their entirety, they will cause inflation. Prices will rise as the government must compete with private sector firms, creating more demand and higher prices. The funds will also be paid by to the federal government in tax increases, and state programs started with federal money may eventually result in increased state taxes as well. Worst of all, the federal largesse expands the size of government.
The funds are supposed to be used for Covid related costs or infrastructure. Although proposals have not been finalized, the governor has asked for the money to be spent on programs that “build a vibrant, innovative, and broad-based economy” or “deliver more for all citizens, especially the vulnerable.” While the latter is more in line with how the money was intended to be used, it is still not needed. The government can try to force innovation through incentives, but it will always fail. The government does not have the knowledge to invest in economic growth since funding is often rigid and entrepreneurial progress is not.
Federal law prohibits American Rescue Plan funds from being used for some of their best uses such as cutting taxes, shoring up pension plans, or increasing the rainy day fund. If the money must be spent, it should go to finishing current projects or performing maintenance that has long been needed. Creating temporary programs that won’t be funded later, or will become state budget obligations, is the worst use. As Milton Friedman famously said, “Nothing is so permanent as a temporary government program.”
An infusion of $1.9 billion of state spending will greatly increase overall government spending and increase the influence of government on the economy. The money is intended to be used to bring the economy back to a pre-Covid level, but the state’s plan doesn’t accomplish this goal. Even if spending could return the economy to normal, the governor’s current plan misses the mark. It will ultimately end in inflation and higher taxes, both of which are a negative draw on the economy. Therefore, the money should be left unspent and returned to the federal government.
The opinions expressed in this blog are those of the author, and do not necessarily reflect the official position of 1889 Institute.