The Homa Files

Excerpted from WSJ, “Why Spending Stimulus Plans Fail”, Riedl, Nov. 14, 2008

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Government stimulus bills are based on the idea that feeding new money into the economy will increase demand, and thus production.  They always fail.  There’s a simple reason why. What Congress gives to some it takes away from others.

Where does government get this money? Congress doesn’t have its own stash. Every dollar it injects into the economy must first be taxed or borrowed out of the economy. No new spending power is created. It’s merely redistributed from one group of people to another.

Advocates of stimulus respond that redistributing money from “savers” to “spenders” will lead to additional spending.

That assumes that savers store spare cash in their mattresses, thereby removing it from the economy. In reality, nearly all Americans either invest their savings (where it finances business investment) or deposit it in banks (which lend it to others to spend). The money gets spent whether it is initially consumed or saved.

Governments don’t create new purchasing power out of thin air. If Congress funds new spending with taxes, it is redistributing existing income. If the money is borrowed from American investors, those investors will have that much less to invest or to spend in the private economy.

Yet Congress will repeatedly borrow money from one group of people and then give it to another group of people and tell us we’re all wealthier for it.

It’s time for lawmakers to stop futilely trying to wave the magic wand of short-term “stimulus” spending, which threatens to push the deficit above $1 trillion. Focusing on productivity will build a stronger economy over the long run and leave America better prepared to handle future economic downturns.

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Full op-ed:
http://online.wsj.com/article/SB122663413095027641.html

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Ken’s Take: It often frustrates me that people don’t understand that corporations and the government are simply stewards of other people’s money.  When you tax a corporation, you’re simply taxing investors or customers (via higher prices); when the government spends, it’s spending tax payers money — there is no “government money”.

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This entry was posted on November 17, 2008 at 7:30 am and is filed under Government & Politics, Taxes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.