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February 3, 2009
What we need to know about all those stimulus dollars
Topics: Political News and commentariesFrom David Freddoso's, "The Case for No Stimulus," comes what every American needs to think about before falling for Obama's stimulus package:
[...] For the last three months, Americans have been treated to a debate over what the government can do to ease the effects of the current recession and bring about a speedy recovery. Lawmakers of both parties are now considering a very large stimulus package.Read the entire piece, and begin asking your politicians in Washington the right questions.But there is a catch. Every penny of such a package must be borrowed, because the government is already running a $1.2 trillion deficit this year and faces a $703 billion deficit for next year, according to the non-partisan Congressional Budget Office. The question, then, is whether the government can help the economy by spending money if it can only do so by first sucking that money out of the economy. It is a question that surprisingly few public voices are expressing.
[...] NRO: In this stimulus debate, no one is answering or even discussing an important question: Where is the money coming from? Can you stimulate the economy by spending money that you must first remove from the economy by borrowing?
Riedl: That is a great question. The grand Keynesian myth is that you can spend money and thereby increase demand. And it's a myth because Congress does not have a vault of money to distribute in the economy. Every dollar Congress injects into the economy must first be taxed or borrowed out of the economy. You're not creating new demand, you're just transferring it from one group of people to another. If Washington borrows the money from domestic lenders, then investment spending falls, dollar for dollar. If they borrow the money from foreigners, say from China, then net exports drop dollar for dollar, because the balance of payments must adjust. Therefore, again, there is no net increase in aggregate demand. It just means that one group of people has $800 billion less to spend, and the government has $800 billion more to spend.
Related: The burden of proof
Posted by Hyscience at February 3, 2009 8:10 AM
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