Monday, January 21, 2008

Stimulating the economy

There is a lot of talk about a stimulus package being passed to help the economy out of an apparent rough patch. Everyone seems to be on board -- given politicians' affinity for spending other people's money this should hardly count as surprising -- and eventual passage seems inevitable. With this in mind, a few points:

1. Government doesn't create money. Every dollar it spends is either borrowed against the future or transferred from one person to another. This money for the stimulus package doesn't appear out of thin air.

2. Even so, a case perhaps could be made for a stimulus package if the President and Congress got together in a non-partisan manner and established exactly where this money could do the most good -- i.e. where it could generate the most bang for the buck. This is wishful thinking. The reality is that the stimulus package is going to turn into a grab bag of goodies for all kinds of politicians to spend money on their pet projects, which will probably coincidentally benefit a few of their constituents and campaign donors.

3. Based on what I have read the stimulus package is likely to be in the neighborhood of $120-50 billion. The U.S. economy is over $13 trillion. Think about it. According to James Pethokoukis the best case scenario is a .5% increase in GDP growth.

So, basically, we're going to take a bunch of money that we don't have, that probably isn't enough to make a huge difference and will be allocated inefficiently due to the manner in which government operates. The best bet would be to simply do nothing and let the economy work out its kinks on its own.

But of course anyone crazy enough to propose something like this would be criticized as uncaring and out of touch.

Sigh.

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