Don't Forget Whose Dollars Are Doing The Stimulating
In the WSJ, 1992 Nobel econ laureate Gary S. Becker and econ prof Kevin M. Murphy remind us:
4) There are no free lunches in spending, public or private.The increased federal debt caused by this stimulus package has to be paid for eventually by higher taxes on households and businesses. Higher income and business taxes generally discourage effort and investments, and result in a larger social burden than the actual level of the tax revenue needed to finance the greater debt. The burden from higher taxes down the road has to be deducted both from any short-term stimulus provided by the spending program, and from its long-run effects on the economy.
...Our own view is that the short-term stimulus from the legislation before Congress will be smaller per dollar spent than is expected by many others because the package tries to combine short-term stimulus with long-term benefits to the economy. Unfortunately, short-term and long-term gains are in considerable conflict with each other. Moreover, it is very hard to spend wisely large sums in short periods of time. Nor can one ever forget that spending is not free, and ultimately it has to be financed by higher taxes.
People fail to understand that sometimes recessions are necessary (and natural). They are the cure for an over-extended, inflated economy, not its demise. Avoiding recession by flooding the economyy with more cash only 'kicks the can' down the road for our kids to deal with.
Do recessions suck? Of course. So do colonoscopies & chemo-therapy, but sometimes they're necessary.
Our economy needs to contract. It needs to cut waste and bad practices. This is what recessions do. Strong & bad-tasting medicine to be sure, but also very necessary.
It's like feeding the fat kid more ho-hos so he won't feel hunger. Hunger can be a great and necessary motivator.
Snoop-Diggity-DANG-Dawg at February 10, 2009 6:39 AM
call me crazy, sandy, but instead of taking my dollar bill, spending 60 cents of it in administrative fee and waste, and handing me the other 40 cents back to spend, you could just let me spend the whole dollar... I'll probably spend the 60 cents on stuff, and keep the 40 for the next rainy day. and I won't be up late at night worrying about not having enough money...
SwissArmyD at February 10, 2009 10:12 AM
There are severe negative effects of higher taxes or promised higher taxes. When you try to take from people, they use a lot of resources trying to avoid giving what you want. They use politics and the law, at great expense, to avoid an even bigger expense from taxes.
They stop investing in activities that pay only decent, not large, returns. They stop employing people who have only decent, not excellent skills.
There is a $200 loss in production from raising tax rates to get an extra $100 in tax collected. This is called the Deadweight Loss of taxation. It is what is never produced, or what goes into extra accounting and legal fees, because taxes are raised. We end up with more paper and politics, and less clothing and income because of the deadweight loss.
The government should purchase only the most essential goods, because they really cost a lot.
The Deadweight Loss of Taxes
Andrew_M_Garland at February 10, 2009 2:59 PM
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