Monday, July 27, 2009

The Essence of a Government Stimulus

Brought to you by The Rational Capitalist:


Obama: Please Try This at Home

If you want to understand why “stimulus” programs do not work in the sense of generating economic growth, try the following experiment at home or at your place of business.

Go up to someone and hand them $20 and tell them that by giving them this money, you intend to “stimulate” the local economy. Observe what happens. The recipient now has $20 to spend or do whatever. However, note that you have $20 less to spend. Therefore, there will be no net affect on the local economy. All that has happened is that the recipient has twenty of your dollars to spend on something he wants, and you have $20 less to spend on something you want.



The rest is just as pithy. Read it and enjoy!

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5 comments:

Anonymous said...

I would add that the $20 you give to your family member is not yours. It belongs to another community member. You took it (forcefully) and decided who is going to get the money thus adding to the immorality of your act.

Beth said...

Anonymous,
I am not following your thinking.
Can you elaborate?
Are you saying that all money is obtained by force?
Is there no such thing as honestly obtained wealth and ownership of property?

Anonymous said...

In the case of stimulus money the money is not Obamas, it is taken from the people there for in your "experiment" the $20 is not yours to give.

Beth said...

Thank you for the clarification. Of course, you are exactly right.

There are actually 2 scenarios: one in which I give someone my own personal $20 to someone, and the second (the government "stimulus" scenario)in which the government first takes the $20 from someone else (or generates a $20 out of thin air) and then gives it to someone.

Neither scenario will increase productivity or wealth, but if I use my own personal $20, it is at least a moral act.

When the government hands out the $20, it must either obtain it from someone else (almost always by force, as how many people voluntarily donate to the government) or the gvmt. counterfeits money--neither of which can be considered moral.

Doug Reich said...

Thanks so much for the link!