Sunday, December 21, 2008

A short critque of government stimulus plans

This video clip briefly explains a part of the theory against government economic stimulus packages and touches on the empirical evidence which supports that theory. The speaker states that a govenment stimulus can not make the "economic pie" larger but only redistributes the slices. But the effect is much worse than that: a government redistribution plan necessarily makes the pie smaller for everyone. Not only does the government bureacracy use up a share (leaving a smaller pie to "redistribute"), but redistribution requires taking from the more efficient users of resources (i.e. those who procduce a greater surplus) and giving it to the less efficient users (those who either produce less or simply consume without producing.) As less surplus is produced, the pie keeps getting smaller. The long term effect of all "redistribution" efforts is the progressive erosion of productivity and wealth.

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