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Economic Stimulus: The idiocy of government handouts

Posted January 27, 2008

Blogger's Note: Economic Stimulus — last week, the White House turned Obama. Only instead of promising $250 bucks in pocket money, as Obama envisions will kick-start spending and economic expansion, the Bush Administration's proposed "tax rebate" is a little bit bigger. Now, we don't mind tax "rebates". When people can keep more of the money they earn, it's better for them and better for the economy in general. It has nothing to do with "hand-outs" — considering the money handed out is the recipients' to begin with. But the very idea that a government can stimulate spending (beyond setting up a tax system that allows individuals to decide what to do with the lion's share of their money) by doling out a couple hundred bucks is just plain ridiculous. We thought this article hits the nail right on the head.

By Donald J. Boudreaux 

Baltimore — (TFN): A consensus is building that America's economy is sliding – perhaps plummeting – into recession. In December the unemployment rate jumped to 5.0 percent, up 3/10ths of 1 percent from its November level. And of course investors are now growlingly bearish.

To no one's surprise, politicians are rushing in with various plans for helping the economy. Most of these plans involve "stimulus." The calls are loud to put more money into the hands of ordinary Americans in hopes that they will spend – not save – it, thereby boosting the overall economy.

Such stimulus, however, is futile. Government cannot create genuine spending power; the most it can do is to transfer it from Smith to Jones. If the Treasury sends a stimulus check to Jones, the money comes from taxes, from borrowing, or is newly created.

If it comes from taxes, the value of Jones's stimulus check is offset by the greater taxes paid by Smith, who will then have fewer dollars to spend or invest. If Uncle Sam borrows to pay for the stimulus checks, this borrowing takes money out of the private sector. Any dollars borrowed – whether from foreigners or fellow Americans – for purposes of stimulus would have been spent or invested in other ways were they not loaned to the government.

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Posted by J. Christoph Amberger · Filed Under News that Matters 

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