So there it is: Mr. Obama is now endorsing a sort of reductionist Keynesianism that argues that any government spending is an economic stimulus. This is so manifestly false that we doubt Mr. Obama really believes it. He has to know that it matters what the government spends the money on, as well as how it is financed. A dollar doled out in jobless benefits may well be spent by the worker who receives it. That $1 of spending will count as economic activity and add to GDP.
But that same dollar can't be conjured out of thin air. The government has to take that dollar away from someone else -- either in higher taxes, or by issuing new debt in the form of a bond. The person who is taxed or buys the bond will have $1 less to spend. If the beneficiary of that $1 spends it on something less productive than the taxed American or the lender would have, then the net impact on growth will be negative.
Saturday, February 7, 2009
WSJ On Flaccid
As the U.S.
Senate/Congress Santa Claus finalizes its compromise social engineering recovery bill, it's worthwhile to try to explain to anyone with any sanity left why it can not possibly improve the economy overall. It's often difficult to explain complex things simply, but this Wall Street Journal editorial does it as well as I have seen to date.