Posted by
Dave Smith on Thursday, February 19, 2009 6:34:20 PM
In case you've been hiding in a cave this week, Congress passed and
Obama signed the nearly $800 billion economic "stimulus" plan this
week. In the name of "economic recovery", the government will now be
taking money from our paychecks to spend on power plants, "green" cars
and technology, art, museums, roads, bridges, loans to rural
homeowners, "Extra money for Office of the National Coordinator for
Health Information Technology", "Oversight of SSA spending", and a
whole host of other programs (view a line-by-line summary
here, courtesy of the
Wall Street Journal).
One recurring question keeps coming back up: will this immense spending bill (greater than the
total spending on the wars in Iraq and Afghanistan over the past 8 years combined) actually do anything to stimulate the economy?
Consider some thought exercises. Let's say I own a house and want a
new deck. My neighbor agrees to build the deck for, say, $2000 plus
materials. I agree, and after I've spent my $2000, I now have a deck.
I've received something of benefit that I find more valuable than the
two grand, and my neighbor feels like he's a winner because he's $2000
richer. He can then go spend, save, or invest that $2000, while I
lounge on my deck drinking mojitos. Home Depot is happy, because they
sold me the wood, nails, sealant, etc. Perhaps my house is even worth
more now as a result of the addition. In a classic demonstration of
division of labor, I paid someone else to do something more efficiently
and effectively than I could do myself.
Now consider another scenario. My neighbor steals $2000 from me. I'm
now $2000 poorer, and I have nothing of value to show for my money.
Perhaps I decide as a result of the theft that I need to buy extra
security equipment. Instead of buying that new deck I want, I now
can't afford it, and I'm frustrated by this, as well as the fact that
suddenly my neighbor is wearing nicer clothes and has a new watch. In
a classic case of theft, I've paid someone else to do nothing at all
for me.
Finally, consider a third scenario. The governmenet sends someone by
to collect $2000 from me. The government agent then walks over to my
neighbor's house and promises him $1400, after making him fill out a
bunch of forms and waiting for a few months. I have to fill out a
bunch of forms too -- I have to prove to the government I don't owe
them even
more than $2000. I'm (at least -- let's hope there's
no audit!) now $2000 poorer, with nothing of value to show for my
money. Meanwhile, the neighbor gets his $1400 check, and I notice that
he's wearing nicer clothes and has a new watch. In a classic case of
redistribution, I've paid the government to take my money and give it
to someone else to do nothing at all for me.
Consider those three scenarios. Which one is actually stimulating the economy? Now instead of just me, consider
every taxpayer, and instead of $2000, make it nearly a trillion. At least with the second scenario, the direct theft, you don't have to pay the middle man.
Now do you think the spending bill will stimulate the economy?