Economic Stimulus Package - What’s the Point?
Sunday, January 27th, 2008One of my former professors sounds off on the new economic stimulus package:
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.
It makes sense. If $300 appears in the hands of every person in the United States, it’s not as if we now have more purchasing power as a whole. The total stock of dollars in circulation can always buy the same amount of goods, no matter how many dollars are in circulation…

