Russ Roberts wrote:
Love that word—stimulus. It sounds so scientific. ...Sounds like the perfect prescription for an
ailing economy.
But if politicians know how to stimulate the
economy, why wait for a recession? If you can make the economy grow, why
wait for bad times?
...Maybe we don't know how to make a $14 trillion economy move very
quickly. And if we did, it would take a lot more than an injection of
even 125 billion dollars.
There's that scientific language
again—an injection. The politicians are always going to inject some
amount of money into the hands of consumers and into the economy, like a
doctor giving a lifesaving blood transfusion. But where does the
economic injection come from? It has to come from inside the system.
It's not an outside stimulus like the chest paddles or the transfusion.
It means taking money from someone or somewhere inside the system and
giving it to someone else.
The standard stimulus package
doesn't change incentives. It's a check from the government. The hope is
that the receiver will spend it. But when you just send out checks from
the government, whoever gets stimulated is likely to be offset by
someone who gets unstimulated.
The money has to come from
somewhere. If you raise taxes to fund the plan, the people who are taxed
are poorer and they'll spend less. If you borrow money to fund the
plan, the people who buy the government bonds have less money to spend
and that offsets the stimulus. It's like taking a bucket of water from
the deep end of a pool and dumping it into the shallow end. Funny
thing—the water in the shallow end doesn't get any deeper.
And even the people who get the money often save more of it than they spend.
That's
why stimulus schemes based on giving people money have a poor track
record... Usually, the only thing that gets
stimulated is a politician's approval rating.
I'm not saying
that economy policy is irrelevant. Economic policy matters because it
affects the long-run growth of the economy. I'm all for policies that
make us more productive or innovative by changing incentives. But those
policies take time. There's little any economic doctor can do to move
our $14 trillion organism of an economy in the next few months.
Politicians
who work in the Oval Office—or those who seek to work there—would be
wise to remember that patience is a virtue. Focus on the policies that
lead to growth over time. Expecting results overnight is bound to lead
to disappointment.
- Roberts asks, "if politicians know how to stimulate the
economy, why wait for a recession? If you can make the economy grow, why
wait for bad times?" How would you answer him?
- Roberts asks, "But where does the
economic injection come from? It has to come from inside the system." Is it possible to create an injection into GDP from within the circular flow of the economy during bad times?
- Roberts says that with an economic stimulus, "the only thing that gets
stimulated is a politician's approval rating." Why would approval ratings increase if a stimulus does nothing?
- Evaluate the following quote: "But when you just send out checks from
the government, whoever gets stimulated is likely to be offset by
someone who gets unstimulated. The money has to come from
somewhere. If you raise taxes to fund the plan, the people who are taxed
are poorer and they'll spend less. If you borrow money to fund the
plan, the people who buy the government bonds have less money to spend
and that offsets the stimulus. It's like taking a bucket of water from
the deep end of a pool and dumping it into the shallow end. Funny
thing—the water in the shallow end doesn't get any deeper. Does that make sense? How does a recession happen if the money is always there anyhow?