Spending is Not Stimulus

During the Bush years, so-called stimulus legislation
based on “Keynesian” theory was enacted in both 2001
and 2008.1 It was hoped that putting money in people’s
pockets would lead to more consumer spending and thus
give the economy a positive jolt. Those episodes of
Keynesian policy were ineffective, but that has not
dimmed enthusiasm for the approach. The Obama
economic team is pushing a similar approach, but on a
much bigger scale—more than $800 billion of new
spending and temporary tax cuts, a figure that climbs
above $1 trillion when interest costs are included. And that
may be just the starting point since the promise of
additional spending has set off a feeding frenzy on Capitol
Hill.
Doing more of a bad thing is not a recipe for growth.
Government spending generally is a burden on the
economy. Whether financed by debt or taxes, government
spending requires a transfer of money from the productive
sector of the economy. Moreover, most forms of
government spending result in the misallocation of labor
and capital, causing even further damage.

Read more: Spending Is Not Stimulus by Daniel J. Mitchell, Tax & Budget Bulletin no. 53, February 2009.

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