... 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.Boudreaux's last paragraph makes an important point that we should not lose sight of,
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.
The only other means of paying for such stimulus is for the Federal Reserve to create new money. Unfortunately, this option leads inevitably to inflation.
Sound money, low taxes, and free trade might not "stimulate" the economy today, but this combination will surely increase its vigor over the long-run.And it is economic growth over the longer term that raises our standard of living.
Update: Arnold Kling gives his view on Boudreaux's view in Boudreaux vs. Macro.
3 comments:
Freudian typing in the update?
Thanks EC, now fixed. Don't you have work to do?????
Was trawling through yer blog looking for hints as to whence you might have disappeared. You're still posting, so you're still alive...
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