"According to basic economic theory, in a business slowdown or recession fiscal stimulus is a useful tool to jumpstart the economy."
This is Paul Samuelson, demand side, economic theory.
It is not exactly correct, although the present administration and the congress abide by it, because it fits nicely into either's political strategy.
The most important thing to remember is that the money you are suggesting the government spend must come from somewhere.
If, as you suggest, it is not coming from taxes, then it has to be borrowed.
This increases the interest rate, which in its simplest form is a measurement of the demand for money.
This government borrowing "crowds out" the ability of private companies from using the money.
The only other 2 sources private companies have for money is a sale of a useful product, or the borrowing of money to buy assets to produce that useful product OR BY RAISING INVESTOR MONEY through the stock market. When the government repealed Glass Stegall, which was enacted after the last depression, they allowed government insured banks to control the stock market, thus like last time, eliminating one source of private capital.
Of course, the government borrowing will tend to crowd out the money that the consumer would use to buy the product.
The art of taxation is the art of shearing the sheep for the maximum amount of wool, without killing the sheep.
People will some times become so "depressed" at working so hard, only to have the government take it away AND then piss it away on useless projects or give it away to their "in" friends that they just stop working. They way to prevent this on a short term basis is to gradually increase the money supply, which pays off government debt which barely perceptable cheaper dollars.
The key to this trick is IF productivity increases can keep up, no one will notice because as income, the reward for the productivity increases, so do the taxes.
THAT IS WHY WHEN THE GOVERNMENT WENT AFTER MICROSOFT, THE DOWNWARD CICLE STARTED. No one realized just how much this one company was increasing everyone's productivity.
They still don't.
IF the economy gets to this level, THEN you are correct and the only thing left is for the government to flood the economy, by turning on the printing presses, withdraw interference and controls and then wait just wait until everyone forgets what happened the last time.
In the 29 recession, it took, depending on who you ask, 15-30 years for them to forget.
True, if the government were to spend the money wisely, meaning in a valid economic way, that would help.
BUT THEY NEVER DO. For every one Hoover Dam the are 300 enrons, for every one Salk Vaccine, there are 3000 Amtracs and 5000 swiss bank accounts.
The government has no profit motive, it is made up of people who never really had to work for a living, executives included.
Book mark this post for about two years from now. |
