Who needs economic stimulus?

 

With all the people in government who profess to know how to manage the economy, you would think they could get it right — at least occasionally. But if anyone could really do it, there would be perpetual prosperity, right?

Economic cycles are a fact of life, whether in the free market economy we supposedly have here or the centralized control models of the socialist and communist societies.

So, why the panic when the economy turns down? Is an economic stimulus package truly necessary? Not really, except for the impact it may have on politicians getting re-elected. There is no recession, at least not yet, and the rush to stimulate the economy is just political posturing; nothing more.

Newt Gingrich, former Speaker of the House of Representatives, recently commented, “First of all you don’t want to propose a stimulus package. That’s like steroids for athletes. You want an economic growth package and that package ought to start with less government spending, less bureaucracy; it ought to start with lower taxes; it ought to focus on how do we get people to create jobs … how do we get breakthroughs in the cost of energy so that we can become less and less reliant on the Middle East. I think we need that kind of approach rather than how do I pump up the system in a way that is ultimately going to be very destructive.”

 

Alan Reynolds, a senior fellow at the Cato Institute, also pointed out, “All proposals for fiscal stimulus claim to ‘jump-start’ the economy by having the government borrow money from Smith and give it to Jones. Unfortunately, Smith is paid interest on that IOU, which implies a higher tax burden on somebody.”

Democrats and Republicans both favor an economic stimulus package and can’t seem to get a bill on the President’s desk fast enough. But, the fact that they agree doesn’t make them right. Furthermore, historically, by the time politicians get around to doing something about a recession, it has usually already bottomed out and is headed back up.

 

The major elements of the economic stimulus package we’re hearing about will accomplish next to nothing. Stimulating short-term consumer spending by distributing borrowed money will not provide an adequate rationale for businesses to expand, because after the money has been spent by the recipients, we will be right back where we started. The proposed stimulus of $150 billion may sound like a lot of money, but at approximately 1/100 of 1 percent of a $14 trillion economy, it’s relatively meaningless. Furthermore, the IRS has stated they will not be able to get the checks into the mail before May or June, which means the spending that follows probably won’t even show up in the numbers until the first quarter of 2009.

Businesses do not expand and create new jobs unless they expect a stable economy that will produce sufficient long-term sales growth with adequate profit margins to justify the risk of borrowing to finance expansion. A temporary increase in sales of the sort that will result from a short-term economic stimulus will not accomplish that.

 

“What we see is a bunch of self-serving fat cats whose first commandment is ‘do as I say, not as I do.’ Have to be responsible with money? We don’t. Have to prepare for your future? We don’t. We can run this country right into the ground and every single one of us still be sitting pretty.” (Arnold Ahlert, “Take Your $800 and Shove It,”politicalmavens.com)

 

 

 

 

© 2008 Harris R. Sherline

All Rights Reserved

 

Read more of Harris Sherline’s commentaries on his blog at www.opinionfest.com.