Thursday, 28 February 2008

There's one easy way to stimulate an economy...

25225_m George W Bush's 'stimulus' package consisting of one-hundred fifty billion taxpayer dollars put into consumer hands is simply a forced shuffling of money from one group of people to another -- in this case, from those who've produced the money to those who haven't. 

The justification for the package is to "stimulate demand," as if consumption itself is a primary.  But it's not.  As Amit Ghate points out, production is not an end in itself --

production must ultimately be understood as being for the sake of consumption...  But this of course does not mean that consumption makes production possible, manifestly it’s the other way around...

Once we see through the myth of “insufficient demand”, we also see that the Bush plan is not a “stimulus” at all, it is simply another case of the redistribution of wealth (the government collects taxes and then gives a small portion of them back). It therefore can, and does, add exactly nothing to the economy.

To judge the worth of the 'stimulus package,' it's enough to realise that "economic growth means an increase in wealth."  It does not mean a redistribution of wealth from those who've produced it to those who wish to consume it.  The point is well made in an extensive article by Yaron Brooke in Forbes magazine that's well worth reading in full: To Stimulate The Economy, Liberate It.

While some in Washington are quibbling about the details of the economic stimulus package, nearly everyone agrees with its basic idea: that our ailing economy needs Uncle Sam to play doctor and hand out some $150 billion in consumer spending money. But this sort of government intervention is not the cure for our economic troubles. It is the cause.

Since "economic growth means an increase in the amount of wealth that exists in a country, and all wealth must be produced," the importance of production should be obvious.

The focus of today's stimulus packages on consumer spending is therefore completely backward. Consumption is a consequence of production. This fact is ignored by the Bush plan, which attempts to achieve prosperity through $100 billion in deficit-spending. Though this might bring the appearance of prosperity, in the same way that an unemployed man appears prosperous if he goes on a shopping spree with his credit cards, the reality will be the opposite.

The sub-prime mess and the credit crunch itself -- not too mention the various 'bubbles' created by earlier expansions of easier credit by means of the printing press -- these are all problems created by government itself.  Over-regulating producers has hampered producers from creating new wealth, and over-taxing them has removed the necessary capital to produce new wealth.  The government is not the solution to the present problem, says Brook, it is the problem.

Imagine the economic stimulus, the explosion of productivity, that would occur if [all the various] regulatory nooses were removed.  For that matter, consider how our government wreaks economic destruction by taxing the wealth of the productive and diverting it unproductively. Americans pay trillions of dollars in taxes annually ... for regulations and for entitlement programs that transfer wealth from productive individuals who have earned it to those who haven't.

Over the years, these programs have prevented individuals from investing trillions of dollars in new ventures. It took a million dollars to start Google; if the government hadn't drained us of millions of dollars, picture what other amazing technologies, products and services we would be enjoying today.

The economic stimulus that would result from drastically cutting government regulation and spending (and thus taxation) is almost unimaginable.

Faced with recession, therefore, we should be asking not, "What can the government do to stimulate the economy?" but "What can it stop doing?"

Government should not be attempting to stimulate the economy, he concludes.  It should be aiming to liberate it.  In other words, if you really want to stimulate the economy then get the hell out of the way!

I urge you to read the article in full.

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