- Nov 30, 2000
Interesting article about past government stimulus packages.
I've always found it interesting to look back on government action and see what occurred, intended and otherwise. Of course, the otherwise is the interesting part.The biggest problem is that the government can?t inject money into the economy without first taking money out of the economy. Where does the government get that money? It can a) borrow it or b) collect it from taxes. There is no aggregate increase in demand. Government borrowing and spending doesn?t boost national income or standard of living; it merely redistributes it. The pie is sliced differently, but it?s not any bigger.
In fact, the data suggest that stimuli often end up shrinking the pie. In a 2008 paper, budget analyst Brian Riedl of the conservative Heritage Foundation summarized several studies that found past increases in government spending reduced the economic growth rate by between 0.14 and 0.36 percentage point. This means that every dollar?s worth of production used to satisfy the government?s demand is offset by more than a dollar?s worth of production that is no longer available to consumers and businesses.
Present or future tax increases that fund government spending often end up burdening the economy. Such was the case in the 1930s, during World War II, and in 1990s Japan. Thankfully, the 2001 and 2008 tax rebates, while ineffective as stimuli, didn?t make things worse.