John Stossel:
The economy does seem to be slowing, and there was a net loss of jobs in January. The housing industry is sluggish and the credit market tight because of the subprime-mortgage problems. So, to “get the economy moving,” the anointed experts want the government to quickly put cash in our hands. When we rush out to spend it, the story goes, the economy will get out of the ditch.
Interesting theory, but it’s hardly new, and it’s been demolished many times before by free-market economists. One problem, which George Mason University economist Russell Roberts observed, is that the money that will allegedly be “injected” into the economy is already in the economy. So how can it be a stimulus?
“The politicians are always going to inject some amount of money into the hands of consumers and into the economy, like a doctor giving a lifesaving blood transfusion,” Roberts says. “But where does the economic injection come from? It has to come from inside the system. It’s not an outside stimulus like the chest paddles or the transfusion. It means taking money from someone or somewhere inside the system and giving it to someone else.”
The federal government is in the red. Bush’s new budget has a $400 billion deficit. There’s no lockbox with $100 billion in it. So to give everyone a tax rebate, the government will have to borrow more money. But that only moves the cash from one part of the economy to another. As Roberts says, “It’s like taking a bucket of water from the deep end of a pool and dumping it into the shallow end.”
The real solution to the problem is to simply tie less money up in the government. Tax businesses less and they’ll hire more workers, expand their operations and overall ramp up production. Tax individuals less and they’ll use that money to invest in retirement, education or stocks. These things help the economy.
A one-time check from the government doesn’t do much of anything. But the checks soon to be mailed out sure make it seem like the politicians are “doing something” about the economy.