Stimulus Fallacies
There are so many fallacies being perpetuated so often in these strange days that one would need to write a book to address them all. Fortunately for us, there are many great books and articles that have already been written that do, if only we’d read them. Despite the fact that they’ve been dealt with time and again, people concerned for the well-being of society must continue to address each of them.
We should not be all that surprised or concerned that our representatives do not read the contents of the bills that they vote on. They’ve been doing little else for decades.
Yes, they very rarely read the bills they vote for or against and yes, they usually contain a great many unrelated items. This precedent and the frequency of the practice does not make it right. It is a crime, it is repugnant, and completely incompatible with just, effective representative government.
In an economic slowdown, governments should actively pursue aggressive deficit spending programs in order to “re-invest” in and “stimulate” the economy.
Yes, government spending stimulates the economy. But one cannot overstate the importance of understanding that it can ONLY stimulate some sectors of the economy at the expense of others. The value has to come from somewhere. You can not print value. Are they asking you to write a check for your portion of the stimulus? Of course not–it would never pass. So they get it out of you by debasing the value of the money you already hold by printing more of it.
If it were true that government spending could actually stimulate the entire economy resulting in a true net gain, then the government could just spend us into true, universal prosperity. They cannot.
Extra-market spending is patently ridiculous and merely diverts money from one place to another. For government to spend money, it has to take it from productive pursuits and spend it on non-productive pursuits by the very fact that the former had it to be taken and the latter needed it to be given.
Aggressive deficit spending programs have historically been shown to work. FDR’s new deal pulled us out of the Great Depression.
Compare the crash of 1921 with the crash of 1929, where in the former the government did not intervene to bail out or stimulate, but instead cut taxes and spending and the latter in which we were given the new deal and unprecedented levels of spending and intervention. There are good reasons why you’ve never heard of the first one and why we are dreading a repeat of the second one. FDR did NOT save us from the great depression, but instead prolonged it by a decade.
When there has been mal-investment induced by inflationary monetary practices, the natural result is unsustainable growth and illiquid assets. At some point the music stops, the game is up, and things have to be sorted out. As sure as gravity, the only thing that can fix it is for the market to liquidate the bad assets and re-allocate the capital to sustainable, profitable, productive ends. Only the market can do this. Inflationary government spending only further mis-allocates resources, exacerbates the inflationary effects, and prolongs the misery.
We just replaced a Republican president with a Democratic one and we were entering into a depression at the end of the Republican’s term. Anything he did must be wrong and anything the Democrats do, so long as it angers the Republicans, must be right.
Yes, the Republicans were wrong, just as the Democrats are now wrong. It is foolishness to think that the only two possible options are being offered by the only two parties around. They have both been wrong for almost a century. They have both been operating unconstitutional, illegitimate, inflationary, interventionist, wasteful, destructive government.
“Is it true that you no longer cheat on your wife?” “Yes” and “no” are not the only answers.
This stimulus will pass, it will make things worse, and its supporters will perpetuate the narrative that it is a good thing we passed it because it would have been so much worse had we not. It is an unfortunate property of the nature of space and time that we cannot try two different courses of action simultaneously in order to determine which is better. In order to approximate this, we must study history and we must do so with the intellectual honesty we demand of any other science.