The centerpiece of Obama’s short-term stimulus program was $862 billion in poorly targeted tax cuts and ineffectual spending increases he signed into law in February 2009, since supplemented by a number of smaller budget-busting “jobs” bills. Obama had one big shot at really helping the economy and he took it, holding nothing back. As short-term economic stimulus, it was doomed from the outset because it was based on the erroneous assumption that deficit spending can increase total demand in a slack economy.
The theory underlying Obama’s stimulus is that the economy was weak because total demand was too low. The suggested solution is then to increase demand by increasing government spending, exploding the deficit in the process.
This theory of demand manipulation through deficit spending ignores the simplest of realities: Government spending must be financed. So to finance deficit spending, government must borrow from private markets, thereby reducing private demand by the same amount as deficit spending increases public demand.[5] In effect, the theory says that if I take a dollar from my right pocket and put it my left, then I am a dollar richer. No wonder it always fails.
[5]See J. D. Foster, “Keynesian Fiscal Stimulus Policies Stimulate Debt—Not the Economy,” Heritage Foundation Backgrounder No. 2302, July 27, 2009, at http://www.heritage.org/Research/Economy/bg2302.cfm
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The theory underlying Obama’s stimulus is that the economy was weak because total demand was too low. The suggested solution is then to increase demand by increasing government spending, exploding the deficit in the process.
This theory of demand manipulation through deficit spending ignores the simplest of realities: Government spending must be financed. So to finance deficit spending, government must borrow from private markets, thereby reducing private demand by the same amount as deficit spending increases public demand.[5] In effect, the theory says that if I take a dollar from my right pocket and put it my left, then I am a dollar richer. No wonder it always fails.
[5]See J. D. Foster, “Keynesian Fiscal Stimulus Policies Stimulate Debt—Not the Economy,” Heritage Foundation Backgrounder No. 2302, July 27, 2009, at http://www.heritage.org/Research/Economy/bg2302.cfm
More Here
) on goods or services that otherwise would be counterproductive or exuberant. It interferes with the normal rationale of the market of people voluntarily making mutual exchanges for the benefit of the marginal utility of both parties by favoring one party at the expense of the other.
