Economists Call for More Demand Stimulus

In an open letter entitled, GET AMERICA BACK TO WORK, 16 prominent economists called on the federal government to enact yet another "stimulus" package to spur "demand". This is supposed to make up for the lost purchasing power of the unemployed.

"The urgent need is for government to replace the lost purchasing power of the unemployed and their families and to employ other tax-cut and spending programs to boost demand. Making deficit reduction the first target, without addressing the chronic underlying deficiency of demand, is exactly the error of the 1930", they said, forgetting the lessons of the Great Depression - the crippling activist policies of the Hoover and FDR Administrations.

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4:32 pm, Jul 20, 2010

Zemack

I have a better idea. Instead of another government stimulus package, why not just legalize theft. Everyone can then be free to rob his neighbors, as long as he spends the loot. That would create plenty of "demand", be more efficient because it would cut out the bureaucratic middleman, and be more honest and straightforward than having our politicians do it for us.

Of course, that wouldn't work any better than government spending, for the same reason. Legitimate, private sector demand has a fundamentally different origin than "public demand".

As any honest consumer knows, you need to earn some money before you go to the store. Money must be made, before it can be spent. "Consumer spending" is really a trade between two producers - the buyer who earned the money, and the seller of goods and services. Private consumers add to the pie, before they take a slice.

Politicians who promote stimulus programs ignore or evade the first part of the trade that makes consumer spending possible - the earning part. This fact exposes the crucial difference between consumer spending and government (or government-induced) spending.

Every time the federal government creates another program to stimulate demand (or consumption), it does so - like a thief - by seizing the earnings and savings of the nation's productive citizens through taxation, deficit spending, or inflationary printing press money. Posturing politicians seek to make us more prosperous, through policies paid for out of our own money and financial nest eggs. Unlike private consumers, the government doesn't "earn" its money.

Stimulus always fails, for this very reason. Private consumers work for the money they spend, thus producing their own demand. Stimulus politicians - from liberals like Obama to psuedo-conservatives like Bush - do not create demand. They simply steal it.

The source of consumer spending is productive work. The source of government demand-side stimulus policies is economic plunder.

Of course, understanding this requires logic, or at least basic common sense. Keynes ignored both under his creation - macroeconomics, the field that studies economic activity without focussing on actual human beings - because he was fundamentally a statist. Politicians ignore both, and follow Keynes, because it satisfies their powerlust and craving for a pat on the back for "doing something". The economy gets damaged long term, but Keynes had the famous answer, the height of immoral irresponsibility: "In the long run, we are all dead."