I’m sure you’re getting tired of me writing posts about how the stimulus won’t work so rather than do a series of posts, I’ll just aggregate a few here:
Caroline Baum: Government Finds Itself in Hole, Keeps Digging
If economics is, as it’s sometimes defined, the study of scarcity, then resources available to the private sector just got a whole lot scarcer.
Robert Murphy: Does “Depression Economics” Change the Rules?
Wily competitors have known for ages that if you can’t win the game, you can simply change the rules. Now, during normal economic times, if somebody recommended that the government borrow a trillion dollars and spend it on anything that moves, most economists (as well as common sense) would say, “That’s nuts.” So one would think that especially in the middle of a severe recession, in which the American public has to recover from misguided overconsumption (fueled by Fed policies), such massive deficit spending would be all the more ludicrous.
Kevin Hassett: Trillion-Dollar Spree Is Road to Ruin, Not Rally
This year may establish a government-spending black hole with gravity strong enough to suck the U.S. economy over the event horizon. Such a spending path has two possible endgames. Neither is pretty.
Print or Tax
The Federal Reserve could print enough money to accommodate all of that debt, in which case the dollar will collapse and the U.S. will be looking at a South-America-style run on its debt.
Or the U.S. government could get its fiscal act in order with higher taxes. For that to happen, income taxes would approximately have to double.
While advocates of Keynesian-style stimulus are correct that this economy is terrible enough to warrant dramatic action, it is hard to understand how such a fiscal path might help. So what if second-quarter gross domestic product blips up a little bit? What business is going to expand its operations with the mother of all tax hikes peeking over the horizon? If government spending provided such a wonderful boost to the economy, we would be in Nirvana already.
The stimulus plan will create activity, but activity in and of itself is not the answer to our economic problems. If your only goal is to create jobs, outlaw the use of bulldozers and buy every unemployed person a shovel. Or better a spoon. Just creating jobs is not what we should be trying to accomplish. And borrowing to create jobs that pay less than the cost of creating them is just insane.