Government Spending to Stimulate the Economy is a bad Idea

by Kenneth Prazak

Those who haven’t learned the lessons of history are condemned to repeat them. The latest push by the politicians for a "stimulus" package harkens back to the old Keynesian days of spend, spend, spend; inflate, inflate, inflate. Serious economists have relegated that failed policy to its deserved trash heap of history. But the politicians, with the willing yet ignorant compliance of many in the news media and self appointed literati, continue to revive this policy as an excuse to increase government spending.

But spending, whether by the government or consumers, does not increase wealth, and does not, in the long run, generate economic activity. Any deficit spending that is done either by the government or through consumer credit cards must at some point be paid back ‒ with interest. Any economic activity generated by a “stimulus package” in the long run, will be decreased when the piper must be paid.

In the mortal world, we must first produce (obtain wealth) so that we can consume what we produce. Government can not create wealth; it can only extract it. Government spending must extract its source of wealth from one (or a combination ) of three ways. If the government uses taxes, then private consumers have that much less to spend on their own chosen goods or services. If the government finances spending through borrowing, then consumer taxpayers must pay for it through higher taxes in the future to pay for the interest on the borrowing. If the government chooses to pay for the spending by increasing the money supply, then we all pay for it through the watering down of the value of our money, i.e., inflation.

Yet this economic fallacy persists. Calls for sports stadiums, airports, farm subsidies, or welfare benefits (to name just a few examples) are all made, in part, on the supposed virtue of stimulating economic activity. This is the economic fallacy of the “seen” versus the “unseen.” People see the rise in this focused economic activity and mistakenly assume that there is no cost for the endeavor ‒that the wealth to pay for these schemes comes out of nowhere, like manna from heaven. But as the great economic journalist of the nineteenth century, Frederick Bastiat, has pointed out, this is not the case. It is best illustrated by Bastiat in his famous story concerning  the brick thrown through the butcher’s window.

So the story goes, someone throws a brick through a butcher’s window and breaks the window. The butcher laments the fact that now he is going to have to pay a glazier to install a new window. A customer, listening, suggests that he need not be upset, by employing the glazier, the glazier will now have more money to spend, which will increase economic activity. The glazier buys some bread putting more money in the pocket of the baker who in turns buys a candlestick. The candlestick maker then comes over to buy meat from the butcher. “So you see,” says the customer,” the money will come back to you.” But what would have happened if the window hadn’t broke? Instead of the butcher having to pay for a new window, he could have spent the money he was saving on a new meat slicer, increasing his productivity, and thus making him and the whole local economy better off. With the whole economy better off, the glazier would make money installing new windows for a new house instead of replacing windows in an existing abode.  Economic activity is generated in both examples. But the net result in the former example is a net economic loss, in the latter, an economic gain. Moreover, in the former example, choice is taken away from the butcher. He must spend money on a new window when he would rather spend it on his new meat slicer.

Digging a hole and filling it might bring  work for a person  who digs dirt for a living.  But it obviously is not economic activity. Government spending that finances an activity that the private market place will not provide is the equivalent of government financing the digging of a hole and filling it.

This is not to say that returning taxpayer money to its rightful owners is not a good idea. It is but not so much for the reason of stimulating economic activity, but for the reason that it is their money, not the politician’s ‒not the government’s.

Still not convinced? Ask yourself this question: If we aren’t smart enough to spend our money the way we choose so that government must make our spending choices,  then how are we possibly smart enough to choose to elect the right politicians  for the purpose of spending our money in the right  way?

It’s our money, our economic activity, our choice, our lives.

Kenneth Prazak is the president of the Fox Valley Libertarian Party and lives in East Dundee

 

Mr. Darst responds:

Libertarian Society would have drawbacks

In Tuesday’s Valley Views, Kenneth Prazak head of the Fox Valley Libertarian Party, was making a convincing case against President Bush’s economic stimulus package until he used the illogical parable about the butcher and the broken window.
In the interest of fairness and balance, it should be pointed out the the Libertarian Party advocates a society with little or no government as we know it today. Libertarians call for a society of self-government and would like to go back to life as it was 150 years ago, when they claim there more individual freedoms and less government.
There would be no income tax or FICA deductions from our paychecks, and that does sound good until you look at the whole picture of what life would be like 150 years ago.
There would be slavery; children working 12 hours a day, six or seven days a week; disputes often settled with guns in the West; no government regulations to improve the quality of air and water; few children attending high school; few programs to help the sick and indigent; no government programs to help people buy a home and attend college; terrible and unsafe work environments; the Robber Barons; women unable to vote; and no gun laws.
While I agree with Mr. Prazak that ere is too much government interference in the daily life of the average citizen with resulting waste of tax dollars, I would have to see a nation with over 200 million people effectively function with what would basically be self-government before I would throw over a form of government that has served this country well for over 200 years.
Victor Darst
West Dundee

 

My response to Mr. Darst

The Genuine Libertarian Position

In Mr. Darst’s December 10 response to my “Valley Views” column on an economic stimulus package, he makes many erroneous claims, misrepresentations of the Libertarian philosophy and fallacious arguments. I will address only a few.

Victor Darst states that the Libertarian Party would like to go back 150 years to the condition of slavery. Nothing could be further from the truth. Ironically while accusing Libertarians of supporting slavery, (which, of course, we do not) he does support slavery, albeit, probably unknowingly in his own letter.

The Thirteenth Amendment to the US Constitution states, “ Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States or any place subject to their jurisdiction.” When the government forces taxpayers at the point of a gun to involuntarily subsidize certain corporations, sports teams, farmers or other welfare recipients, they have put the taxpayers in a position of involuntary servitude, a position Victor Darst supports. Today’s slavery is a different sort than that of the past—there are no whips or chains, instead, we endure the IRS along with the other federal alphabet agencies, 37 of which use their camouflage gun-toting goon squads on US citizens from time to time.

Libertarians do not consider it much progress to equalize slavery; we wish to finally and totally abolish it as the Constitution mandates.

Concerning education, Libertarians are firm believers in it. But as all socialist programs fail, so, too, does our public (government) school system. Libertarians would like to improve education by empowering parents, allowing them the choice to decide where their children go to school without having to pay double in the process, and, to boot,  sending their children to a school that will teach the values they wish to instill in their children, not relinquishing that right to the power of arrogant education bureaucrats.

Finally, concerning guns, the fact of the matter is that in every one of the thirty one states that have passed conceal carry laws, the crime rate has gone down. Yes, Libertarians support the right of US citizens to protect themselves, a right guaranteed  by the Constitution. An armed society is a polite society.

Libertarians do support the values of the founding fathers such as Thomas Jefferson and Thomas Paine. But we do not wish to return to those days, but improve on it, by guaranteeing individual liberty and enforcing self responsibility for all citizens, not just for white, Anglo-Saxon protestant males.

Kenneth Prazak is a co-founder of the Fox Valley Libertarian Party, newsletter editor for the Libertarian Party of Illinois, and weekly radio talk show host for a live call-in show called “Freedom Rings” streamed-live every Monday mornings, 9:00-10:00 AM at www.freedomrings.net. Email ken@fvlp.org