New School Politics

The Case Against Fiscal Stimulus

Ryan | 3 02 2008

If you're a first time visitor, you may want to subscribe to our RSS feed, which will keep you up to date with all the latest New School Politics posts. Thanks for visiting!

With economic prospects not looking so hot and the compromise bill for fiscal stimulus in limbo in the Senate, more spending appears to be the consensus among the public regarding how to cure the ailing economy. Right now we stand to see around $150 billion in mainly expended to “prime the pump” at some point this year.

But while stimulus may be the conventional wisdom, a variety of legitimate voices still exist against the Keynsian rehash. Here is a list compiled by Greg Mankiw of such voices:

Andrew Samwick

Steven Landsburg

Robert Samuelson

Russell Roberts

James Hamilton

James Cramer

Arnold Kling

Donald Boudreaux

Alan Reynolds

Bruce Bartlett

George Will

Alex Tabarrok

Bill Thomas and Alex Brill

Michael Kinsley

Steve Entin

Dan Mitchell

Walter Williams

Thomas Sowell

Ricardo Hausmann

Bob McTeer

Willem Buiter

It is worth noting that I too am against any notion of “fiscal stimulus.” Some of my favorites, which on the whole best represent my opinion, include Economists Steven Landsburg, Russ Roberts, Don Bourdeaux, Arnold Kling, Alex Tabarrok, Walter Williams, Thomas Sowell and political commentator George Will.

The underlying theme of their criticism is that there is nothing magical about the stimulus and it does little more than redistribute existing wealth within the economy. The main effect it has is to encourage consumer spending (as opposed to savings) in order to boost short term demand. Unfortunately this is the complete opposite of what our economy needs right now. What the economy is experiencing is essentially a readjustment of how it spends its money. Years of extremely low interest rates an loose credit caused mal-intestment and overspending–especially in real estate–up until the current point in time in which investors began to realize that real savings was not enough to support the expensive borrowing that was going on.

In other words, the root of the economic problems we are facing today are the consequence of overspending. And the proposed rememdy–even more spending–can only further inflate these problems and postpone even greater economic woes.