Monday, February 9, 2009

Tom Woods on the Stimulus

According to Bob Higgs we may as well call the so-called stimulus bill “swimming-pool economics.” It’s based on the idea that if you take water from the deep end and pour it into the shallow end, the water level will rise.

Over the next few years, the February 4 report of the Congressional Budget Office (CBO) assures us, the stimulus is all sunshine and lollipops. The CBO concedes that by 2019 the stimulus will have depressed GDP by somewhere between 0.1 and 0.3 percent, but almost no Washington politician has a time horizon that long...

The Keynesian idea behind the so-called stimulus is that prosperity can be restored if the government is allowed to seize enough resources from the private sector and spend them on just about anything...

If “creating jobs” is all we want, we should hand out teaspoons and tell people to start digging trenches. Government, since it acts in isolation from the market, can’t possibly know what kind of jobs actually yield value rather than simply squandering resources and wealth...

The stimulus-mongers, on the other hand, now with support from the CBO, intend to do whatever they can to prevent this healthy adjustment from occurring, and to try to inject life into the corpse of the bubble economy...

In 1920-21, the United States endured a depression whose first year was worse than the first year of the Great Depression. What got us out of it? Inflation by the Fed? Wasn’t tried. Fiscal “stimulus”? That’s a laugh -- the federal government actually cut its budget.

No, what solved the problem was the free market itself, which was by and large left alone to clean out all the malinvestments and reallocate capital sensibly.

read the entire essay

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