Posted 11:29 pm Sunday, June 24, 2012
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Basic Economics, June 24
The front page of the Tyler Paper for June 19 featured an article entitled “Parties Divided Over Economic Measures.” The article explains that while both political parties agree the weak economy is the key issue in the current national elections, they’re worlds apart regarding what to do about the problem. The Democrats apparently favor more stimulus spending, which is hard to understand. With all due respect to Lord Keynes and Paul Krugman, the lessons of history clearly suggest this strategy doesn’t work. Even during the Great Depression, stimulus spending was a failure unless you’re willing to consider World War II a government stimulus program.
To understand why increased government spending is unlikely to lead to economic prosperity, just apply common sense. Recognize that when the federal government desires to spend more, the funds it needs must come from one of three sources: increased taxes, increased borrowing, or printing more money.
When taxes are increased, the government takes money from private entities and spends it according to its own priorities, but there is no “net” stimulus. When funds are borrowed, they must eventually be repaid, with interest — thus any stimulus effect will be short-lived. Finally, printing more money can produce an immediate economic stimulus, but once again the benefit will be only temporary. All else being equal, printing more money cheapens the value of the dollar and causes future inflation, which can quickly decimate the lower and middle-income classes.
Cliff Hickman
Henderson
To understand why increased government spending is unlikely to lead to economic prosperity, just apply common sense. Recognize that when the federal government desires to spend more, the funds it needs must come from one of three sources: increased taxes, increased borrowing, or printing more money.
When taxes are increased, the government takes money from private entities and spends it according to its own priorities, but there is no “net” stimulus. When funds are borrowed, they must eventually be repaid, with interest — thus any stimulus effect will be short-lived. Finally, printing more money can produce an immediate economic stimulus, but once again the benefit will be only temporary. All else being equal, printing more money cheapens the value of the dollar and causes future inflation, which can quickly decimate the lower and middle-income classes.
Cliff Hickman
Henderson
