The Fallacy of Economic Stimulus: The Most Efficient mode for Economic Destruction

The Clover Helix
www.thecloverhelix.blogspot.com
Friday, October 30, 2009

In today's hard economic times it's difficult to accept what the national media and the government want you to believe about the nation's economy, and impossible if you have ever studied Austrian Economics.

Currently there is a brewing controversy over the effectiveness of the Federal government's "Cash for Clunkers" program (see here). The current author supports the view of the government's opponents on this issue. Clearly, the government has become very sensitive to the issue of their effectiveness. Furthermore, the Federal government issued a report today claiming that the economic stimulus package saved or created 640,000 domestic jobs at a cost of $150 billion dollars. This government-issued report was intended to demonstrate the effectiveness of the government's economic stimulus program (see here).

What is not emphasized is that this amounts to $234,375 for every job created or saved, not including the interest on the money borrowed or the inflation that this new money will inevitably create for the rest of the country. The average American wage is $41,334. Think about that a moment. The free market, if left alone, would have recovered and provided 3,630,000 people with jobs for a year in the productive portion of the economy using the same money! However, these jobs are now permanently lost through this "stimulus" and instead we are left with 640,000 mostly government-sector (non-productive) jobs. The government doesn't consider this future job destruction because their loss is never actually seen by the public, but they can be accounted for.

How so? The $150 billion must be repaid, and in the words of late economist Henry Hazlitt "public works means taxes", and if the government can't pay through taxes it will do it through inflation (monetary debasement). Either policy destroys public-sector productivity and job growth because every dollar collected by the government is another dollar not invested in job growth. Therefore $150 billion of future taxes is worth 3,630,000 private sector yearly incomes lost over the duration of repayment, and that's not counting the interest or the inflation which cost us even more job growth. In essence, for every new stimulus job created, 5.6 productive future year-long incomes are wiped out. How long can the nation continue in this way?

Even more ominously, the government intends to spend another $637 billion of borrowed money to create or save new jobs over the next year or so. Simply put, we can't borrow our way to prosperity and our United States, like Rome and Athens, is going to learn this lesson the hard way.