A friend of mine recently suffered an economic setback. He lost a major client. My friend is doing what all businessmen must do when something like this happens. First, he’s trying to drum up some new business. And second, he’s spending more money than ever before. Just as fast as he can. Buying lots of expensive new clothing. Taking lots of trips he doesn’t need to take. Giving his landlord extra rent money, etc. My friend says it’s deficit spending so he can boost the local economy. Is this guy an idiot? Yes. And I made it all up. Gotcha.
Actually, I don’t know anybody at all who would behave this way, not with his own money. What people really do in this kind of case is cut expenses, not increase expenses. They tighten their belts. Yet, when it comes to the whole economy, some people want the federal government to hand out more and more money to anybody who puts in an application. And they call these handouts “stimulus packages.” But the money for the handouts has to come from somewhere, namely, from other people. Which means that those other people now have less money than they had before. Less money to pay their rent or hire new people or what have you. And of course the bureaucratic middleman gets a big cut too.
So this “stimulus” to the economy is really a net drain on the economy. If we want to help the economy, let’s make it easier for people to help themselves to plan better over the long run. That means cut spending AND cut taxes. Not just as a temporary stimulus, but permanently.
This is Common Sense. I’m Paul Jacob.