One of North Carolina’s leading authoritarians and government mouthpieces once again further marginalizes himself with his dogmatic faith in Keynesian economics.
He takes umbrage with a recent blog post of mine that highlights the federal “stimulus” plan’s inability to create jobs. In his article, he cites a few studies, including one by the Congressional Budget Office and another by Moody’s Economy, claiming them as “facts” that the stimulus is indeed working. His blind and unquestioning loyalty to such oversimplified aggregate macroeconomic models is reminiscent of that of a puppy to its owner. I’ll leave aside for now how the government’s methodology of “recording” the alleged jobs “saved or created” is so fatally flawed that it became a national laughingstock and is now being changed, or Moody’s role in the financial meltdown; and instead focus on a few common economic fallacies put forth in his article.
First and foremost, nowhere in the article is there a single mention of where the money comes from to fund the stimulus plan. After all, the money has to come from somewhere, right? The author’s article neglects to mention this, leading one to assume he believes the money appears out of thin air (oh, wait; much of it does – but I digress). Whatever alleged jobs “saved or created” by the stimulus money necessarily comes at the expense of previously created wealth taken out of the economic system, or through debt removed from capital markets. Either way, fewer resources are left available for productive investment needed for job creation and rather consumed by government spending.
Secondly, he mentions that a third of the stimulus plan is devoted to tax cuts that “folks on the right” always say is the “best way to spur job growth.” Unfortunately, the “tax cuts” in the stimulus are not really tax cuts at all, but amount primarily to tax credits – i.e. handouts. Real tax cuts that “folks on the right” advocate for involve reducing tax rates on economic activity, thus increasing the incentives for more productive activity. But the article’s author can not be bothered with such details.
Third, the article’s author claims:
A North Carolina economist affiliated with the flagship of the Pope right-wing organizational fleet, the John Locke Foundation, says that money spent on food stamps or unemployment directly stimulates the economy because people almost always spend it. That helps create jobs.
Hmmm, a mysterious unnamed economist “affiliated” with the Locke Foundation made the claim. The article’s author apparently agrees with this proclamation, and believes it strengthens his argument that government “stimulus” creates jobs. But this too is a fallacy. Sure, people who receive food stamps or unemployment will likely spend most or all of those benefits. But where did the money come from in the first place? Again, the article’s author doesn’t mention. Furthermore, this notion is rooted in the belief that propping up “aggregate demand” is all that is needed to create jobs and economic growth. I’ve blogged before about how this oversimplifies the market’s complex productive process. In this case, let’s say someone receives food stamps. The recipient will go out and spend the extra money on more bread, for instance. But then what? The process for making bread and getting it to the stores is an amazingly complex process – if you don’t think so, read this classic essay on what it takes to make a pencil. But the purchase of more bread won’t necessarily create more jobs, because this notion overlooks the question: how will the additional supply of bread get to the shelves? Idle roofers, Wall Street investors, bulldozers and cement mixers now idle due to the housing bust don’t exactly fit into the structure of production necessary to produce more bread. More than likely, any additional labor directed toward the complex, multi-layered food production process will be bid away from other current uses. The result will be little, if any, net job growth.
The article’s author ends with this snippy comment:
…the Civitasers, and the rest of the right-wing crowd can never bring themselves to admit that the government they loathe can make investments that improve people’s lives, especially during an economic crisis.
Improve people’s lives?At whose expense? Whose lives are made worse off in order to fulfill these social engineering utopian fantasies? And what about the use of force to accomplish such goals?
Sound economic analysis reveals that government stimulus schemes can not improve people’s lives, only hamper economic growth that would actually help those most in need. There is a reason why this recession has lasted longer than any other since the Great Depression, and it is government intrusion into the market process that is to blame.