12/05/2008 - PajamasMedia by economist Daniel J. Mitchell, Senior Fellow at the Cato Institute.
A clear article in two pages describing why stimulus packages only seem to create jobs, until you consider the jobs that are destroyed by collecting the tax money or borrowing the resources that private businesses could have used. The comments are good too.
[edited excerpts] The proposed "stimulus package" to dramatically boost employment has been tried before — and failed.
Keynesian economics is the theory that the economy can be boosted if the government borrows money and gives it to people to spend. This supposedly “primes the pump” as the money circulates. This would be nice, but it overlooks that the government must first take money out of the economy through borrowing or taxes before it can give it away. There is no increase in the demand for production and jobs. The pie is not bigger, just sliced differently.
Harvard Professor of Economics Greg Mankiw calculates that each new job will cost $280,000, if it appears at all. That $280,000 would be spent more productively in the private sector. The main reason for this cost is probably the pay given to bureaucrats. Bureau of Economic Analysis data shows the average federal employee is paid nearly twice as much as a private worker.
I explain that economic "pump priming" is only an excuse to distribute taxpayer money to political supporters, in The Myth of the Economic Multiplier.