All Together Now: Economic Stimulus!

Apologies for the light posting; I’m still recovering from a nasty flu bug I picked up at CPAC. In the meantime, here’s John Stossel taking a whack at the stimulus package:

The economy does seem to be slowing, and there was a net loss of jobs in January. The housing industry is sluggish and the credit market tight because of the subprime-mortgage problems. So, to “get the economy moving,” the anointed experts want the government to quickly put cash in our hands. When we rush out to spend it, the story goes, the economy will get out of the ditch.

Interesting theory, but it’s hardly new, and it’s been demolished many times before by free-market economists. One problem, which George Mason University economist Russell Roberts observed, is that the money that will allegedly be “injected” into the economy is already in the economy. So how can it be a stimulus?

In the Wall Street Journal, Arthur Laffer doesn’t think much of it either:

As my former colleague and friend Milton Friedman liked to say, “There’s no such thing as a free lunch,” and this rebate is exactly what he meant. The net effect is that the reduction in demand from those who pay the real resources will be exactly the same size as the increase in demand from the rebate recipients. It’s sad but true. Income effects always net to zero in a closed system.

Doesn’t matter much now, of course. Bush reportedly plans to sign the bill today.