Once Again

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As democrats start talking about yet another stimulus package (since all the previous stimulus packages attempted anywhere in the world have failed), let’s consider, again, the simple reasons why stimulus spending never works.

In order for the economy to expand and create new jobs, we need to invest capital (money, labor, and expertise) into it. That capital comes from three sources: the available capital that people have, the capital they can raise through investment, and the capital they can borrow.

The stimulus package failed because it did nothing to increase the capital people have, the capital they can raise through investment, or the capital they can borrow. In fact, it decreased all three rather dramatically.

How can spending money decrease capital? It’s simple once you understand that the government gets its money through force and coercion.

  • Governments raise money through taxes. This sucks capital out of all three areas.
  • Governments borrow money with a promise to pay with future taxes. This depletes current capital because people hand over their capital to get the interest rate and stability only the government can offer, but also limits their future because they know eventually they will be taxed to pay that very interest.

Governments also limit the usefulness of capital through regulation. This depletes capital in all three areas with the stroke of a pen. They can also limit capital if they decide to compete directly in the market, such as by providing health care.

A true stimulus package would look like this:

  1. A massive tax cut, particularly on interest and investment, but also on production.
  2. A massive spending cut, especially in areas such as social welfare, Medicare, and Social Security, where government is directly competing in the market. (Note that the military doesn’t compete in any market.)
  3. A truly balanced budget to end government borrowing now and forever.
  4. Massive de-regulation of the economy.

These three changes will dramatically increase the capital available to invest in the economy. This capital will instantly be used to reinvest in the economy, creating jobs, perhaps even before the changes take effect.

Unfortunately, this kind of stimulus package would destroy the Democratic Party. The Democratic Party has become dependent on the government to raise its money to spend on its constituents, both the poor and needy but also the rich and greedy.

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