By John Sykes
At times it’s really difficult to understand how conflicting government and crony capitalist reports can appear to debunk conservative claims about the state of anything.
Heritage’s Morning Bell on Why Liberals Love Government Waste:
How can the Zandi and Goldman studies claim that the spending cuts in the House budget will harm the economy if they came out before the GAO study on wasteful government spending? What if all, half, or just some of the spending cuts in the House budget are simply cuts to government waste? Surely these facts would change the outcome of Goldman’s and Zandi’s computer simulations, right? Wrong. The Goldman and Zandi reports have absolutely zero relationship to the real world. They both assume that all government spending, no matter how wasteful or duplicative, not only helps the economy grow but does so by large multipliers. This is the exact same thinking that led the Obama Administration to claim that their $1 trillion stimulus would keep unemployment below 8 percent when in fact unemployment rose to 10.1 percent.
The Heritage Foundation’s Brian Riedl explains why government spending does not stimulate economic growth:
Congress does not have a vault of money waiting to be distributed. Every dollar Congress injects into the economy must first be taxed or borrowed out of the economy. No new spending power is created. It is merely redistributed from one group of people to another.
Congress cannot create new purchasing power out of thin air. If it funds new spending with taxes, it is simply redistributing existing purchasing power (while decreasing incentives to produce income and output). If Congress instead borrows the money from domestic investors, those investors will have that much less to invest or to spend in the private economy. If they borrow the money from foreigners, the balance of payments will adjust by equally raising net imports, leaving total demand and output unchanged. Every dollar Congress spends must first come from somewhere else.
So the Liberal bamboozle assumes non-existent large multipliers on money yanked from the economy, siphons off what corruptocrats and crony capitalists demand for their own salaries and other goodies any very inefficiently feeds back into the market place.
It’s sort of like the old con game of Thimblerig except that you start with three peas, not one, and you aren’t ever sure where the last pea went!