Sunday, March 01, 2009

Econ 101

The Sheperd Express has announced that Charlie Sykes is this weeks "Jerk of the Week."

"Charlie Sykes, who is still arguing that this package will not stimulate the economy because it is a variety of Democratic programs. Charlie either doesn't understand Economics 101 or he does and chooses to misinform his listeners. So Charlie, are you dumb or just a liar?" asks the SE.

And, argues the SE, "If people were paid to dig a hole and bury a newspaper, it would have the same stimulus impact (as Obama's plan) because these shovelers would then spend their wages and create more jobs." Why bother with the shoveling? Why not just give people vouchers so that they spend it?

Count me among those that don't understand Econ 101, if this is how it is being taught these days. Sure, I understand that spending stimulates, but the SE seems to be making the leap that any spending will be good for the economy.

How can this be so? What the SE fails to account for is the fact that the money paid to dig holes will have to be paid back. And where will that money come from? Money spent will either be wasted or it will be used to generate wealth. If it wasted, how will we pay the money back?

In the long run, whether government spending is good for the economy depends on whether it is well spent. The same is true in the private sector. If I make a wise investment I will generate additional wealth. If I spend it on a stimulating substance, say cocaine, I will certainly harm my own financial situation.

The idea that any spending will automatically help the economy in the long run makes no sense to me. Any Obama defenders want to take a shot at explaining this to me, in plain English please?


Anonymous said...

It is the old ruse about someone throwing a rock through your window followed by all the window manufacturers, sand miners nad deliverers, glass smelters or whatever they are, window deliverers and window installers - not to mention salespeople all along the way - it would employ.

The problem is that if your window weren't broken you could choose what to do with your own money. But stimulate we must and we must stimulate who we are told to stimulate.

Nemo said...

It would seem that the SE does not understand how wealth is created. In the next few years they should have plenty of time to learn about creating prosperity while standing in long lines waiting for (hopefully not rotten) potatoes.