Wednesday, 30 January 2013

Dr. Arthur Laffer on "Stimulus" Spending

Here are a few excerpts from a Dr Laffer lecture given to the Institute of Economic Affairs titled The Laffer Curve and the Failure of Stimulus Spending (p. 11-13),
Government doesn’t create resources. Government redistributes resources. For everyone the government bails out, there is someone they put into trouble dollar for dollar. You can’t bail someone out of trouble without putting someone else into trouble. 
There is no stimulus in stimulus spending - period. The stimulant to the transfer recipient is completely offset by the de-stimulant to the transfer payer. While the transfer recipient is known, the transfer payer in the case of a fiscal stimulus may not be easy to identify. But believe me, they’ll know their income loss.
The reason why we have the Great Recession today is because of the stimulus spending not in spite of it. When the government undertakes all this stimulus spending, it not only doesn’t improve things, it is the reason why things are as bad as they are today.
I dare you to take a look at all those countries that did not go along with the deficit-financed stimulus spending in the last six years and look at how their economies have performed versus those that had large stimulus spending.

Read the whole paper or just the executive summary.