MyHeritage.org: The Stimulus Myth

MyHeritage.org: The Stimulus Myth

The nation's economy is finally starting to improve; the end of the recession seems to be in sight. But why is the economy improving, and is this improvement sustainable?

Many on the left are hailing the President's $787 billion "stimulus" package as the key behind the budding economic turnaround. These same folks support the President's proposal for a third stimulus spending package to give the economy a final boost into recovery. But they are missing one critical point: as Heritage Foundation economist Brian Riedl explains, "government spending does not stimulate economic growth."

In a new analysis, Riedl debunks liberal myths about stimulus spending, details the long history of failed stimulus packages and provides sound alternatives that offer real economic revitalization.

The Myth: Government can spend its way into prosperity

Stimulus advocates make what is, on the surface, a plausible argument. They often attribute recessions to a decline in production, which in turn results from a decrease in individual spending. Increased government spending, they argue, can make up for this shortfall in individual spending and prop up production levels.

But stimulus spending doesn't actually increase productivity. Instead, Riedl argues, it "often reduces long-term productivity by transferring resources from the more productive private sector to the less productive government."

Those who support government stimulus packages fail to ask one very important question: What money is the government actually spending? Riedl points out that "every dollar Congress injects into the economy must first be taxed or borrowed out of the economy." It is not new money. It is money that is redistributed out of the private sector via taxes and into projects favored by politicians and bureaucrats.

Stimulus spending, in short, is like "removing water from one end of a swimming pool and pouring it in the other end." In the end, Riedl explains, "it will not raise the overall water level."

A consistent history of failure

"The idea that increased deficit spending can cure recessions has been tested repeatedly, and it has failed repeatedly," Riedl says. Here are just a few of the failed stimulus packages of the past.