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In her talk on the Stimulus bill with business owners in New Smyrna Beach, Suzanne Kosmas made some interesting points and raised a few nagging questions. For New Smyrna residents, the most important point that she made was in response to a question about what will the bill do for commerce here. Her revealing answer was that the bill was very weak in that respect.
Since New Smyrna Beach is typical of many cities in the U.S., we could infer that the bill will probably not do much for a very large part of the American population. In fact, there are a lot of good reasons to think that the so called stimulus bill will not do much to help the economy in general.
The basic economic reason is that to get the economy moving again you have to get people producing. In order to get people to produce you have to generate incentives to produce.
Throwing money at people does not induce people to produce. It may make them very happy in many cases and they will go out and spend the money in one way or another but they will not be motivated to produce more.
To get people to produce more you have to enlarge the rewards for production and lower the barriers to production. This means lower taxes, fewer regulations and sound money plus protection of property rights and free trade. There is nothing in the so called stimulus bill that does any of these things.
Therefore, it is safe to predict that the stimulus bill will not stimulate the economy. It will produce a few happy faces for a short time but no permanent benefit to the economy. This prediction is strengthened by the fact that this money throwing exercise has already been tried on many occasions without any positive results. It is good politics but bad economics. It would be interesting to see which economists think this stimulus package is a good idea.
The economists from places like the Cato Institute the Heritage foundation and the Government office of Management and Budget think it is a bad idea. Representative Kosmas said that about 35 percent of the stimulus is in “tax cuts” that effect about 95 percent of the American population.
What are these tax cuts and how do you give tax cuts to 95 percent of the population when about half of them don’t pay any income tax.?
I feel very safe in predicting that most Americans will be very unhappy with eventual the outcome of the stimulus package.