Here's a comprehensive article that shatters the myth that G has a stimulative effect on economies.
Time to quit with the futile hope that a government, via redistribution (that's what's really happening, actually, with G), can stimulate the economy, and turn instead, with an open, fully-active, properly-functioning, learning-focussed mind, to the actually-observable historical, empirical facts.
This is not the first time government expansions have failed to produce economic growth. Massive spending hikes in the 1930s, 1960s, and 1970s all failed to increase economic growth rates. Yet in the 1980s and 1990s—when the federal government shrank by one-fifth as a percentage of gross domestic product (GDP)—the U.S. economy enjoyed its greatest expansion to date.
Cross-national comparisons yield the same result. The U.S. government spends significantly less than the 15 pre-2004 European Union nations, and yet enjoys 40 percent larger per capita GDP, 50 percent faster economic growth rates, and a substantially lower unemployment rate.[1]
When conventional economic wisdom repeatedly fails, it becomes necessary to revisit that conventional wisdom. Government spending fails to stimulate economic growth because every dollar Congress "injects" into the economy must first be taxed or borrowed out of the economy. Thus, government spending "stimulus" merely redistributes existing income, doing nothing to increase productivity or employment, and therefore nothing to create additional income. Even worse, many federal expenditures weaken the private sector by directing resources toward less productive uses and thus impede income growth.
You see, Keynesianists (or big-G Leftists, if you like) claim that G takes money from savers and gives it to spenders. But we now know that this isn't true:
Spending-stimulus advocates typically respond that redistributing money from "savers" to "spenders" will lead to additional spending. That assumes that savers store their savings in their mattresses or elsewhere outside the economy. In reality, nearly all Americans either invest their savings by purchasing financial assets such as stocks and bonds (which finances business investment), or by purchasing non-financial assets such as real estate and collectibles, or they deposit it in banks (which quickly lend it to others to spend). The money is used regardless of whether people spend or save.
What's happening, therfore, with increased G, is that productively-applied money is being diverted, or redistributed (or "spread around", as Obama the Communist calls it) from more-stimulative areas (investment in business that produces income) of the economy to less-stimulative (if at all) areas. The effect, therefore, of this diversion of money is to reduce economic activity, not stimulate it!
Obama's infamous promise to more punitively tax the "rich", much of whose money goes into economically-stimulative things such as new and existing business enterprises which produce goods and services, employing people who then spend their income, and which buy other G&S from yet other businesses, some of whom may actually expand or set-up newly altogether (talk about stimulative!!!), and give to the non-rich will therefore shift that money from highly-stimulative areas to areas much-less stimulative, more-purely-spending-only-in-nature, areas.
If Obama punishes the American "rich" by taking away an untold additional percentage of their income, what will the "rich" do? Either quit investing as much in stimulative economic stuff, or leave the country... or both, which means less and less (less than before the hike in the taxes of the "rich", actually!) taxes can be taken from them to "spread around", let alone provide any stimulus whatsoever. And couple this reality with the promise Obama made to cut the taxes of the other 95% of Americans. What does this mean, then? The economy will weaken further and the deficit will skyrocket under Obama, making the last days of President Bush, who also spent too much, but didn't punish the "rich" too much for stimulating the economy, look like paradise in comparison.
Obama will, if he is to avoid completely bankrupting America, have to break some of his promises. He cannot keep them all. He will have to be pragmatic. What a pickle he's gotten himself into, and what a sour pickle those brain-dormant, "change"-mad Obama voters gave the rest of Americans, too!
Anyway, you might as well read the whole thing, as there's more. Reading it all will help you understand the nature of the economy better. It sure opened my eyes and made me doubt, for the first time, something I learned in introductory macroeconomics.
And I hope Prime Minister Harper doesn't fall into the trap of cranking up spending and allowing a deficit, for, clearly, it's not going to help. It won't satisfy swing voters in the long run anyway, he should keep in mind. He knows, or should- he's an economist by training and trade, after all. Of course, being a politician complicates everything, but it takes a rare individual to be a politician with balls. Show 'em, Stephen! Don't ramp up spending just to satisfy the discredited Keynesian nuts out there.
But there appears to be a whole new wrinkle to it all this time, and now we've got a new term for our vocabulary: financial market stabilization. Perhaps a one-time disbursement of G to that end is in order? But if this is done, it must come with conditions attached, meaning that in the future, for example, loans shouldn't be made to folks who apparently can't handle the payments and are destined to default unless they get lucky or something.
I'm also loathe to see my tax dollars bail out old (unionized, mind y'all) automakers, as they're likely on their way out anyway in the long run, due to their much, much higher human resources costs relative to their foreign counterparts. If they're not going to do something about those excessively high human resources costs to be able to compete in this global auto marketplace, then in the long run the bailout, if it happens, will be seen as a waste of money.
