Stimulus Working? More Evidence That It’s Not

by Don Boudreaux on March 10, 2010

in Intervention, Seen and Unseen, Stimulus

Writing in Investor’s Business Daily, Robert Higgs documents the fact that private investment is drying up in the U.S. – and he explains why.  Here’s a key selection:

Unfortunately, while private investment is the engine of economic growth, government spending (despite what generations of Keynesian economists have asserted) is the brake. To understand this negative relationship, we need only scrutinize how the federal government’s spending is determined: namely, by political processes devoid of economic rationality.

In this light, we can appreciate that enhanced government spending does not bulk up the economy, nor merely crowd out worthwhile private activity. Instead, it undercuts, penalizes and distorts everything that private parties attempt to do to create wealth. Ham-fisted government regulations and additional taxes are known killers of economic growth.

The investors’ famine and the government’s feast therefore are not merely coincidental, but causally connected.

Making matters worse, the explosion of the federal government’s size, scope and power since mid-2008 has created enormous uncertainties among investors.

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