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“Stimulus” Ain’t Miracle Dust

Here’s a letter to the Wall Street Journal:


Incoming Treasury secretary Janet Yellen and other left-of-center economists reason that government should borrow and spend even more than the unfathomable sums that have been borrowed and spent in 2020 (“The Debt Question Facing Janet Yellen: How Much Is Too Much?” Jan. 19). Spending enormous amounts of borrowed funds is thought to be necessary to stimulate the economy out of its sluggishness.

Yet the only condition under which this reasoning even begins to make as much as a small sliver of sense is one in which sluggishness is the exclusive result of consumers and businesses expecting that the present sluggishness will continue indefinitely into the future. Such “stimulus” works by prodding consumers and businesses to act in accordance with the underlying reality of oceans of idle resources that are able to be put to productive uses if only their owners can be persuaded to put them to such uses.

But the above condition doesn’t apply today. Consumer spending and resources are not now idled simply by negative economic expectations. Instead, today’s idleness is caused by force and physical fear. Covid lockdowns force consumers to reduce spending. These lockdowns also force many workers to avoid work. Other consumers reduce spending, and other workers avoid work, because of their Covid fears.

Some spending and resources that are idled by physical fear might be enticed back into the economy by money-income gains sufficiently goosed-up by “stimulus.” Yet no amount of “stimulus” will inject into the economy any spending and resources that are idled by force – that is, idled by lockdowns.

If the new administration really wants to stimulate the economy, it should work to calm Americans’ hysterical fears of Covid and, even more importantly, to do whatever is in its power to end the unprecedented lockdowns.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030