Please, No More Government Spending!

July 20, 2010 11:34

Deficit “stimulus” is not the road to economic recovery. It’s the problem, not the solution, writes Nobel laureate economist Vernon L. Smith.

Vernon L. Smith 2002 Nobel Laureate in Economics at The Daily Beast

Last October a Rasmussen poll was already showing that only one-third of likely voters believed that the stimulus package was helping the economy. You, your fellow citizens and Congress are now concerned that the main effect of the federal stimulus has been to increase the burden of a swollen government living beyond its means. You were told that the stimulus was justified because it would jump-start the economy, setting in motion a recovery that would increase output by more than its increased deficit cost. But you are skeptical that there has been any recovery, and think that you have been misled by the president and the economic experts.

Your doubts have received bipartisan reinforcement. The $860 billion stimulus under the Obama administration was preceded by a $170 billion Bush stimulus that was said to be ineffectual because it was too small. Out of fear, people tended to use the Bush stimulus checks to pay down debt and to increase saving. Unemployment was rising, and large numbers of home owners were already living in homes worth less than what they owed the bank. It is now worse. In the five most severely affected states, here is the percentage of homeowners who owe more than their home is worth: Nevada (70%); Arizona (51%); Florida (48%); Michigan (38%); California (35%). Our current crisis was brought on by government and private programs designed to make it easier for people to buy homes. The result was an unsustainable housing bubble, and ensuing crash that put banks, businesses and households all in debt-reduction mode.


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