This weekend the airwaves seemed to be filled with pundits explaining why Obama?s stimulus package isn?t working. Here are the top reasons:
1. People are saving the money not spending it.
2. The money is going to fat cats on Wall Street (I guess, instead of skinny cats on Main Street.)
3. Most of the money hasn?t been spent yet.
4. The stimulus package wasn?t big enough, and second round of stimulus spending is needed.
5. There hasn?t been enough time for it to work or as Joe Biden said ?more jobs will be created in the coming months.?
All of these explanations miss the mark. The reason that the stimulus package is a failure is that it can?t succeed. As I have discussed in past commentary, you can no more stimulate an economy by transferring resources from one group of people within the economy to others than you can receive a blood transfusion by taking blood from a vein in one arm and injecting it into a vein in the other arm. It makes no difference who the money goes to or whether people spend it or save it. The latter argument being based on pure Keynesian dogma which states that all economic growth comes from spending?when in fact true economic growth comes from deferring spending, i.e. saving. Of course reasons 3 through 5 are all variants on the same theme, namely that coercive wealth transfers can generate economic growth, but Obama’s transfers aren?t occurring either fast enough or in large enough quantities.
