The economist behind Ronald Reagan’s 80’s era tax cuts says that Federal bailouts will destroy the economy if they continue:
As you read this, our government is committing enormous sums of money above and beyond normal spending, solely to stimulate the economy and prop up failing companies and markets. These additional sums are huge by any reasonable measure, with estimates as high as $3 trillion in an economy with a GDP of about $15 trillion.
Here’s the bottom line: Instead of making things better, increased spending will only drive our economy further into the ground.
The reason, Laffer contends, is because Federal bailouts really amount to little more than rearranging the deck chairs on the Titanic:
The government can only transfer resources; it can’t create resources. There is no tooth fairy. Every dollar given to someone comes from someone else. The government can’t bail some people out of trouble without putting other people into trouble, plus a hefty “toll for the troll.”
In the case of last February’s stimulus package, the government literally borrowed an extra $170 billion and at the same time sent out checks to the transfer recipients totaling $170 billion. The result was a $170 billion increase in the amount of bonds held by the public, accompanied by a $170 billion increase in the current value of future taxes to pay interest and principle on the additional debt.
From the standpoint of accounting, the government is $170 billion further in the red, and taxpayers are liable for an additional $170 billion worth of taxes. Therefore, for every dollar of transfer payment there’s at least an equivalent dollar of future tax liabilities. Those people with the increased tax liabilities will spend less, thereby dis-employing people who had been supplying them with goods they’ll no longer buy. And the reduction in spending of those with higher tax liabilities will lead to a multiplied reduction in total spending equal to and fully offsetting the increase in total spending from the recipients of government checks. There is no stimulus from the stimulus programs!
Instead, there is only increased debt; which is why the projection of a $ 1 Trillion budget deficit may turn out to be incredibly conservative.
