Re: Spend Our Way Out of Debt

by Veronique de Rugy

I am stunned that Democrats would be asking for a new stimulus. First, this new request is an admission that the previous stimulus hasn’t worked — if it had they wouldn’t be asking for more stimulus would they? But then, why ask for more of something that failed in the past?

Maybe this is the “addiction effect” from my morphine analogy: Spending our way out of debt is like using morphine to fix a broken arm. It may feel better for a little while, but could heal badly, resulting in permanent damage, or require painful surgery to fix the bone. Plus, you may end up with a morphine addiction. Stimulus by spending won’t fix the economy any more than morphine will fix a broken arm. What it will do is saddle us with more debt. Unfortunately, that debt signals to people that tax increases and harder times are coming, which feeds uncertainty and paralyzes the economy.

As my colleague Anthony Davies, also an economics professor at Duquesne University, has said, even under the best circumstances, stimulus doesn’t create permanent jobs; rather it plants the seeds to cripple the economy. Yesterday, he explained:

As an economist, if I were working for a foreign government and were to design a package of policies to destroy a country’s economy, I would design a plan very similar to what we’ve undertaken in the U.S. over the past 18 months.

If we pursue another economic stimulus of similar size to the previous one, we may as well condemn the economy to another 10-20 years of recession.

Not only will it not work, but it will significantly add to an already grave debt problem. Stimulus is what keeps entrepreneurs from creating new jobs and products. It makes them nervous, because we have to raise taxes in the future to pay for stimulus spending, and this makes for a very uncertain business environment.

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