Economic “Stimulus” Policies Trapped in the Past

Washington, D.C., February 21, 2008 — The economic stimulus package recently passed by Congress and signed by President Bush will do little to improve economic performance in the United States, and ignores the policies that would have helped most, according to a new study published by the Competitive Enterprise Institute.

“Genuine stimulus would consist of the liberalization of the economy from excessive regulations, interventions, and spending, and from political inflation of the money supply,” said study author and CEI Vice President for Policy Wayne Crews. “It would maintain the conditions—legal order and stable institutions—within which wealth can be created, while recognizing that governments themselves do not create wealth.”

The study, Still Stimulating Like It’s 1999: Time to Rethink Bipartisan Collusion on Economic Stimulus Packages, takes apart the arguments for a government policy of stimulating demand. Crews argues that artificially stimulated demand will lead consumers and producers in the wrong direction in the short term, making necessary long term market corrections even more difficult. He also points out the natural impulse of political leaders to be seen as “doing something” during economic downturns, even when the eventual costs exceed any likely benefits.

“A more immediate form of ‘stimulus’ is to cut marginal tax rates. With returns to enterprise increased and workers and investors certain that present efforts will be penalized less, the economy will begin expanding,” said Crews. “Similarly, a sustained program of reducing governmental regulatory interventions in the economy, and invigorating institutions to keep such interventions minimal, point the way toward prosperity and wealth creation, and to an economy that can finally eschew damaging appeals to political stimulus.”

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