The Ain’t No Such Thing As A Free Lumch

Jeff Jacoby gets it, even if none of the politicians in either party do, From his article in the Boston Globe about the tax rebate:

But where did that $800 come from in the first place? Does the federal government have a warehouse full of surplus money it can spread around when recession clouds appear on the horizon? Of course not. Washington already spends more money than it has; just three months into the new fiscal year, the budget deficit is up to $107 billion. And since no one is proposing to pay for a stimulus package by curtailing other spending, the only way Uncle Sam is going to come up with your $800 is to borrow it.

In other words, before any money can be injected into the economy by means of rebate checks or other benefits, it must first be extracted from the economy by means of borrowing (or taxation). The $800 you spend at Home Depot or SeaWorld is $800 not available to the bond buyer who lent Uncle Sam the money for your rebate check. Washington cannot jump-start the US economy by taking money from Jane and giving it to Joan any more than I can boost my own prosperity by withdrawing money from a downtown ATM and depositing it in an uptown ATM. There’s no free lunch.

But if Washington really has the power to restore vim and verve to the nation’s economy by simply moving money around, why not do so all the time? Why should there ever be an economic slowdown if government spending can prevent it?

Here’s why: Because the business cycle hasn’t been repealed. Because booms are still followed by busts. Because politicians and policymakers cannot make a $14 trillion economy jump through hoops, particularly not by going even more deeply into debt.

The engine of economic growth is creating new wealth, not redistributing existing wealth. Rebating some of last year’s taxes or expanding welfare-like benefits won’t encourage anyone to be more productive. Permanently lowering tax rates – letting Americans keep more of the money they earn – will.

True, tax cuts instead of tax rebates would mean no kiss in the mail. Most politicians would rather treat you to a free lunch than stimulate you to work, invest, and take more risks.