Economists call this the "broken window fallacy." In the 19th century, French economist Frederic Bastiat illustrated it with the story of a boy who breaks a shop window. At first the townspeople lament the loss, but then someone points out that the shopkeeper will have to spend money to replace the window. What the window maker earns, he will soon spend elsewhere. As that money circulates through town, new prosperity will bloom.
The fallacy, of course, is that if the window had not been broken, the shopkeeper would have "replaced his worn-out shoes ... or added another book to his library." The town gains nothing from the broken window.
This logic is lost on the stimulus promoters. I'm surprised they don't suggest that we prevent recessions by breaking lots of windows.
The other forgotten principle is that consumption can't cause prosperity. Yes, consumer spending is 70 percent of GDP, but consumption is the result -- not the cause -- of economic growth. You can't consume what hasn't been produced.
Milton Friedman was right. There really is no such thing as a free lunch.
I'm not saying the government can do nothing about the economy. The best thing it can do is get itself out the way. Economies boom when governments remove impediments to production: high taxes, regulations, subsidies, trade barriers, manipulation of the money supply, etc. Removing those should be permanent -- not temporary -- measures.
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