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The Fallacy of Government Spending

Ric47 Wrote: Jul 17, 2012 9:01 AM
Carter says "Given the massive inefficiencies the government creates in transferring resources from one group to another, along with the disincentive effects for those Americans who are de-stimulated through higher taxes, there might actually be an overall negative net effect on economic activity". But in some areas and some ways massive inefficiencies in the private sector are just as large as in government. The constant flow of private enterprise into bankruptcy is evidence of that.

There has been a pretty heated argument over the past few years on the effect of government spending having a stimulative effect in the economy. Keynesians say it’s positive. Others say it’s zero or perhaps even negative. Certainly it’s not 1:1.

Mark Perry has an excellent blog you should read on food stamps. But his food stamp analogy carries over to all government transfer payments. Every program. Not just your favorite ones. Every one. That includes Social Security and Medicare.

In an economy, the economic effects from a transfer program always sum to zero. Simply...