Whenever I hear legislators, TV pundits or my fellow classmates praising President Barack Obama for saving the national economy with last February’s stimulus plan, I am infuriated. It is impossible for the American Recovery and Reinvestment Act of 2009 to have done anything but made the economy worse. The government can’t just rise out of the system and save it — it is akin to trying to fill the deep end of a pool by taking water from the shallow end. In its attempt to stimulate the economy, the government borrows money, takes resources away from the public and depresses another part of the economy. For this reason, all governmental policy directed at stimulating the economy, namely fiscal and monetary measures, are doomed to failure. The government can only create jobs by destroying other ones.

The inability of stimulus plan supporters to understand this may stem from misconceptions about the roles of the public and private sectors of the economy. The truth is that the private economy consists of people working cooperatively to produce goods and satisfy consumer demand. The public sector — that is, the government sector — can only maintain itself by seizing resources from the private sector to fund whatever political goals currently exist, whether they unemployment benefits, public works, bailouts, wars or anything else. The government does this through either taxation or borrowing. Far from stimulating the economy, the government is really just leeching off of it.

All this government leeching is actually a double tax. By using my money to buy goods and services, the price of these goods and services goes up. When the government taxes the public, it decreases their amount of resources, thus decreasing the amount of consumption. If the government builds a bridge, it costs more for private contractors and business owners to build their own projects because workers and materials have been taken out of the economy. The stimulus plan essentially takes my money and uses it to outbid me in the market.

But just as taxation hurts the economy, so too does government borrowing from the private sector. Every dollar that the government borrows makes it more difficult for small and large businesses to find credit. The sheer lunacy of this is that while the government spends money on unemployment benefits, business owners lack the ability to buy machines or to keep people employed because the government is using all of the savings. All things equal, the increased borrowing by the government leads to either a rise in interest rates and/or a decrease in private consumption. This has the same effect as taxation, except not only do the taxpayers have to pay the original amount but they have to pay the interest, too.

Although we have all been indoctrinated to think that there exists somewhere an “economy” and we interact with it when we have a job or buy things, this is not the case at all. Your wages ultimately do not come from you employer, but rather from what you produce and exchange with other people. We are all consumers, and those of us who are producers — those of us who have private sector jobs — produce goods to satisfy consumer demand. We receive money wages which represent what we have produced.

In our modern economy, dollar bills are essentially claims to goods. One hundred dollars can be exchanged for $100 worth of goods. Since money is in a state of perpetual barter between all goods, once there is enough money, there is no need for any more. This is especially true in our paper money standard of today. Money, like the yard or meter, is just a relative value by which we can measure value and coordinate action. When the Federal Reserve creates new money, the only social effect is to dilute the purchasing power of the existing units. If the Fed doubled the money supply overnight, would we be richer? If the Fed adds three percent per year, which is its current policy goal, will we be richer? All that will happen is that the value of our existing dollars will become hopelessly diluted.

So in response to an economic crisis, if the government can only create jobs by destroying others and the Federal Reserve can only create more money by diluting the current supply, the only possible conclusion to government policy is a chronic and perpetual depression. As supposed experts debate the merits of the first stimulus (actually the second — Bush’s failed, as well) and the possibility of enacting a second, I hope that they will remember this. No government stimulus can make you wealthier without making everyone else poorer.

Vincent Patsy can be reached at vapatsy@umich.edu.

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