Despite the struggling economy, United States President Obama argues that his stimulus package is producing gross domestic product (GDP) growth that is far better than the disaster that would have ensued without the $862 billion in emergency spending. The reason, he and his advisors maintain, is that what really counts is spending the more the better, at least for now, says Shawn Tully, Fortune Magazine’s senior editor-at-large.
But the administration’s policy has a fundamental flaw. It’s impossible to raise GDP by borrowing from one group of people, who would otherwise save that money, and transfer it to another group of people (and the government) to spend. Savings, in the short term, have precisely the same impact on national income as spending, says Tully.
Over long periods, savings not consumer spending finance the investments in mainframes, robots and other capital equipment that enhance productivity and drive economic growth.
So what would have happened if we’d had no stimulus at all?
Source: Shawn Tully, The Naked Stimulus: Why Savings Stimulate More than Spending, Fortune, September 9, 2010.
For more on Economic Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=17
First published by the National Center for Policy Analysis, United States
FMF Policy Bulletin/ 21 September 2010
