Where Does the Money Come From?

Whether you call it a stimulus plan or something else, at its root the plans currently being discussed in Washington amount to our federal government spending a lot of money.  Reasonable people might ask where this money is coming from.  Since there are really only two possible sources for the money-taxes and borrowing – let’s take a look at what happens in either case.

If the money comes from taxes it means there is less in the hands of businesses and individuals to spend.  Every dollar spent by the government repressents a dollar of reduced potential spending by the private sector.  It’s hard to see the economic simulative benefits of that.  In fact it probably means less effective decisions will be made since its widely accepted concept that no one makes better spending decisions with your money than you.

Even if you suggest that the private sector is not spending but savings, savings has to go somewhere and it’s saved funds that form our capital base that businesses and individuals can draw on for loans and business espansion.

If the money is borrowed by government it soaks up funds that might otherwise be loaned or invested in businesses.  Again, where is the stimulus in this?  While many seem to have accepted the idea of government stimulus as an effective policy tool, simple logic seems to suggest that this strategy needs some rethinking.

Jack Atkin, President, Sonoma County Taxpayers’ Association

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