ECONOMIC RECOVERY REQUIRES CAPITAL ACCUMULATION NOT GOVERNMENT “STIMULUS PACKAGES” (Part II)

George Reisman's Blog on Economics, Politics, Society, and Culture ^ | Sunday, February 22, 2009 | George Reisman

[GoodDay]

The reason that stimulus packages cause a further loss of capital is that their starting point is the consumption of previously produced wealth. That wealth is part of the capital of the business firms that own it. The stimulus programs offer money in exchange for this wealth and capital. But the money they offer does not come from the production of any comparable wealth by the government or those to whom it gives money—wealth which has had to be produced and sold and thus put into the economic system prior to the withdrawal that now takes place. The starting point for the government and its dependents is an act of consumption, which means a using up, a loss of previously existing wealth in the form of capital.

[GoodDay]

This is Part II of a two-part article on the "stimulus" bill, which explains why all such government spending acts only to reduce savings and capital accumulation; the very things needed for economic recovery. On navigating to Reisman's blog, the reader can scroll down to read Part I.

Of special interest, I believe, is Reisman's example of what happens when a consumer receives stimulus money -- money created by the Fed and not backed by any additional production on his part prior to his subsequent consumption -- and purchases a television set. Reisman traces the effect of that initial act of consumption on the retailer, the wholesaler, the manufacturer, and the rest of the economic system. His conclusion is that the effect of this purchase, which represents an initial act of consumption without a prior process of production on the part of the consumer, can have no other effect than to reduce the total amount of capital accumulation in the economy.

[djsherin]

bookmark

[ari-freedom]

the economy needs the right incentives. Even more fundamental than demand vs supply, investment vs consumption is this: If you punish those that are successful and take risks and reward the deadbeats then the economy can’t work.

[freekitty]

Obama and Company

The people of America don’t want to invest in your plan. There is no return because there is no profit. It’s going nowhere and would hardly be a good investment in the future as sooner or later your money will dry up. You have no actual blueprint that I can see. It’s just words. You have no concept of business and as far as I can tell neither does your adminstration I not only see a bleak future; I see no future.

Therefore as the dragons in business say; I will not invest.