But what will become of the glaziers?

Many Americans just recently filed their federal income taxes. Some of them are eagerly awaiting refund checks, or even refund direct deposits since “who writes checks anymore?” There are two things that these people should remember:

1. This money is not a gift from the government. It is your money that you already earned. Think of it more as an interest free loan to the government that you are forced to make and you have to ask nicely before they will pay back.

2. Tax money (money that you worked for and that the government has appropriated) that gets spent on “stimulus” is false economy.* The problem with stimulus spending is that it only accounts for what is seen, not what is unseen.

Every dollar that the government spends is a dollar that some productive person could have spent himself.** We see the government spending the dollar and count it as stimulus. What remains unseen is what the taxpayer would have done with that dollar if he had been allowed to keep it. As it turns out, it is more than likely that he would have spent it. Not only would he have spent it, but he would have spent it on something that he wanted. That is to say, he would have gained something in exchange. Instead, the government gave it to somebody else to spend. The net effect on the economy looks like of $0 (since either way, one dollar gets spent.) However, the tax payer doesn’t get the benefit of his own dollar and the government doesn’t operate for free. So the taxpayer loses a dollar (or, what amounts to the same thing, whatever he would have spent that dollar on) and the economy loses the administrative cost of the government mechanism. So stimulus spending is a net loss.***

Beer of the Week: Bitburger Pilsner – Simple is good. This beer is very simple. It smells of soft malt and a bit of hops. The flavor and texture are both light and refreshing. It is not a great beer, but it is a very nice beer that is made for drinking.

Reading for the Week: The Broken Window by Fredrick Bastiat – In this short and amazingly clear and intelligible economic parable Bastiat explains why a broken window may be good for the window maker, but it is a net loss for the economy on the whole. It is all, as is evident from the title of the essay that contains this parable, all about That Which Is Seen and That Which Is Unseen.

Question for the week: Is there a fundamental difference between stimulus spending and breaking windows? (Hint: In an earlier reading on this site, Bastiat used physical obstructions as an allegory to tariffs.)

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One Comment on “But what will become of the glaziers?”

  1. *For the purposes of this post, I only mean to address “stimulus” spending. There are other kinds of spending that are also bad for the economy, but there is also necessary spending that may even have positive effects on the economy.

    **This is only true in theory. In practice, the government doesn’t take in enough taxes to pay for all of its spending. So instead, it borrows. This is probably even worse in the long run.

    ***Keep in mind that I am talking about society as a whole. It is clear that some (even a great many) people profit from this sort of spending, but when these profits are weighed against the losses of everybody else, the economy could never do better than break even (and it can’t do that because of the unavoidable costs of the mechanism.)


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