The Black Informant | African American Commentary, News and Community Building

Columnist Jeff Jacoby of the Boston Globe does a pretty good job sorting through all the noise about each candidate’s proposal (as well as President Bush’s own proposal) to send you checks in the mail.

Remember, there’s no free lunch

By Jeff Jacoby

[excerpted]

“With the economy weakening, home and stock values sinking, and recession fears growing, pols of every stripe have been hustling to put a “stimulus” plan on the table. The Bush administration is calling for temporary tax relief worth about $140 billion, reportedly in the form of tax-rebate checks of up to $800 per taxpayer. Several of the candidates vying to succeed George Bush are weighing in with plans of their own. Barack Obama, for example, wants to send $250 checks to low- and middle-income earners and to seniors on Social Security, followed by a second round of $250 checks if the first doesn’t do the trick. Hillary Clinton proposes to spend $40 billion on rebate checks and another $70 billion on new housing, energy, and unemployment benefits.

The idea behind these plans is to get money into the hands of consumers who will spend it quickly, thereby revving up demand and “stimulating” the economy back to good health. There’s just one problem: There ain’t no such thing as a free lunch.

Sure, if you get an $800 kiss in the mail from Uncle Sam, you’re likely to spend it on something – kitchen cabinets from Home Depot, say, or a trip with the kids to SeaWorld, or a donation to Special Olympics. That $800 will continue to circulate in the economy as each recipient spends it on something else, each time adding another $800 worth of economic activity to the nation’s GDP.

But where did that $800 come from in the first place? Does the federal government have a warehouse full of surplus money it can spread around when recession clouds appear on the horizon? Of course not. Washington already spends more money than it has; just three months into the new fiscal year, the budget deficit is up to $107 billion. And since no one is proposing to pay for a stimulus package by curtailing other spending, the only way Uncle Sam is going to come up with your $800 is to borrow it.

In other words, before any money can be injected into the economy by means of rebate checks or other benefits, it must first be extracted from the economy by means of borrowing (or taxation). The $800 you spend at Home Depot or SeaWorld is $800 not available to the bond buyer who lent Uncle Sam the money for your rebate check. Washington cannot jump-start the US economy by taking money from Jane and giving it to Joan any more than I can boost my own prosperity by withdrawing money from a downtown ATM and depositing it in an uptown ATM. There’s no free lunch.” (more…)