I think I may know why, though not certainly, but I’d like to hear answers from more economically knowledgeable people.
They work for the people who get the money.
Because the packages themselves are simply a means to circumvent the liquidation of malinvestments that brought on the bust which the said packages are suppose to cure. shrugs
Government spending can be directly funded by two methods:
- Taxation.
- Borrowing.
The second option leads to the first, since all money borrowed by the government has to be eventually paid (unless the State goes bankrupt, of course), and the only revenue government makes is tax revenue. Funding directly through taxes is, as Henry Hazlitt (Economics in One Lesson) puts it, “taking money from one pocket and putting it in the other.” This, at face value, means that every dollar publicly spent is one dollar which can’t be spent by the private sector. So, at best there is no net increase in wealth. But, once you look at what is “unseen”, you will realize that taxes discourage investment and production. Over the long-run, there is a net decrease in wealth creation.
Also, government investments tend to be directed towards businesses that need the money. Usually speaking, businesses who absolutely need the money to survive (i.e. bailouts) are faltering financially, and so their value is relatively low. A private investor would find it nonsensical to invest through these venues, which is why these businesses are lacking capital. What sense, therefore, does it make for the government to invest in them? What sense did it make to invest into General Motors? Government investments are generally wasted, as a result.
What happens when government spends through borrowing? If government was to borrow from an existing pool of savings it would mean that government has just deprived an individual of investing those savings himself (although, Keynesian economists believe there is a disequilibrium between savings and investment), and we still run into the problem of the wasteful nature of government spending. More likely than not, however, (at least in today’s environment) government spending is paid through money creation, which only causes general and relative inflation (which is a tax; re: Henry Hazlitt, Economics in One Lesson).
So, outside of “crowding out” we can conclude that government spending leads to malinvestment and the destruction of wealth. I’ll quote from Passion Comes From Liberty:
Can the government guarantee the maximization of utility in the utilitarian sense by distributing capital? Should the government give capital to entrepreneurs who lack their own?
In order to spend, the state must tax. It follows that all expenditures necessarily come out of the private sector. If we assume all government expenditure to be honest and virtuous in nature, it still remains true that in order to make this expenditure the state must infringe on private-property rights by taxation in order to pay for the spending. We can thus establish that, at its best, government spending is analogous to taking money from one pocket and putting it in the other.
But taxation also discourages entrepreneurship and investment. It necessarily decreases the foreseen marginal utility of any individual action. So, in reality, state expenditure leads to a net loss in wealth in the private sector.
Can government spending create wealth? That is, can public spending increase productivity? Generally, government spending is directed toward fulfilling present needs. That is, government expenditure is usually directed toward consumption. In that sense, government does not invest, and so no net increase in wealth can come about.
What if the government invests in a development program or a private company? In order to succeed, the ultimate product of an investment must somehow satisfy the wants of customers in the future. Private companies judge the viability of an investment through profit and loss. Profits signal that a company is doing well on the market, while losses suggest that the company’s products are not desired. Governments do not respond to profit and loss. A government can always increase revenue by raising taxes, and so it feels no immediate need to remain profitable.
We conclude that the government serves no role in rousing passion nor in initiating or funding entrepreneurship. Instead, the state serves only as a detriment to entrepreneurship.
“Stimulus Packages” universally disobey the “Broken Window Fallacy” described by Bastiat in the early 1800s. The BWF states that people do not become wealthier by repairing damage or performing tasks that do not satisfy the desires of fellow humans. Bastiat described the fallacy through the example of a child breaking the window in a store. The store owner then had to employ the window maker, the installer, the raw material providers, etc to repair/replace the window. This thinking missed the fact that the store owner would have used these resources to purchase something else like a new cash register or a slicer or a vacation instead that the owner valued less than the window.
Later Menger used Marginal Utility to say the same thing. That is the store owner was forced by the child to use his resources to provide a higher utility need: the window, than a lower utility need: cash register, slicer, vacation. The broken window makes the store owner poorer. This is true even with insurance as the insurance company is made worse off by the destruction.
On to “Stimulus Packages”. These are similar to the broken window above only worse. In the case of a stimulus package, the government is stealing resources to satisfy the desires of those controlling government. Government theft of real resources forces consumers to focus on more important (Higher Utility) desires and forgo less important(Lower Utility) desires. So consumers not receiving direct transfers of resources from the stimulus are worse off than they would be without the stimulus. Unlike the broken window where all consumers are trading more important desires for less important desires, in the case of stimulus the consumers may get something they do not want at all. A good example is that stimulus money went to pay employees of GM and Chrysler. An employee of Toyota, Honda or Ford would probably not want any of his/her resources going for this purpose.
I wouldn’t even call the most recent bills “stimulus” bills. They did not return money to the individuals that earned it to spend across the economy as they saw fit. Instead, they gave money to companies that did not earn it through the exchange of their products - that is welfare.