Why the Stimulus Plan Won't Work

[T]he government can't inject money into the economy without first taking money out of the economy. Where does the government get that money? It can either borrow it or collect it from taxes. There is no aggregate increase in demand. Government borrowing and spending doesn't boost national income or standard of living; it merely redistributes it. The pie is sliced differently, but it's not any bigger.

Stimulus packages—and present or future tax increases that fund government spending—end up burdening the economy. Such was the case in the 1930s, during World War II, and in 1990s Japan. Thankfully, the 2001 and 2008 tax rebates, while ineffective as stimuli, didn't make things worse.

If politicians actually want to do something cost-effective to solve our economic woes, here's some advice: Stay away from spending increases and tax rebates. Instead, focus on real incentives to stimulate work and investment, such as cutting everyone's marginal tax rates, slashing payroll taxes for employees and employers, and ending the corporate income tax.

It is too late to offer alternative solutions for the spending spree bill since Congress has passed it and the President will sign it as soon as he gets back to Washington. It will then be the law of the land. Yikes!