When private citizens invest their own capital, those who invest wisely are rewarded with profits, while those who do not are punished with losses. Bad investments are therefore abandoned, with capital reallocated to more successful ventures. Conversely, when governments invest money, these checks and balances do not exist. There is nothing to correct bad investments, as losses are endlessly subsidized by taxpayers. In fact, the more a government plan fails, the more it tends to be funded in the hope that additional resources will finally achieve success.
President Obama said the other day that "economists on the left and right agree that the last thing the government should do during a recession is cut back on spending." Peter Schiff is an economist and takes exception to the notion that we can spend our way out of a recession.
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