Fraser Nelson

When the state spends money, the money has to come from somewhere

When the state spends money, the money has to come from somewhere
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The Wall St Journal is a joy to read because it's a business newspaper which is also proudly free market (and explicit about its philosophy). In contrast, the FT leader column seems to think it is being all clever and counter-intuitive by bashing capitalism now and again, and applauding the more naive schemes of the government. So it's only in the WSJ that you have little reminders about what a stimulus is for, when it works and when it doesn't. And crucially why it's not the case (as Obama seemed to suggest in a speech on Thursday) that any government spending is good. As its editorial says today

“A dollar doled out in jobless benefits may well be spent by the worker who receives it. That $1 of spending will count as economic activity and add to GDP. But that same dollar can't be conjured out of thin air. The government has to take that dollar away from someone else -- either in higher taxes, or by issuing new debt in the form of a bond. The person who is taxed or buys the bond will have $1 less to spend. If the beneficiary of that $1 spends it on something less productive than the taxed American or the lender would have, then the net impact on growth will be negative.”

I applauded Obama's decision to level with his voters, and publish a study on the likely economic impact of his stimulus. But his decision to mix it in with his overall extra spending programme, and try to badge it all up as a Keysnian stimulus, has dismayed many of the stimulus' early supporters - myself included. Its popularity has gone from 45-37 in favour to 43-37 opposed. I haven't seen a similar question asked about the Brown stimulus, but I suspect Sarkozy spoke for most Englishmen when he derided it as useless on Thursday night. The truth, as CoffeeHousers will know, is far worse.

PS That WSJ piece reminded me of one of Bastiat's best passages - as it's a Saturday, here it is...

“The State opens a road, or builds a palace, straightens a street, cuts a canal, and so gives work to certain workmen - this is what is seen: but it deprives certain other workmen of work - and that is what is not seen. The road is begun. A thousand workmen come every morning, leave every evening, and take their wages - this is certain. But if the road had not been decreed, if the supplies had not been voted, these good people would have had neither work nor salary there; this also is certain.

But is this all? Does not the operation, as a whole, contain something else? At the moment when M. Dupin pronounces the words, "The Assembly has adopted," do the millions descend miraculously on a moonbeam into the coffers? In order that the evolution may be complete, as it is said, must not the State organize the receipts as well as the expenditure? Must it not set its tax-gatherers and taxpayers to work, the former to gather and the latter to pay? Study the question, now, in both its elements. While you state the destination given by the State to the millions voted, do not neglect to state also the destination which the taxpayer would have given, but cannot now give, to the same. Then you will understand that a public enterprise is a coin with two sides. Upon one is engraved a laborer at work, with this device, that which is seen; on the other is a laborer out of work, with the device, that which Is not seen.”

- from his essay That Which Is Seen

Written byFraser Nelson

Fraser Nelson is the editor of The Spectator. He is also a columnist with The Daily Telegraph, a member of the advisory board of the Centre for Social Justice and the Centre for Policy Studies.

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