As the American Recovery and Reinvestment Act continues to pour massive amounts of stimulus money into the economy, some European governments have—in a move quite out of character—started to call for austerity measures in regard to government expenditures. Spain’s government has recently changed its position from one of increasing government stimulus, to one of reducing government spending. Why the change?
Consider that Spain’s unemployment skyrocketed from under 10% to over 20% in roughly 2 years despite the injection of a $21 billion stimulus package in 2009. Why didn’t this influx of government spending, in the form of subsidies for massive public works programs and the Spanish auto industry, lead to increased employment and economic recovery as the proponents claimed? Ultimately, the stimulus strategy fails because it is little more than a scheme for redistribution of wealth. Whether stimulus is funded through taxation, borrowing, or inflating the money supply, the end result is the same: wealth is transferred from those who create it, and redistributed those industries and businesses that “need” it.
Yaron Brook from the Ayn Rand Center of Individual Rights describes the effects of these policies:
“[C]onsider how our government wreaks economic destruction by taxing the wealth of the productive and diverting it unproductively. Americans pay trillions of dollars in taxes annually–the vast majority of which is not for the agencies that protect our rights (police, military and courts), but for regulations and for entitlement programs that transfer wealth from productive individuals who have earned it to those who haven’t.
Over the years, these programs have prevented individuals from investing trillions of dollars in new ventures. It took a million dollars to start Google; if the government hadn’t drained us of millions of dollars, picture what other amazing technologies, products and services we would be enjoying today.”
Any action government takes to stimulate the economy must inevitably be paid for by the most productive businesses and individuals—those who don’t need government help. As the disastrous consequences of decades of wealth redistribution policies start to be felt around the world, both American and European governments would do well to learn from these failures and stop draining the resources of the productive creators of wealth who drive economic growth.