The prevailing thought, partly because it worked so well for Reagan and others is that if you put more money in people’s hands, they will exchange more and productivity will naturally follow. What they currently fail to consider is that the method of exchange makes all of the difference between productivity and loss. When governments insert themselves into the process in any way other than either getting out of the way or protecting transactional integrity, they gum up the works and suffer inevitable and sometimes disastrous unintended consequences. Here are some examples. All were intended to aid the economy and all did the opposite.

Ethanol

Cash for junk cars

Smoot-Hawley Act

I think the clearest thought on this came from the Clinton Administration. Clinton’s advisers convinced him that, you do not increase productivity and therefore well-being by lowering taxes. You do it by facilitating corporate borrowing. When corporations borrow, they invest in productivity improvements. In order to do that, we need to lower the cost of gov’t bonds. that will make corporate bond issues easier. In order to lower bonds, we cannot deficit spend. So he and that congress balanced the budget. Clinton’s policies were even more productive than Reagan’s by one measure. Reagan made the richer. the overall economy grew by leaps and bounds, but the poor made no progress and even retreated a little. Under Clinton and the Congress, the poor made significant gains.

Hold on, let me catch my breath!

Your article points out exactly why Bush’s policies were an economic disaster. A tax cut that stimulates spending may cause a positive but temporary bump. But if the gov’t deficit spends to fund it, it will necessarily stifle productivity either in the present or in the future or both.

Strong but limited government is key, and its function should be to facilitate an environment were corporations and citizens can freely and productively interact.

Thanks for your post.