“Free” Money? Think Again…

Michael Kinsley has some sobering commentary on the economic stimulus package idea that’s floating around in Washington right now, perhaps one of the most hairbrained ideas to come out of DC in recent years.  Kinsley’s subtitle says it all: “We need a ‘fiscal stimulus’ the way a drunk needs another drink.  Let’s sober up first.”

Kinsley brings up the core reason why this idea is doomed to failure: in a time of impending recession, it is only natural that a good portion of the beneficiaries of the rebate will act responsibly and save it or use it to pay down debt instead of instantly pumping it back into the economy.

“Direct government spending is a more efficient stimulus than an equivalent tax cut because all of it gets spent.  When actual people get hold of the money, a few might have an unpatriotic tendency to save some of it.”

Kinsley further chastises this proposal by pointing out the obvious:

“My gripe is that telling Americans that they need to borrow and spend just a little bit more to get us past this recession — and then reform their ways — is like telling an alcoholic he needs one more drink before sobering up.”

It is amazing that, quite possibly, a large percentage of Americans must think that money comes out of thin air and the gubmint can just print more of it; personal and government fiscal responsiblity is a distant reality, someone else’s problem.

Like adhering to that New Year’s resolution to lose weight or start saving more money, if the promise of a magic pill or surefire investment seems too painless to be true, it probably is.  There is still no substitution for daily exercise and, likewise, financial responsibility.  Kinsley points out:

“If we must have a fiscal stimulus, let’s make sure it’s not too enjoyable.”

Spending our way out of a recession driven by a debt crisis just seems too enjoyable to work.  It is the proverbial magic diet pill or instant get rich scheme…doomed to fail.

You may also like...

3 Responses

  1. Greger says:

    "a large percentage of Americans must think that money comes out of thin air and the gubmint can just print more of it"

    Oh hum….

    Well that’s actually exactly how it works….


  2. Chuck says:

    I’ve seen ths video before 🙂

    The point of the rant is that this type of thinking and behavior by the lenders is exactly what got us here in the first place.

    "Creating" money and handing it over to those who are not responsible enough or not capable of paying mortgages over long terms is at the core of the real estate bubble (or at least one of the main issues).

    Basically, it’s a stupid idea to believe that you can create some money and hand it over to anyone. The family that bought my previous townhouse only put down 5%…my wife and I secretly wondered how they could possibly afford to buy the townhouse if all they could muster was 5%. And yet, some lender happily gave them a mortgage, even given the risk that they pose.

  3. Greger says:

    Your right on the money.

    And to put it another way, people have to realize that there is no such thing as a free lunch.
    Thanks for the blog btw.