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  • Morning Bell: Redistribution Does Not Create Growth

    On Aug. 1, then-candidate Barack Obama announced a $50 billion “emergency” economic stimulus plan. Now that he’s been elected, President-elect Obama’s advisers are pushing for a $500 billion spending plan. That number is not a mistake. In just three months the size of Obama’s emergency spending plan has risen tenfold. Obama has not even been sworn in yet, but the incoming administration is already proposing new deficit spending that is almost 4% of U.S. gross domestic product. Is there even any evidence that all this proposed government spending can spur economic growth? Not at all.

    Spending-stimulus advocates believe the government can create economic growth by “injecting” new money into the economy, increasing demand and, therefore, production. This raises the obvious question: Where does the gov­ernment acquire the money it pumps into the econ­omy? Congress does not have a vault of money waiting to be distributed. The Federal Reserve could print a bunch of new money, but that would send inflation soaring and make us no better than a banana republic. Therefore, every dollar Congress “injects” into the economy must first be taxed or borrowed out of the economy. No new spending power is created. It is merely redistrib­uted from one group of people to another.

    Spending advocates typically respond that redistributing money from “savers” to “spend­ers” will lead to additional spending. That assumes savers store their savings in their mattresses or elsewhere outside the economy. In reality, nearly all Americans either invest their savings by purchasing financial assets such as stocks and bonds (which finances business investment), or by purchasing non-financial assets such as real estate, or they deposit it in banks (which quickly lend it to others to spend). The money is used regardless of whether people spend or save. The only way government redistribution can lead to more growth is if the government is better at efficiently allocating resources than the market otherwise would have been. And here governments have a historically terrible track record:

    Massive spending hikes in the 1930s, 1960s and 1970s all failed to increase economic growth rates. Yet in the 1980s and 1990s — when the federal government shrank by one-fifth as a percentage of gross domestic product (GDP) — the U.S. economy enjoyed its great­est expansion to date. Heritage senior policy analyst Brian Riedl concludes:

    Rather than redistributing money, lawmakers should focus on improving long-term productivity. This means reducing marginal tax rates to encourage working, saving, and investing. It also means promoting free trade, cutting unnecessary red tape, and streamlining wasteful spending that all weaken the private sector’s ability to generate income and create wealth. Finally, it means strengthening edu­cation — not just throwing money at it. Addressing long-term growth and productivity is more chal­lenging than waving the magic wand of short-term “stimulus” spending—but a more productive economy will be better prepared to handle future economic downturns.

    Quick Hits:

    Posted in Ongoing Priorities [slideshow_deploy]

    24 Responses to Morning Bell: Redistribution Does Not Create Growth

    1. Kevin, Mandeville LA says:

      Thank you very much for the vital work you do researching and reporting on today's most important issues.

      The link to "European Union has ended its war on ugly vegetables" provides a poignant preview of things to come.


    2. Doris Morgan, Oklaho says:

      Come on, it depends on where we come from what we need to do. There's a terrible imbalance going on

      here, and it hasn't "trickled down"; it's almost

      ruined our economy. Now we desperately need to build from the bottom up…pay to those who actually build something, contribute something to

      our country. We are toppling from being so top-heavy.

      These Wall Street bandits are killing us………..

    3. Robert Meyer says:

      The Heritage Foundation is a non-profit organization. I was just wondering where your funding comes from? thanks,

    4. Trilli On says:

      You people think that you know something about redistribution. If you know sooooo much then why has the share markets lost so much money? Why has the 401k lost so much money. Who says that you people have growth in the global economy?

    5. jjay - Louisville, K says:

      Perhaps it really boils down to WHAT one would call "growth" doesn't it?

      If the consumers or potential consumers do not have the "wealth" to purchase, THEN the suppliers or potential consumers are certainly hurting because they cannot unload their stock to willing and interested buyers.

      The reason ?

      The suppliers, who may be only on the verge of being created, are stymied and losing ground BECAUSE the demand is not yet there from the consumers who it seems obvious DO NOT have the the spendable cash.

    6. Ken Jarvis - Las Veg says:

      WE LOVE HF busted logic

      BuSh who is Prez

      can spend spend spend Billions$$$$$$$$$

      that we don't have and the

      HF says nothing.

      But, Obama, who hasn't been sworn in yet


      and the HF can't understand.

    7. Edwin Buck, Albuquer says:

      I'm 75 years old, lived in 29 countries, some of them socialistc or even communistic. Those socialistic or communistic countries have never succeeded. I've heard it before, from, so called, politicians, in those countries. Vote me in, and I will take the money from those "evil" rich people and I will ditribute it to those of you who have nothing. Once voted in, the rich will leave the country, and where will they take the money from, are from the same people that voted them in. These, so called, politicians, are after POWER, nothing else. Once in power, the people they've sworn to protect are the ones that will suffer most.

    8. kent/virginia says:

      Telling tax-and-spend Democrats that more deficit spending will only further weaken the economy is like telling an addict they cannot have more of what they crave. They simply will not hear you. We MUST insist on term limits for all federal representatives. Our career politicians in DC think of themselves as the ruling class rather than public servants and continue spending our grandchildren's tax money as if they were entitled to do so. Their income and retirement benefits are secure and they do not have a clue about what it is really like to have to be out in the marketplace and work for a living. We must insist our representatives pass legislation for term limits at the federal level and begin cutting funding to programs and departments that are ineffective or redundant.

      The only thing we really know for certain about our President Elect and his qualifications for the Nation's highest office is that he certainly knows how to spend other people's money–more than $700,000,000 in campaign contributions! This empty suit and Nancy Pelosi will send us free-falling deeper and deeper into socialism and widen the chasm between our two major parties. Hang on, it's going to be a bumpy ride!

    9. Michael - Tuwmater W says:

      Greed is not good!…."We slaughter hogs!" Our US Treasery fails is failing us by giving billions of USD to companies and banks without private sector oversight. I agree with your warning that without oversight there can be not trust in our governments actions to bring the US our of this recession.

    10. Laura Tenney says:

      So we're currently watching our economy get destroyed and we're waiting for our Constitutional Rebublic to get dismantled. I have written congressman and senators, but never get a satisfactory response. I don't even get a response from the democratic side. Does anyone have any good ideas that can be implemented to stop the further destruction of our society?

    11. Mary, Wisconsin. USA says:

      Liberty, justice, and freedom should not be taken for granted! Freedom of speech may be a thing of the past (starting with talk radio!) You might get in trouble for putting a nativity scene in your front yard! My grandparents could give people some good advice! They lived through the great depression, saved their money for their old age, paid cash instead of borrowing, and brought their children up to be responsible for their actions. Kids seemed to be safe in school, neighbors helped neighbors folks struggled, but worked hard. The change we need is to go back to some of those forgotten lessons! History classes taught things like the constitution, etc!!!

    12. Dennis Aderholt says:

      What can I say?? The American people have been spoon fed a line of crap by the Democrtas, and they ate it like honey. The liberal, socialist bunch in DC will keep this up for the next four years. We are at the mercy of those that have been elected, unless we let each one know that we will not stand for the destruction of our country. We mujst write and call each of our members in Congress and demand they work for us, not some jug head from who knows where. I hate to say it but I think we will soon be known, not as the USA but in fact the SRA-Socialist Republic of America- the land of the dumb led by the ignorant. Just my opinion.

    13. Doris Morgan, Oklaho says:

      To: Robert Meyer. Thanks for enquiring; I'm a

      non-profit retired individual from Oklahoma.

      Didn't really plan it this way; but here we are…

    14. Gordon, Florida and says:

      The problem with stimulus spending is that it has to be based upon realigning value into the workforce foundation. We need to recognize that some jobs in our economy have no economic value except for the artificial subsidation of labor unions. This subsidation will not cease under President Obama. The cool-aid drinking populous who voted for our new president because they are waiting for their tin cups to be filled, will be disapointed. The only way to be successful is to perform a job that other people are willing to pay for. Short of that simple fact, we can subsidize until we run out of printers ink and it won't make any difference.

    15. Evan from Anchorag says:

      If government spending increases unemployment and depresses GDP growth, then why was that not the case when Reagon pumped 3 trillion of national debt into the economy, and when Bush pumped 4 trillion of debt into the economy.

      I think the Hertiage Foundation is working for whats best for them, not whats best for the nation. Why don't we kiss corporate welfare good bye.

    16. Spiritof76, New Hamp says:

      Government intervention in all kinds of things never intended by our Constitution is at the root of our problems. It doesn't matter whether it is a Republican or Democratic government – Congress and the White House buttressed by dictatorial Courts have grabbed power away from people. We now face $50TRILLION in unfunded liability. People that comment here better wake up to the fact that what we are facing is an American problem, not a Democrat created problem or a Republican created problem.

      How do we get out of this mess? Stop spending money that we don't have no matter how big the companies are. Stop printing money like it is going out of style. REDUCE government spending drastically; start paying back the debt; start cutting taxes; encourage American capitalists, technical professionals and workers to create wealth in this country. Get the government out of our backs that have stymied technical progress in energy production and manufacturing for so long. Stop looking to Bush or Obama to somehow right the economic mess largely created by the government in the first place. America is meant to be a place where individual took responsibility for his/her own happiness while the government was entrusted to provide protection. This is not a collectivist society looking for government handouts. Unfortunately, that is what we have become. Reserve the theme "I am my brother's keeper" et.al for private lives and not made into a government justification for confiscating from productive people in the name of compassion.

      We must get back to our Constitution. It is non-partisan. It may already be too late!

    17. Gilbert, Largo says:

      Indeed, long-term investments as education, R&D, infrastructures WILL help on the LONG-TERM as will learning how to save energy.

      But there is a SHORT-TERM huge problem to solve and, per example FREE-TRADE will not help if the country cannot export due to outdated technology, far higher costs and payrolls.

      Jobs are created in a country, mainly because of its political and financial stability, because the people to be hired have a bit more than the minimum required knowledge (education) – they per ex. know that Africa is a continent – and only then regarding taxes … which, any way are included in the selling price to the end-user, otherwise not so many US companies would be coming to Switzerland, a country no one can say taxes are low!

      Finance works on the short to medium terms, while economy works on the long-term.

      Reconciling both is the duty of a sound government. But this, IMO, cannot be achieved when one has to face immediate problems due to market deregulations,lobbies, golden parachutes, etc.

      Saving energy is not even a complete solution: 110 V costs 4 times more than 220 V.

      You cannot change this in matter of even 4 years.

      It is not because the government lowers taxes that corporations will hire people but because their orders, turnover and budgets requires it and this IMPLIES to be IN the market. A market supported by the people, not by other corporations or, worse, by outdated expectations.

    18. Pingback: Morning Bell: Redistribution Does Not Create Growth - Jason’s Blog

    19. ella quinn kinsto says:


    20. Ireland, Alabama says:

      In researching socialist country a pattern has emerged that I think is significant. Their leaders believe in spreading the wealth but seem to have a hard time letting go of the cash and handing it to those persons they based their political rhetoric on.

      Time after time, while the poor live without food, drinking water, Medical supplies, no electricity and where most live with malnutrition. There leaders live an opulent lifestyle running water, nutritious food, with heat and electricity and seem to relish their citizen remain in the dark literally and politically. They used the funds for their own personal use and treat it more like an open piggy bank as funds go in but don’t come out. They clearly don’t want their public to learn the truth or compare how they live with how there leaders live. Keeping them uneducated from the facts allows them to remain in office.

      When some do discover the facts and become critical of their leaders and try to change the outcome for the public they are arrested and jailed, and many are killed for trying to educate the public on the lopsided balance of power and fortune. Year after year the pattern shows massive human rights or civil rights violates runs throughout most socialist countries, as they count on the ignorance and gullibility of those who voted them into power. But there is a reason why most of these countries are run by dictators and that is never good for those who have to live in it. They believe once in power always in power and once they get there they’ll never leave or eventually they leave in a pine box where the mourners don’t realize how they were fooled by a conniving political tyrant who made them believe this was the best and only way to live.

      Do I believe Barack Obama will continue this pattern? No, because we unlike others have seen the other side of life and we are an educated society. But, it is possible and the signs are there as the liberals have taken control over how Americans should live by changing the values we once held so dear. Education, our judicial system, entertainment all evaded by the liberal agenda. By forcing feeding the next generation that their ideas are superior to conservative’s ideas as they mock religion, God and country principals most Americans once held dear. Obama is showing signs of silencing those who openly criticize his ideas and policies and are denying access to him, by removing them from his plane, denying the right to ask questions at a news conference as he did this week to FoxNews.

      America I hope you can live with the decision you made when you made the choice of Barack Obama over John McCain and we don’t live to regret it.

      The irony is as American military free the citizens of Iraq, we could be losing them here.

    21. Phil Featheringill, says:

      Government involvement in anything is always a mess and income redistribution will be the same. I don't need Reid or Pelosi or Obama to tell me how or where I spend my money, which I earned not the government. Can anyone name ONE liberal government program that has ever worked? As has been said many times, Government is not the solution, government is the problem. I believe there were two kinds of people who voted for Obama, the stupid people who bought into his bogus nonsense and those that want to get onto the Obama gravy train and take money from those that earned it and put it their pockets.

    22. Pingback: Redistribution Does Not Create Growth « Conservative Thoughts and Profundity

    23. Andrew says:

      The HF is increasing looking sillier and sillier.

      Let me guess the answer is deregulation and lower taxes on the top 1%.

      The conservative revolution started by Barry Goldwater and brought into reality by Pres. Reagan is effectively over. The financial crisis so completely mishandled by the "free market" is the final blow. The lastest generation of conservatives in power degraded the movement into mostly poltical racketeers (e.g. Delay) or the neocon fools who led the country into the morass of Iraq. Bush was in NYC standing on another rubble pile (this time a fallen ideology knocked down by greed) declaring the need to deregulate more. I just hope to be able to retire someday.

    24. gunsunbible Missouri says:

      The trolls on this blog cannot see the trees for the forest. Why do we need any taxes at all? Just to fund government spending? On bull#$%^ that benefits few? Put the power back into the states. The California, New Yorks that cannot manage money, let them file chapter 11 like any business. Government could not manage a Taco Bell, that would take some brains, which nobody has in Washington. Obama is right about one thing, I will cling to my guns and my bible. I will keep my guns, my bible and my money. You who voted for Obama can keep the change.

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