Studies of various governmental economic policies have shed light on the effects of government spending. If the government sticks to infrastructure improvements, e.g. building roads, hydroelectric, etc., then the spending will increase economic activity because the spending enables market economic activity. On the other hand, spending to increase economic activity just doesn’t work.
For government to spend money, it has to take it from somewhere. Government doesn’t create wealth; it only consumes. If it taxes business or business workers, it takes money that would otherwise be used for economic activity. If it borrows money, that takes capital that would otherwise be available for economic growth. If the Government prints money, that causes inflation that lessens the value of everyone’s money; a very real but indirect tax.
There is a simile for government spending to increase economic activity. It is like trying to increase the water level in the shallow end of a swimming pool by taking water from the deep end. In a perfect world, the level would at least stay the same. Unfortunately, government is not 100% efficient; they spill at least 10% while moving it from the deep end to the shallow end. Overall, the level goes down, just as economic activity does when the government tries to “stimulate” it. So this story should be of no surprise:
The “good” news (a subscription is required for the full story, but you can get the idea from the teaser):
The price of gasoline is going to go down. The commodities traders expect the economy to be stagnant at best or to continue to spiral into the toilet at worst That means oil companies will not be able to sell as many refined petroleum products. Hence the futures price of crude oil is dropping and that will result in a drop in the price of gasoline. So, the good news is that we will have less expensive gasoline for road trips. The bad news is that people can’t take those trips because they can’t find work.
Steamboat Jack (my evil twin)