Will Creating Money Out Of Thin Air Save Our Economy?


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Kurt Bouwhuis, Mackinac Center Intern

I came across this article today while reading the Detroit News.  There are a couple economists who voice their opinions about where the economy is going.  The general consensus was that the United States economy will continue to be in a recession until the middle of next year.  Some of the proposed solutions bothered me.  The following will illustrate my point:

“We’re not forecasting economic catastrophe,” Crary said. “We expect the set of policies put in place will be successful.”

Among the policies she expects to see are stimulus checks given to taxpayers to spur spending, more money for infrastructure improvements and state and local governments, loans for domestic automakers and extended unemployment benefits.

She warned that if steps aren’t taken to spur the economy the recession would be worse.

At first glance, I thought the policies listed above were the policies that got us into this mess; not the ones that were going to “save” us.  First off, spending does NOT generate economic growth.  Investment generates economic growth.  When looking at spending, you should take into account where the money is coming from.  Considering the Federal Government is in debt up to their eye balls, it seems strange to assume they have money laying around to lend to automakers, give to citizens, and spend on infrastructure.  Additionally, investing in a business that is losing $2.5 billion a quarter (GM) is not considered an investment that will create desirable economic outcomes.

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