A stimulus won’t save us. We’re already spending significantly more than is good for our economy.
Whenever the government spends money, whether in an attempt to spur economic growth or not, that money has to come out of the economy somehow. Either the money is raised through taxes and taken directly out of the economy, or the money is borrowed and ties up money that would otherwise be invested in new business growth (and then hits again harder when it has to be paid for with taxes), or the money is printed and causes inflation, driving down the purchasing power of consumers and reducing their economic activity.
That’s not to say that all government spending is bad, but there is an upper limit to how much spending is good for an economy, especially if that money is being spent in an attempt to stimulate further growth. Most government spending is inefficient from the standpoint of creating economic growth. Some government services, such as providing transportation and education, enable more economic activity than they detract, up to a point. When government builds a highway between two cities that were not connected, the new economic activity from goods, services, tourism, etc. moving from place to place is often more than enough to cover the cost of the highway. However, when we start building 400 million dollar bridges to small towns with no major industry, the new economic activity created is significantly less than the amount that goes into creating the bridge. Spending money on education helps train new workers and is beneficial when we spend that money efficiently; when we have the federal government trying to operate on top of state governments, each with their own bureaucracy, where state and local school districts spend as much money trying to meet arbitrary federal standards as they receive from the federal government, we wind up wasting a lot of money and spending far more than it should take to provide a sufficient education.
Nor will quantitative easing save us. We’ve already been following inflationary quick-fix methods for the past decade as interest rates have been repeatedly dropped.
It’s a nice idea that inflation spurs investment and job growth, and in the short term it can do that. However, long term, inflation does far more to destroy job growth than deflation.
Inflation often happens naturally when we have a strong economy. When people have more money, they are willing to spend more, and when people have less, they are willing to spend less, so inflation often appears slightly higher during economic booms while deflation often happens as a result of bubbles bursting and recessions setting in. This does not mean inflation is a cause of strong economies, or that deflation is a cause of weak economies; a strong or weak economy causes a certain level of inflation or deflation, which is then modified by other factors. When inflation happens based on economic growth, inflation is generally negative; it prevents people from buying as much value worth of goods and services for the same amount of money, and serves to dampen economic growth. When deflation happens based on economic decline, it is generally a positive, allowing people to buy more value worth of goods and services for the same amount of money and dampening the negative impact of economic decline.
When inflation is caused by printing money, reducing interest rates, or increasing the percentage/multiplier of funds on hand that banks are allowed to loan out, we see a different effect. The new currency being injected into the economy spurs investment in new industries almost immediately as the currency becomes available. However, as that currency reduces the value of the currency held by consumers, and reduces the purchasing power of people on fixed incomes and salaries with limited growth potential, it reduces economic activity by preventing people from purchasing the same value in goods and services. In addition, because people are able to save less (and have less incentive to do so), there is less currency available to invest, forcing government to create more inflation to keep the investment happening to counteract the decrease in purchasing power and savings available to loan which is being caused by inflation.
When deflation happens based on fluctuations in the money supply, such as would happen if we switched to a gold standard, the opposite happens. We see an immediate drop in investment and even job creation due to a tightening of the money supply. However, the resulting deflation allows people on fixed incomes and salaries with little growth potential to purchase more while still putting more aside for savings, you see an increase in economic activity which helps to counteract the reduction in investment, and over time you see far more money put into savings and made available to be loaned out and invested in new business enterprises. While a high rate of deflation has the potential to cause a severe enough recession to make it difficult for an economy to recover, a slow and steady rate of deflation will cause more than enough long term growth to be worth the negative short term effects.
Considering that we got ourselves into this “great recession” by an entire decade of short term economic practices like defecit spending, cutting interest rates, and encouraging excessive loaning and borrowing, we need a long term solution, not a short term solution. We need the type of government that a Ron Paul or a Gary Johnson would provide, a government where we would cut the 43% of the budget that we’re currently borrowing because our spending has exceeded revenue and where we would move to sound currency, restore both investor AND consumer faith in our economy, and cause long term job growth through sound economic policies rather than jumping from one quick fix to the next until we’re in a hole so deep we can’t dig ourselves out anymore.