There Is No Santa

Does Santa Claus exist? Congress definitely seems to think so. Why else would it claim to create new jobs by taking money from one group of people and giving it to another?

Here is what my George Mason University colleague Professor Richard Wagner wrote, which was published by Office of the House Republican Leader: “Any so-called stimulus program is a ruse.

“The government can increase its spending only by reducing private spending equivalently. Whether government finances its added spending by increasing taxes, by borrowing, or by inflating the currency, the added spending will be offset by reduced private spending.

“Furthermore, private spending is generally more efficient than the government spending that would replace it because people act more carefully when they spend their own money than when they spend other people’s money.”

A short translation of Wagner’s comment is: There is no Santa Claus or Tooth Fairy. Let’s examine the ruse.

Suppose the value of all that we will produce in 2009, our gross domestic product (GDP), totals $14 trillion. There cannot be any disagreement that if Congress spends $4 trillion, of necessity there is only $10 trillion left over for us to spend privately.

In other words, if Congress is going to spend $4 trillion, it must find a way to get us to spend $4 trillion less. The most open and aboveboard method to force us to spend less privately is to tax us to the tune of $4 trillion.

You might say, “Congress doesn’t have to tax us $4 trillion. They could tax us $3 trillion and run a $1 trillion budget deficit.” You have that wrong. There is no way for Congress to spend $4 trillion out of our 2009 $14 trillion GDP by getting us to spend only $3 trillion less privately. It has to be $4 trillion less.

Another method to force us to spend less privately is to print money and inflate the currency. Rising prices reduce our ability to spend privately since each dollar we hold will not buy as much.

Another way is for Congress to borrow, thereby reducing our ability to spend privately. By the way, all of this means that in any real economic sense the federal budget is always balanced. That is, if Congress spends $4 trillion we must privately spend $4 trillion less whether it is accomplished through taxation, inflation or borrowing.

The stimulus package being discussed is politically smart but economically stupid. It’s that bedeviling, omnipresent Santa Claus and Tooth Fairy problem again. Let’s say that Congress taxes you $500 to put toward creating construction jobs building our infrastructure. The beneficiaries will be quite visible, namely men employed building a road. The victims of Congress are invisible and are only revealed by asking what you would have done with the $500 if it were not taxed away from you.

Whatever you would have spent it on would have contributed to someone’s employment. That person is invisible. Politicians love it when the victims of their policies are invisible and the beneficiaries visible. Why? Because the beneficiaries know for whom to vote and the victims do not know who is to blame for their plight.

In stimulus package language, if Congress taxes to hand out money, one person is stimulated at the expense of another, who pays the tax, who is unstimulated.

A visual representation of the stimulus package is: Imagine you see a person at work taking buckets of water from the deep end of a swimming pool and dumping them into the shallow end in an attempt to make it deeper. You would deem him stupid. That scenario is equivalent to what Congress and the new president proposes for the economy.

A far more important measure that Congress can take toward a healthy economy is to ensure that the 2003 tax cuts don’t expire in 2010 as scheduled. If not, there are 15 separate taxes scheduled to rise in 2010, costing Americans $200 billion a year in increased taxes. In the face of a recession, we don’t need that.

Walter E. Williams is a professor of economics at George Mason University in Fairfax, Virginia. He has authored more than 150 publications, including many in scholarly journals, and has frequently given expert testimony before Congressional committees on public policy issues ranging from labor policy to taxation and spending.

7 comments from readers  

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One thing that is touched on but which so many people I talk to don't appreciate is the double impact of the inefficiency of government in re-allocating money it takes from the economy (through whichever means it takes it).

1. There is the the fact that government does not allocate funds to the highest and best uses that the owner of those funds would have used it. Simply, the direct investment is inefficient because the government lacks the same level of knowledge and lacks the interest to obtain the knowledge to use the capital efficiently. Moreover, it is not incentivized to find the best use, but as noted in the article, the most politically beneficial use.

2. There is also the problem that for every $1 the government takes, it spends some portion of that $1 on is own infrastructure -- those nameless bureaucrats and their many direct costs (desks, paper, buildings, etc.) which have no added value to the economy except to justify the need for more money to be spent by government. And for each bureaucrat there need to be layers of supervisors, checks and balances which cost money. Ultimately, for every $1 the government claims it will spend on "stimulus", it will need to take more money just to support itself. Hence the real cost of $1 in stimulus is much more than $1.

Mr. Williams no doubt has a much better working knowledge and possibly some economic data on the costs of the layers of bureaucracy and I would enjoy any further insight he could offer on the subject. Too many people in the general public simply refuse to acknowledge any of the costs of "stimulus", whether it be the inefficiencies of government or the invisible victims.
Dr. Williams: I am a student of Economics for my own amusement, being an advanced senior citizen. I have a decent handle on the subject, but you have me confused here slightly. If Gov't spends 4 trillion, society has to spend 4 trillion less? Less what? You say total GDP is 12 Trillion, less 4 trillion spent leaves 8 trillion. Are you suggesting that by society spending 4 trillion less, the GDP will again be worth 12 T.? Of the 12 T. how much is taken in income tax? If that is the 4 T you are referring to, then of course society will have that amount less to spend. That sounds logical. Has anyone considered why Gov't has to do anything for the economy, or is involved in the production of wealth? Isn't the fact that it is, the primary source of America's malais? "Tis a puzzlement. Frank Toplin
This is another very sensible and hard-hitting analysis of our wrongheaded elected government leadership produced by one of our greatest champions of freedom, Economist Walter Williams. It looks as though Walter will be a very busy man for the next 2 years trying to reign in the insanity of this economic train wreck of a Congress and President Obama.
This is a very obvious conclusion. In order to argue using reason, the two parties of a debate have to both agree, at least, to use reason and/or logic as a common denominator. This is not the case with our government or most people. A good approach is to demolish the anti-logic thinking of our culture. It starts by not lying to children and telling them that there is a Santa. I know this sounds mean, but a lie is a lie. Say, "These gifts are from your parents because we love you and want to see you enjoy them." That child is one not subjected to a series of lies by the only people they know and trust - Their parents.
As I have said before, "Our goose was cooked long ago when socialists like FDR and LBJ incorporated the handout lines, and the lines just got longer and longer".
santa klaus exists.

He recently rewarded my family with new softball gloves and an elegant watch and a box of books,

for having had the joyous patience of waiting for a day of celebration after a year of hard work and study.

Looks like we got the gifts for being good, and for being happy of being good.

So, I know that santa klaus exists,

but I definitely know the he DOESN'T work for the Goverment.


Very informative article. But wasn't it RobinHood that took from one group to give to another? I always thought Santa Claus was a wealthy capitalist/philanthropist whose elves produced his own products for distribution.
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