Does Government 'Stimulus' Really Stimulate?: News Releases: The Independent Institute
 

The Power of Independent Thinking

←  NEWS



Stay Connected
Get the latest updates straight to your inbox.









News Release
FOR IMMEDIATE RELEASE
March 30, 2021

Does Government “Stimulus” Really Stimulate?
Unproven Economic Remedies Not What Economy Needs

Oakland, CA—With the passage of the $1.9 trillion coronavirus relief bill, economists are weighing in on if such measures will actually stimulate the economy or simply redistribute wealth and transfer debt from the private to the public sector.

“No established body of empirical evidence demonstrates the efficacy of government stimulus packages. Rather the reverse is true—the case for skepticism has existed for decades and the monetary and fiscal policies of 2020 have strengthened that doubt,” said R. David Ranson, Research Fellow at the Independent Institute.

There is no connection, Ranson says in a recent report, between the size of a GDP rebound and the size of a stimulus effort. Instead, government shutdowns are more indicative of slowing economies, which points to something other than stimulus programs as driving economic recoveries.

Instead of a strong correlation between stimulus and recovery, we see a pattern in which the vigor of recovery was roughly proportionate to the depth of the setback that preceded it, regardless of how large the "stimulus" effort was. Economies around the world simply rebounded as the shutdowns lifted.

In 2020, many economies rebounded in the third quarter after dramatic dips in the first half of the year. Some countries, like France, rebounded more dramatically than the U.S. with their GDP rising 18.2% in the third quarter.

Stimulus efforts usually fail due to what Nobel Prize winning economist Milton Friedman called the Permanent Income Hypothesis. Friedman’s hypothesis states that any unusual income boost will largely be saved or used to pay down debt, and therefore will not stimulate the overall economy.

Ranson contends that longer term, historical evidence tells us that government stimulus efforts tend to restrain the performance of output, employment and stock prices.

“Monetary and fiscal relief have some humanitarian justifications in a ‘crisis,’ but what the economy needs for recovery is to be left free to heal itself rather than be flooded with unproven economic remedies, especially when the crisis is created by the government in the first place,” says Ranson.

To interview R. David Ranson, contact Robert Ade at (510) 632-1366, ext. 114 or [email protected].

Credentials: R. David Ranson is a Research Fellow at the Independent Institute and the President and Director of Research at HCWE and Co. (formerly H.C. Wainwright & Co. Economics). He holds M.A. and B.Sc. degrees from Queen’s College, Oxford, and an M.B.A. in finance and a Ph.D. in business economics from the University of Chicago. Dr. Ranson has taught economics at the University of Chicago Graduate School of Business, served as an assistant to then U.S. Secretary of the Treasury William E. Simon and was a member of George P. Shultz’s personal staff at the Office of Management and Budget.

***

INDEPENDENT INSTITUTE
100 Swan Way, Oakland, CA 94621-1428

The Independent Institute is a non-profit research and educational organization that promotes the power of independent thinking to boldly advance peaceful, prosperous, and free societies grounded in a commitment to human worth and dignity. For more information, visit Independent.org.







  • Catalyst
  • MyGovCost.org
  • FDAReview.org
  • OnPower.org
  • elindependent.org