One of the most durable myths about economics is that government spending cures poverty. We hear that all the time from politicians and, alas, many economists. But we don’t expect to hear it from the Wall Street Journal.
In this piece for American Institute for Economic Research, John Tamny responds to a recent WSJ story that said exactly that.
He writes, “More realistically, poverty is erased by economic opportunity either born of individual initiative, or work opportunities that are a consequence of capital formation that leads to businesses that need employees. Extra “stimulus payments” could never realistically lead to capital formation precisely because they’re “spending money” or helicopter drops of money. Translated for those who need it, no business is going to expand or attract investment for expansion based on a helicopter drop. What Ensign presumes to have pulled 11.7 Americans out of poverty did no such thing. It was fake, artificial, or insert your adjective here. For businesses to expand, they need savings.”
To believe that government payments erase poverty is the old broken-window fallacy of Frederic Bastiat — seeing only immediate and obvious effects while ignoring the hidden, long-run effects.
Statism relies on fooling people into believing that government can cure poverty, stimulate growth, control prices, and do lots of other economic magic. But government meddling only wastes resources and distorts incentives, thereby impeding the actions that actually do erase poverty — entrepreneurship and investment.
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