The Free Market Center
Fallacies of Economic Stimulus
Many, including those who call themselves economists, suggest that getting people to spend more money on consumer items will stimulate economic growth. In the short term, getting consumers to spend more money does create more economic activity. But, that spending will not stimulate long-term economic growth. Quite the contrary, increasing consumption reduces savings which in turn reduces long-term economic growth.
Even worse, if the government takes action designed to increase consumer spending, it can only do so by taking resources from the savings pool, which will definitely retard long-term economic growth.
A lot more needs saying about this particular fallacy because of its mistaken popularity. I will address the importance of saving over consumption for the sake of long-term economic growth.
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