I’ve finally found a way to express one of my concerns about the massive fiscal stimulus that’s being worked on in Washington. This snippet from Megan McArdle gave me the clue I was looking for:
The tendency to attribute outright magical powers to government spending has gotten slightly out of control. It’s appropriate to ask the same question that should have been asked of Republicans in 1980: if all this is so marvelous, why don’t we just do it indefinitely–slash tax rates to zero, borrow and spend forever?
The answer is that there are declining returns to all of this. At some point, the Laffer Curve maximizes, and any further cuts cost the government money. Similarly, the trillionth stimulus dollar probably isn’t nearly as effective as the first.
We’ve been trying to use fiscal stimulus as a means of stimulating our economy over the period of the last 40 years or more. We’ve been doing it for so long that we don’t even think of it as fiscal stimulus any more.
I strongly suspect we’ve reached the point of diminishing (or no) returns. The thrill is gone.
