Do not think about, write about or deal with human behavior without determining the effects of incentives.
The Bank of Canada was established 75 years ago to, among other reasons, keep inflation in check. Since then, inflation has only been 19.76% yearly. Mission accomplished.
When I took economics, in 1973, one of the things we learned was that each dollar spent by the government would produce a “multiplier” effect of stimulating the economy of X3. Each government dollar was worth three private dollars. Long after, it occurred to me that this was nonsense. This assertion has been refuted by almost each bit of research since then. My guess is that government money is a divider, not a multiplier. (You can’t increase wealth by dividing it).
A controversy has arisen between the Government of Canada and a The Fraser Institute, a libertarian think-tank which questioned the utility of the massive stimulus package recently imposed upon Canada. The government, not surprisingly supported its actions with the Fraser Institute pointing out the uselessness of the exercise.
The following is from the National Post.
“Stephen Harper and Jim Flaherty must be smarting after being taken to the metaphorical woodshed on this page yesterday by the Fraser Institute’s Niels Veldhuis and Charles Lammam.
The Prime Minister and his Finance Minister had dismissed as “ideological” and “shabby” a report by the Fraser economists that suggested that the Conservatives’ stimulus program had “virtually no impact” on last year’s economic turnaround.
Yesterday, Messrs Veldhuis and Lammam produced a devastating catalogue of research by some of the world’s leading economists to confirm that the theory behind the government’s Economic Action Plan, like all such “stimulus” plans, is essentially a crock.
One name that didn’t crop up in the critique was that of the father of stimulus, John Maynard Keynes, who manufactured the theory that is still embraced by the activist wing of the economics profession: that is, those who promote programs that fly in the face of economics.”
And further:
““So there you have it,” wrote Hazlitt. “The people who have earned money are too shortsighted, hysterical, rapacious and idiotic to be trusted to invest it themselves. The money must be seized from them by politicians, who will invest it with almost perfect foresight and complete disinterestedness (as illustrated, for example, by the economic planners of Soviet Russia). For people who are risking their own money will of course risk it foolishly and recklessly, whereas politicians and bureaucrats who are risking other people’s money will do so only with the greatest care and after long and profound study. (Emphasis added) Naturally the businessmen who have earned money have shown that they have no foresight; but the politicians who haven’t earned the money will exhibit almost perfect foresight. The businessmen who are seeking to make cheaper and better than their competitors the goods that consumers wish, and whose success depends upon the degree to which they satisfy consumers, will of course have no concern for ‘the general social advantage’; but the politicians who keep themselves in power by conciliating pressure groups will of course have only concern for ‘the general social advantage.’”
Aside from the part about not working, the economic stimulus plan was just the ticket.
If you spend other people’s money for your own advantage, you’re not very careful with that money. Incentives everywhere.
Cheerio and ttfn,
Grant Coulson
Cui Bono–Cherchez les Contingencies
