Today’s Thought on Capitalism and Freedom

“As in the case of money-printing policy, if the pool of real savings is declining, massive government outlays cannot revive the economy; on the contrary, they will make things much worse.  The only way fiscal stimulus could “work” is if the pool of real savings is still growing.  The increase in economic activity when the pool of real savings is expanding is erroneously attributed to the government’s loose fiscal policy.  If the pool is shrinking, real economic activity will continue to decline — regardless of any increase in government outlays.  Again, government is not a wealth-generating entity; the more it spends, the more it takes from wealth generators, thereby weakening any prospects for a recovery.

Real economic growth requires real savings to fund various activities that support and promote it.  Remember that money is just a medium of exchange and cannot grow anything.  Money is employed to exchange goods of one wealth generator for the goods of another wealth generator.”

Frank Shostak

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