Short term economic stimuli

One of the main stories this week has been the various plans for short term economic stimulus. The basic idea is to provide a one time $500 tax rebate, which aims to increase spending and hence keep our head above water.

What most people don't realize is that this doesn't produce any economic growth. Instead, it simply shifts money from one pocket to the next because government will pay for the cut by either borrowing or taxing. This is classic demand side, Keynesian economics. What we need is a long term plan conducive for growth: lower taxes, a simpler tax code, and elimination of the massive entitlement plans.

Low taxes stimulate production because individuals and corporations keep more of the fruits of their labor. In other words, why work harder if the government is just going to take your earnings. By the same logic, entitlements inhibit production because one lacks the incentive to work if a 3d party will pay your way. Also, the services government provides will inherently be more expensive because (1) government does not have to compete with anyone else and (2) it distributes resources on political, not economic grounds. Finally, the administrative effort in working under this the tax code is simply wasted effort from an overall social wealth standpoint. Imagine the increase in social production were tax lawyers, accountants, and bureaucrats were producing rather than rent seeking.