Say’s Law

Facing an economic downturn and an election, politicians of both parties sought to stimulate consumer demand—and some business investment—through political action. They promised that if the early 2008 “Stimulus Package” didn’t succeed, there would be “more to come.”

It didn’t work, and a stimulus is now the number one Obama priority. His “Big Bang” agenda has to wait its turn.

As in recent stimulus campaigns—for example, during the first terms of presidents Bill Clinton and George W. Bush—almost all today’s politicians accept the legitimacy of government stimulus and rarely ponder the future economic harm such intervention may cause.

Genuine stimulus would entail liberalization of the economy from excessive interventions, regulations, and spending, and from political inflation of the money supply. It would maintain the conditions—legal order, minimal regulations and stable institutions—within which wealth can be created. It would recognize that governments do not themselves create wealth.

“Say’s Law” (as I discussed in the report Still Stimulating Like It’s 1999) holds that supply creates its own demand. A relative overproduction of certain goods may occur, implying that too many scarce inputs have gone into the production of unwanted items relative to inputs for desired goods. But general overproduction to which demand stimulus would (presumably) provide relief is not the core economic problem confronting societies. The leading pre-requisite for economic well being—along with negligible political interference—is low tolerance for special-interest pleadings that transfer resources. This means no political maintenance of wages or prices at above market levels, and a rejection of government-granted monopolistic abuses. It means no “Bailouts to Nowhere” and no “Bailouts on Wheels.”

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