Wednesday, January 30, 2008

Self-Interest Is the Secret to Growth

Paul Krugman correctly points out that the developing stimulus plan is hogwash, but for all the wrong reasons. The goal is not, as Krugman states, to increase consumer spending. That's easy; we can do that tomorrow. Simply ban all forms of investment. But everyone knows that won't be growth (thankfully).

Similarly, as Don Boudreaux explains, moving money around won't expand the economy either. You can't fill a pool by moving buckets of water from the deep end to the shallow end. You can't make society wealthier by taking from some and giving to others.

Economies grow from a rising living standard, a standard that betters as skill and productivity expand. Krugman quotes FDR: “We have always known that heedless self-interest was bad morals; we know now that it is bad economics.” But the opposite is true. Self-interest motives countless investors and entrepreneurs to find ways to increase our capacity to make things people want. Spending is a reward, not a means.

HT: Rhett Butler

No comments: