Carlos Caro

Vernon Smith provides a sound proposition to stimulate our falling economy

By Carlos Caro,

In the article “ Please, No More Government Spending” published on July 19, 2010 on The Daily Beast; Vernon L. Smith states that the deficit “stimulus” the government is implementing in order to aid a falling economy will not resolve the economic problem we have at hand, it will worsen it. Smith also explains the alternative actions that will stimulate our current economy and encourage a recovery path for the future. Vernon L. Smith is a professor of economics at Chapman University’s Argyros School of Business and Economics. Smith also shared the 2002 Nobel Memorial Prize in Economic Sciences with Daniel Kahneman.

Smith makes it very clear that he opposes the actions made by the current government. He strongly opposes the deficit stimulus imposed and explains the future consequences it will bring to the nation. He explains when Bush made the same mistake and how the people used those stimulus checks to pay down debt and increase saving instead of spend the money to stimulate the economy as it was planned.

Smith also points out that “using subsidies to pump up home sales beyond that people could afford was the problem that led to the crisis of 11 of the last 14 recessions”. The “percentage decline in new house expenditure preceded and exceeded percentage declines in every other major component of GDP.” He explained how the deficit we face must be faced and that our best solution is to reduce business taxes and the cost of creating new companies in order to created new jobs.

The author makes several valid points. In the current situation the country is in, we need economic growth. The idea of reducing business taxes and the cost for creating new companies will be an incentive create new companies and for business to expand. This will bring new jobs which will reduce the number of unemployment. With this economic spur, unemployment will eventually go down  and we will have a good workforce. With new businesses, there will be more more supply and according to Say’s Law, supply will create its own demand. This will all lead to a much needed growth trend.

In conclusion, Smith provides a sound proposition to stimulate our falling economy. He uses records from previous recessions to show the fault of the current deficit stimulus plan. He also provides a clear explanation of why aiding current businesses with tax reduction and reducing the cost of creating new ones is so crucial to jump-start the economy. The creation of jobs will increase the supply we produce and at the same time the increase in income will create the demand. We have the resources; we need to utilize them to their maximum capacity. I personally agree with the points Vernon L. Smith made in this article. This will ultimately be the best way to save our economy.


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