The US government has been moving fairly quickly to pass some form of stimulus package to try to head off a recession. The stimulus package would basically amount to mailing $150 billion out to everyone, with the point being for them to spend it to keep the economy going. Not everyone agrees that an actual recession (two consecutive quarters of negative GDP growth) is in the cards, but I guess no one in Washington, D.C., wants to deal with a recession in the middle of a presidential election, so they’re trying to do something just in case. I have a rather negative view of the federal government’s ability to do anything useful with the money we send their way, and I am usually happy to keep more of my money, so how could I possibly object to the government sending me a few hundred dollars to spend?

Like just about any government program, there’s a hidden cost to the stimulus package. Free money sounds like a great idea, until you ask yourself – where did this money come from? As economist Don Boudreaux points out, there are essentially three ways to fund this package – taxes, borrowing, or creating new money. The first two options just move money from some people to others, and the third results in inflation. Of course, one other way to pay for it would be to cut other spending to offset the cost… yeah, right. The bottom line is that we’re all going to be on the hook for this $150 billion one way or another. Either our current dollars are devalued or we get to pay back the cost through future taxes.

On top of that, stimulus packages don’t have a very good record of ending recessions. There is strong evidence that the Fed’s monetary policy has an effect, as do the “automatic stabilizers” such as the increased unemployment claims that automatically occur with a recession, but stimulus packages usually haven’t even worked their way into the economy by the time the recession is over – the average recession lasts 10 months. It would seem that demands for legislators to “do something” results in their doing something that is mostly pointless.

There’s also a silver lining to recessions. According to the Washington Post,

Recessions also have often-overlooked benefits. They dampen inflation. In weak markets, companies can’t easily raise prices or workers’ wages. Similarly, recessions punish reckless financial speculation and poor corporate investments. Bad bets don’t pay off. These disciplining effects contribute to the economy’s long-term strength, but it seems coldhearted to say so because the initial impact is hurtful.

Today, a U.S. recession might also reverse the upward spiral of oil prices and trigger a faster — and healthier — drop in home prices. As economist Berner notes, the slow decline in prices prolongs the housing slump, because it induces “would-be buyers [to] wait for more attractive deals.” By making homes more affordable, a quick and sharp price drop might revive housing more rapidly.

The savings rate in this country is already pathetically low, and now we’re being encouraged to spend our way out of a recession. As much as I would like to have a few hundred dollars of my money back, I’m not very confident that receiving that money is actually in my best interests (or anyone else’s). Perhaps we should just hold onto our money, let the recession happen, and when the smoke clears 10 months later we’ll have a healthy economy to kick off the next bull market.

If Congress insists on giving me money, I’d at least like to see some spending cuts to pay for it. Giving me money only to dilute the value of the dollar or tax people more in the future is not a recipe for the long-term health of our economy.