Government Stimulus Is the Best Way to Get Out of a Recession

I. Capital AccumulationWhile it is true that banks often sit on capital, we have to understand why banks sit on their capital. "The main factor of instability in the modern banking system is the present paper standard, supported by the existence of the central bank and fractional reserve lending. " It is instability that causes banks to sit on their capital. [1]The other argument my opponent makes is in actually stating that only the short term benefits should be considered in the best plan for getting out of a recession. Even assuming that were true, the plan is still myopic, and is bound to repeat itself over and over again - I explained this in the broken window fallacy argument. However, I don't have to concede even the short term: "Despite the fact that what the economic system needs for recovery is saving and the accumulation of new capital, to replace as far as possible the capital that has been lost, the effect of stimulus packages is further to reduce the supply of capital, and thus to worsen the recession or depression. .. any fresh production and employment that results is incapable by itself of replacing the capital that was consumed in starting the process. .. The starting point for the government and its dependents is an act of consumption, which means a using up, a loss of previously existing wealth in the form of capital. " In other words, government stimulus, at best, cannot fix the economy any faster than it would have naturally recovered (all other things being equal), and likely causes capital decumulation, which makes the recession worse, obviously making the plan not even good in the short term. [2]My opponent continues to commit the broken window fallacy, and it is with that that I will proceed to the next argument. II. Broken Window FallacyThe same problem here: "In reality, nearly all Americans either invest their savings by purchasing financial assets such as stocks and bonds (which finances business investment), or by purchasing non-financial assets such as real estate and collectibles, or they deposit it in banks (which quickly lend it to others to spend). The money is used regardless of whether people spend or save. Government cannot create new purchasing power out of thin air. If Congress funds new spending with taxes, it is simply redistributing existing income. If Congress instead borrows the money from domestic investors, those investors will have that much less to invest or to spend in the private economy. If Congress borrows the money from foreigners, the balance of payments will adjust by equally reducing net exports, leaving GDP unchanged. Every dollar Congress spends must first come from somewhere else. "[3]What my opponent is doing here still only looking at what the person who got the government stimulus bought. He fails to take into account what the person who paid for the stimulus did not buy. Say the receiver gets $100 - that money can only come by taxing $100 out of the economy, which leaves a net zero "injection" of money into the economy. It will not net benefit the everyday worker - all it does is inefficently redistribute money, which makes the recovery worse. III. Empirical EvidenceEven assuming that my opponent's objections to my earlier arguments were valid (which they aren't, because again, it is partially government stimulus that got America into the problem in the first place), Ireland is recovering, and better than many economies in Europe because of its large amounts of saving. I will close with this: "A Journal of Macroeconomics study discovered that the coefficient of the additive terms of the government-size variable indicates that a 1% increase in government size decreases the rate of economic growth by 0.143%. "[3][4]ConclusionEven though the broken window fallacy was one of my arguments, my opponent pretty much committed it throughout the entire debate, both in arguing that the short term is the most important factor in an economic plan, and my only stating the immediate benefits of such a plan, while not considering the more unforeseen costs of such a plan. Capital accumulation is the only way an economy gets back on track, and government stimulus stalls, and even reverses this trend, making the recession worse. Sources[1]: . http://mises.org...[2]: . http://mises.org...[3]: . http://www.heritage.org...[4]: James S. Guseh, "Government Size and Economic Growth in Developing Countries: A Political-Economy Framework," Journal of Macroeconomics, Vol. 19, No. 1 (Winter 1997), pp. 175-192. NOTE: Source 4 was quoted from source 3.