Consumer confidence and stimulus plans

Niels Veldhuis, Charles Lammam and Milagros Palacios wrote a text in the Fraser Forum slamming Flaherty's latest budget. Their problem is the stimulus spending that will drop the Canadian government into the red. They are saying that stimulus spending doesn't work. Their argument, I find, is a sound one. Since the government will have to borrow money for its stimulus spending it means that it will essentially be taking money from its citizens to give it back to them with a shiny new name. The alternative would have this money either spent (which "stimulates" the economy) or saved at the bank who will then lend it (and "stimulate" the economy). By their account, it simply means that the only thing the stimulus spending does is put the country further into debt.

They are forgetting that a government is a political body first and foremost. They have to be seen in action and these actions, no matter how small an effect they actually have on the environment, resonate strongly in the population's psyche. Basically, the fact that the government is spending all this money has people feeling a bit more confident about the economy and spending more. The banks see that the governments bail out troubled companies and might take a bit more risk in lending, opening up the stranglehold they have on credit right now. Basically, a stimulus plan is like a marketing campaign. No, it's not only like one, it IS a marketing campaign telling people and corporations "Don't be afraid, spend, invest and let's get this economic train going again!"