In case you've been hiding in a cave this week, Congress passed and Obama signed the nearly $800 billion economic "stimulus" plan this week.  In the name of "economic recovery", the government will now be taking money from our paychecks to spend on power plants, "green" cars and technology, art, museums, roads, bridges, loans to rural homeowners, "Extra money for Office of the National Coordinator for Health Information Technology", "Oversight of SSA spending", and a whole host of other programs (view a line-by-line summary here, courtesy of the Wall Street Journal).

One recurring question keeps coming back up:  will this immense spending bill (greater than the total spending on the wars in Iraq and Afghanistan over the past 8 years combined) actually do anything to stimulate the economy?

Consider some thought exercises.  Let's say I own a house and want a new deck.  My neighbor agrees to build the deck for, say, $2000 plus materials.  I agree, and after I've spent my $2000, I now have a deck.  I've received something of benefit that I find more valuable than the two grand, and my neighbor feels like he's a winner because he's $2000 richer.  He can then go spend, save, or invest that $2000, while I lounge on my deck drinking mojitos.  Home Depot is happy, because they sold me the wood, nails, sealant, etc.  Perhaps my house is even worth more now as a result of the addition.  In a classic demonstration of division of labor, I paid someone else to do something more efficiently and effectively than I could do myself.

Now consider another scenario.  My neighbor steals $2000 from me.  I'm now $2000 poorer, and I have nothing of value to show for my money.  Perhaps I decide as a result of the theft that I need to buy extra security equipment.  Instead of buying that new deck I want, I now can't afford it, and I'm frustrated by this, as well as the fact that suddenly my neighbor is wearing nicer clothes and has a new watch.  In a classic case of theft, I've paid someone else to do nothing at all for me.

Finally, consider a third scenario.  The government sends someone by to collect $2000 from me.  The government agent then walks over to my neighbor's house and promises him $1400, after making him fill out a bunch of forms and waiting for a few months.  I have to fill out a bunch of forms too — I have to prove to the government I don't owe them even more than $2000.  I'm (at least — let's hope there's no audit!) now $2000 poorer, with nothing of value to show for my money.  Meanwhile, the neighbor gets his $1400 check, and I notice that he's wearing nicer clothes and has a new watch.  In a classic case of redistribution, I've paid the government to take my money and give it to someone else to do nothing at all for me.

Consider those three scenarios.  Which one is actually stimulating the economy?  Now instead of just me, consider every taxpayer, and instead of $2000, make it nearly a trillion.  At least with the second scenario, the direct theft, you don't have to pay the middle man.

Now do you think the spending bill will stimulate the economy?