Government spending and private incentives

日期:2012/06/12

Suppose there were 2 people in an economy. And they traded. The second lost a lot. The other did not. A central bank bought the asset that the second had to make him whole. The Treasury then spent the amount of the loss on better environmental things for government buildings. The money to pay for this would come from the first person in current taxes. What would happen? The total spending would not change as the second would have spent the money he was taxed or invested it with someone who would. The incentives of the second would decrease to zero so that there was no effort to improve any more. The situation would not be much different for 10 traders. The incentives would be ruined for the winners. The spending of the winners on voluntarily exchanged things would be replaced by political wasteful spending by the government. The economy would not grow. Jobs would not be created. Why is this not a reasonable model of what's happening now and what happened during the 30's when FDR tried similar government works?