Stimulus? No thanks.

Chris Hall, the CBC's National Affairs Editor, has suggested that the Canadian government should respond to falling oil prices with stimulus spending. It's counter intuitive to argue that because revenues have fallen expenditures should increase but that is the topsy turvy world of Keynesian economics, where up is down, left is right, and all roads lead to increased government spending. Instead of advocating for the financially prudent course of cutting spending social democrats want the Canadian state to borrow more money, presumably to stave off a recession triggered by the shock of low prices to the oil industry.

Sometimes the most disciplined thing to do is not to act at all, or rather to understand that inaction is action; that the conscious choice to do nothing is sometimes the best approach. Instead of looking upon every vagary of market behaviour as an opportunity for the government to rush in and save the day a truly intelligent statesman might practice some restraint. Stimulus spending is not the answer to falling oil prices. There is a finite pool of loanable funds. When the government draws heavily upon this pool there is not enough money for private sector projects that create wealth and better living conditions. When money is taxed and then spent by the government it no longer goes to serve the most pressing needs of the people it is forcibly taken from but instead spent according to the consumptive decisions of bureaucrats. There is a great loss of utility when you take money from someone and then spend it on their behalf, even without accounting for all the waste along the way (like the salaries of the bureaucrats that do the collecting and spending or the political expenditures necessary for politicians to buy votes).

One of the virtues of the market economy is that nothing is stagnant nor does it need to be. Prices rise and fall and fortunes are made and lost in accordance with the entrepreneurial ability of those who risk capital. It is not the business of the state to stabilize the market nor do we want it to be kept rigid at the expense of flexibility. These changes are natural and healthy, as the market responds to consumer demand and reallocates resources towards their most efficacious ends.