Can the Government Stimulus Package Stimulate the Economy

The market dropped nearly 5% after the Treasure Secretary outlined the Bank Rescue Plan and the Senate approved the $838 Billion Stimulus Bill. What went wrong? Nothing. First of all, the market has "priced in" the two pieces of good news in the past few days. Second, there are less details than people expected and the announcement could not live up to the high expectation from all different groups of people. Third, it is a good time to cash out when you can.

It is actually quite dangerous to let the government decide the fate of the economy. The government is run by politicians, not economists. Politicians make decisions based on political calculation instead of market principle. When the government increases spending, it is competing with the private sector for funding. If the government gets more money, that means the private sector will get less money. The government intervention distort price, which will in turn delay the recovery. Finally, the government takes away the creativity of the people and businesses and the market price discovery function. Therefore, more government intervention will mean slower economic recovery.

In Summary, the worst is yet to come and the road will be rocky ahead.