For the government to put a dollar into the economy don't they have to take a dollar out of the economy in order to spend it?

Answer 1

There is more than one way to answer the question, depending on what you mean by 'economy' and 'dollars'.

I'll begin by answering the literal translation of the question:

No, because the government is part of the economy. It is not taking money out of the economy. Only bankruptcies and write-downs can do that. But government does redirect money within the economy.

If you meant to say 'private sector' rather than 'economy', then the answer is a very qualified yes. Whether through taxation or borrowing, those dollars are being redirected out of the private sector. But only for a very short while.

Large sums of government money go to private sector enterprises fairly directly. However, even the money that goes to government workers or entitlement recipients goes straight to the private sector (except for the taxes they pay). This is because government workers and entitlement recipients depend on the private sector for the vast majority of the goods and services they consume. They gladly give up their dollars for those goods and services.

The reason it appears dollars are being taken out of the private sector is because of what dollars represent - access to goods and services. A portion of the goods and services produced by the private sector is consumed by government workers and entitlement recipients. Thus, it might appear that if they weren't consuming what they were then there would be more for everyone else. However, unless government workers and entitlement recipients were to be imprisoned or killed, they would consume those resources anyway. In that respect, they do not cost anything more to the economy than if they were working in the private sector.

The only thing the government can take from the economy is productivity. However, it can also aid in productivity - such as the differing roles it played in the development of transportation infrastructure (primarily railroads and highways) and the like. Whether government's overall impact on economic productivity is currently positive or negative is always a subject of much, often impassioned, debate.

Finally, when the government borrows dollars in order to spend them, it opens the door to a process called 'monetizing the debt'. The debt must first exist to be monetized. Monetizing government debt is one of the ways money is created in our economy. Thus, it is possible that some of the dollars government spends exist solely because the government spent borrowed dollars in the past.