Proof that "Stimulus" Is a Depressant

I have posited that involuntary transactions are the opposite of voluntary transactions in their effect, and in fact they destroy wealth rather than create it. For this reason, government spending on anything other than certain clear public goods--goods that make us all better off, like needed bridges (and not bridges to nowhere)--destroys wealth. Government spending of this sort does not merely reslice the pie, it makes the pie smaller. It cannot "stimulate" the economy the way private voluntary transactions do, because its effect is negative. With each involuntary transaction, such as taxing Peter to pay Paul, the economy is further hurt, not helped.

Unlike my assertion that trade creates wealth, my claim that involuntary transactions destroy wealth apparently has not been declared a law of economics, at least as far as I can tell.  I've read many books, essays and articles looking for support, and haven't found any. But an article in today's Wall Street Journal comes close.

Arthur Laffer writes today that the record of recent "stimulus" spending by major economies shows that an increase in such spending is negatively correlated to the rate in growth of gross domestic product, or GDP.  In other words, the more governments increased their spending, the more their economies' rate of growth declined.  Here are Laffer's data (pulled from the International Monetary Fund):

 Laffer's presentation left me wondering whether there was a statistically significant correlation between increase in government spending an decrease in rate of growth.  I took his data and put them in a scattergram to see, then I added a trend line.  Here is what it looks like:

On this chart, the x-axis is percentage increase in government spending, and the y-axis is percentage increase in rate of GDP growth.  Where government spending was reduced or increases kept small, the country's rate of GDP growth suffered less in the 2008-09 downturn.  Where increases in government spending were higher, the decline in GDP growth was higher. 

As you can see, the data points are pretty tight, so I'd say the trend line is relatively reliable. It shows that on average a 1% increase in government spending means a 1.5% decrease in rate of GDP growth.  This correlation is the opposite of what you'd expect to see if increased government spending were a "stimulus" or "jump start" to an ailing economy. If it were, you'd expect to see those countries with higher increases in government spending seeing higher rates of GDP growth.  But you don't.

Laffer therefore correctly points out that the data do not support a government policy of stimulus spending, that what is called a "stimulus" is actually a depressant:

If you believe, as I do, that the macro economy is the sum total of all of its micro parts, then stimulus spending really doesn't make much sense. In essence, it's when government takes additional resources beyond what it would otherwise take from one group of people (usually the people who produced the resources) and then gives those resources to another group of people (often to non-workers and non-producers).

Often as not, the qualification for receiving stimulus funds is the absence of work or income—such as banks and companies that fail, solar energy companies that can't make it on their own, unemployment benefits and the like. Quite simply, government taxing people more who work and then giving more money to people who don't work is a surefire recipe for less work, less output and more unemployment. 

Yet the notion that additional spending is a "stimulus" and less spending is "austerity" is the norm just about everywhere. Without ever thinking where the money comes from, politicians and many economists believe additional government spending adds to aggregate demand. You'd think that single-entry accounting were the God's truth and that, for the government at least, every check written has no offsetting debit. 

Well, the truth is that government spending does come with debits. For every additional government dollar spent there is an additional private dollar taken. All the stimulus to the spending recipients is matched on a dollar-for-dollar basis every minute of every day by a depressant placed on the people who pay for these transfers. Or as a student of the dismal science might say, the total income effects of additional government spending always sum to zero.

(Emphasis added.) On this last point I have to disagree with Laffer (at least as far as these data go). The wealth effects of additional government spending do not sum to zero.  If they did, we would expect the trend line on the chart above to be flat: with each percentage increase in spending, the effect on GDP growth would be zero, as each dollar taken is replaced by another dollar spent, and no change in the rate of growth would take place. Instead, as Laffer's own data suggest, the wealth effects of additional government spending are negative--they sum to less than zero.  Wealth is being destroyed by each extra dollar of government spending, because the dollar taken from each taxpayer is worth more to him than it is worth in the hands of each recipient.

Laffer's data appear to support my claim compellingly.  Am I wrong?