Peter Schiff, who is running in the Republican primary for US Senate in Connecticut, just put out a good editorial on the Democrat’s next planned stimulus package “jobs bill.”

Schiff points out the noted “crowd out effect” that you may have learned about if you’ve taken a macroecon course.

Basically, there is only a limited amount of money that people in an economy are putting out to lend (just like there are only so many houses or cars on sale). The more the government runs a deficit, and has to borrow, the less lendable money there is to go around for everyone else.

Essentially, the government “crowds out” private interests who could have used that borrowed money to start up new businesses, expand their production, create jobs (ahem)… etc. Check it out:

The more money government spends, the more resources it drains from the private sector. The fiscal 2011 budget proposed by President Obama contains $3.8 trillion in federal spending… The proposed fiscal 2011 federal budget contains “only” 2.4 trillion of taxes.

The remaining 1.4 trillion of spending is borrowed (incredibly, for every dollar the government collects in taxes, it now spends almost $1.60). I would argue that a dollar borrowed kills more jobs than a dollar taxed. Therefore, cutting taxes and borrowing the shortfall kills more jobs then it creates. This is true because jobs require capital and government borrowing more directly crowds out private capital investment than taxes do.