Well, here we go again. No sooner than the failure of the Bush stimulus package became evident, Democrats, along with President-elect Barack Obama, are calling for an even larger government spending package for the flagging economy. Some of us predicted that the first stimulus program would fail, and indeed it did. Once the rebate checks arrived last spring, a temporary blip in personal income was immediately followed by a drop in retail sales, and now, most likely, recession.

Government is a zero-sum game; it can't create wealth or increase demand without first reducing it. Deficit-financed rebate or spending schemes merely shuffle around economic resources without growing them. Only increases in labor and its productivity result in a rising tide of economic growth that lifts all boats, not just those who find themselves at the receiving end of a government program.

Americans intuitively understand this when it comes to welfare. Anytime you take people out of production, you get less output. Ironically, the only way to avoid raising prices when you reduce supply is to offset overall demand with taxes. The modern welfare state does exactly this by using tax receipts to pay recipients not to work. But the nation (not to mention the taxpayer) is poorer by precisely the amount of the tax. National income accounting acknowledges as much by not counting transfer payments in the GDP.

But what of government putting people to work, as in what the Democrats are now advocating by designing their stimulus package around so-called infrastructure projects? The bean counters have always liked it, including these "government purchases" in the aforementioned domestic product calculations. And isn't the incoming administration just trying to replicate the "success" of FDR's National Industrial Recovery Act?

Not so fast. Economist Henry Hazlitt once questioned "whether such agencies as price controllers, rent boards, the Tariff Commission, the crop restriction agents of the Department of Agriculture, or the National Labor Relations Board do not bring about a net reduction of the real national income, in spite of the fact they increase it according to government figures." I could hardly imagine what he would say about federal grants to ACORN.

As for the success of the New Deal programs? Let's start with Herbert Hoover, who initially raised tariffs, income taxes and government spending. After that didn't work, Roosevelt doubled down on all of them with more spending, nationalization programs and the empowerment of big labor. Sound familiar?

By 1938 the nation still had not recovered and had an unemployment rate of almost 20 percent. And be careful suggesting that World War II got us out of the doldrums, unless you think that rationing food, shoes, typewriters, fuel and cars is a sign of economic prosperity.

Of course, we sometimes need to fight wars, and we certainly need roads and bridges where people want to drive. But does anyone really believe that disgraced Sen. Ted Stevens' "bridge to nowhere" from a $286 billion transportation bill added to the nation's wealth? Or that billions in earmarks from the same 2005 bill did?

Whether spending on welfare or make-work, there is no free lunch. By substituting the judgment of bureaucrats and political interests for the private knowledge of millions of entrepreneurs seeking the most productive use of labor and capital, government misallocates scarce resources that would be better spent increasing private-sector productivity -- and along with it private incomes. The difference is that when politicians make a mistake, they get more funding; when businesses make a mistake, they go bankrupt -- or should.

In the last eight years, government spending has exploded by more than $1 trillion, with record increases in domestic farm and transportation bills, transfer payments, aid to local governments, and yes, defense. We've added a trillion dollars worth of bailouts since September, and now President-elect Obama says a spending stimulus bill will "be the first thing I get done as president." Excuse me?

Politicians of both parties -- and more troubling, the American public -- have convinced themselves that government can repeal the business cycle. Yet, as one wag put it, a country that won't tolerate even a small recession ends up getting a big one. The malinvestments government made (with fiat money) in subprime lending and loan guarantees have directly led to the economic contraction we're experiencing today.

The best thing government can do now is let the market correct.

Jason Lewis hosts a weekday talk show from 4 to 7 p.m. on KTLK, 100.3 FM.