OK, I’m going to improvise a scenario for you.
Let’s say that my husband and I have good jobs. Together we make $150,000 a year. Our kids attend private schools. We wear designer clothing. We vacation in Hawaii. But we have $100,000 in unsecured debt. This is from credit cards, student loans, cars, boats and, um, more credit cards. We live high on the hog until the recession catches up with us. My husband’s job is eliminated. My job is downsized.
We don’t want to give the impression anything’s wrong in our little financial world, so we pretend. We continue taking vacations, buying clothes and sending the kids to private schools. We double our debt. Delusionally, we claim that by exponentially increasing our credit-card balances, we can spend our way out of our personal recession. It doesn’t matter that we don’t have any jobs or have no way (at the moment) to earn additional money. It doesn’t matter that we’re digging ourselves deeper into a hole while bankruptcy looms. Spending is what matters because it gives everyone the impression nothing is wrong.
Welcome to Economics 101, government-style.
MSNBC reported, “President Barack Obama called for a major new burst of federal spending Tuesday, perhaps $150 billion or more, aiming to jolt the wobbly economy into a stronger recovery and reduce painfully persistent double-digit unemployment. … Obama said the U.S. has had to ‘spend our way out of this recession’ with so many people out of work but insisted he was still mindful of a need to confront soaring deficits.”
Is Obama really out to defend the “little guy”? Far from it. Learn realities of president’s policies you won’t see on cable news: “Obamanomics: How Barack Obama Is Bankrupting You and Enriching His Wall Street Friends, Corporate Lobbyists, and Union Bosses”
Now, to any normal person this sounds like lunacy. It’s like claiming the best way to lose weight is to eat tons of Twinkies. Or the best way to cure alcoholism is to chug Jack Daniel’s.
But some people actually fall for this bunk. “A recession is a situation in which output, spending and income are all below normal or below potential,” sniffs Roger Bootle of the UK’s Capital Economics. “If output and income are to go up then someone must spend more. There is simply no other way. As a matter of logic. The only sensible debate is about who should spend more, on what, and how they can be persuaded to do so.” Mr. Bootle goes on to chide us not to “confuse the situation facing you as an individual with the position facing society as a whole” (as I did at the beginning of this column).
Translation: To all of you troglodytes in Flyover Country, go back to sleep. Let us handle this lofty subject because you’re too dumb to understand.
Now, I’m not an economist. I don’t even play one on TV. And that’s what our government is counting on – that we yokels won’t question their freakishly counterintuitive actions (spending their way out of this recession) so they can do whatever they want. Twinkie, anyone?
Mr. Bootle concludes, “There is a clear path ahead. In the short term, we must rely on an increased government contribution to demand through higher borrowing … and increased consumer spending. … Within a couple of years … these two sources of demand can be wound down as two others take over.” [Emphasis added.]
Ah, there’s the rub. When has government ever “wound down” anything it’s ramped up? Do you honestly expect the government will step aside and let the private sector do without the beneficent “help” of Uncle Sam? Of course not.
Forcibly trying to jump-start the economy by “spending our way” out of the recession forgets one major, critical aspect of federal stimulus: Government does not create wealth. It takes no risk because it spends someone else’s money. It steals wealth from others and redistributes it in the form of new “benefits.” And even if the government does “wind down” their spending (fat chance), it doesn’t matter. We’ll still owe the money. Ayn Rand figured this out decades ago.
A friend well-versed in economics sent me his thoughts. “The classic argument is: 1) Rationalize (decide on conclusion and filter data to fit); 2) Inductive (study data and model the results, test on out-of-sample data). … Maybe the argument could be ‘It’s not clear’ that the stimulus will actually help, since historically such a thing has not resulted in a correlated increase in economic activity. Then there’s the moral hazard of prompting people to spend too much, kicking the can down the road.”
Then there’s Vox Day, who wrote: “There has not been any economic growth; since GDP measures government spending, all of the ‘growth’ that has been reported is nothing more than the stimulus spending. In fact, if you compare the amount of the spending to the amount of the reported growth, you’ll soon see that a) the numbers don’t add up, and, b) if they did add up (i.e., if the entire amount of government spending was included in the GDP equations), then the economy is contracting much faster than would seem possible.”
Sen. Judd Gregg of New Hampshire, the senior Republican on the Senate Budget Committee, said, “At least the president’s proposal will result in one new job – he’ll need to hire a magician to make this new deficit spending appear fiscally responsible.” House GOP leader John Boehner of Ohio declared the president “out of ideas and out of touch.”
Meanwhile, the Treasury Department “is acknowledging for the first time that it lost $61 billion on two key programs designed to stabilize the economy after the largest financial crisis in decades.” Yep, your tax dollars at work. And we expect the government to save us?
So what’s the answer? I can think of no finer solutions than that offered by Herman Cain, which in a nutshell cuts the horrific red tape associated with running a business, reduces the redistribution of our wealth, and generally gets the government off the backs of business men and women who want nothing more than to grow the economy through their hard work.
Please, Mr. Obama, stop force-feeding us Twinkies already. The government is already too fat … and we’re running out of time.