Posted by
Vid on Saturday, February 14, 2009 11:22:41 PM
It is common sense that if you are deeply in debt, you should think
carefully about whether or not to add more debt. Adding to the already
gargantuan liabilities of future generations, as the Democrats' latest
spending bill would, is much more likely to do harm than good. David
Limbaugh made the case against saddling our children with this massive
debt much better than I could in a recent
column.
Medical students are taught to first do no harm. With the imminent
passage of the Democrats' stimulus package, we are about to find out
what harm can be done by excessive government spending.
Spending
proponents argue that we have such a massive economic problem,
unprecedented government action to stimulate the economy is necessary.
They add, as the President did in his televised press conference, that
all spending in stimulus. When critics counter that Roosevelt's New
Deal didn't end the Great Depression and Japanese government spending
failed to prevent the lost decade of the 1990s, spending proponents
reply that both efforts failed, if they failed at all, by spending too
little. I reject the spenders' arguments and look to good old,
traditional, American thriftiness instead. Here is why.
First
of all, since we have never seen government spending on such a massive
scale before, there is no comparable historical event we can use to
predict the effect we will see. Acting on a speculative theory on such
a large scale inherently violates the principal of “first do no harm.”
Second,
raising the government's share of the overall economy crowds out
private investment because the government competes unfairly by using
its tax authority to generate funds. Government enterprises also crowd
out private enterprises as the government's size provides unfair
competition in the form of higher negotiating power and sometimes
exemption from regulations. These factor combine to reduce innovation
and entrepreneurship in the overall economy. Consequently, any
stimulative effect of the spending bill is likely to be counteracted by
the drag caused by increasing government's role.
Third,
all spending is not stimulus. When governments spend on the types of
programs that are contained in this bill, there is inevitably waste,
which causes the spending to be inefficient. In addition, there are
always strings which impose additional costs on the recipients, adding
to the inefficiency. Moreover, government can never do as good a job of
picking winners and losers as the market. The resulting waste and
mis-allocation of resources is an additional drag on economic
performance, which is the opposite of stimulus.
Fourth,
our economy depends on the profit motive causing people to work harder.
All of the above factors reduce the profit margin for workers, leading
to sluggish economic performance (think France). Government jobs and
government paychecks are subject to interruptions that depend not at
all on the performance or worthiness of the worker or recipient. The
resulting financial uncertainty will cause those who depend on the
government to hold onto their money, reducing consumer confidence and
spending overall. Less hard work and tighter spending together work to
cancel out the predicted stimulative effects of government spending.
The
bottom line is this spending bill is very unlikely to work and a bigger
one is even less likely to work. If you don't believe this analysis,
just watch in the next few years as we waste trillions of dollars and
the recession extends out past the next congressional elections. If we
are lucky, we will only experience stagflation like in the 1970s. But
with the level of debt the Democrats promise, stagflation is likely to
turn into rampant inflation in the not too distant future.