"SPEND NOW, WORRY ABOUT THE DEFICIT LATER"
February 15, 2009
Currently, the mood by the leadership in Washington is to spend well over a trillion dollars on stimulus and bailouts NOW and worry about the deficit LATER. It is sheer madness to spend this staggering amount of money when there is no proof it will re ignite our economy and no thought has been given as to how we are going to recoup this money. This Keynesian idea that the government can create prosperity simply by spending without changing long-term incentives is putting a band-air on a wound which requires stitches. It appears that any deficit of the past is poised to be sharply dwarfed by what is about to occur. The future of this generation and the generations to come are poised to be frozen into a bigger than life insurmountable mortgage.
Government stimulus plans and regulations are based on force feeding new money into the economy in order to increase demand and thus production. But face the facts, where does government get the money in the first place? The government does not have its own nest egg stashed away. Every dollar it plugs into the economy must first be borrowed or taxed from some source. What government does is it takes hard earned money from a group of cash earners and redistributes it to another group but no new money is created.
Governments cannot create new purchasing power. Clearly, when Congress funds a staggering amount of new spending with tax payer money, it is redistributing exiting income. When the logic of Congress is to borrow or tax billions from one group of people and then gives it to another group of people and tell us we are wealthier or more patriotic because of that, their explanation defies logic. Furthermore, if the money is borrowed from American investors, those investors will have that much less to invest or to spend in the private economy. And, on the other hand, if the money is borrowed from foreigners, the balance of payments must still balance. That means reducing net exports through exchange-rate adjustments, thereby leaving net spending on the economy unchanged. Can it be that partisan politics trumps economics principle? A well respected economist Irwin Seltzer notes, we have gone from a market-driven economy to a politically driven economy.
What we need strategically and immediately is growth in the economy. Economic growth is the increase in the amount of the goods and services produced by an economy over time. It is the private sector-–not public spending—-which drives growth. Economic growth comes by individual and entrepreneurs operating in the free market, not by Washington spending and regulating. Massive spending hikes in the 1930's 1960's and 1970's all failed to increase economic growth rates. That fact has been established.
From the perspective of noted economists, the best way to stimulate the economy is to make the tax cuts permanent, to lower corporate tax rates, and to expand domestic energy supplies. Tax cuts give incentives to work, save, and invest, thus creating jobs and increasing economic growth. It is significant to note that most recessions are led by a reduction in investment. This recession has been led by a reduction in net exports, consumption and investment. We believe the key is to make long-term investment more attractive by doing things which attract foreign capital and make the United State a more competitive location to do business and this includes lowering the corporate tax rate. Other ways to make the United States more competitive would include eexpanding drilling for oil, shale, and natural gas which will cause energy prices to fall and create private real private sector jobs without artificial ineffectual government pump priming.
History at home and abroad demonstrated that strategies relying on increased spending to stimulate the economy just do not work. Indeed, such lessons suggest that such strategies make things worse by diverting scare resources away from productive use in the private sector. We only need look at Japan in the 1990's. Japan rapidly increased government spending was an effort to recover from its economic downturn. In reality, it led to slow growth, low industrial production, and a decline in the overall standard of living and, at the same time, it whirls the deficit out of control. That is the direction in which we are now headed and a major paradigm shift into socialism is about to occur. Capitalism has not failed us, Government has failed us. All the warning signs at Fannie Mae, Freddie Mac, Lehman Brothers and Bear Stearns existed years ahead of the final day of reckoning. Yet our regulatory agencies and Congress let us down. While this may sound harsh, we are terribly disappointed in the recent turn of events. Republicans deserved to lose in 2006 because they chose pork-barrel spending over the taxpayers. Then, the Democrats rose to power and have proven to be as hollow and self-serving as their corrupt Republicans predecessors. To substantiate this, we reviewed the Congressional Budget Office critique of the $365 billion in the so called "stimulus" legislation. Or is it "porkulus"? Of the $355 billion which the leaders of the Democratic Party claim we need IMMEDIATELY, ONLY $26 billion of it will be spent in 2009. How can any elected official claim that $329 spent in 2010 and 2011 do anything to improve our current economic situation?
And now, with all the shenanigans in Washington today, surely, the generations to come will look back and know that the newly elected governmental leaders of 2009 in Washington could care less about the "frozen in deficit" generations of the future. We can only be thankful that OUR fore bearers of years past thought more worthily of us. And that is how we see it FROM OUR PERSPECTIVE.