NO WONDER THERE IS SOME UNUSUAL UNCERTAINTY
August 2, 2010
Our children and grandchildren are being crushed with future indebtedness. This is disturbing. Unfortunately, we seem to be seeing what was once usual exuberance in the economy to what is now, in the words of Federal Reserve Chairman Ben Bernanke "unusual uncertainty." The U.S. debt will top $13.6 trillion this year and climb to an estimated $19.6 trillion by 2015, according to a Treasury Department report to Congress. It is reported that the US national debt will soon reach 100 percent of gross domestic product. The Keynesian idea that the government can create prosperity simply by spending without changing long-term incentives is thoughtless. Any deficit of the past is poised to be sharply dwarfed by what is now occurring. The future of this generation and of generations to come are poised to be frozen into a devastating insurmountable debt. Clearly, young adults are seriously worried as per a recent poll by Harvard's Institute of Politics.
Government stimulus plans and regulations are based on force feeding new money into the economy in order to increase demand and thus production. M. Andrew Burr, well known and insightful economist and respected lecturer of economics at SUNY Fredonia stated it well, "perfect competition is the most equitable distributor of resources, not government. When there is unnecessary intervention of government into the process, the free market is deprived of the pricing mechanism indispensable to its success."
Governments cannot create new purchasing power. Clearly, when Congress funds a staggering amount of new spending with tax payer money, it is redistributing existing 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. Can it be that partisan politics trumps economics principle? Another well respected economist Irwin Seltzer notes, we have gone from a market-driven economy to a politically driven economy. No wonder young adults are seriously worried.
What we need strategically is growth in the economy. It is incumbent on Washington to slash wasteful spending now and keep in place the so called "Bush tax cuts." In fact, tax cuts promote economic activity. 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 individuals and entrepreneurs working within the free market such as the many hard working men and women of our area in both the private and public sector.
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. Any recession now is led by a reduction in net exports, consumption and investment. We believe the key is to make long-term investment more attractive by doing those things which attract foreign capital and make the United States a more competitive location with whom to do business. Other ways to make the United States more competitive would include expanding drilling for oil, shale, and natural gas which will cause energy prices to fall and create real private sector jobs without artificial ineffectual government pump priming. For example, massive spending hikes in the 1930's 1960's and 1970's failed to increase economic growth rates. That fact has been established.
History at home and abroad demonstrated 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 whirled the deficit out of control. That is the direction in which we are now headed with our current paradigm shift. All the warning signs at Fannie Mae, Freddie Mac, Lehman Brothers and Bear Stearns existed years ahead of the their day of demise. Yet our regulatory agencies and Congress let us down. 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 Republicans predecessors.
In short, with all the so called "goings on" in Washington today, the generations of the future will look back and see that it was our generation of 2010 that had frozen in deficit what is "their" generation. We can only be thankful that OUR fore bearers thought more worthily of our generation. And until recently, we have been the benefactors of their thoughtfulness. That is how I see it FROM THIS PERSPECTIVE.