In the current political climate, it has become "cool" again to revert back to the economic policies of the 1930's. Keynesian economic policy has replaced supply-side economic policy as the dominant force in Washington. (Keynesian economics promote government spending as a way to stimulate economic growth, while supply side economics promote tax cuts to achieve growth.)
Let us look at this from a rather simple perspective. Last year, the Federal Government spent more money and ran a higher deficit than ever before in our history. If government spending really promotes economic growth, then why are we in a recession now? After all, shouldn't we have seen more growth, not less, last year since the Federal government spent more than ever? In fact, why have we ever had any recessions in the United States, since government has always spent more each year than the previous year?
Also, if government spending actually created wealth and jobs, then why are we not spending massively more than we are now? If the government could spend 1 trillion dollars and create 1.5 trillion dollars of wealth and 4 million new jobs, then why not spend 1 trillion dollars every hour of every day?
The answer is easy. Because it doesn't work.
Government offers no products. It obtains its capital at the point of a gun (try not paying your taxes.) And therefore, the basic foundation of government economic participation is force and coercion, a direct assault to free-market capitalism and an inhibitor to economic growth. You cannot encourage people to work harder and be more productive by promising to take the fruits of their labor.
During the economic recession of the late 70's and early 80's (when unemployment was over 10% nationally, compared to the 7.5% we now have), the federal government instituted massive tax cuts. What resulted was 25-year period of consistent annual economic growth with only one small decline (-.2% in 1991).
We do not need more government. We need less. Unfortunately, things in Washington look to be going the way of the 1930's, not the 1980's.
President Obama says that if they had failed to act, our economy might have declined beyond recovery. (notice the "hope" in that statement?) What I fear is that the very actions they are now taking are what will lead us down that path.
Friday, February 20, 2009
Does Government Spending Really Stimulate The Economy?
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8 comments:
Where did I argue that cutting taxes led to less government spending? I didn't. I am arguing that cutting taxes stimulates economic growth, which it does.
Now, when you say "they increased the federal deficit" I am sure you are including the Democrats in congress in "they." Both parties are equally guilty of increasing the defecit and debt. Politicians love to spend. All politicians.
Bush didn't create jobs. Companies create jobs.
Yes, government can do things that the private sector cannot do... things like pay $125 for a hammer and develop an education system that is second to most.
I stand with Thomas Paine on this one. Government is at best a necessary evil and at worst an intollerable one.
if the government says, "we're going to spend x amount of dollars on such and such program" and then people are hired to work on said program, then are those not real jobs? and if those people are hired do they not now have money to spend?
the reason we are in a recession now is because the housing bubble burst, and the housing bubble was created and burst for a number of reasons.
lastly, you said:
Also, if government spending actually created wealth and jobs, then why are we not spending massively more than we are now?
- a lot of economists say we should.
Chris,
The problem with that senario is the math. The current stimulus bill, for example, plans to spend 800 Billion dollars to create "or save" 4 million jobs. That works out to roughly $200,000 in spending per job created, with the average job in the US paying $52,000.
Now, where is Uncle Sam going to get the coin for all this spending? It is pretty easy to figure out that he is going to take the bulk of it from a corporation or small business. That business will in turn either raise prices to compensate, leading to inflation and a deepening recession, or lay off 4 employees leading to even higher unemployment.
Kill 4 private sector jobs to create 1 public works job. That is a great plan! How about cutting federal spending by 20% and recapitalizing the market by letting people keep and spend what they earn? That is a novel idea...
And whatever economists are saying that the federal government needs to spend more (when it already doesn't have the revenue to cover what it is currently spending) need to go back to school, probably starting with 1st grade math.
i'm pretty sure that a. not all 800 some odd bil is being used to create new jobs. about half of it consists of tax cuts. and b. even if it were, i doubt that simple arithmetic would accurately reflect how much money needs to be spent to create those jobs.
uncle sam is getting the money by going into debt. that was why so many democratic projects were loaded into the bill, because the funding wouldn't have to come via tax increases. but that's according to conservative columnist david brooks, so what would he know.
gov't spending serves as the most effective form of economic stimulus because the most money is directly injected into the economy. tax cuts for the middle and working class also are effective because the bulk of that money will be injected (not saved), as well. and that's the whole idea of stimulus-- to get money moving again. and that only happens when the people who will spend it have it.
but that's just according to the dumb ol' experts who apparently need to just do first grade math. cause i'm sure the biggest financial crisis since the great depression has a better chance of being solved by a class of first graders rather than ivy league economics professors.
But the government will have to continually spend the money to keep people employed.
If you cut taxes, it will not all be spent. That is certain. But the economic climate that it creates is one of increased productivity and private sector job creation.
Government mandated make-work jobs will emply a person until the road is built. Then what? Will the government employ that person for the rest of their life? That is why this didn't work in the 30's and will fail again now.
And the tax cuts in the bill are closer to a third (35%) of the package and most come in the form of a tax credit if you buy a house, a car, or make home improvements. While I am completely in favor of any tax break, I much prefer no-strings attached tax cuts. Lower the marginal rate and let us decide how to spend our money. Stop telling us how we have to behave in order to keep our own money. It is the diffrence between free people living in a free society and slaves living in tyranny. Government should not have the right to use tax policy to dictate how free people behave.
I do look forward to my $13 per week though! I worked hard for it, so I am happy that Obama says I can have it.
i don't have time to respond right now, but i just wanted to say that i'm sorry my tone in my last comment sounded like i was "going off."
It is ok... we have a long enough history that I didn't take it personally. I enjoy a good argument and you always seem to provide one. :) Besides, your passion shows that you believe what you are saying, so in that aspect it is a good thing.
Besides, you can't offend me. Being offended is a choice I have to make...
Heath,
Joe and I agree with you!!! Oh my, we have been having this conversation since the presidents address. I have wanted to blog on but I have been so busy I have not had a chance. I don't get. I don't think it will work either.
I also fear for the American people. To me, it seems, a president is coming in offering government money in exchange for control. That scares me.
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