Tuesday, August 7, 2012

More 'Stimulus,' aka More Government Spending and Borrowing, is a Very Bad Idea and Government 'Austerity' is a Myth... The Best Stimulus Plan is to Let Individual Choice Rule

We're hearing lots of noise these days about the need for more government stimulus spending programs. Things like hiring more government workers, including teachers and "investing" more money in public initiatives which purportedly will help the economy. Don't believe a word of it.

I believe individuals should receive subsidies and not government or other institutions. It's our money, or at least starts out that way, and we should have it spent as we elect. So even if government collects it, we individuals should decide how and where it's spent in the case of education (private or public schools,including colleges), economic activities, retirement, health care and otherwise.

Now let's discuss the need for more economic stimulus. How about stimulating the economy by cutting taxes instead of increasing government spending? That would enable We the People to keep more of our money and spend it as we see fit. In the end, we'd do a better job of "stimulating" the economy than any bureaucrat or poitician ever could.

For that matter, how about giving parents and students a voucher for the amount of money the government spends on educating them as well? And while we're at it, let's give people an amount equal to what the postal service spends per individual, same with health care and Social Security and other things the government does but we can do better. It's a simple case of MOM versus OPM, and I'm always on MOM's side.

The Real 'Stimulus' Record is a fact based editorial by Art Laffer, former adviser to President Reagan and a strong supply side economics advocate. Here's part of Laffer's commentary:

"Policy makers in Washington and other capitals around the world are debating whether to implement another round of stimulus spending to combat high unemployment and sputtering growth rates. But before they leap, they should take a good hard look at how that worked the first time around.

It worked miserably . . . . Of the 34 Organization for Economic Cooperation and Development nations, those with the largest spending spurts from 2007 to 2009 saw the least growth in GDP rates before and after the stimulus. . . .

The United States was no different, with greater spending (up 7.3%) followed by far lower growth rates (down 8.4%).

Still, the debate rages between those who espouse stimulus spending as a remedy for our weak economy and those who argue it is the cause of our current malaise. The numbers at stake aren't small. Federal government spending as a share of GDP rose to a high of 27.3% in 2009 from 21.4% in late 2007. This increase is virtually all stimulus spending, including add-ons to the agricultural and housing bills in 2007, the $600 per capita tax rebate in 2008, the TARP and Fannie Mae and Freddie Mac bailouts, "cash for clunkers," additional mortgage relief subsidies and, of course, President Obama's $860 billion stimulus plan that promised to deliver unemployment rates below 6% by now. Stimulus spending over the past five years totaled more than $4 trillion.

If you believe, as I do, that the macro economy is the sum total of all of its micro parts, then stimulus spending really doesn't make much sense. In essence, it's when government takes additional resources beyond what it would otherwise take from one group of people (usually the people who produced the resources) and then gives those resources to another group of people (often to non-workers and non-producers).

Often as not, the qualification for receiving stimulus funds is the absence of work or income—such as banks and companies that fail, solar energy companies that can't make it on their own, unemployment benefits and the like. Quite simply, government taxing people more who work and then giving more money to people who don't work is a surefire recipe for less work, less output and more unemployment.

Yet the notion that additional spending is a "stimulus" and less spending is "austerity" is the norm just about everywhere. Without ever thinking where the money comes from, politicians and many economists believe additional government spending adds to aggregate demand. You'd think that single-entry accounting were the God's truth and that, for the government at least, every check written has no offsetting debit.

Well, the truth is that government spending does come with debits. For every additional government dollar spent there is an additional private dollar taken. All the stimulus to the spending recipients is matched on a dollar-for-dollar basis every minute of every day by a depressant placed on the people who pay for these transfers. Or as a student of the dismal science might say, the total income effects of additional government spending always sum to zero.

Meanwhile, what economists call the substitution or price effects of stimulus spending are negative for all parties. In other words, the transfer recipient has found a way to get paid without working, which makes not working more attractive, and the transfer payer gets paid less for working, again lowering incentives to work. . . .

Stimulus advocates have a lot of explaining to do. Their massive spending programs have hurt the economy and left us with huge bills to pay. Not a very nice combination.

Sorry, Keynesians. There was no discernible two or three dollar multiplier effect from every dollar the government spent and borrowed. In reality, every dollar of public-sector spending on stimulus simply wiped out a dollar of private investment and output, resulting in an overall decline in GDP. . . .

The evidence here is extremely damaging to the case made by Mr. Obama and others that there is economic value to spending more money on infrastructure, education, unemployment insurance, food stamps, windmills and bailouts. Mr. Obama keeps saying that if only Congress would pass his second stimulus plan, unemployment would finally start to fall. That's an expensive leap of faith with no evidence to confirm it."

Summing Up

Stimulus spending is like all other government spending. The money spent by government originates elsewhere. No magic involved.

Thus, the question always to be answered is whether MOM or OPM rules apply. My own view is that government should do certain necessary things like determine the rules of the game, officiate or umpire the game and finally enforce those laws or rules as necessary. And provide for the common defense and protect our national security, of course. That's enough and a lot as well.

Delivering the mail isn't something government needs to do. Neither is education. Nor Solyndra and ethanol type "investments."

In fact, taking MOM and requiring We the People to participate in things like the Social Security program can't be justified in a free society either. We'll have more to say on all this later.

Suffice it to say for now that, other than cutting taxes, government stimulus is a bad idea and that adding to the national debt is an equally bad idea. Growing government isn't the answer. Not now and never.

The facts are clear. Government spends what it gets and then wants even more money to spend. There's never enough. Let's put the government on a much needed diet and return the power of individual choice in a free market based society to We the People.

Thanks. Bob.

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