Tuesday, December 15, 2009

Federal Stimulus Spending Is A Crock

Currently, America is in a period of economic depression stemming from a collapsed housing bubble resulting from an attempt by the Federal Reserve to boost economic growth in the wake of 9/11 (and the “.com bubble”) by drastically reducing its lending rate to flood the market with cheap investment finance. The resultant real estate boom and accompanying economic surge were based more on the oversupply of capital than the presence of any real demand necessary to sustain such growth, and as a result, the economy crashed.

In the aftermath of the crash, the government again stepped in to limit the negative market correction. This time the administration utilized a series of unprecedented “stimulus spending packages” wherein an attempt was made to jump start the economy with a massive infusion of government spending. Let’s just skip past the fact that now, on the cusp of 2010, we can see in hindsight that these spending measures have utterly failed, and that the U.S. economy is still struggling to get back up despite the rude whipping being administered by the administrations, past and present. A simple, albeit boring, economics lesson could have warned us that it would go this badly.

Our miserable politicians have now decided to repeat their own mistakes. Echoing the stupidity of George W. Bush’s idiotic defense of 2008’s massive spending debacle (“I’ve abandoned free-market principles to save the free-market system”), Temporary President Barack Obama recently presaged another round of wasteful “stimulus” spending in 2010, in a speech given at the Brookings Institute on December 8th:

“One of the central goals of this administration is restoring fiscal responsibility. Even as we have had to spend our way out of this recession in the near term, we have begun to make the hard choices necessary to get our country on a more stable fiscal footing in the long run, . . . At this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and severe . . .”

Unfortunately for Mr. Obama, and for the rest of us, these statements do not reflect an accurate understanding of economics, and the president knows is. He very candidly said as much in a little publicized recent interview with socialist economist Robert Kuttner, during which he appealed to sympathetic economists to help spin his policies and make them sound somewhat credible:

“. . . we're going to need help from all of you who oftentimes are more credible than politicians in delivering that message. Because we want to leverage whatever public dollars are spent, and we are under no illusion that somehow the federal government can spend its way out of this recession.”

These obviously self-contradictory remarks should really come as no surprise. Self-contradiction is a near universal side effect of any attempt to twist reality into a more serviceable selfish falsehood. Self-contradiction is one of the most telling symptoms of a liar. Consistency, sweet consistency, can only reliably come from a solid foundation based on truth and logic, a foundation which is all too often missing in politicians, which is why the progress of human social evolution and the advancement of liberty and equality has always been to further protect the individual from the fickle selfish throes of government. One of the greatest, if not the greatest, leaps in this aspect of human development was the framing of the American Constitution. The founders believed in the natural inalienable rights of the individual and rooted this country in a firm foundation of individual liberty and limited government. Our Constitution plainly states this philosophy to be constant and unchanging. James Madison explained the eternal need for this philosophy in the 51st Federalist Paper:

“If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself.”

Barack Obama does not believe in this philosophy. From his book, The Audacity of Hope:

“Implicit in [the Constitution’s] structure, in the very idea of ordered liberty, was a rejection of absolute truth, the infallibility of any idea or ideology or theology or “ism,” any tyrannical consistency that might lock future generations into a single, unalterable course . . .”

This convenient disregard for absolute, universal truths is what allows him to plunge ahead, foundationless, without respect for our fundamental principles of limited government, guided only by his own selfish and relative morality. This is why he contradicts himself.

More to the topic, however, the president is wrong to attempt economic stimulus through government expenditure. The trouble with this process is that in order to obtain its money, the government must first either take it directly from the citizenry in the form of taxes, or issue bonds to investors in order to borrow the amount it intends to spend. The first option has the effect of reducing the amount of liquid capitol within the economy, which depresses the GDP and leads to increased unemployment. The second option increases the national debt, which can only be paid off through increased tax receipts, spending cuts, or the arbitrary printing of “fiat” money. Increased tax receipts stem from either economic growth or an increase in tax rates. Unfortunately for us, a historical analysis of 20th century American economics reveals that increased government spending usually results in a net loss to the GDP. History does not bode well for this approach, yet it is one of the shoestrings to which the current administration is asking us to cling. So, since we are considering massive increases in government spending, increased taxation and fiat money are the most likely outcomes. Fiat money is the money arbitrarily printed and issued by the federal treasury which increases the quantity of money units within an economy without increasing the intrinsic worth of that economy. The net result is a decrease in the actual value of an individual unit of money, in this case the dollar, and a resultant increase in the cost of consumer goods, a market quality tracked by the Consumer Price Index, or CPI. An increase in the CPI is also referred to as inflation, a process which decreases the productivity of a market by effectively shifting economic wealth from the owners of the money (private business and individuals) to the borrower of the money (Federal Reserve, during deficit spending).

This is not to say that absolutely no one benefits from government spending. The entire economy of Washington, D.C. is made up of its beneficiaries - politicians, lobbyists, pollsters, and anyone else who cheered for the winning team last election and now awaits their tax-funded reward. They suckle, like pigs, at the tired teats of the taxpayers. I know. I’ve seen it. It’s gross.

So what does all of this mean for you and me, average U.S. citizens? Basically, any increase in government spending contributes to a decrease in the overall economic aspect of our quality of life. Federal stimulus spending is a total crock of shit. It’s that freaking simple.

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