The U.S. government is over stimulating

Published 7:09 am Monday, December 15, 2008

By By Tray Smith
Albert Einstein defined insanity as doing the same thing over again and expecting a different result. Ronald Reagan said the nine most terrifying words in the English language are: ‘I’m from the government, and I’m here to help.”
Congress and the incoming Obama administration are attempting to defy both these axioms by enacting yet another stimulus package in time for it to be signed into law on the day the President-elect is inaugurated. Obama has said he hopes the stimulus will create or save 2.5 million jobs and leading Democratic economists and lawmakers have said the plan will need to cost between $500 and $700 billion dollars to be effective. When added to the $150 billion stimulus plan Congress passed early this year, the $15 billion automaker bailout currently being considered, and the $750 billion financial rescue Congress has already passed, the Obama stimulus will bring the total amount of taxpayer dollars used to stem the economic downturn to at least $1.4 trillion .
This spending is the result of a frenzy in which politicians and economists have continuously proposed additional government action to offset the failure of previous government programs. When $150 billion wasn’t enough, Congress tried $750 billion, and is now working on 700 billion more.
The fallacy of these policies is found in their arbitrary nature: why save 2.5 million jobs instead of five, seven, or eight million? If the economy tanks and 10 million Americans loose their jobs, what metrics can prove 2.5 million more layoffs were averted through stimulus programs? What economic experience validates the claim that the stimulus must be between $500 billion and $700 billion instead of $200 billion or $900 billion? If government intervention can so successfully end recession, why couldn’t government policy prevent recession entirely? Why can’t the government stimulate the economy during expansive periods and create unrestricted prosperity? There is no rhyme or reason to any of this; our elected officials are obviously and discerningly “winging it.”
These programs are being carried out under the assumption government spending will give the economy a “shot in the arm.” The economy, however, is not a patient plagued with low blood sugar trying to return to balance by eating Hershey kisses. Where patients can take things not in their body (Hershey kisses, for instance), and digest them into their body (sugar), to alleviate their condition, the government cannot put anything into the economy that is not already there. The government can only put money back into the economy if it is either first taxed or borrowed out of the economy- if government funds were not taxed out of paychecks they would still be spent by private citizens, and if investors were not purchasing government bonds they would be purchasing bonds or stocks in the private sector. Either way, the funds are spent; the question is whether the government spends those funds or individuals decide how to spend their own earnings. Stimulus packages, therefore, are the medical equivalent of resolving low blood sugar by taking sugar out of the patients left arm and injecting it into his right arm.
Stimulus plans have not, will not and cannot end the recession because any economic activity generated by government spending on highway construction, for example, is made possible by a decrease in private sector spending caused by taxation or borrowing. The government can throw hundreds of billions more dollars into this effort without making a difference because simply rearranging the way money is spent only replaces private debt with public debt and exaggerates the credit crisis by offering lenders the additional security of government bonds.
The only way out of the current recession is to grow the economy - generate additional value and output. This will result in a real expansion in wealth that will then lead to an actual increase in economic activity instead of creating artificial, government generated growth. Americans making more products and working harder will be better able to absorb a decline in their home values, a restriction in credit, or a discounted home. Higher levels of production will eventually lead to higher salaries and higher consumption and bring enough buyers into the housing market that the slide in prices will stop and eventually reverse itself.
The only way the government can impact this effort is by lowering the tax rate on income and capital gains - not increasing government spending - and therefore giving Americans a greater incentive to work and invest.
That’s the bottom line.
Tray Smith is a political columnist for the Atmore Advance. He is a student at Escambia County High School and can be reached at tsmith_90@

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