Rumors of Congressional Democrats privately expressing disapproval of the Obama administration’s actions and policies have been given more credence by such things as House Speaker Nancy Pelosi’s public criticism of White House spokesman Robert Gibbs. But when two long-time Democratic pollsters, Patrick Caddell and Douglas Schoen, called President Obama “cynical” and “racially divisive,” that was a dramatic statement. It was like saying that the emperor has no clothes.
A much more rhetorically subdued but nevertheless devastating implicit criticism of current government spending policies came from an even more unlikely source: the Congressional Budget Office, whose director is a Democrat.
Without naming names or making political charges, the Congressional Budget Office last week issued a report titled “Federal Debt and the Risk of a Fiscal Crisis.” The report’s dry, measured words paint a painfully bleak picture of the long-run dangers from the current runaway government deficits.
The CBO report points out that the national debt, which was 36 percent of the Gross Domestic Product three years ago, is now projected to be 62 percent of GDP at the end of fiscal year 2010— and rising in future years.
Tracing the history of the national debt back to the beginning of the country, the CBO finds that the national debt did not exceed 50 percent of GDP, even when the country was fighting the Civil War, the First World War or any other war except World War II. Moreover, a graph in the CBO report shows the national debt going down sharply after World War II, as the nation began paying off its wartime when the war was over.
By contrast, our current national debt is still going up and may end up in “unfamiliar territory,” according to the CBO, reaching “unsustainable levels.” They spell out the economic consequences— and it is not a pretty picture.
Although Barack Obama and members of his administration constantly talk about the so-called “stimulus” spending as creating a demand for goods that is in turn “creating jobs,” every dime they spend comes from somewhere else, which means that there is less money to create jobs somewhere else.
I'd like to expand on Dr. Sowell's remark that "every dime they spend comes from somewhere else, which means that there is less money to create jobs somewhere else."
If I am applying my understanding of Austrian-school economics correctly (and if you don't think that the Austrian method is your best guide, please read Ludwig von Mises books), then let me amplify what it means for there to be less money to create jobs somewhere else, even where no taxes are raised to fund such "stimuli."
It is a myth that deficit spending stimulates the real economy, i.e., the economy that responds to its participant's needs. Every new dollar borrowed or created by fiat, just like every new dollar acquired by taxation, is a new claim on one dollar's worth of the production of the goods and services of every producer in the economy willing to trade part of his production for that dollar.
It does not matter how the government gets the new money it is spending, the result is the same: What is maximized with the new money is not the satisfaction of the needs of the market participants, but the satisfaction of the desires of the governing class.
Of course the new production in the economy is NOT allocated according to the needs of the individuals trading their production — income from sales, salaries, investments, etc. Normally, these market participants by their spending choices signal to every other trader in the economy what ought to be produced to maximize mutual benefit — especially the net changes in spending which result in profits and losses.
No, instead the signals sent by the new movement of money in the economy are powerfully altered to indicate that production should be modified to maximize the interests of those who write the allocations. The "profits" — better termed "booty" — accrue to the politically favored and not to the satisfaction of the capital and consumer needs that would have been signaled by the free market allocation of production.
The net result is that the changes in demand (the new money) that in the free market would have led to profitable new investment and employment with all the multipliers of new economic activity, instead lead to vast amounts of unprofitable end-use consumption by the favored class and investment that is almost entirely MAL-investment, in that the needs it fulfills are the needs of the governing class and not those of the consumers as a whole, even when subsidized by tax rebates and other gimmicks which only further mess up the proper function of the market.
I give you "green jobs" in general and the Chevrolet Volt in particular as a test of my analysis. Anyone here want to predict the Volt's net benefit to the economy? How many jobs do you think will be created when it bombs or — which amounts to the same thing — sucks up more billions in government subsidies to keep it afloat?
I also recommend _The Critics of Keynesian Economics_ by Henry Hazlitt and I'm sure there are more recent refutations of the stimulus fallacy. Suggestions welcome.
Then there's that….
Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse by Thomas E. Woods Jr.
Excellent post RB. I shall copy this for future reference.
You do an admiral job of explaining how government spending is a 'misallocation' of resources to public 'need' and away from private citizens free market choices. I think of Milton Friedman's memorable analysis that essentially says that anytime we can maximize people spending their own money as they see fit, and minimim someone spending someone else's money on what they see fit, we increase productivity immensely. Keynsians, in a word, are those who choose to experiment on investment's they see as valuable, with someone else's money, vis a vis, the taxpayer's. They're essentially cowards when it comes to investment, refusing to put their own money where their mouth is.
Iv'e always have been disgusted in the level of rhetoric on FPM as a poster since 2005 and I can't possibly count how many times I've been booted for speaking my mind while asking for reasonable discourse with viable sources. I will never get it. I understand that this is a mechanism of right wing rhetoric and the ones who bother to read and follow this garbage are just grasping for hope in their ignorant and inferior complexion.
So let's talk about your economic model of recovery for a second. — study this article for a moment —
http://www.latimes.com/news/nationworld/world/la-…
Ireland is your economic model for a successful recovery without deficit spending and I politely ask you to please counter this premise with an argument to dis-spell this as an isolated case while taking into consideration the return on our investment for the ridiculous amount of deficit spending on senseless middle ease wars that benefit no one other than Israel and the oil mongers of our country while good honest hard working Americans suffer at their disposal.
I wager that I will receive nothing if not a one or a few hostile rhetoric remarks that are off base without substance. I can guarantee that.
The very truth is is that you are tools for the filthy rich and you know nothing and you only mimic their brainwashing tactics — you are a bunch of shameful fools..
Please give me as many negative points as I honorably deserve — I should be honorably booted.
I agree with you that we are spending the nations taxed wealth recklessly on prolonged wars of containment in both Iraq and Afghanistan which have become nation building – where in Afghanistan and in Western Pakistan it should have been a scorched earth campaign. But you reveal you anti semitism and your class envy with terms like the filthy rich and oil mongers. As for brainwashing, it is you who sound like the typical progressive indoctrinate regurgitating his Marxist professor's babblespeak.
The article in question was exceptionally sketchy with not background or explanation of the austerity measures. It only mentioned budget cuts. Were there tax increases? Tarrifs? New regulation? Claiming that cuts in government spending are the source of the problem requires a lot more evidence than that.
"Were there tax increases?"
Yes.
"Ireland has slashed public sector salaries by about 15 per cent. Welfare has been cut, including 10 per cent off child benefit. New income and health levies have also been imposed."
http://www.ft.com/cms/s/0/9e079c4c-8439-11df-b9f8…
"Ireland is your economic model for a successful recovery without deficit spending…"
No it isn't. No one has ever said that Ireland, of all places, is an economic model for anything. And though Ireland has cut some of its spending, it has not cut taxes at the same time; in fact, it has raised them. It has also engaged in stimulus spending. Additionally, If Ireland wants to deal with its unemployment problem (which is expected to go up in the near future, not down), it should follow the example of a place like pre-197 Hong Kong: abolish all minimum wage laws (they cause unemployment at the bottom of the wage scale); and simultaneously abolish all mandatory negotiations between employers and labor unions (they cause unemployment at the top of the wage scale). Pre-1997 Hong Kong had no mandatory labor-union laws and no minimum wage laws. Result? Effectively ZERO unemployment, and wages that were fully competitive with other countries that had lots of government hampering of the labor market.
Just as the classical and Austrian economists predicted.
"and I politely ask you to please counter this premise with an argument to dis-spell this as an isolated case while taking into consideration the return on our investment for the ridiculous amount of deficit spending on senseless middle ease wars that benefit no one other than Israel and the oil mongers of our country"
LOL! I love it! You're sitting in front of a computer, posting on the Internet, in a home or office with lights, a refrigerator, possibly an air conditioner, and you're criticizing others for being "oil mongers." Got news for you: you're one of them.
Most U.S. government spending goes toward entitlement programs: Social Security and Medicare being the top 2, but there are many others (some of which date back to the Johnson administration's "Great Society"). As for military spending, I WISH American citizens would get a higher return on its global war against terrorism (currently spearheaded in Iraq and Afghanistan), but instead of doing what we did in Japan at the end of WWII — break the will of the opposition and then write a constitution that they are mandated to follow — we are fighting for a silly ideal of "self-determination" (which, as we all know, might very well include a desire to return to the rule of the Taliban).
Israel — the only democratic republic in the political wasteland known as the Middle East — would get more benefit from such a policy, too. In fact, the U.S. benefits from a strong, free Israel, just as Israel benefits from a strong, free United States. No one benefits from strong, unfree, rogue, terror-friendly states, except the tyrants who rule them.
I guess your anti-Israel stance means that you are pro-tyrant.
Excellent article. Thanks for bringing this to public attention.
We had the dot com bubble, and it burst.
Then we had the housing bubble, and it burst.
Now we have the stimulus bubble. Watch out below!