Opinion
History proves deficit spending doesn’t work
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Also by Patrick McEwen:
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- Nuclear power deserves same rules as others (April 23, 2009)
- New FACES, same tired programs (April 13, 2009)
- Martin's initiative a bad deal for out of staters (April 3, 2009)
- Carbon tax effective cap and trade alternative (March 26, 2009)
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When George W. Bush took office in 2001, he inherited a budget surplus of $128 billion along with a booming economy. A couple of tax cuts and an increase from less than two to more than 3 trillion dollars in government spending later, he turned that surplus into a deficit of almost half a trillion dollars. During his eight years in office he doubled the national debt to over $10 trillion.
Now in the face of deteriorating economic conditions, President Obama warns us of “trillion-dollar deficits for years to come.” Currently in the works is a stimulus plan that will increase the deficit by something in the neighborhood of $825 billion.
Many questions have been asked about Obama’s economic plans and many more will be, but there is one in particular that I’m still waiting to hear an answer to: If the increases in government spending and deficits run up by the Bush administration failed to prevent the economic crisis, why does anyone think that more of the same from the Obama administration is the answer? If a $500 billion deficit was not enough to prevent the recession of recent months, what makes anyone think that doubling or tripling that number will be able to not only maintain the current economy, but also begin a recovery?
Some might point to the housing bubble, credit crunch or lack of financial regulation as the principle reasons for our current economic state. Government fiscal stimulus, whether through increased spending or tax cuts, has nothing to do with any of these problems. The housing bubble was a problem of too much housing. Increased spending won’t remedy the problem unless the money is spent paying for houses to be torn down. If the only problem was the credit crunch, then cutting the federal funds rate down to almost zero ought to have cleared that up. A lack of regulation would imply more regulation was needed, not trillions in new spending and debt.
We’ve all been told since we began studying American history that the government spending of
One of the problems with government spending as a stimulus is that it is incapable of producing long-term economic growth. It works great in the short term but — as President Roosevelt found out when he tried to balance the budget in 1937 — as soon as it stops, the economy goes back in the tank.
If the government were to pay people to dig ditches and others to fill them in again, it would keep unemployment from rising and give the appearance of recovery while actually serving to prevent real economic growth by diverting resources from actual wealth creation. While the stimulus plan obviously is not as wasteful as pointless ditch digging, government spending will not be able to produce any real, sustained economic growth as long as it differs from the actual desires of consumers. Given the fact that failing companies (those not producing what consumers want) will surely get some of the stimulus money, we can be assured that this will be the case. The workers and resources left idle due to the slacking economy need to be shifted into other industries where they can begin producing again.
The stimulus package just functions to delay this needed transition. If those in Washington, both democrats and republicans, really want to stimulate the economy they would be wise to just get government out of the way and let the private sector conduct some real investment to create wealth and economic growth. While there are a great many things that have changed in the White House in recent days, the fundamental economic theory used to run our country is not among them.
Patrick McEwen (mcewen@wisc.edu) is a sophomore majoring in Nuclear Engineering
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“they would be wise to just get government out of the way and let the private sector conduct some real investment to create wealth and economic growth.”
Unfortunately, the private sector is not releasing any credit or spreading any capital as is, that’s why they are begging the federal government for money. Even after the first bailout, credit was not unfrozen, while CEOs went on vacations and spa treatments. No way Obama is going to let companies go belly up while you wait patiently for them to do “real” investment, that even with billions of dollars already released to them,they are not doing still.
Get your facts straight. Bush inherited anything but a booming economy. In fact, the recession began in March 2001.
I know we have a Rebublic (if we can keep it), but this still seems worth thinking about. As an ever smaller percentage of the people are tax payers where will it end? We can’t ALL be tax eaters.
[Democracy] can only exist until voters discover that they can vote themselves money from the public treasury. From that moment on the majority always votes for the candidates promising the most money from the public treasury, with the results that a democracy always collapses over loose fiscal policy followed by a dictatorship. Alexander Tyler stated that democracy was a transitory form of government. The University of Edinburgh professor - 1780s
“Unfortunately, the private sector is not releasing any credit or spreading any capital as is, that’s why they are begging the federal government for money. Even after the first bailout, credit was not unfrozen, while CEOs went on vacations and spa treatments. No way Obama is going to let companies go belly up while you wait patiently for them to do “real” investment, that even with billions of dollars already released to them,they are not doing still.”
…or more likely credit is still “frozen” BECAUSE of the bailouts. The first bailout created an expectation of future bailouts. Why by the assets of a failing company at full risk when you can have the government guarantee billions of dollars of those assets? Sure some companies are unable to get loans, but would you want to risk your own money on the ability of a company that will likely go bankrupt without a bailout? The companies that can’t get loans are the ones that we need to fail so that their resources can be utilized more efficiently by other companies.
The total debt was higher when Clinton left office than when he started.
Any talk of “surplus” is due to accounting shenanigans that would make an Enron or WorldCon accountant blush with shame.
also
The trouble with socialism is that you eventually run out of other people’s money - Margaret Thatcher.
The private sector is not releasing any credit because they do not expect a rate of return to cover the costs of providing credit.
Uh…few things wrong here. Both Rep and Dem ideollogies spend. It’s how they spend that determines how we do economically. In 1937, we were way out of the depression no thanks to war but government investment in the economy. In 1937, misallocation of economic resources went to the war effort causing a recession. Once more government spend kicked in for the war the economy bounced. Point is, it’s GDP = Gov Inv + Private Inv. + Consumption + X (net imports, today usually a trade deficit). Everything in this equation is in the tank. Our only card is Gov investment. Did everyone forget Econ 101?? Rep admins spend on war or the thought of war. Dems spend on domestic programs and the concern is too many minorities will benefit (but so will the poor white people). And there is the white-washed truth. We will cut of our nose to spite the face.
jm