Opinion: Column
Stimulus creates false, not true wealth
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Also by Jim Allard:
- Tea parties missing ideological boat (April 15, 2009)
- Biddy's initiative ignores ideological objections (April 7, 2009)
- Biddy's initiative highway robbery (April 1, 2009)
- Climate change lectures suppress relevant debate (March 24, 2009)
- Cheaters graduate from college, go on to craft stimulus package (March 3, 2009)
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Does money grow on trees? According to most parents the answer is a resounding no. A child may see no reason why a continuous stream of money is not available. A parent explains money must be earned before it can be spent. A child may create a “job” for himself, such as organizing colored rocks into piles and may see no reason why he shouldn’t get paid for his efforts. A parent explains only jobs with real value are worthy of pay.
Yet by adulthood he learns his childish beliefs are correct after all. A continuous stream of money is available, he is told, it just needs to be printed at the Treasury; spending is the road to prosperity, earning is so passé; jobs can be created by decree, all that is needed is a cadre of bureaucrats.
Politicians from the president on down are now engaged in a massive spending spree based on a child’s view that spending money is the source of prosperity rather than a result of earning it.
Let’s examine the effects of such a policy.
The first thing to recognize is that every dollar spent by the government is taken from one person and given to someone else. This is true whether spending is enabled through taxation, running up a deficit or inflating the money supply. At best all the government can do is redistribute existing wealth; it cannot create it.
For example, printing money causes its value to decrease relative to goods and services — this is called inflation. Recipients of newly printed money have more dollars in their pockets, but the savings of financially responsible people are devalued in the process.
This is especially destructive because savings are the fuel of production. When money is deposited into a bank account it used to finance productive endeavors, which, in turn, earns the depositor a dividend. In this way the depositor is contributing to production and earning a profit simply by saving.
Printing money out of thin air devalues it, dilutes savings and destroys production while rewarding consumption. Monies saved for retirement or to start a business are effectively transferred into the hands of spenders.
The same applies to taxation and deficit spending. Both expropriate the earnings of productive individuals either now or in the future and give it to those who have not produced. Every dollar of government spending has to be taken from some productive person.
This is precisely what Obama’s “stimulus” plan does by design. Through a combination of deficit spending, taxation and printing money, wealth is taken from productive individuals and given to nonproductive ones. Every attempt to “stimulate” Paul comes at the expense of impoverishing Peter.
The same applies to jobs.
Every freeway construction job created with “stimulus” money is a job lost at a high-tech startup, a retail store or elsewhere in the economy. And to the extent that these “stimulus” projects are less valuable than the food, clothing, technology, health care, etc. that could have been produced, wealth has been destroyed.
In a free market, new projects and jobs do not come at the expense of others. When Apple hires an engineer or launches a new product, it is not at the expense of Microsoft or anyone else. No funds are expropriated, no resources are stolen, no taxes are levied and no money is devalued. A new job or product at Apple comes about by producing values, leaving Microsoft and others untouched.
While Apple’s efforts may adversely affect its competitors, it is only because Apple has created more value, not because it has taken something. Thus Apple’s success represents a net gain in value.
Unlike Apple, which must attract investors and employees by offering greater value, government simply takes the investor’s money, devalues the savings of businessmen and places debts on future taxpayers. In the process it destroys the ability of countless businessmen and investors to create and produce.
Government cannot produce goods and services, create jobs or run an economy for one simple reason: These values cannot be had by any means — their attainment requires specific means. Namely, they require thought.
Wealth is a product of thinking. It requires innovation, ingenuity, investing acumen and long-term planning. It requires using one’s mind. This is what a free market allows and what government control of the economy destroys.
A job created in a free market represents ability, value creation and trade. A job created by government edict represents political power, redistribution and force. The former enables thinking minds; the later makes thinking irrelevant.
One cannot achieve economic prosperity by destroying its basic requirement: a free mind. To the extent freedom goes, prosperity goes with it. If Obama cares about economic prosperity, it is freedom he needs to be stimulating.
Jim Allard (jeallard@mac.com) is a graduate student majoring in biological science.
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So the Wall Street CEO who runs his company with the advice of a multi-person board “earns” a $100,000,000 bonus? Honestly, I would do the same job for half that (sarcasm).
I think your ideas are very old-fashioned and naive. Real money, real wealth, “earning,” and deserving are ideas that the baby boomers have destroyed, or have at least perverted.
So, Jim, it’s no longer necessary to walk uphill in the snow both ways; it’s time to tackle an exotic problem with an equally exotic solution. You seem content bringing a knife to a gun fight.
An economist, you are not.
Tell us more about the difference between fiat currency and purestrain gold. Inquiring minds want to know!
There are two kinds of people in the USA, those who remember how horrible the Jimmy Carter years were and those who are going to find out.
7:33 - Yes, we don’t have to walk up the hill both ways in the snow to get to school, but we don’t get to ride downhill both ways, either:
Deficit spending comes at the expense of some future payer, just as a consumer has to spend less money in the future if he/she decides to buy something through deficit spending (using a credit card, say).
Likewise, when the total amount something is increased (say money), in the long term, the value of that something will decrease. In the case of money creation, this will ultimately lower the wealth of responsible savers for the sake of giving other people money to spend.
Abridged version of above column…
I hate government spending. I assume that every job created by this stimulus plan will eliminate another, with no justifiable evidence supporting that reasoning. Wealth can only be created by private companies and government spending magically takes money away from those companies, even when their taxes are cut. I will conclude with saying that the very thing that got us in this mess, deregulation of Wall Street, is the only way to fix our economic problems.
7:33 a.m., that’s not fair. It’s clear that Jim is definitely not bringing a knife to a gunfight.
He’s bringing a spork.
Jim,
First, the government CAN produce goods and services (see Fannie and Freddie, USPS, etc.), just as the private sector can. Likewise, governmental agencies use up resources that could have been allocated elsewhere, just as private companies can use up resources (capital, etc.) that would have been allocated elsewhere. These are basic functions of economic actors in the marketplace.
The main difference between government’s and a private company’s participation in the market is that the government feels no competitive forces. The government does not have the economic impetus to heed the demands of the consumer or make a better product than a competitor, because a government doesn’t worry about going bankrupt. What they DO worry about is getting re-elected. So, the government’s production decisions are based on satisfying special interests and throwing a few bones to constituents, rather than addressing consumers’ demands. This is what will happen to the “stimulus” money, and it’s a great example of market inefficiency.
In contrast, a private company must produce what is demanded by consumers, or else they will lose money, and eventually go bankrupt (unless the gov’t steps in!!). In addition, they need to continue to innovate and make their products even more consumer-friendly to get an edge on the competition, and make a profit.
Private companies address the consumer’s concerns, while government spending addresses political ones. Every American is a consumer, but not every American is to the same degree a politician or special interest.
Bryce
“Deficit spending comes at the expense of some future payer…”
Really? Are you currently feeling the bite of Reaganomics and his love of deficit spending? No, you’re not.
Inflation happens and will continue to happen. The only caveat is that our currency must remain credible. After the Dow tanked yesterday, you might have noticed the dollar STRENGTHENING against other world currencies. Despite our political maneuvering (bungling), America is still the best bet on the planet. Would you rather invest in totalitarian communist China, caste system India, or 35-hr week France?
This is the most intelligent opinion piece that I have read in the Badger Hearald in years!
Yawn-
Seriously Jim, These ideas may have been plausible in the late 19th century but most of us have moved on, perhaps you should stop holding vigils over Ayn Rands dead and discredited work and get with reality. That or perhaps you and all the objectivist “philosophers” should go to your own island and run it as you wish, right into the ground…I hear Iceland maybe available soon…
7:33 - “I think your ideas are very old-fashioned and naive.”
The last 2000 years have almost exclusively consisted of central planning, from kings to mercantilism to socialism to fascism to the welfare state, etc. The idea of “stimulating” the economy by state central planning is about as old-fashioned and worn-out as you can get.
I’m advocating protecting individual rights and the freedom to produce without government interference - i.e., separating government and economics. Now, this is about as new and exotic idea as one can get.
Jim,
You are old and you are dumb.
The current economic stimulus package before the US Senate represents an unacceptable financial burden on the taxpayers while failing to provide the restrained incentives needed to stimulate the economy. Rushing it through Congress without substantive debate, cost/benefit analyses, and detailed item-by-item review adds to the perception of unbridled spending run amuck. As the latest opinion polls verify, most Americans understand that this bloated package of political payoffs recklessly expands the size of goverment and increases our national debt by 9% without providing the targeted and fiscally responsible stimulation that is required. It must not pass.
The appropriate stimulus package must encouraging disciplined saving, investing and spending by citizens.
Disciplined saving and investing by American citizens can best be stimulated through tax cuts. In particular, cuts to the capital gains taxes provides immediate stimulus to both the stock market and real estate markets, by encouraging both selling and buying transactions.
A payroll tax cut is also warranted and effective. It immediately boosts houshold incomes for savings and spending. The individual personal savings increase the banking reserves and provide additional funds for lending. The personal spending encourages general economic recovery. The personal investments stimulate the stock market.
A payroll tax cut also allows business to keep more of their revenues, enhancing liquidity and allowing greater investment in new capital equipment and more efficient manufacturing methods. That is exactly what is needed at this moment in time.
These simple tax cuts require no expansion of government while enhancing targeted liquidity to the private citizen, the business sector, the real estate markets, our banking sector and the stock market. That is exactly where we need liquidity and stimulus.
The stimulus package should also address the structural impediments within the banking industry. The ‘Mark to Market’ loan valuation requirement must be modified to more accurately reflect real property valuation. In its current form, it drives loan portfolio valuations down based on market perception rather than reality. This forces the lending institutions to raise their cash reserves and tighten the lending requirements. It directly works against the need for liquidity and reasoned lending requirements.
Finally, Fannie Mae and Freddie Mac must be required to maintain the same level of loan reserves as any other lending institution, lest we repeat this financial debacle again.
The Stimulus Package in its current form does nothing to address these key issues.
No Stimulus Plan is better than Barry O’s Stimulus Plan!
Invictus Maneo
Monarchy is central economic planning?
If you build a road, you don’t have a road building job because you’re doing it for a government?
Does Allard realize that when he goes to look for a job, people are going to be Googling his name and finding out what a loon he is?
12:00pm - “The main difference between government’s and a private company’s participation in the market is that the government feels no competitive forces.”
The main difference between government and private companies is that government uses force and private companies use trade. This is why government cannot produce.
A trade involves a gain for both parties. Force involves a loss for one party. A thief is not a producer regardless of how he uses his stolen goods.
Jim,
“A trade involves a gain for both parties. Force involves a loss for one party. A thief is not a producer regardless of how he uses his stolen goods.”
Perhaps we are approaching this subject at different levels.
I am not trying to define the moral qualms against government taxation, etc. I’m trying to logically explain how the government is an ineffective participant in the drive to satisfy American consumers, and thus the economy as a whole.
It’s true that a trade represents a gain for both sides. However, a thief could steal my money, and maybe, if he’s a more savvy guy than me, this money will be used to produce more than it would have in my unsavvy hands. I would be poorer to be sure, but the fruits of the theif’s savviness might well result in a net increase in value of goods. (I’m not trying to justify theft here! A majority of thieves would likely have no better chance of being more productive than myself! Plus it’s MY money!)
MY point was that the government, as a thief, is GUARANTEED to ineffectively use your stolen money! Thus it’s doubly sad!
Bryce
Jim, GREAT JOB with this opinion piece.
To other people who commented: Ayn Rand’s ideas are NOT out of date. Brilliant thinkers still refer to her works and ideas and I read a Wall Street Journal opinion piece within the last few months on bringing back Ayn Rand.
The USPS is not much of a business. It runs at a HUGE loss. I’m sure a private business could run the postal service much better, even sending a letter would cost a bit more.
Perhaps real money, real wealth, “earning” and deserving are ideas we need to get back to, instead the current “spread the wealth” socialist ideas that have been proven not to work.
As for the one person who said people will be googling your name when you are looking for a job, I had a ton of people say the same thing to me when I wrote in to the Badger Herald with a conservative viewpoint. Thing is, they are too scared to put their name out there to let everyone see just what crackpot ideas they have. Kudos for making yourself heard, Jim.
What America needs is more tax cuts, including eliminating capital gains for a few years, lowering the corporate tax rate, as well as rates for individuals. This does not mean giving a tax rebate to people who do not pay taxes to begin with.
Again, I enjoyed reading your opinion piece Jim. Good Job.
So what your saying is that the print and spend tactic will not fix the economy. Yesterday the congress and the senate took bows after spending 750 billion dollars. I guess that is pretty hard work, but they managed to get it done. Maybe they could save a lot of time by legalizing counterfeiting? I think the print and spend tactic will be faster than the tax and spend tactic of the 30’s and early 40’s. Besides, if it doesn’t work we can escalate the middle east war and put people to work making bombs and tanks. An economist, I am not.
I never knew so many people could think what Jim Allard has said here is wrong. It is actually a little frightening.
It takes a brave man to say the truth nowadays; nice job, Jim.
“A job created by government edict represents political power, redistribution and force.” -Jim Allard
Yeah, god forbid I have safe roads and bridges, a national postal service, and reliable 911 services. Next time I’m on I-90, sending a card to my cousin, or calling an injured pedestrian an ambulance, I’ll remember how badly I’m being oppressed by BIG GUBBERMENT.
Your ideas aren’t wrong, so much as they are simply irrelevant to the nitty gritty of the world we live in, Mr. Allard. To illustrate: what would a complete division of economics and government look like, practically speaking? Can a genomics lab start cloning people because there’s a market for it? Do we privatize police/fire/EMS? How about our military, which generates significant (many would say absurd) wealth for the companies with which it contracts?
Again, its not so much that the ideology expressed in this column is amoral (and it is, you feckless Randian goon), but that it cannot be applied in practice.
“Government cannot produce goods and services, create jobs or run an economy for one simple reason: These values cannot be had by any means — their attainment requires specific means. Namely, they require thought.”
-Jim Allard, sitting at a computer.
“That’s one small step for man, one giant leap for mankind.”
-Neil Armstrong, standing on the moon.
No, no, you’re right Jim, government can’t produce ANYthing of value. Every government employee is a bureaucratic sinkhole of resources, into which hard-earned tax dollars flow and nothing comes out.
Space exploration, nuclear power, internet communication, were all developed under the aegis of the federal budget. And if you think these few examples haven’t created wealth in the private sector, it might have something to do with the fact that pretty much every opinion you’ve written is almost diametrically opposed to the truth.