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 ([email protected]) is a sophomore majoring in Nuclear Engineering
