By: Brian Sikma
Over the weekend Larry Summers, President-elect Obama’s director of the National Economic Council, made the claim that the national unemployment rate will not climb above 10% thanks to the stimulus bill that is being negotiated in Congress right now. Not only will unemployment not climb above 10% according to Summers, but the relief provided by the $825 billion spending bill will be felt immediately as “people see more income in their paychecks.” These predictions come a little while after it was announced that an early version of the stimulus bill would entail the hiring of 600,000 new government employees.
Congressman Mike Pence pointed out in an interview with the Howey Political Report that he believes government spending will not bring our country out of this economic downturn. To back up his point Pence cited Amity Shlaes work analyzing the Great Depression, “The Forgotten Man“, where Shlaes makes the case that the Great Depression was prolonged by inconsistent government attempts to lift the economy out of its depressed state. Government spending that threw money at various problems in an attempt to create employment did not work then and it will not work today.
The greatest legacy of the New Deal programs that were supposed to end the Great Depression is that they outlived their original need and played a major role in inserting the federal government into areas that were formally the realm of states or the private sector. While many of the alphabet soup agencies and measures have become paragraphs in history books (arguably the programs and their outcomes should be studied on more than a paragraph level), some of them remain with us today. Social Security is a prime example of a program that was designed for a specific purpose but ended up outliving that purpose and morphing into a general government-run retirement guaranty program. Suddenly eliminating Social Security is not the point here, the point is that we need to be careful during this extensive economic downturn that we do not create programs that over the long term are unsustainable and very vulnerable to political exploitation.
Back to the present proposal to spend $825 billion of your money and the contention that it will put money in your pocket and save existing jobs and create new ones. The Government does not have any money of its own. Yes it has printing presses, but ultimately money comes from one place and has two routes of getting to the government. First, the government takes it from you by taxation. Second, the government takes it from you by inflation. With taxation the money transfer is direct: from your pocket to the government’s pocket. With inflation the transfer is indirect, but just as effective. The government prints (or the electronic equivalent thereof) more money and increases the amount of money moving around the economy. Since this money is not backed up by new productivity or the creation of work, it means that its value must come from something else. That something else is money in your pocket that got there because of your hard work. By printing more money the government makes the money you earned as a result of your work literally worth less than it was when you earned it.
Assuming that government spending will jolt the economy out of a downturn fails to consider where the government gets the money from in the first place and what the costs of pursing this course are as compared to a more freedom embracing mode of economic recovery. If Congress does pass the $825 billion proposal being bantered around right now, it will have effectively doubled the amount of discretionary spending it deals with on a yearly basis. This is no small thing. Additionally, it will be spending money it does not have to produce results that cannot be obtained by this activity.
The jobs that are created as a result of this injection of money into the economy will not be more than the jobs that could be created by giving permanency to the 2001 and 2003 tax cuts, reducing the corporate tax rate to 25%, and allowing the American people to keep more of their hard-earned money.