Why Will the Stimulus Bill Fail? Economics 101
Growing the Economy from the Bottom Up is Like Growing Corn from the Top Down
Today, Christina Romer, the top White House economic advisor, said that the effects of the stimulus bill were tapering off. She went on to say that by the fourth quarter of 2009 the effects of the stimulus bill will no longer be contributing to economic growth. So where are the jobs?
It's hard to say the words economist and progressive in the same sentence without a chuckle, and yet there are thousands of them being turned out by universities across the nation, just like the ones that Dr. Romer was training at the University of California, Berkeley. If one listens to what progressives try to pass off as economics, one might believe that the recently enacted Stimulus legislation could create jobs — even if they are government jobs. The truth is, however, that there can never be a net growth of jobs nationwide when created by means of government money. Not in the past. Not now. Not ever. The reasons are actually pretty simple and don't require an advanced degree in economics from Berkeley to comprehend. Yet they have been passing this fallacy of government job creation off on the American people for generations — and getting away with it. It's time that we get a little wiser.
First, and most important, the government has no money that it has not taken from someone else (if you're thinking well, they can borrow or print it, we'll get to that in a moment.) The principle method for government acquisition of money is through taxation. When they take money from one group of people to create government jobs for another group of people, those that were taxed have less money to spend and the prudent don't borrow money to buy things on credit. Instead they buy fewer clothes, fewer washing machines, fewer houses, fewer cars, and less food. This means that fewer people will be hired to make clothes,build washing machines, houses and cars, and farmers will not make as much money from growing crops. The jobs created by the government are offset by the jobs lost or not created in other sectors of the economy resulting in zero net growth in jobs at best. All that has been accomplished is that one group of people has been deprived of the use of their money, certain sectors of the economy fail to grow, while another group benefits by receiving the money and other sectors of the economy grow. The net benefit is like cutting the end off of a blanket and sewing it back on to the other end. But wait, isn't that what's called redistribution of wealth? Yes it is. That's what the President told Joe the Plumber he wanted to do and that's exactly what he's doing. But "growing the economy from the bottom up," as he puts it, makes as much sense as growing corn from the top down. It has not worked, can not work and will never work except in the topsy turvy minds of progressives. Yet having failed miserably the first time, the odds are the Democrats will try to generate support for doubling down on this fool's bet.
I told you I'd come back to the issue of the government borrowing or printing money to create jobs. Borrowing or creating money for government job creation works even less well than taxation. If the government borrows money from somewhere, say China, the American people will still have to pay the money back through taxation, but this time with a nice bit of interest tacked on to it. The interest on the debt for the fiscal year ending in October 2009 is $383,363,826,680.60 — but who's counting. The good news is that this can't go on for much longer. The bad new is that the reason is that United States is quickly becoming a subprime borrower and it's going to be hard to find lenders as foolish as Fannie Mae and Freddy Mac.
The other method is printing the money (they don't actually have to print it, it's just an entry in an accounting ledger.) This is an even more insidious form of taxation, but one that has worked well for the government since 1913 when the Federal Reserve was created. While it is truly sinister and evil beyond belief, one must give them high marks for having come up with a con that has lasted one hundred years without the public ever catching on. When the Fed creates "liquidity" (creates money out of thin air to give to the government through bonds) it pushes more money into the system (increases the money supply) , the result is that each individual dollar is worth less than it was before, but people don't see the value of the dollar go down, they perceive what appears to be the cost of products going up. It doesn't matter if the products are houses, cars, milk, gold or oil everything looks like it's getting more expensive. Wait, here's the beauty of the con — the people don't blame the government that caused the problem. They blame the producers of the products for raising prices and being greedy profit mongers. Then the government is able to hold hearings to regulate them and raise their taxes yet further with full public support. Now is that slick or what? The effect on the economy is, however, recession and massive layoffs, but that's not what really counts in Washington.
