The Economic Shredding Machine

Like the U.S. Treasury, President Obama’s recent jobs proposal is bankrupt.  Quite frankly, we weren’t counting on much.  But that doesn’t mean we still weren’t disappointed by its burdensome emptiness.

The most remarkable thing about the President’s latest jobs creation plan has nothing to do with the actual substance – or lack thereof – included in the initiative.  To the contrary, it’s the idea behind it that’s most noteworthy.  In short, the President actually believes the government can use borrowed money to stimulate the economy.

If this were true, the trillions of dollars already spent would have produced an epic boom and job creation renaissance.  By this point in the recovery unemployment would be down and opportunities would be abundant.  Obviously, none of these things have taken place.  Instead, according to a recent Bloomberg National Poll, only 9 percent of the population is confident the economy won’t slide back into recession.

The government, as we’ve seen, is extraordinarily capable of spending boat loads of borrowed money.  Yet there’s no documented proof or empirical evidence that supports the notion that this can grow the economy.  Moreover, simple logic shows it actually shrinks the economy.

When the heavy hand of government directs borrowed money into activities it favors, it diverts money from the private sector and starves the economy of capital.  What’s more, the activities the government favors, like bridge building and school construction, don’t add productive self-supporting jobs to the economy.  So when the money runs out the economy falls flat on its face.

This Economy Bites

At the same time all this government spending is going on, private businesses that increase real wealth and create real jobs through profitable enterprise lose out on capital that’s directed into government spending programs.  This has the effect of increasing government debt while decreasing the economy, which, in turn, results in lower tax receipts for the government to budget from.  In addition, there are many great opportunities and jobs that will never see the light of day.

Clearly, with fools like Obama in power, this produces the axiomatic effect of a downward spiral on the economy…where more government spending of borrowed money to stimulate the economy only serves to further strangle it.  Thus, to counteract the ailing economy, the government spends more borrowed money, which only weakens it further.

This is the situation we find ourselves in today.  And, quite frankly, it bites.  But it will persist until the jobs initiatives, stimulus programs, and deficit spending policies are terminated.

Government spending of borrowed money does not grow the economy.  The enormous stimulus programs that have taken place since 2008 offer proof of the lethargic effect government spending has.  Savings and investment of private capital are what’s needed.

However, in addition to the counterproductive fiscal policies of massive deficit spending, the Federal Reserve is making a mess of things over on the monetary policy side too.  By artificially suppressing interest rates the Fed believes it will produce a spending boom.  But the absurdly low interest rates discourage saving and encourage market speculation and asset bubbles.

Look where it has gotten us…

The Economic Shredding Machine

Financial markets have grown abundantly volatile and it seems a grand financial crisis could happen at any moment.  The economy has become indolent and sedated and the next financial crisis could trigger a full implosion.

The Census Bureau reported Tuesday that there are 46.2 million Americans living below the official poverty line…the highest number in 52 years.  Additionally, the middle class is getting shredded.  Median household incomes fell last year to what they were back in 1996. That means, after 14 years of schlepping and slogging, the middle class has nothing to show for their drudgeries.

No doubt, it’s discouraging.  It used to be that overtime, through hard work and perseverance, you were rewarded.  But those days seem to be slipping away for many.

In this respect, if you’ve lost your job don’t take it personal.  This economy bites and plenty of other good people will have lost theirs too before this is over.  In the meantime, don’t stop, don’t quit.  You’ll never fail if you don’t stop trying.

Sincerely,

MN Gordon
for Economic Prism

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