The rhetoric is cranking up again about the economy stalling out and what to do about it to preserve our perceived recovery. Perceived, that is key in this debate. The recovery is not real. It has been propped up by Keynesian gimmicks designed to artificially stimulate it. That is the simple concept at the core of the issue. Recovery cannot occur until true demand materializes.
The fed has artificially held down interest rates for an extended period now in order to promote spending and investment. The fed also has injected trillions thru its various liquidity programs. Of course, we had the $787 billion dollar stimulus program, cash for clunkers, homebuyers credits, unemployment extensions, etc. all designed to boost what wasn't occurring naturally.
They are by no means done yet. Obama just stated his opposition to slowing his reckless spending spree believing that this will cause the economy to revert into recession. Members of Congress are proposing new spending ideas constantly in lockstep with this thinking. One proposed creating a new Tennessee Valley Authority equivalent. Massive infrastructure projects have succeeded in the past. For example, the Hoover Dam and our nations highway expansion come to mind. However, these come with a caveat. They created something that didn't exist rather than simply make busy work as these proposals do. They removed a bottleneck that was restricting growth and allowed the private market to expand where it could not previously go.
Nothing of the sort is on the table here. The left will claim this is precisely the goal of the green jobs initiatives. They believe providing the jumpstart to the green technology market will open up a whole new era of growth in the energy sector. Like anything, when you get the original premise wrong, everything that follows is also wrong. Green technology is only an alternative. It doesn't create a new market that didn't exist. Consumption of energy is already there. Any success in the marketing of green technology will simply be at the expense of the fossil fuel industry. A job shift from one area to another.
You would need a whole new sector of people consuming energy that wasn't previously to warrant it. Find a way to bring the tribal regions and other rural areas of the globe that aren't consuming right now and you would be on to something. Anytime, in any industry, you must have true demand requiring increased supply to achieve growth. This is why Keynesian economists always get it wrong and their disciples are currently in power and will suffer the same predictable fate.
It all boils down to simple supply and demand. One must keep that in mind at all times when trying to assess what will work. You'll hear lots of analogies attempting to make it clear in simple terms how it works. Take the one about your grass growing.
If the economy is akin to a field of grass, when it is growing it equates to increased demand. Obviously, when it's turning brown, this equates to a recession due to decreased demand. The government believes it can artificially increase growth by watering it until true demand returns. The problem with this analogy is where the government gets the water from. They take it from the roots, otherwise known as the taxpayer. They may be keeping the grass looking green above ground with this artificially watering (spending), but the root system is decaying below ground accordingly (debt). They're stealing from the roots to make the grass green and give the appearance of a healthy lawn.
This is precisely what Obama is doing today. To give the appearance of an economic recovery, he's piling on the debt which will be an ever-increasing drag on the economy in the future. You simply cannot destroy the root system to keep the grass looking good. This scenario could absolutely work if the source of the stimulus spending was a new third-party gift that didn't have to be repaid later. A temporary boost that would not be a future drag on the economy is like you winning the lottery.
Unfortunately, we have no such scenario here. Temporary stimulus measures turn into never-ending entitlement programs. Government spending constantly outstrips revenue collected.Supply and demand. We must halt the spending immediately so as not to exceed demand.This is just to stop making the bleeding worse. Than we have to address paying down the accumulated debt and the ever-increasing interest.
The Keynesian crowd doesn't believe in incentivizing growth. They insist on subsidizing it. They believe that any temporary spending can be later repaid when the real growth returns. The obvious problem is the drunken spending sailors in Congress never take that repayment step. It wouldn't work anyway as artificially generated growth is offset by the future debt and even more so due to interest. If spending a dollar on credit today costs you three dollars down the road,how have you come out ahead?
Obama can't create jobs because he is using this flawed ideology. Nothing he is doing is actually creating new demand and thus growth. The jobs will never come until he does. We all know about government and other public sector jobs he is creating with stimulus money. They are only temporary, they are taxpayer subsidized and they do nothing to expand growth. They only work in reverse to serve as a drag on growth.
The Reagan supply side economic plan of using lower tax rates to spur growth will work as demonstrated. However, the key is the other portion of the equation. It must be accompanied by less spending. Reagan couldn't come close to pulling it off and we saw the debt expand dramatically.
The public seems to understand these concepts better than our President, however, we must remember Obama has an alternative agenda. Perpetual power for the Democratic party. Only the truly ignorant would be so blind as to not see this is true. Exponentially expanding entitlements and other government dependency programs along with the upcoming amnesty for illegal aliens are perfect examples of this. When his focus is not truly on creating jobs and growth in the private market, it's easy to see why he is failing. He's not really trying.
Excellent post AV!
Thanks-just doing my small part.