A Trillion Dollars? For What?

You can't spend your way to prosperity.

Not so many years ago our national debt reached one trillion dollars.  Accumulated over half a century, through war and peace, that astronomic amount of money was the source of deep concern for politicians on both sides of the aisle.

How were we ever going to pay it all back, as debts incurred surely must be?  A balanced budget was of utmost importance, to be brought about by a combination of tax rises and spending cuts alike.  Indeed, one of the proudest achievements of President Bill Clinton, no conservative he, is that he succeeded in briefly balancing the budget and thus (slightly) reducing the national debt.

Those days seem far, far away.  Debt is the total amount you owe, accumulated over years.  The deficit, on the other hand, is how much more debt you added this year.  And in the year 2009, the Congressional Budget Office predicts, our deficit for just 2009 alone will be $1.2 trillion.  Not our debt, no - rather, the amount our national debt grows by in just that one year.

Just a few days ago, our President-elect predicted trillion-dollar deficits for years to come.

Now, a national account is not quite the same thing as your own bank account.  A country can borrow a lot more than an individual can before getting in trouble; and, especially for the world's largest economy, there are ways of sliding out of trouble that aren't available to real people either.

What's more, the Keynesian model of economics so beloved of most government economists calls for spending your way out of a recession.  In fact, Lord Keynes himself said, "The government should pay people to dig holes in the ground and then fill them up," the idea being that putting people to work was the way to bring growth even if the work was worthless.

Let us be blunt:  Lord Keynes was dead wrong.  Government spending can, indeed, be useful and helpful to the economy, but only if the money is spent on worthwhile things.

Japan gives us a perfect example.  In the 1990s, Japan suffered from very similar problems to those we now are experiencing: an exploded property bubble.  During the 1980s, Japanese real estate was so ludicrously overpriced that the grounds of the Imperial Palace in Tokyo were, supposedly, worth more at retail than the entire state of California.

This situation couldn't last and it didn't.  When the bubble burst, the borrowers, speculators, and banks ran into trouble, just as is happening here and now.

Japan reached into Keynes' bag of tricks and started spending money like a drunken sailor on infrastructure projects.  Japan now possesses many of the world's most impressive bridges and longest tunnels; whole hosts of new highways and airports; and all manner of other fixed improvements at government expense.

Did it work?  Not in the slightest.  Each successive year showed anemic growth and Japanese politicians redoubled their efforts to "prime the pump," spending money on anything and everything.

Unfortunately, the specific choices where they spent the money were blessed by bureaucrats.  Now Japan has several beautiful new regional airports that nobody wants to fly to; vast "bridges to nowhere" which are used by a handful of cars each day; and countless urban streams and creeks with nice newly concreted channels to... well, no one really knows why.

The 1990s are considered a "lost decade" for the Japanese economy, which would be bad enough by itself.  But Japan's national debt tripled over that time - all for nothing.

At least the Japanese spent their money on infrastructure that, if it isn't useful now, may be someday.  The "field of dreams" approach does work with infrastructure, sort of - after all, the Golden Gate Bridge was originally a Bridge to Nowhere in particular, and the Empire State Building sat empty for twenty years, yet both are now doing fairly well.

Mr. Obama's plan, alas, has not even this future hope - as you'd expect, considering that his environmentalist supporters find both roads and airports to be abominations.  Instead, current plans support such essential improvements as a Mob Museum in Las Vegas (which you'd think they could afford to pay for themselves), $375 million for an Alabama town with a population of 194(!), and so on.  Even the pornography industry has its hand out - hopefully recently washed.

Yet, quoth the President-elect, "This plan must begin today."

Even the spending on relatively uncontroversial areas - such as renovating schools and hospitals - are not, on current plans, going to be economically beneficial.  Mr. Obama has long placed "green" improvements at the top of the list, and as the French economist Bastiat explained, replacing something that didn't otherwise need to be replaced doesn't make people any richer.  Changing out working normal light bulbs for twisty "green" ones is the Broken Window fallacy writ large and will make us all poorer.

Do we seriously believe that our government will spend money wisely on necessary public works?  Once upon a time we could.  Once upon a time, America was famous for public infrastructure that contributed greatly to our national wealth, from the Erie Canal to the great Eisenhower expressway system.

In the last half-century, however, you'd be hard pressed to find an example of wise government spending.  The more urgently needed an infrastructure improvement, it seems, the harder it is fought by leftist special interests and the less likely it is to ever actually happen.

Mr. Obama wants to spend money on building things now, tomorrow.  What's more likely to qualify?  A useless Mob Museum that nobody cares strongly about either way?  Or a useful oil pipeline, new airport runway, or an improved highway through a city which will be picketed, protested, and sued into oblivion by militant environmentalists?

In principle, wise government spending can, indeed, help economic growth.  Our current government which is pulled to and fro by interest groups of every stripe is anything but wise.

The odds are very long against one single thing in this stimulus package being of the slightest actual use to anybody.  On the contrary - the entire stimulus is nothing more than a political bailout to the unions, whose members will do the "work" and who needn't care about whether any of it is worthwhile.

Americans are sick and tired of bailouts.  Last spring Bush sent stimulus checks to taxpayers - didn't help.  Last fall, we were railroaded into the $700 billion TARP plan to supposedly save the credit system - didn't work.  Bush gave billions to GM and Chrysler last month - does anybody doubt that they'll be on the White House doorstep, hat in hand, on January 21?  Now we must spend $1 trillion immediately, and more later?

Enough.  No more.  What the times call for is not more government spending.  It's less - drastically less, enormously less, and particularly less spent on government bureaucrats who force Americans to obey restrictive and silly rules that we have survived without for two centuries.  Having cut regulations, then lower taxes, so the true source of America's wealth - private enterprise, and private entrepreneurs - can start doing what they do best, unhampered by the dead hand of government regulation and taxation.

Mr. Obama said:

Only government can provide the short-term boost necessary to lift us from a recession this deep and severe. Only government can break the cycle that is crippling our economy, where a lack of spending leads to lost jobs, which leads to even less spending, where an inability to lend and borrow stops growth and leads to even less credit.  [emphasis added]

He could not be more thoroughly, completely, and fundamentally wrong.  On the contrary - only government can prevent our economy from recovering by meddling with things it does not understand and creating so much uncertainty that nobody dares take any risks, whether they be by investments or making loans, and by stealing the wealth of the successful.

From the looks of his plan, though, that's exactly what he has in mind.

As the economy moulders for years on end, we'll hear the bleat, "Spend even more money!  Last year's deficit wasn't enough!"  Mr. Obama's team has learned nothing from FDR's sorry unemployment record during the Great Depression, nor from the Japanese failures of just ten years ago.  Those who refuse to learn from history.....

Petrarch is a contributing editor for Scragged.  Read other Scragged.com articles by Petrarch or other articles on Economics.
Reader Comments
Obama statements that start with "Only government can..." fill me with a cold dread. The country is fiscally dying and the new leader is going to run us off the cliff like a herd of witless sheep.
January 12, 2009 11:07 AM
Add Your Comment...
4000 characters remaining
Loading question...