January 29, 2009

Why the Stimulus is bad, part two

We discussed earlier the means a Government uses to get money. The primary ways are through taxation and borrowing. We find ourselves in a sluggish economy. Many have lost their jobs, some, like me, have been forced to take pay cuts. We are all worried about the future and are not spending what money we have. We are girding ourselves against the coming rainy, stormy day we envision on the economic horizon. We are not buying cars, building houses, and getting that new couch or appliance we had our heart set upon. So the makers of couches and appliances and cars are not selling, so they are not building and manufacturing and are letting their workers go, as they cannot afford to pay a person for doing nothing. It is business.

How do we get the economy moving? How do we re inspire confidence? How do we get people to spend their money? We can ride it out. Eventually our cars and refrigerators and couches will fall apart and we will have to replace them. This is how we got through downturns and panics and depressions and recessions for most of our country's history.

Today our President is proposing massive Government spending to promote economic growth. Let us pretend for one moment that the proposed bill is actual stimulus and not 80% pork projects as is actually the case (Pelosi is actually arguing provisions to provide free birth control actually helps the economy). How does increased Government spending actually help the economy? Is the Government going to buy carpet or stoves? Will they buy cars and build new houses? Is Uncle Sam going to wait in the two open lines at the local WalMart to buy Tide and lettuce? Are they going to buy widgets from me to increase orders at our factories?

Some of the President's economic advisers have argued we need to take the long-term unemployed and put them to work building roads and bridges (see below). Let us leave aside the reasons they are long-term unemployed such as education, ability and desire to work. This is the means FDR used to combat the Great Depression. One of my commenters praised the Blue Ridge Parkway in a previous post as a shining example of uneducated, untrained people building a road. We should keep in mind that in the early days of the last century nearly every single American earned a living through some form of manual labor. Most individuals had a basic understanding of building and using tools. Indeed, all roads were built with shovels and lots of manual labor at that time. Today's highways are built with machines and trained operators. Most of us do not do manual labor. Few of us would know how to build a road like they did a century ago. In the early days of the Michigan Road, one of our nation's earliest highways, every taxpayer was expected to give one day a year in labor to maintain the road. Few of us have that skill today. Instead of a week or more to grade a mile of roadbed the job is now done in a day. That work is done by a few trained and skilled individuals instead of by hundreds. Today's roads are better, stronger, more efficient and cost effective. While we would all like to drive a bulldozer, not many of us can (or should).

Let us argue that we would be better served as a nation to build the road the old fashioned way, with workers and shovels. The Government deems they should build their roads in this manner. You should recognize this will be at the cost of the construction industry, so we will employ some and others will lose their jobs, more companies will go out of business. Now the Government will be paying thousands for the work of hundreds. Will the cost of building that road be reduced? Again leaving skill and ability to actually complete the task aside, will the cost go up or down to build the road?

Now consider this, when the private contractor built the road, he took his pay from the same Federal Government. He bid on the job and offered the lowest price to the person paying the bill -- you and I John Taxpayer. He hired local workers to do the job. They bought groceries and cars and built houses to live in. The company owner paid individual, business, and payroll taxes. The workers paid taxes. The Government got 1/3 to 1/2 of their money back in taxes. Dozens of jobs were created. If the Government becomes the contractor, they do not pay the taxes, the payroll withholding, etc. They would be paying themselves, plus where do they get the money to pay? From you and I! Therefore we pay double and triple. Instead of paying a contractor and getting the money back in various taxes, we are foregoing the taxes and paying more to have a road built in an inefficient, high cost manner. Now you know why the Great Depression lasted a decade instead of about three years like the Panic of 1890. The Government cannot spend the economy to growth.

The best way to spur the economy is the way proposed by JFK. You remember him, the icon of the Democratic Party? It worked for Kennedy, it worked for Reagan. We must cut taxes. That does not mean give money to those who do not pay taxes -- see inflation from the previous post. Imagine if your next few paychecks were increased by 20, 30 or even 50 percent? Would you buy a new stove, a couch, a car?

The problem is if that happened, we would realize just how much of our hard earned money is taken every week. People might actually think -- hey who is this FICA and why does he get my money? This is the same reason the FDR administration adopted withholding -- what we do not see we do not notice. If we had to write a check for our taxes every April 15, there would be a revolution on April 16. As long as nearly half of Americans actually believe the Government is 'giving' them money when they get a tax refund, we are doomed.

If you believe massive Government spending will increase the demand for new houses and cars and stoves and couches and computers and groceries and hot tubs and widgets you are economically ignorant. The Government cannot produce anything, it cannot invent new products, it cannot create jobs. The only Government created jobs are Government jobs. The only way the Government can pay the worker for that job is to take money from a taxpayer. If we are all working for the Government how is the Government going to get the funds to pay for that job -- print money, borrow (from whom?) from taxes (collected from whom?)?

The only way the Government can sustain such monetary outlays is to take over the means of production. If the Government gets the profits from the factories and farms, then it will have the money to pay for the labor used to create that profit. Does that sound familiar? The problem is if the laborer does not share in the profit, if we are all paid the same for the amount of work we do, there is no incentive to work harder. Why should you bust your ass when the guy beside you is not? Welcome my friends to the world of Karl Marx. It has been tried and found wanting at every opportunity. It won't work here either.

Call your Senator, call your Representative -- tell them do not vote for the Stimulus, it stimulates nothing, it will prolong our economic troubles. Do not be a sheep, led by the politicians. Think things through. Just say no!

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