I trudged through the snow-filled streets yesterday to see why my trusty computer quit working. It was the power supply. For slightly less than $100 I am back up and running. The computer place is a perfect example of the engine that powers the economy. Started by one guy part time, it now employs the owner and three others. I bet none are rich by any real standard, but they are the heart of the local economy. Along with the local appliance shop, carpet place, the plumbers, electricians, contractors, HVAC guys, mechanics, restaurateurs, they all hire and spend money locally. Hand in hand with the big factories they keep the wheels of commerce turning. The only stimulus they want or need is for me to spend money.
The Government can only get money in three ways. They can print it, borrow it, or tax it. If they just print money, it will quickly become worthless. Brazil, prewar Germany and Mexico have all tried this tactic with complete failure. If you want to take a wheelbarrow filled with worthless greenbacks to the store just to buy bread, then you should be for the 'just print more money' theory of economics. For those who advocated the Government to just divide the $700 trillion bank bailout among every family in the US, the result would be the same -- runaway inflation. Because like it or not, every single economy is governed by one simple law -- supply and demand. If we were all suddenly flush with cash, then the prices would rise accordingly. If everyone is buying an item, the price of that item goes up. Just printing money or handing out cash is a horrible idea.
The second way a Government can get money is to borrow that money. Most of us have loans for cars, houses and a few credit cards. What if the interest on those loans was more than your monthly pay? What if you found some sucker to loan you money to pay the interest on the first loan? What if you borrowed money on your retirement account to pay the interest on the second loan? Would you believe then that your kids and grand kids would willing pay for your retirement? What if they have first and second mortgages and have borrowed against their retirement? Would you keep spending at a higher rate every year, borrowing more and more? If you son or daughter told you to reduce spending would you tell them that even though you spent even more than last year, you did not spend as much as you wanted, therefore you HAVE reduced spending? Would you believe it? Would they? This is the way the Government operates today. A cut in a Federal Program means they did not spend as much as they wanted. We borrow from the Fed, from Social Security, and sell long-term notes to anyone that will buy them. In the 1990s it was the Japanese buying oir Treasury Bills. Now we are owned by China.
The third way the Government gets money is from taxes. It takes the money right from your paycheck. You pay Property taxes. You pay sales taxes, you pay, pay, pay. Anywhere from 1/3 to 1/2 half of every dollar you make someone takes from you. The Government did not sweat and bleed and break their back to earn their money like you did -- they just take it. They might use it for very good reasons, but they still did not do the work to take it. My local Church might do very good charitable work for the community, but they still do not have a right to my hard earned pay. If you work and do not get paid you are either a fool or a slave.
As a citizen, I understand it is in my best interest to support a military, a police force, roads, and a certain limited grudging helping hand to my fellow man. I am willing to pay for those services. The very role of Government is to provide those services. The best way for the Government to get those funds is through taxation. In a Representative Democracy we elect people to run the Government and allocate judicious uses of those funds, whether borrowed or taxed.
Given the way the Government can raise money, how does any of those ways invest in the local economy? If we take our money and invest in T-bills or bonds we can expect a certain interest. That may be a good investment for me or you, but it does not provide any jobs(except Government jobs). That investment pays no salaries, provides no employment for anyone. Taxes take money from the local community. Every dollar taken in taxes is one less dollar I have to pay the mechanic, buy carpet or furniture for my house, or to spend at the local store. That is one less purchase at WalMart or Target. If a bunch of us do not have that dollar, then one less person is employed at the big box store. That is where we find ourselves in today's economy.
Part two will explain why the stimulus will not work.
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