My latest in the American News:
Washington leaders are set to perpetuate the bad fiscal policies of recent years. Not exactly change you can believe in.
The most deadly pathogen in our economy is the virus of debt. Americans have spent years, decades even, amassing mountains of debt trying to get something for nothing. Unwilling to live within our means, we have built a modern society on the quicksand of debt and now we are sinking.
Last year our federal debt was about $9 trillion. Projections are already for an unprecedented $1 trillion deficit in the current fiscal year. President Barack Obama and Congress advocate an additional $1 trillion of deficit spending spread out over the next several years.
The belief is that this additional spending will “stimulate” the economy. Government spending, the theory holds, will put people to work and provide a “multiplier effect” as the income earned by these folks gets spent on new purchases. But a study by Harvard economist Robert Barro found the multiplier effect to be “insignificantly different from zero.”
The Congressional Budget Office reports that most of the spending proposed by Congress won't hit the economy for years. So even if the stimulus package creates jobs, we won't see these until Obama's first term is nearly over.
The point of an economy is not to create jobs. As Congressman Ron Paul notes, the point of an economy is to be productive. The government could hire people to dig holes and then fill them in, but that won't make us any wealthier as nothing is actually being produced. Our leaders propose creating make-work jobs that will produce no wealth.
Also, the government must take a dollar for every dollar it spends. Because raising taxes by a trillion dollars is both politically and economically unwise, we will fund this new spending by printing money and by debt.
The printing of money leads to inflation. We all will eventually pay for this government spending through higher prices. Further, it goes without saying that debt must be paid back someday. Our posterity will face crushing taxes to pay for our mountainous debt, taken on because we will damn future generations to avoid difficult choices.
A lesson can be learned from the early 1980s. When faced with a slumping economy, newly elected President Ronald Reagan and Federal Reserve Chair Paul Volker agreed that a tight monetary policy was needed to squeeze high inflation out of the economy. This policy virtually guaranteed a recession, but they correctly calculated that this short-pain was worth the long-term benefit.
Today we are proposing flawed policies in a mad attempt to avoid serious recession. If we want economic stimulus, we'd be much better off slashing the corporate and capital gains tax rates to stimulate private investment. Instead, our leaders propose continuing the very practice of living beyond our means that got us in this mess in the first place, devaluing our currency and making us more dependent on the foreign holders of our public debt in the process.
We can guess Republican John Thune will give the Democrat proposals a cool reception, although recent history gives us cause to question Republican fiscal responsibility. Will Democrats Stephanie Herseth Sandlin and Tim Johnson live up to their moderate, fiscally responsible reputations and vote against squandering our children's inheritance? Or will marching in step with their party take precedence?
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