Friday, March 05, 2010

Kidding Ourselves on Spending

My sister and I were talking the other day and, while we agreed that now is not the time to be taking action to reduce the federal deficit, and perhaps not even time to begin slowing the growth of it, I’m not sure we are on the same page in our thinking as to what the deficit spending is accomplishing. She is of the Paul Krugman school that the government has to spend in order to “restart the economy,” and she is in very large company.

I’m more of the opinion that it’s doing nothing of the sort, but is merely allowing society to sort of “hold on” until something else restarts the economy; but I confess to some uncertainty as to precisely what that “something else” consists of. I do have a fair certainty that it isn’t a resurgence of consumer spending.

Much of the “spend to restart the economy” thinking is based on FDR’s economic programs, but I see a great deal of invalidity in that model for today's situation. Our deficit spending now has a huge military component which FDR’s did not; we have a vastly larger foreign policy and overseas investment; and, finally, the ultimate recovery from the Great Depression was not FDR’s spending programs and it was not, as is often claimed, World War 2 during which we continued to amass a federal deficit. The real economic recovery came with the rebuilding of the world’s economy which had been devastated by that war. That boom was one fueled by an America that produced and sold the goods the the entire world was in need of, since ours was essentially the only developed nation not destroyed by war.

What I see of FDR’s spending programs was that they allowed us to “hang on” until other influences enabled us to lead a world wide recovery. I’m not suggesting that it will take a war or a world-wide devastating event to provide recovery from where we are now, but I am suggesting that recovery does not lie in the form of government spending. Ultimately, recovery doesn’t lie in any kind of spending.

We became a wealthy nation not by spending but by producing, and we jeopardized our economy by changing it to one based on spending. If we are to recover, we need to ditch an economy based on spending, be it consumer or government spending. We need to stop thinking of “stimulus spending” to recreate a spending economy, restarting the same economy that has already failed us, and see this as merely marking time while we recreate an economy based on producing.

1 comment:

bruce said...

I tend to agree with Uncle Bill on this one (sorry Mom). Governmental spending is not going to do it (remember where this money comes from?). Tax cuts are not going to do it (sorry Rubs). We need all the income we can get to pay back the Tbonds, corporate bailouts, wars, health plans, SS andmeddlecare, etc. Increasing taxes is not really going to fly well (sorry, Dems), but maybe some tweaking, perhaps? The lessons learned in the last few years, I doubt comsumer spending to going to lead a big rebound. There will always be some demand, yes, but not the degree of the past decade.

Post a Comment