For many, “Christmas is the time when kids tell Santa what they want and adults pay for it. Deficits are when adults tell the government what they want and their kids pay for it.” (Richard Lamm, former Colorado governor.) Sad but true.
The purpose of this article is to explain the difference between government and private “investment,” in hopes of getting our elected officials to do the things necessary to improve the economy.
Most government debt-increasing stimulus, or investment spending, is politicians spending other people’s money to satisfy the special interests that help get them reelected. Everyone else and their kids have to pay for it. Such projects rarely produce anything of lasting economic value nor do they stimulate the economy.
For example, the Japanese government spent $6.3 trillion on construction stimulus packages over the past 20 years since Japan dipped into recession in 1991 and its economy has not revived. The same will happen to us if we continue to elect people who think more government spending is needed.
Governments do not have the ability to determine the value of its “investments” (spending) because there is no market price mechanism in government to prevent excessive spending relative to benefit. This is why lasting wealth producing jobs are rarely created by government. It also is the reason why prior to the massive government intervention in our economy in the 1930s, all recessions were short lived. The market self corrects the quickest because no one is subsidizing bad economic decisions.
A recent example is the government’s “investment” (spending taxpayers’ money) of billions of dollars in solar panel companies whose principal owners had been big financial contributors to Democrats. Since foreign companies still produce a better product at a lower cost, many U.S. government subsidized solar panel companies have gone bankrupt anyway leaving more unemployed and huge debts to be paid off by present and future taxpayers. Worse, there is usually no profitable productive asset left to generate cash flow to pay back the debt. These bad loans would never have been made in a free market.
The Obama administration has demanded we keep increasing government “investment” spending to create jobs and reduce our debt. That is as logical as saying the best way to cure an alcoholic is for him to drink more liquor.
Although government statistics show that unemployment has gone down from a high of 10% to about 9%, the total number of people employed in the USA has gone down by close to 2 million. Government “investment” spending has resulted in a net loss of 2 million citizens’ jobs no matter how the government “calculates” the unemployment rate.
So how can we figure out what needs to be done to increase prosperity and job growth? Here are a few hints.
As the primary season approaches and you hear candidates campaigning about what they plan to do for you, be wary of candidates who say they are going to use their power and influence in the legislature to bring jobs back to your District. That is a person who either does not understand how our economic system flourishes or they do not care and are just trying to buy the votes of special interests and/or the economically illiterate to get elected.
The result of government giving special preferences to certain industries and/or voting districts is that those who are more efficient end up having their costs increased, making them less competitive so that inefficient producers can have their more costly products sold at everyone else’s expense. That lowers almost everyone’s standard of living except the direct beneficiaries of the government subsidy.
Any debt incurred that has no independent means of revenue generation to pay back the incurred debt by producing something of value is a bad debt to incur. That is the big difference between public and private “investment.”
Another tip-off is when you hear someone say, “What would be the difference between tax increases or spending cuts?” You know that person has no idea how to increase jobs and prosperity.
Why? Spending cuts leave more investment money to create more jobs and wealth. Tax increases reduce money available to create more economically viable lasting jobs.
About half of the Obama/Democrats’ $780 billion ‘stimulus’ package went to pay the salaries and fringe benefits of state and local government workers and unions because: (1) Government employees traditionally vote Democrat; (2) Governments did not have to reduce employees and spending due to declining revenues; and (3) The more government workers there are the more union dues that are available to fund Democrats’ campaigns. It created few, if any, economically viable jobs.
Politicians promising to use government to bring home jobs by extracting an advantage for their home district hurt the economy. Lobbyists help them design legislation that will help only the people that pay the lobbyists’ salaries.
The main way we can prosper in the long run and sustain it is to: (1) reduce government spending and (2) to legislate away the regulatory impediments to job creation that make it more costly and difficult to build a business and hire employees to compete in world markets. It would be refreshing to hear more politicians talking about what they wish to abolish and how it will help create more jobs.