Spending Our Way Out Of Debt

A healthy economy is one in which people receive benefits for providing goods and services that people want at prices they are willing to pay.  Only a healthy free economy provides the proper allocation of resources and freedom of the individual.  We no longer live in a healthy free economy.

In 2008 we saw the beginning of a full fledged economic melt down.  Banks had been forced to lend to people who couldn’t afford to pay them back, auto makers were selling cars that no one wanted at prices no one could afford, housing had become unaffordable and builders had built more homes than could be filled in a year, and Wall Street high-rollers had bet that the economy would continue growing like crazy forever.  In a normal, healthy and free economy we were due for a market correction.  Individuals would shift from building more houses nobody wanted or could afford to building other things or pursuing other things that people do want or need.  Automakers would cut costs and build cars people want or need.  Wall Street fat cats would lose a lot of money and need to invest better in goods and services people want and need instead of hedged bets on things no one wants.  Yes, it would be painful for a while but we would emerge better for it.

Unfortunately, free markets is not the path we chose.  When everything started going downhill, President Bush said that he was going to stop being a capitalist so that he could save capitalism.  Of course, all the rational Americans heard that and let out a collective scream of frustration.  If you would like to read my portion of the collective scream, just take a look back in my blog.

The frustration we experienced when Bush lent hundreds of billions to irresponsible banks who were operating under irresponsible regulations was nothing compared to the frustration we experienced when Obama took a trillion dollars we didn’t have and handed it out to states, local governments, and Democrat special interests.  Then there was the frustration of President Obama taking money that was supposed to be lent to banks and giving it to auto makers just to turn around and sell those auto makers overseas while giving the profits to the unions.  Then there was cash for clunkers.  Then there was the reinflation of the real estate bubble through the first time home buyer credit (which has been extended and expanded).  All of this was unfunded and created a greater deficit in one year than Bush had generated in almost 8 years.

But it had the desired Keynesian effect.  Obama borrowed over a trillion dollars, signed our name on the loan, and then spent the money like a madman.  He bought the goods and services that nobody wanted at prices no one wanted to pay so that the people who produce such things could continue to get paid.  The result was that as 3.6 million jobs were lost, he could take credit for saving half a million.  The trillion dollars in debt spending pushed our economy into a quarter of “growth”.  People who otherwise couldn’t afford high priced homes bought them instead of waiting until the price naturally came down.  People who couldn’t afford cars bought them all with borrowed government dollars.  And now, Obama is taking credit for turning around our economy.

Here’s the problem, borrowing a million dollars doesn’t make you a millionaire.  Obama borrowed a trillion dollars and spent it on stuff that does not produce economic growth.  Joe Biden made it sound like there are millions of Americans who would be gainfully employed if only there was a bridge to the store they want to work at.  Obama made it sound like building a skatepark meant hundreds of permanent jobs, not a handful of revolving door jobs.  At the end of cash for clunkers, auto dealers are right back where they started except now their cars cost $3,500 more.  When the first time homebuyer handout finally ends, real estate will be right back where it started except that houses will cost $8,500 more.  When Obama finishes dolling out hundreds of billions of dollars in pork stimulus, the economy will be right back where it started, only a trillion dollars further in debt.  It’s no fluke that despite all the stimulus jobs saved we are at 10% unemployment.  Our economy is so subsidized that the government cannot end any of these costly programs without burying us in every market correction we have postponed in this downturn.  We have been on life support so long we forgot how to breathe on our own.

Fortunately, Obama has recognized that we have a debt problem.  Of course he blames it on the last eight years, although his debt increases are projected to be twice Bush’s.  But Obama has come up with the oddest solution to fixing our debt.  He plans on borrowing another couple hundred billion dollars and spending it on goods and services that nobody wants or needs in the form of more stimulus infrastructure projects that do not produce growth.  For many of us, frustration and anger are turning into pure disbelief.

Any business owner, manager, or 2nd grader knows that you can make money by investing in things that produce growth.  But when the CEO of a failing business declares that the solution to all their problems is to build a nicer sidewalk in back of the building, repaint the lines in the parking lot, and put new wallpaper in the bathrooms, you know it’s time to sell that stock.  When he decides to pay for these infrastructure improvements by borrowing from his competitors, firing his managers and salespeople, starting a union, and promoting the janitors to executive positions, it has become a company only a Democrat could love.

Obama’s solution to our continued economic woes is to throw more money at the problem.  It’s the Democratic way.  Just like Bush destroyed capitalism to save it, Obama is cutting the debt by increasing deficit spending.  Who knows, maybe in the magical world where free healthcare handouts result in lower deficits and higher taxes on energy creates more jobs, borrowing and wasting more money on special interests will produce permanent growth.

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