Two and a half years after the failed Recovery Act (the nearly 900 billion dollar stimulus), Obama addressed the nation and is now seeking an additional 447 billion dollars in government stimulus funding (and Obama proposed this stimulus with a straight face). This is once again another futile attempt to resurrect our sick economy. And to make matters worse, Obama plans on paying for the proposed stimulus partly by increasing government revenues (which generally means higher taxes for the wealthy, which Obama alluded to in his speech). In fact, Obama laid out no plan as to how he will pay for the massive stimulus. Hence, it cannot be scored by the CBO. Obama hinted at reforming social security, but Democrats will not let that happen.
I have outlined, in numerous blogs, as to why stimulus spending (especially deficit spending) does not work. Keynesian economics has failed time and time again during the 20th century. Government spending failed to turn around the U.S. economy when FDR and Jimmy Carter implemented spending programs during the 1930s and 1970s respectively. FDR’s socialized spending programs never returned unemployment to conventional levels – it was World War II that corrected the economy (although the war added billions in federal deficits). Keynesian economic theory states inflation and unemployment are inversely related. However, during the Carter years both unemployment and inflation were high. And the same thing is happening under Obama, not only have unemployment numbers remained at high levels for an inordinate amount of time, but inflation is also on the rise (food, energy, and healthcare costs have combined to go up over 20% this year). Still, Democrats and Obama want to make the same mistake over and over again.
There is a very simple explanation as to why the first stimulus and this second proposed stimulus will fail – the money is temporary. Stimulus spending is analogous to using a band aide to stop the bleeding of a severed artery or using duct tape to fix a leaking radiator. It ain’t going to work! Over 90% of stimulus money goes to funding something that is temporary. Stimulus funding to prevent home foreclosures works until the money runs out. Once the money runs out people are still forced to foreclose on homes they cannot afford. The same can be said to stimulus funding to build a bridge, extend unemployment, support green companies, or to save a teaching job – it works temporary until the money runs out. There is nothing innovative or strategic about this type of approach or policy. In fact, this is the solution of many liberal policies – throw money at the problem. This simply does not work because there are potentially thousands of variables which need to be addressed to fix any complex problem and money is just one variable. For instance, throwing money at a failing school district rarely works if the bad curriculum, administration, and teachers remain the same.
If you are in debt and cannot pay your bills what do you do? The last thing you should do is to spend more money and get further into debt. Individuals, corporations, and the federal government cannot spend their way out of debt and into prosperity. It simply does not work, but this is exactly the philosophy used by our federal government for the past century. Now our national debt is so high we are teetering on financial oblivion. Still, Obama is insisting on spending more money and raising taxes – these are both recipes for disaster during a recession.
Why are tax breaks a better solution to solve a recession? First, tax breaks are strategic (can last as long as needed) and secondly, the money goes directly to the consumer and corporations. The money does not have to be funneled through several government and union bureaucracies where less than 50% of the money goes to its intended cause – therefore, tax breaks eliminate waste, fraud, and bureaucracies. It is that simple.
Below are few Obamaisms from his speech that are just not true or certainly cannot be guaranteed:
• "Everything in this bill will be paid for. Everything." And "It will not add to the deficit." – Never in our history has a nearly half trillion dollar bill been paid for and did not add to the deficit. Besides, there is NO “Bill” – it is a fictitious document that only exists in the Obama imagination – there is nothing on paper.
• "Everything in here is the kind of proposal that's been supported by both Democrats and Republicans, including many who sit here tonight." – There is very little both Democrats and Republicans agree on, especially issues Obama raised such as entitlement reform and tax increases.
• "The American Jobs Act answers the urgent need to create jobs right away." – Not a chance, there is no such thing as shovel ready jobs nor does the government bureaucracy move quickly. It will not happen.
My Book: Is America Dying? (Amazon.com, Barnes and Noble)