Saturday, October 3, 2009

Stimulus Comes From The Private Sector, Folks. Not Government.

(ht John Hinderaker at Powerline)

The blog Innocent Bystanders put the above chart together, using the Administration's own chart. All the data lines in blue come from the White House, the red dots have been added to track actual unemployment by Innocent Bystanders.

This goes to what I have said a thousand times over on these pages: Government does not rescue a struggle economy, a free market given incentives does. I think this chart is instructive in this regard.

So, if its clear that government's fiscal policy doesn't lead to any real, robust economic activity, why does it continue to be touted by populists and the Left as the cure-all to recession?

I think many people who know very little about Economics have a tendency to look at the power of government with awe. Many folks see the efficacy of the police force and fire departments across the country; they see how the US Military, when given the needed tools, dispatches tyrants and thugs around the world with breath-taking speed; they see the IRS swoop in and destroy people's lives and businesses... and equate this power with Government. To the average American citizen, government is a powerful beast. So, when the economy begins to falter and people feel vulnerable professionally and financially, they feel the only solution is for the power of the government to squash unemployment by... doing something. American's who understand very little about Free Market Economics, I think, have this notion that the same Government that dispatches tyrants can, with the same power and efficiency, dispatch unemployment with "stimulus".

This plays well with Democrats who are married to Keynesian Economics. For those not familiar with Keynesianism, it has many tenants, but is most known for its reliance on Government Expenditures to rescue a lagging economy. Keynes believed that economic health was a summation of four basic elements: Consumption, Investment, Net Exports and Government Expenditures. His term "Animal Spirits", a term used to describe the fickleness of the consumer, was the driving force behind his distrust of markets to self-correct. Manipulating government expenditures was the sure-fire way to revive economic health according to Keynes.

Leading up to the Great Depression, these ideas were foreign to most governments. Once Franklin Roosevelt moved into the White House, Keynesianism took on a life of its own. Keynesian thinkers such as Rexford Tugwell were key figures in the New Deal and its Keynesian foundation. Government, people were told and believed, would pull America and the World from the Depression.

Volumes of books have been written about the poor performance of the New Deal in bringing America back from the Depression. Conventional Wisdom taught in schools (and quite frankly, just assumed by many adults) is that FDR and the New Deal saved America. The reality? Full mobilization of the American People for the Second World War did. But the legend lives on.

So the marriage of Keynesian economics and big government Leftists in the Democratic Party is essentially one of convenience. To be sure, Keynesian economics has many well-educated adherants. My Sophomore year in college, my macro-economics teacher was one of them. Great guy, great teacher, totally in love with John Maynard Keynes. To protect his identity, we'll call him "Mr Zaffuto". Mr Zaffuto loved to say "I tend to think and vote Republican, but...." Reagan ran up the deficit, tax cuts didn't create more revenue, the key to the economy is spending.... on and on... but I'm digressing.

So, anytime the economy begins to lag, here come the Democrats looking to spend money paying off people for votes and calling it "stimulus." They tell the average populist with a mortgage and a kid that needs braces that "stimulus", just like in the 1930s, is needed to save the economy and thus his house and his kids crooked teeth. And because of the discredited notion that it actually works, the populist latches onto the notion and waits for that all-powerful government to swoop in with the "Stimulus Bill" and save the day.

How well is it working? Look at the chart above. We've done a fine job paying off Obama's friends with the Stimulus (billions for Acorn, for example). But what has it done to revive our economy? Very little. But the Power Whores in the Democratic Party know full well that, eventually, on its own and in spite of any stimulus, the economy will correct. Voila! Isn't Obama great? He saved us with the Stimulus!

That's why I go nuts when I hear people cry out for government to "save the economy". As Larry Kudlow and others have accurately pointed out, if government wants to aid a struggling economy, it must create incentives and lower the cost of hiring people and doing business. This is done through the tax code. The market will correct itself if government takes its tax shackles off and allows the private sector operate more productively. All of this is done in the private sector's pursuit of profit. In short, the Private Sector in its quest to obtain wealth is what leads to prosperity for all.

That's the rub for Democrats... if people pursuing wealth on their own, without government "assistance" and stimulus, is what really creates prosperity, then their entire domestic agenda and power is threatened.

Brace yourself, folks. When the economy eventually recovers on its own, Democrats like Obama will once again applaud their "stimulus" and its waste for doing the job. Brace yourself.