Another week has passed with Obama at the reins, and with Gitmo, emission standards, and all sorts of things filling up his plate, there still seems to be one issue towering over all others. I’m talking about the often debated “stimulus package” which its supporters claim will be the only method to revitalize the U.S. economy, effectively pulling us out of the current recession, and perhaps even preventing a full on depression a la 1929-1939.
While Democrats in the House and Senate (not to mention the White House) point to Armageddon if the stimulus isn’t enacted, nothing could be farther from the truth. In actuality, many House and Senate Republicans have hit the nail on the head when it comes to their “understanding” of our economic system. They’ve come to the realization that you can’t spend your way out of a recession/depression, as Austrian economists have been saying for years. Instead, the market alone must be responsible in re-directing mal-investments into their correct locations. Believe it or not, the simple tenet of supply and demand is as just alive now as it was twenty, thirty, even two hundred years ago.
What I’m trying to get at is businesses go bust for a reason. To put it simply, their actions are responsible for their survival as a company. Recently, government officials have expressed that it is our “duty” to save these companies, to let the fed take them over and guide their operations. On the surface this may seem like a logical decision. After all, these businesses provide essential lending and loaning operations for many Americans, if they go bankrupt, the liquidity of money, or the ease of money transfer throughout the world would tighten up wouldn’t it? Well first off, when the ability to go bankrupt is erased from the board, as it has been for many companies e.g. AIG, Freddie, Fannie, GM, Chrysler, Ford etc. then the frugality of business management disintegrates. Why would I not give myself a seven figure bonus if there were no consequences for doing so?
Secondly and quite obviously, this “stimulus” comes directly from the pockets of hard working Americans. This is money, which we would have spent more wisely, that is mainly taken non-voluntarily from people in opposition to the government’s proposed action. Last fall, the intense pressure of the public forced many representatives to vote down the last “package”, and it wasn’t until Paulson was on his knees begging the world and warning of a depression that the votes changed. Thirdly, attempting to spend your way out of an already deep hole is preposterous. Consider this example: If there was a man in town who had already defaulted on several loans in his attempt to start up a business, would you, as a banker, go ahead and give him a chance if he requested another loan? Of course not! Regardless his intention, his track record is proof that you would be better off not dealing with him as a customer. After all, the goal of business operation isn’t to lose money. So why should our feelings about the government’s spending be any different?
What I’m trying to say is that, by the very nature of our government, inefficiency is key e.g. pork barrel spending, public transit, rent control, etc. It has been known to perpetuate poverty and depression by enforcing “stimulus packages” and “New Deals” just like the one we have in front of us today. And, like it or not, the economic future of the world rests on our ability to realize the direct connection between this restricted capitalism and the ongoing economic turmoil.
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