Dan McLaughlin

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To Home Page Latest Newsletter Column Archives Click to get these columns for your local paperd	Post Comments Below © 2007 Daniel J. McLaughlin Economic Stimulus The economy seems to be ill. That’s not surprising. Government policy has been leading us toward a recession since before the last one ended. Many people blame it on sub-prime lenders, the irrational housing market, the international trade deficit or numerous other scapegoats. The current conditions that generate the perceived need for a government economic stimulus plan are the result of economic interventions that have been occurring all along. Manipulation of the money supply and interest rates, and various forms of perverse incentives enacted into law have a cumulative effect of distorting markets and the decisions of everyone in society. If it is given that government can improve economic health by merely engaging in excess spending, pork barrel projects and giving cash to consumers, hangovers from the long discredited Keynesian economics, the economy should be in tip top shape. With trillions of dollars in accumulated deficit spending, trillions in unnecessary and wasteful federal projects over the years, and the mailing of billions of dollars in monthly government checks to individuals, the argument that government spending is the answer is blind to reality. A refund of $600 is expected to be sent to most taxpayers. It will have to come from somewhere. That somewhere is the pockets of taxpayers, through higher taxes, higher prices from inflation of the money supply and accumulating more debt on the backs of our children and grandchildren. If sending money to taxpayers is a good thing, a very real and serious question to be answered is ‘why stop at $600?”. Why isn’t sending $6,000,000 to everyone even better? That way, everyone would be a millionaire. Just imagine how much spending it would generate. If sending $600 checks to everyone (only $300 to kids) would generate about 150 billion dollars of spending, sending 6 million dollars each (only $3 million to the kids) would pump 1.5 quadrillion dollars into the consuming public. With a current gross domestic product of only $14 trillion, we could grow our economy by more than 10,000 percent in a matter of weeks. It may seem like an absurd example. Truly, sending $6 million dollars to every taxpayer to grow the economy is absurd, but only for the same reason that the idea of boosting our economy by sending $600 each is absurd. In real life, money doesn’t grow on trees. Money gets its value only from production of some sort. Inflation of the money supply only causes higher prices over time. A $150 billion dollar injection of cash into the economy can give the short term illusion of improvement, but it doesn’t come from the bedrock of production to give it value. All it can do is distort the economy in the short term. In the long term, it will have the same inflationary effect as an increase in the money supply using the Federal Reserve Bank’s usual method. In fact, the Fed will continue to adjust the money supply and the net effect will be the same as what would have happened without the rebates. But at least the politicians will be able to pat themselves on the back. The only real consumer and taxpayer benefit of the rebate checks is that they will get the money before it is completely devalued from the inflation. Under Fed induced inflation, the bankers and the government get to spend the money first and the consumers suffer the full effects of devaluation before it trickles down to them. Either way, the long term effect on the real economy will be nil or even negative, lengthening the recovery period or helping to sow the seeds of the next boom and bust cycle. Government economic stimulus is a charade to pretend that politicians are wizards who know what to do and that they actually care about the citizens. People are a lot smarter than politicians and intellectuals think they are. The politicians and intellectuals are much less smart than they give themselves credit for. When asked in the presidential debates about the economic stimulus package, Ron Paul gave the only answer that made any sense from a historic and economic point of view. Dr. Paul was right, that the only stimulus package we need is to lower government spending, cut taxes, reduce regulation and let people run their own lives. His comments are easy to find on the internet. As you head to the primaries this super Tuesday, decide whether this country should be led by his intelligent truth or the political fluffery of the others.
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Daniel Mclaughlin Copyright © 2007 [Daniel McLaughlin]. All rights reserved. Revised: 01/31/08

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Economic Stimulus

The economy seems to be ill. That’s not surprising. Government policy has been leading us toward a recession since before the last one ended. Many people blame it on sub-prime lenders, the irrational housing market, the international trade deficit or numerous other scapegoats.

The current conditions that generate the perceived need for a government economic stimulus plan are the result of economic interventions that have been occurring all along. Manipulation of the money supply and interest rates, and various forms of perverse incentives enacted into law have a cumulative effect of distorting markets and the decisions of everyone in society.

If it is given that government can improve economic health by merely engaging in excess spending, pork barrel projects and giving cash to consumers, hangovers from the long discredited Keynesian economics, the economy should be in tip top shape. With trillions of dollars in accumulated deficit spending, trillions in unnecessary and wasteful federal projects over the years, and the mailing of billions of dollars in monthly government checks to individuals, the argument that government spending is the answer is blind to reality.

A refund of $600 is expected to be sent to most taxpayers. It will have to come from somewhere. That somewhere is the pockets of taxpayers, through higher taxes, higher prices from inflation of the money supply and accumulating more debt on the backs of our children and grandchildren. If sending money to taxpayers is a good thing, a very real and serious question to be answered is ‘why stop at $600?”. Why isn’t sending $6,000,000 to everyone even better? That way, everyone would be a millionaire. Just imagine how much spending it would generate.

If sending $600 checks to everyone (only $300 to kids) would generate about 150 billion dollars of spending, sending 6 million dollars each (only $3 million to the kids) would pump 1.5 quadrillion dollars into the consuming public. With a current gross domestic product of only $14 trillion, we could grow our economy by more than 10,000 percent in a matter of weeks.

It may seem like an absurd example. Truly, sending $6 million dollars to every taxpayer to grow the economy is absurd, but only for the same reason that the idea of boosting our economy by sending $600 each is absurd. In real life, money doesn’t grow on trees. Money gets its value only from production of some sort. Inflation of the money supply only causes higher prices over time. A $150 billion dollar injection of cash into the economy can give the short term illusion of improvement, but it doesn’t come from the bedrock of production to give it value. All it can do is distort the economy in the short term. In the long term, it will have the same inflationary effect as an increase in the money supply using the Federal Reserve Bank’s usual method. In fact, the Fed will continue to adjust the money supply and the net effect will be the same as what would have happened without the rebates. But at least the politicians will be able to pat themselves on the back.

The only real consumer and taxpayer benefit of the rebate checks is that they will get the money before it is completely devalued from the inflation. Under Fed induced inflation, the bankers and the government get to spend the money first and the consumers suffer the full effects of devaluation before it trickles down to them. Either way, the long term effect on the real economy will be nil or even negative, lengthening the recovery period or helping to sow the seeds of the next boom and bust cycle. Government economic stimulus is a charade to pretend that politicians are wizards who know what to do and that they actually care about the citizens.

People are a lot smarter than politicians and intellectuals think they are. The politicians and intellectuals are much less smart than they give themselves credit for. When asked in the presidential debates about the economic stimulus package, Ron Paul gave the only answer that made any sense from a historic and economic point of view. Dr. Paul was right, that the only stimulus package we need is to lower government spending, cut taxes, reduce regulation and let people run their own lives. His comments are easy to find on the internet. As you head to the primaries this super Tuesday, decide whether this country should be led by his intelligent truth or the political fluffery of the others.

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