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Economic Stimulus or Re-election Stimulus?

Economists look at a lot of numbers measuring economic activity. Good economists always remember what the numbers mean and what is ultimately important, what the ends are for people and what are merely means.

Right now, we are in the midst of a recession—a recession that looks to be quite serious. We see thousands of people losing their jobs, and when people lose their jobs, they lose their sources of income, lose their control over resources and stop being financially self sufficient, becoming someone for others to take care of. This is cause for despair for some, and true mental depression for others. Recently it was reported on the news that a man in California killed his wife, his five children and himself after becoming distraught over losing his job. That is depression.

To deal with this recession or depression or whatever term you chose to describe the downturn we are facing, the Democratic Congress has devised an “economic stimulus” plan that will push the currently large deficit up by more than 800 billion dollars. Surely, 800 billion dollars will put many people to work. The real question though, is “what will we buy when we auction away 800 billion dollars plus interest of our future?

The question of what we will be buying seems to be of little interest to President Obama and his party as he urges all haste in passing the stimulus package. Here is why such a question must be asked: It is not jobs that people really need, rather, it is the ability to buy things that is crucial. If the new jobs are not producing goods and services that people want with this stimulus package, we are just giving people money to buy but with no extra goods being produced, and all we will have done is increased the competition or the bidding war for the same old goods, driving prices for those goods ever higher.

In this story from CNN by Peter Valdes-Dapena, there are two proposals specifically designed to help out the ailing auto industry. One proposal is being pushed by Sen. Diane Feinstein, D.-Calif to not only help the auto makers, but also help the environment, or at least those are her stated intentions. The plan is to give buyers of new and more environmentally friendly vehicles a governmentally financed rebate if the dealer certifies that the buyer traded in their old gas guzzler and that their old car would be scrapped instead of being resold. To keep the dealers honest, the car’s VIN number would be tracked to make sure it did not show up in the used car market.

While there may be environmental benefits to Feinstein’s plan, the economic benefits are doubtful. Feinstein’s plan would cause cars to be destroyed so as not to compete with new cars and bring their resale value down. Think about what is really going on. Cars that still work, that still have value, would be scrapped, destroyed. Cars that could still drive some family around would no longer exist.

This reminds me of the programs of Franklin Delano Roosevelt (FDR) that failed get us out of the Great Depression. Recessions usually last about 2 years. The period from 1929 to 1941 became the Great Depression because over and over, the reactions of both Hoover and FDR to the recession, and the inaction of the Federal Reserve System, made matters worse, making the recession deeper and longer than it would have been otherwise.

One such program of FDR that he hoped would help the farmers, one that my Dad saw first hand, was one designed to boost the price of beef to help the farmers. FDR’s Department of Agriculture paid farmers for their cattle, dug large holes in fields around the country to herd the cattle into, shot the cattle and buried them in mass cow graves. While Americans were going hungry, our government destroyed food. Instead of helping to feed Americans, our government destroyed food.

The truth is destroying resources never helps our economy. In the inaugural post of Bastiat’s Bastions, Norbert Michel and I discussed why there was no silver economic lining to the destruction of New Orleans, that Katrina provided no benefit to New Orleans. Had the storm not destroyed the city, all of the resources devoted to rebuilding New Orleans and coastal Mississippi could have gone to building something else or producing something else, something that we could have had in addition to having the city. In Bastiat’s story, a boy broke a window with a stray ball (see our inaugural post again for the links to Bastiat’s story), and many people thought that the breaking of the window was a good thing, because it would increase work for other people. Bastiat, however, points out that had the window not been destroyed, the owner of the window would have still had a window, and would have bought other things had he not had to buy a new window.

Destroying one thing to only replace it means we have nothing that we would not have had. Think about this. Often when people are unemployed, they take the opportunity to finish that degree that they had started years ago or somehow prepare themselves for another occupation. Without the job that they had, their “opportunity costs” of completing the degree has fallen. So, when these individuals take jobs to merely replace something that other people already had and would have still had, if not for the destruction of their cattle by FDR or their old cars by Diane Feinstein, some people would have still had their cars and other people could have prepared for better jobs instead of wasting their time replacing cars that have been destroyed.

Keep in mind, there is no shortage of jobs, there is work to be done all around us. There are yards to be cut, houses to be painted, and people everywhere need help. People are not so much looking for jobs as looking for a way to get goods and services for their families. If we are employing people doing things that people don’t want to pay for with their own dollars, such as building new ATV trails, people will be just be receiving incomes to buy things that are not being produced.

Instead of stimulus, what we see in this package is pure waste. We may as well keep auto workers at their jobs by having the government buy up new cars, putting them on barges and dumping them off of the coast beyond the outer continental shelf. The image that comes to mind is of people being put to work by this stimulus package digging holes while other government workers come behind them to fill the holes back up.

What is the real point of this so-called stimulus package, then? Just as I was critical of Bush and the Republican Congress for wasteful spending on homeland security grants, we see even more pork in this present bill. In other words, the spending bills now being proposed to “stimulate” the economy will do more to stimulate the votes of special interest groups than to stimulate the economy.

My point, then, is that if we give a trillion dollars to people to make things that no one cares much about, we end up wasting the time and talents of our workers. And, like the person in the V8 commercial, when we realize what could have been, we will bang our heads with our hands for squandering funds on things no one wanted.

As is usual, our elected officials in Washington stand at the ready to “do something” about any problem even if doing something means making the problem worse. They are less concerned about the problem than the opportunity that it affords to spend money on their supporters. With the stimulus package, Congress is playing pork-barrel politics, which means the politicians are just using taxpayer funds and IOUs to buy their way to reelection.

-MC

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