Cutting Federal Spending Won’t End the Depression
Posted by Michael A. Kamperman on October 16, 2009
In today’s New York Times David Brooks advocated the same policies in the middle of an economic depression that the Liquidationist’s advocated in the early 1930′s. We know how that turned out. They worshipped at the mystical alter of gold. They believed money was finite and a zero sum game. They preached balancing the budget and creative destruction. To stop the deflationary economic decline FDR ditched the gold standard. Even then the country remained in a depression until the U.S. went on a wild spending spree to fight World War II. It was wild government spending that launched a 62 year economic boom. Surely we have advanced enough to know we can enact the same massive spending programs to end this depression without actually going to war. Today money is not finite since we have a fiat currency. Yet you would have us live in a finite world. Why do you obsess over the debt and the deficit when the federal government has the power to print what it owes? You are trapped in 19th century thinking in a 21st century world. This obsession leads you to worry about the growth in entitlement programs such as Social Security and Medicare.
The federal government should not worry about the deficit or the debt right now. Only after the economy recovers should it return to fiscal responsibility. The most effective stimulus plan we could have would be to give everyone on Social Security a 20% raise and lower the eligibility age for Social Security and Medicare to 60. This would simultaneously restore consumer confidence and spending, open up jobs for younger workers, and lower health insurance premiums for employers. When more money starts moving around the economy, then federal tax revenues will go up. Sometimes you have to spend money to make money.
Most people place far too much faith in econometric forecasting models that project huge future deficits 50 years out. Did these models forecast the current economic crisis? Why should we believe they will be accurate so far out into the future when they can’t even accurately predict a few months out? Your concern about our entitlement programs is they have unfunded liabilities because the revenue sources to pay for them have yet to be identified. Well, when I was in my early 20′s if I was going to live for the next 50 years I would have to eat for the next 50 years. But I didn’t even have the money in the bank to pay for 2 years worth of groceries, no less 50. Somehow I have managed to eat for the last 25 years even though my food budget was an unfunded liability. Right now we should focusing on creating jobs and not focus on the federal budget deficit or the federal debt.
