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.
Lawrence Bagshaw said,
Dear Mr Kamperman,
Surely it must be correct to try to make the world economies live in a financially finite world. Just look at the mess we’ve created by the pursuit of expansionary fiat currency policy.
Would you not agree that the fiat money system only creates an illusion of wealth ? This is because as more money is printed the more the value of that money is eroded. I agree that this would lead to faster nominal growth in world economies but a large part of this growth would come at the expense of present holders of money. This is neither economic nor social justice.
I do agree that greater hardship arises in the short term in consequence of the pursuit of sound money and balanced budgets but the resulting growth and prosperity, albeit slower to materialise, would be real, founded on true progress and distributed according to economic merit. That outcome I submit, would be much closer to economic and social justice as future prosperity would have been truly earned and not financed by the depreciation of current wealth.
Kind regards,
Lawrence Bagshaw
Michael A. Kamperman said,
There is simply no reason to accept the current economic and social injustice brought about by the credit crisis. Millions of people who worked hard and played by the rules have lost their jobs, seen their investments plummet, and owe more on their home that they can no longer afford than it is worth. Policies of creative destruction and liquidation failed in the early 1930’s and they are failing now.
Money is simply a more efficient means of bartering. Faith in any type of money is psychological anyway. Why would anyone trade food, fuel, or land for a shiny piece of metal except for faith? Anyone concerned the value of their cash will be eroded by inflation can invest in hard assets or in inflation protected securities. The people sitting on cash have options, whereas the unemployed in most cases do not. Those sitting on cash have been already been rewarded by its increased purchasing power brought on by deflation.
I strongly believe we need to use shock and awe economic policies on a scale not seen since World War II to end the depression.
Badtux said,
Ooh, we got a spammer!
The current problems were not caused by an expansionary monetary policy, regardless of what neo-Austrian nitwits claim via the power of pulling **** out of their rear. Inflation was basically only enough to keep money in the banking system, no more, over the past two decades — and anybody who’s read Uncle Milt (Friedman) knows that this means that the amount of fiat money printed was only enough to cover the additional goods that were added to the economy, not an excess amount. Yet somehow the neo-Austrian nitwits claim that Alan Greenspan printed oodles of money? WTF?! Talk about people who can’t add 1+1 and come up with 2!
So anyhow, if individuals aren’t consuming, and we need consumption to create jobs, then WTF is the matter with just having government consume? It’s not as if we have any shortage of needs, after all. We need a high speed rail system between major cities that are less than 500 miles apart. Our roads and bridges are falling apart and need hundreds of billions of dollars of repairs. We need high speed fiber-optic Internet like Japan or Korea has, not the sad pathetic obsolete copper cr*p that our monopoly cable and telephone providers provide. We need healthcare for *ALL* Americans — indeed, I propose dropping the Medicare age down to ZERO (0), i.e., the moment your birth certificate is on file with the Social Security office in order to get your SSN for tax purposes, you’re on the Medicare rosters. Got a SSN, you’re on Medicare, period. That would result in a huge burst of spending in the economy right there, at the moment there is a huge burst of medical spending when people go from 64 to 65 because finally they can get all the nagging problems of the prior ten years (that private insurance wouldn’t pay for) taken care of, well, we can make that kind of burst of spending happen throughout all age groups under age 65. We have a problem with the homeless? Well, we can hire them to work out in our national forests and national parks doing trail maintenance, and have them live in dorms and bunks while they’re working, that’ll solve the problem of being homeless, and for the ones who are not able bodied or who are ill we have millions of empty homes driving down property values nationwide as the houses crumble and are smashed and looted by meth-heads or squatters, why not buy up a *bunch* of those homes and rent them out? Not to mention fire fighting during the fire season, global warming is creating a *huge* problem there.
I mean, there is literally no end of needs that Americans have that aren’t being met by this oh-so-glorious capitalist system, yet the neo-Austrian’s answer to these un-met needs is what? Well, we both know that answer: “Let them eat cake.” Yeah, that really worked out well for Marie Antoinette, didn’t it?