Spending Our Way to Ruin

by Michael Kleen

Exclusive to STR

February 26, 2009

Economic downturns are inevitable under the capitalist system. Currently, we are paying for ten years of unprecedented economic growth with a harsh correction, yet few look at the reality of what we’re facing and what it will take to dig us out of the hole. The “stimulus” bill just signed into law by President Obama is a fool’s errand that will only make our situation worse. It ignores the natural conditions of capitalism while dangerously undermining what precious little remains of the free market.

In every capitalist economy there is an ebb and flow. Sometimes the economy expands, and sometimes it contracts. In the 1800s, these periods of contraction were known as “panics.” Euphemistically, they became known as “depressions” in the early 1930s, and government intervention, some economists have argued, turned that particular depression into the Great Depression. Now, like Influenza became simply “the flu,” we call periods of economic contraction “recessions.” No one dare utter the “D” word.

Yet if you examine the hard numbers, we appear to be experiencing economic contraction on a grand scale. Since the Dow Jones Industrial Average’s peak of 14,164.5 in October 2007, that index has lost 6,611.9 points, or 46.68 percent of its value, as of February 17 of this year. The NASDAQ Composite has experienced a 47.6 percent decline in the same period.

If that isn’t a depression, I don’t know what is.

Every day brings more news of layoffs, foreclosures, and bankruptcies. Large corporations return, hat in hand, again and again to the government trough. We are told that “something must be done,” and that if you disagree with the Obama administration’s plan you are a dangerous obstructionist playing politics with the country’s future.

But suppose you had lost 46 percent of your net worth in the past year and a half. How would you react? Would you pull out the credit card and buy that boat you always wanted? No. Common sense would tell you to cut unnecessary spending, balance your budget, and try to pay down your debts. You could borrow your way back up to your previous worth, but then you would just add to your economic troubles in the future.

Likewise, the government cannot spend its way out of this crisis. Money, as they say, does not grow on trees. In order to redistribute cash to hurting sectors of the economy, it must be taken from the taxpayers, printed, or borrowed. None of those options will help us in the long run.

Recessions will come and go. After the unprecedented economic inflation under President George W. Bush, we were due for a harsh correction. Housing and oil prices could not continue to go up. Lower-middle class families could not live off of credit cards and afford $400,000 homes in the suburbs. The hyper-consumerism of the past decade was unsustainable. We all knew it, but we were too intoxicated to care.

Something must be done, but that something should not include more and more handouts, borrowing, and wealth redistribution. Spending is not the only action we can take in relation to this economic crisis. Like the rest of us, the federal and state governments need to tighten their belts. This is not a time to invest tax dollars, or dollars borrowed from foreign governments, in social experiments or in pet projects.

At a time when we should pay down the national debt, reduce or eliminate spending, and lure businesses back to the states through lower taxes, the Obama administration is acting like a teenager who stole her parent’s credit card. Rather than being offended by a New York Post cartoon comparing the author of the stimulus bill to an out of control chimp, we aught to be offended by the inability of our so-called leaders to act moderately and rationally when it comes to economic recovery. Their rhetoric of fear only serves to make investors increasingly nervous, and when promises of the quick-fix fail to deliver, fear turns to panic.

 Although our economy is already far from a free market, politicians and business leaders should not make the situation worse by systematically dismantling the best way we have of generating wealth: competition and private ownership. Yes, things are bad, but if we stop reckless spending, reduce our debt, and reign in corruption, we will come out of this OK. Our children will enjoy the fruits of prosperity, instead of the stranglehold of debt and more government bureaucracy.