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Junk Economics

An online magazine called "The Week" posted an article by an eonomist about why he thinks the Stimulus Package passed by Congress last week will actually help the economy. For all my suspicions regarding President Obama and the frat boys at the Hill, Omnis Porcinus Modo, I would like to believe that there is actually some genuine interest in addressing the economic crisis, rather than just stuffing their own pockets and feeding their special interests with money desperately needed for better purposes. The writer was Brad Delong, and your first warning sign is that the professor hails from U.C. Berkeley. Things do not get better from there, but it's still useful to look at his article, since it reflects the self-deluding mindset of the Left, how they can lie to themselves and push this fraud on the people.

The first lie by Delong comes early; he describes the bill as "$500 billion in extra government spending, and $300 billion in tax cuts". Unfortunately, examination of the bill shows no real tax "cuts" to speak of. A genuine tax cut is a reduction in the tax rate. Everything related to taxes in the bill, however, comes down to either a credit applied to taxes, or special-interest exemptions for government contractors and one-time payments to state and local governments in exchange for permanent federal conditions on state and local government operations (which smells a lot like a violation of the Tenth Amendment of the U.S. Constitution). No reduction of tax rates or payment of any money exists for tax payers, in relation to the taxes paid or their identity as citizens. None whatsoever, so there are zero actual tax cuts in the bill. None whatsoever.

Delong has to know this, given his academic credentials and on the assumption that only a complete moron or a democrat would support so large and expensive a bill without at least reading it first. Delong compares government to "some group or another" who creates an era "in which production and employment are high and unemployment is low". One wonders how Delong can imagine it, but he repeats his assertion that the federal government is "just like any other group of starry-eyed optimists whose eagerness to spend pulls the economy into a high-employment, high-pressure boom."

Delong compares the present Porkfest to the housing boom (before 2005) and the Internet boom (before 1998). He contends, without bothering to lay out why he sees the comparison as valid, that simply spending tax money will create this boom - Delong crows that "the government's money, after all, is as good as anybody else's".

But is it, leaving aside for a moment the fact that it's not the government's money, but the people's money we are discussing here? Delong claims that this bill should be compared to Reagan's defense spending in the 1980s, or any number of private-company investments. But that's cherry-picking at best; Delong makes no mention of the massive spending during the Vietnam War on defense, or the huge amounts of money spent on Welfare, Medicare, and the War on Drugs. Financially, all of those could be most charitably described as failures, characterized by inept or dishonest management and a lack of effective oversight. Delong knows this, yet chooses not to mention the evidence which not only weakens his claim, but which warns that government spending is, in the main, a bad idea when taken to extremes. Delong forgets that most economists now recognize that FDR's policies of the 1930s not only did not help end the Great Depression, they extended the suffering for several years. The bill passed by Congress last week lays almost eight hundred billion dollars of debt on an already weary taxpayer, not to mention the interest on the thing, and for that there is not one penny spent to actually save a home facing foreclosure, create any private-sector jobs, or restore value to the stock market. Read the bill for yourself, and see how much it ignores the crisis that Obama himself said we could not afford to put off facing.

- continued -

Perhaps some of that spending is worthy, even important. But none of it, not one penny, goes to address the most serious problems facing our nation today. And President Obama himself observed that one of the greatest threats we must face now is the massive deficit, yet in one stroke he has more than doubled it, for no need at all.

Government is inherently wasteful and inefficient. Remember the press reports about thousand-dollar hammers and ten-thousand dollar toilets? Remember hearing how the government could not even account for much of the money spent on Welfare? How many times have we heard about money designated for schools or police but spent on something it was never meant for? The problem is not the intent of the people crafting the program, it's that large-scale programs run by people with no relevant experience or proven ability will always, always, waste resources, especially money.

If you want to understand why government is wasteful by its nature, consider any large company. There are different departments in that company, some which produce revenue and others which do not produce revenue. The manufacturing group, for example, creates value by turning raw resources into the product to sell, increasing the value by that work. On the other hand, the accounting department does not produce revenue. It is a necessary function, since the company needs to report on its actions and results, but accountants do not bring in money. The same for management; they can be valuable to the company, even vital, but they do not bring money in by their function. So, the company has to make enough money in its revenue-producing departments to cover the ones which don't make money. Also, any successful company needs to trim fat and get rid of unnecessary costs. The motive to do that is the fact that waste eats profits and makes a company weaker.

Government is like a non-revenue-producing department of the company, in this case the company is the U.S. Economy. At its best, government provides vital functions for defense, safety, and law enforcement. At its worst, government eats tax money for no benefit to the country. There are three problems which make government more wasteful than private business, however. First, private business has top management in place to pursue one set of goals and objectives, while in government there are at two major political parties at work, with very different goals and objectives, as well as a horde of little empire-builders who cannot easily be fired and who consider themselves unanswerable to anyone. Second, all public corporations must submit annual reports with audited financial data complying with specific statutes carrying clear penalties for violations. Government has never submitted annual reports worthy of the name, since the United States government has never even pretended to follow Generally Accepted Accounting Principles (GAAP). And third, all businesses which operate to make a profit are compelled by necessity to provide some product or service or both that the public will agree to purchase with money. If the public is not convinced to buy what the company sells, it's over right there. Government, on the other hand, can and does compel its will upon the public, sometimes egregiously so. It's no surprise at all to see a politician pay attention to the voters when he wants re-election, but not one politician asked for genuine public feedback on this swinefest of a bill before the vote.

Government eats money and lies. Always has, always will. This bill that Congress passed last week (a product of the democratic party, greed, and nothing else) is a deceitful crime against America. Anyone who would support it is criminal, incompetent, or both. But at least this article by Dr. Delong shows us the spin we can expect from the Left.


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Comments (11)

DJD,If you're righ... (Below threshold)
Mac Lorry:


If you're right about the effects of the stimulus bill then I was right last summer to claim that the quickest way for Republicans to regain control of the government was to elect Obama. Either we are both right or we are both wrong. We'll know soon enough.

You can find an expert who ... (Below threshold)

You can find an expert who will agree with anybody on anything. Experts are NEVER unbiased.

Delong compares th... (Below threshold)
Delong compares the present Porkfest to the housing boom (before 2005) and the Internet boom (before 1998).

And this will be the Government boom. However, when that bubble burst, it's likely to cause much bigger problems than the previous.

If that kind of analysis ge... (Below threshold)
Rich K:

If that kind of analysis gets you a position as an economist at Berkely then Im sending my resume there right away.I have no qualifications or paper trail as to economics but I can BS and make sh_t up as good as he does.

Uh, Rich K., before sending... (Below threshold)

Uh, Rich K., before sending your resume to Berkeley, at least make sure that you can spell the name of the town correctly.

Uh, Hermie -That'd... (Below threshold)

Uh, Hermie -

That'd be Berzerkley ...

I'd love to see an analysis... (Below threshold)

I'd love to see an analysis from the Berzerkoid on what will happen when the true tax cuts expire in 2010; throw on top of that what happens when foreigners wise up and quit buying T-Bills. What happens when T-Bills hit junk status? Interest rates will have to jump to entice buyers, and accumulated debt will skyrocket.

There's a simple method that would prevent this - it's called GAAP accounting. The gummint refuses it for obvious reasons - the latest GAAP assessment of the US is that we're sitting on about $65 Trillion in debt right now.

Excellent analysis. The eco... (Below threshold)

Excellent analysis. The economic fixers have a theory, based on Keynes', that government spending has a multiplication factor of 1.3 or 1.6 (depends who you ask, but its much better than parity); that is, every dollar the government spends adds one dollar and thirty cents to the GDP.

If you believe this hogwash, then tell me why we shouldn't simply abolish private enterprise and have the government do all the investing and spending instead, since it has such a great return on its investment? Because we know what that looked like watching the USSR over the last century.

"If you believe this hog... (Below threshold)

"If you believe this hogwash, then tell me why we shouldn't simply abolish private enterprise and have the government do all the investing and spending instead, since it has such a great return on its investment?"

Wait until next year. Rome wasn't burned in a day, ya know...

"Because we know what that looked like watching the USSR over the last century."

Ah, but THIS time we'll do it RIGHT! This time, we've got LAWYERS managing it.

There's a simple method tha... (Below threshold)

There's a simple method that would prevent this - it's called GAAP accounting. The gummint refuses it for obvious reasons - the latest GAAP assessment of the US is that we're sitting on about $65 Trillion in debt right now.

I just sort of skimmed your... (Below threshold)
Bruce Henry:

I just sort of skimmed your article, sir, so forgive me this one quibble.
You contend that "most economists now agree" that FDR's New Deal prolonged the Depression.
Actually, that should be "a few rightwing revisionist economists, Amity Shlaes, and also NYT columnist George Will now agree...."
Because MOST economists, including the most recent Nobel Prize winner, do not at all agree with that contention.






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