Can Obama's Stimulus Plan Rescue The Economy?

[Originally posted elsewhere on May 22, 2009]

Will Obama's stimulus package and the Bush/ama (Bush-Obama) bailouts rescue and stimulate the American economy? Answer, no. (As I wrote earlier, the economy will naturally rebound on its own, in the short-term, but will then collapse in 18 to 24 months under the weight of Democrat policies.)

It is a fundamental error that government spending can stimulate the economy. And the error is this: THE GOVERNMENT DOES NOT HAVE ANY MONEY TO SPEND. The economic theories that analyze government spending's contribution to economic growth fail to consider the fact that the government actually has no money.

If the government truly had a nest egg of billions of dollars socked away under a mattress at the Treasury Department, then obviously spending it would contribute to economic activity. There are sophisticated economic equations analyzing the national economy, and they measure the contribution of government spending.

However, the government must first suck money OUT of the economy through borrowing before the government can put it back in. The net effect is nil. Actually it is worse than zero, because we are then left with the national hangover of national debt we can never repay. Margaret Thatcher explained it like this: "The trouble with socialism is that it eventually runs out of other people's money [to spend]."

An anonymous email making the rounds on the internet does a magnificent job of explaining: An economics professor at a college is asked by a student to explain Obama's stimulus bill. The mythical economics professor replies that he will explain if the student comes to his house on Saturday. On arriving, the student is instructed to help the professor with his swimming pool. "Take this bucket, fill it up at the deep end of the pool, and pour the water back in at the shallow end of the pool." After doing so a few times, the puzzled student protests: "We're not accomplishing anything. We're just pouring the water back in to the same pool. Other than wasted energy, nothing is happening." The professor replies: "AH! NOW you understand Obama's stimulus bill!"

Almost all of the Democrat Party, and certainly Obama, are firm believers in the left-wing economics of John Maynard Keynes. Stating it briefly, and doing him a great (deliberate) disservice, Keynes argues that the hypothetical economics professor really could make the narrow end of the swimming pool higher by pouring water there carried from the deep end of the pool.

Everyone in Washington except a few die-hard conservatives believes in Keynes. Although Keynes was not even born during FDR's New Deal, his theories later emerged as a strong defense of FDR's approach. Keynes advocated interventionist government actions to mitigate the adverse effects of economic recessions, depressions and booms. His theories are the basis for the school of thought known as Keynesian economics. Keynesian economics is basically big-government socialism dressed up in "drag" with capitalist lingo as camouflage.

Almost all of Washington strongly believes in big-government, anti-free market Keynesian economics. Indeed governments around the world adopted Keynes, leading to various economic disasters for decades. President Richard Nixon declared "We are all Keynesians now!" shortly before America started a decade-long slide into crippling recessions and soaring inflation ("stag-flation"). Milton Friedman led the charge exposing Keynes as wrong.

So how did this happen? Obama and liberal leaders in Congress have tried to learn (all the wrong) lessons from FDR and the Great Depression. Unwilling to admit that Roosevelt's monkeying with the economy made the Depression worse and longer, die-hard big-government liberals conclude that FDR made one mistake: He did not spend enough money fast enough. If only FDR had really hit the gas, the Great Depression would have ended sooner.

FDR's Secretary of the Treasury, Henry Morgenthau, admitted near the end of Roosevelt's Presidency that the New Deal was a failure. Morgenthau lamented in testimony to the House Ways and Means Committee: "I say after eight years of this Administration we have just as much unemployment as when we started. ... And an enormous debt to boot!" And: "We have tried spending money. We are spending more than we have ever spent before and it does not work." Morgenthau's testimony is officially published in the Congressional Record for its date May 9, 1939.

Historian Burton W. Folsom Jr. explores the record of the New Deal in his new book: "New Deal or Raw Deal?: How FDR's Economic Legacy Has Damaged America." Budget and financial experts at The Heritage Foundation recently distributed a chart showing that FDR's programs didn't succeed in pushing unemployment below 20 percent. Heritage plotted New Deal unemployment using widely accepted Census Bureau data (Page 6, Series D, column 10), the "official" numbers that were compiled at the time.

FDR's massive government spending actually made the Great Depression longer and worse. One reason is that the temporary band-aid of government spending actually "freezes out" the private sector. Instead of private companies building up permanent, long-term businesses to fill society's needs, government has invaded those areas with "temporary" government programs. Furthermore, not knowing what the government is going to do next, private businesses are afraid to invest money in building up companies that might be rendered obsolete next month by the latest expansion of the New Deal. Therefore, government spending like the New Deal actually harms the private economy and retards economic recovery. Government spending appears to be working by employing workers. But this simultaneously destroys private sector jobs, driving more and more unemployed toward the government band-aid jobs.

Yet the liberal Congress, with Obama in tow, believe that FDR had the right idea... but FDR's mistake was waiting too long and spent too little government "investment." Instead of admitting that FDR's "New Deal" really did not work, liberals conclude that FDR simply failed to spend enough borrowed government money.

That is why Obama and his back-up singers in Congress are determined to spend staggering sums of our children's and our grandchildren's money. They believe that this is the magic formula to restarting the economy.

But there was a reason that FDR did not spend more recklessly than he did. Roosevelt understood what the modern Democrats do not. For all the hoped-for stimulus of government spending, there must inevitably follow the hangover of massive debt. The country can spend government funds today, but we must pay the tab tomorrow. FDR and his Treasury Secretary Morgenthau at least tried to balance the short term stimulus against the long-term harm of debt hanging over the economy. Obama, Pelosi, and Reid do not comprehend such fine points.

And yet, strangely, this week President Barack Obama, called current deficit spending “unsustainable.". Obama warned of skyrocketing interest rates for consumers if the U.S. continues to finance government by borrowing from other countries. “We can’t keep on just borrowing from China,” Obama said at a town-hall meeting in Rio Rancho, New Mexico, near Albuquerque. “We have to pay interest on that debt, and that means we are mortgaging our children’s future with more and more debt.”

Obama's remarks are most peculiar because Obama plainly does not believe one word of what he said. Obama is trying to give gullible voters and Obamatons who are only half paying attention a false image of himself. The same week the Obama Administration announced that its this year's budget deficit will be a Guiness Book style world record of $1.84 trillion. Obama's Office of Management and Budget also projected next year’s budget will be even larger than this year's -- $3.59 trillion.

Furthermore, the stimulus money -- predictably -- cannot be infused into the economy fast enough to do any good. The New York Times reported this week that nearly three months after President Obama approved a $787 billion economic stimulus package, intended to create or save jobs, the federal government has paid out less than 6 percent of the money, largely in the form of social service payments to states. The Department of Transportation has spent only about $11 million on the promised highway projects. Recall that the $787 billion package (over $1 trillion with interests costs included) was sold to the Congress with the pledge that it would go immediately into "shovel ready" projects such as roads and bridges. As was obvious, government cannot possibly respond that fast. Much of the money will not even be spent until 2010. And the economy does not respond instantly to anything. The effects may not be felt for another 6 to 18 months after that. That is, in 2011 and 2012.

Moreover, there is the added problem that any government spending is inherently ineffective and often harmful. Why? Because government spending is directed by political interests and political choices, rather than economic efficiency. Every dollar spent by the private sector is someone's personal money at risk. Every dollar spent by the government is controlled by a bureaucrat or politician with no personal money at stake. It's not their money! Politically-spent money is diverted to ineffecient and ineffective purposes to serve political agendas.

Furthermore, it is clear that Obama and the liberal Congress will open the borders to not only the estimated 20 million illegal aliens currently stealing jobs from Americans but also to more who follow. As illegal trespassers are given rights to work freely in the USA, they will start to take all sorts of jobs from Americans, cutting deep into salaries and opportunities in many industries. The downward pressure on salaries that has been confined to only certain industries will now spread to the entire economy.

All of this has prompted some to wonder whether Obama is intentionally destroying the US economy. Austin Hill, a columnist for TownHall Magazine, is only one of many observers who believe Obama knows that his actions will destroy the United States. Many say that socialists believe that the existing system of government and our economy must collapse before a truly socialist or even communist 'utopia' can replace it. This is consistent with tactics espoused by Obama's Mentors such as Saul Alinsky and Rahm Emanuel's philosophy 'never let a crisis go to waste."

The U.S. now has a national debt we can never repay. Social security and medicare are going broke. Under current world conditions, we may be unable to borrow the money needed to fuel the nation's government spending. We will hit a wall if the Chinese and other simply say "We can't lend you any more money."

If by next year, the U.S. Treasury tries to borrow yet another trillion dollars, and investors answer “no,” the United States of America could literally be bankrupt in 2010. And not just officially (on paper) but in reality, as in no money. There is no one to bail out the U.S.A. If the U.S. budget is short by another $1 trillion in 2010, that is lacking real money to operate without borrowing $1 trillion, and no one steps up to loan the money, our country could literally collapse next year. We should not forget that all of the State governments are also borrowing massive sums simultaneously.

The total collapse of America's existing system may pave the way for a new, Marxist economy. (Unfortunately, talking about Marxism is problematic for people who do not konw what Marx actually taught. Rather than an insult, it is a precise term. When carefully examined, the class warfare and economic policies of today's Democrats fits neatly into the Marxist theory.)

Alternatively, some suggest that the collapse of the U.S. economy could be intended to open the door to submerge the U.S.A. into a "North American Union" -- a new country consisting of Canada, Mexico, and the U.S.A. Jerry Corsi reported this week on the U.S. government's first steps actually implementing the merging of Canada, Mexico, and the U.S.A. into a "North American Union." Highway signs showing an integrated North America have begun showing up on U.S. Interstate highways. This first small step implements NORPASS, a new electronic system that allows participating truckers in Canada and the U.S. to by-pass roadside weigh stations through the use of a transponder mounted on the windshield. Corsi has reported extensively on massive government planning for and promotion of creating a single North American country, with the "Amero" as its currency, hidden from public knowledge.