Wednesday, January 21, 2009

Stimulus or Burden?

Government deficit spending can stimulate an economy. However, most government spending, most of the time, is a burden on the economy and our lives, not a stimulant.

Our lives are not improved simply by having more money circulating in the economy and lower unemployment numbers. Our lives are only improved when our time spent working can pay for more of the things we want or when we can spend more time doing the things we enjoy and consider important. Hard work has its own value, but very few of us consider employment the ultimate goal.

Economies grow when more goods and services are purchased during a defined period of time than where purchased during the previous defined period of time. Therefore, if government borrows or prints money to increase spending for the period, the economy will be considered to be growing as long as the private sector does not reduce spending by more than the government increased its spending.

If government spending alone could improve our lives, why not just have government pay for everything? Because there are also negative consequences of deficit spending, that's why.

When government borrows money, less money is available to be borrowed by the private sector without an increase in the amount of interest paid to service the loans. This has not been a problem in the United States recently because China has been willing to take the money they have made off of their exports to America and lend it back to America at reasonable rates, but if the United States decides to start printing money to pay for the deficit spending, China is not likely to lend money back to America if they believe they will be paid back with a cheaper currency. When government prints money, the money supply increases, and the value of each denomination decreases because more are available. This is called inflation which hurts those who save and invest.

Government spending rarely comes with an expiration date. New infrastructure that gets built during recessions needs to be maintained long after the economy recovers. Money spent on social programs creates a dependency from recipients who learn to love handouts more than self reliance. Bureaucracies created by government spending have a life of their own which includes the survival instinct.

Citizens end up paying for government spending with higher taxes or lower purchasing power or higher costs for debt or all of the three. In the end, we may have more actual money, but less real purchasing power and less time doing what we enjoy.

The only real ways the government can stimulate the economy would be to start a business and then the sell the business to private investors or start selling government assets like land and buildings. The citizens of the Untied States really don’t need any more long term obligations/burdens to go along with Social Security and Medicare.

America needs more workers, more affordable housing, and more places to create attractive communities. It's time to start developing government land in places like Utah and Montana. It's time to open America to more immigrants who want to prosper in the land of the free. It's time to really stimulate the economy. Sorry Robert Redford and Ted Turner. You don’t get to hog the best places for yourself anymore.

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