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.

Hole Rule

When we find ourselves in a hole, it is usually prudent to stop digging.

The shovel for many holes is the good intentions of the digger.

Way back in 1977, the United States Congress enacted a new law called the Community Reinvestment Act (CRA). The purpose for this new law was for the Federal Government to monitor and ensure that local banks were making loans to home buyers in low and moderate income areas. Then in 1992, congress passed the Federal Housing Enterprises Financial Safety and Soundness Act which allowed Freddie Mae and Freddie Mac to assume responsibility for home loans made to low income buyers.

FHEFSSA established risk-based and minimum capital standards for Fannie Mae and Freddie Mac. And, it established HUD-imposed housing goals for financing of affordable housing and housing in central cities and other rural and underserved areas.

Low income buyers are not at all responsible for the current financial mess, but as low income buyers were approved for home loans that did not meet traditional credit standards, the demand for houses and the asking price for houses increased [basic economics]. As prices increased, fewer buyers qualified for traditional home loans which meant that more and more home buyers needed sub-prime loans backed by the Government Sponsored Enterprises (GSE’s) Fannie Mae and Freddie Mac. As more and more low and middle income buyers took advantage of sub-prime loans, more and more middle and high income buyers took advantage of lax lending standards to purchase new homes. Many of these buyers were investors and speculators. This Ponzi scheme finally reached a point where many buyers, not even able to pay their interest only loans, walked away from their property and mortgage with nothing to lose but their credit rating. Prices plummeted, banks ended up with more debt than equity, and new lending stopped.

The solution to the problems caused by easy credit seems to be more easy, perhaps even easier, credit for banks and businesses.

At some point we will have to suffer the consequences of easy credit. Perhaps it is time to stop digging.

Making Matters Worse

The price of gasoline at the pump reflects the relationship between the supply of available gasoline and the demand for gasoline. Government intervention that lowers the price of gasoline without government intervention that also increases the supply of gasoline can only result in a shortage of available gasoline. Government intervention that reduces the profits for selling gasoline without government intervention that also reduces the demand for gasoline can also only result in a shortage of available gasoline.

Senator McCain wants to declare a holiday on gasoline taxes. Senator Obama wants to make oil companies pay a windfall profit tax on the excess (sic) profits from gasoline. Is it asking too much to ask for a serious Presidential candidate who understands that government intervention is causing the problem of gasoline shortages and higher prices, not leading to the solution of more gasoline and lower prices.

The market solution that will lower the price of gasoline is to allow existing oil companies to explore and drill in more places and for new competitors to enter the oil industry with the expectation of making an above average profit. More production of gasoline will lower the price of gasoline and meet the demand for gasoline.

The Road Less Traveled

The rising price of gasoline has made my commute to and from work much faster and much safer. “Faster” because there are fewer cars on the freeway during drive time hours and “safer” because traffic is moving at a steady pace instead of too slow or too fast.

For me, the higher price of gas is worth the time I am saving driving back and forth to work. I am getting better gas mileage and I am enjoying my commute more.

At some point, the gas market will adjust. Fewer drivers using gas or the same drivers using less gas is lowering the demand and higher profit for gas producers is increasing the supply. Additionally, employers will have to find ways to compensate employees for their higher cost of living caused by higher gas prices.

There will come a time when the freeways are congested again and the risk of accidents will increase again. For now, I will enjoy the high gas prices while it lasts.