Here’s an interesting piece from the Intellectual Conservative that explains why we can expect Obama’s so-called stimulus plan to make things worse:
Japan learned to like eating humble pie during the 1990s. They endured economic free-fall for the better portion of that decade, following their cleaning of America’s economic clock during much of the post-WWII era. Those who follow the theories of J.M. Keynes explain the bumps and bruises of normal business cycles as “a change in aggregate demand.” Their solution? Prop up flagging investment, since consumption is described as “relatively stable.” Keynes could never fully identify the reason for the lapse in investment. He usually put the thumb on some nebulous culprit, such as “animal spirits in the business community” or some similar jargon. Keynesian theory has long been described as “socialism lite,” therefore, it’s not hard to figure out why Keynes endorsed interventionist measures during periods of economic difficulty. Japan nearly spent itself into fiscal oblivion in trying to escape its hardships in the ’90s. Ultimately, Japan employed ten fiscal stimulus packages, equaling a total of 100-trillion yen. The lone accomplishment of such a mind-numbing expenditure was causing public debt to exceed the country’s total GDP. The best lesson to learn here was that in free market societies, governments do not create any real wealth, so how can increasing government outlays revive the economy?
We can safely see that it isn’t mere spending that eases business slumps. It’s the adequate flow of final goods and services that is most important. Money is simply a medium of exchange – a commodity. Its presence does not alter its essential nature. Without a tangible asset to tie to the flow of dollars (such as gold, for instance), the willy-nilly pumping of cash into circulation has a darker effect most often, and that’s inflation – too many dollars chasing after too few goods. Barack Obama’s stimulus plan may easily exceed two trillion dollars and open the door for inflation during the back half of this year. When you couple that bit of good news with the announced intent to raise taxes (to “pay for it all”, we’re told), Obama is certain to weaken the wealth-generation process and torpedo the prospects for an economic turnaround.
Full article here.
President Obama was elected in large part by people who do not understand the difference between printing money and creating wealth. (In fact, when I explain to Obama supporters that increasing the money supply simply takes away existing wealth from people who worked to create it in order to benefit those who did not, they relish the idea even more.) But if printing money and creating wealth were the same thing, then we would be richer than ever, thanks to the Fed’s drastic efforts to stave off the current recession:
As the above graph shows, the money supply has tripled since Y2K with no end in sight. In theory, we should be richer than this guy:
In reality, we are heading here:
The post-war German government’s experiment with hyperinflation initially created the illusion of easy wealth. In 1921, while the rest of Europe was in a severe post-war recession, Germans, flush with new money straight from the printing presses, were buying consumer goods in record number. Manufacturers expanded factories to keep up with rising demand for products.
By 1922, the economic house of cards came crashing down as prices skyrocketed. By late 1923, a loaf of bread cost over 200 billion marks. Think about the woman in the photo as you salivate over your unearned “tax cut” stimulus check from Obama.
My friend Luis at Boiling Frogs posted an article last week titled $10,520 that explains how much the latest House stimulus package will cost each American family. That’s $10,520 on top of all the other debt we’ve added in recent months.
As Luis points out, if massive increases in government spending was the remedy for recessions, then there would never be any recessions. It’s a simple idea, yet one that eludes many allegedly smart people who are continually befuddled when socialism always fails.