January 12, 2009

The Problem with FDR

So, President-elect Obama is going around insisting that the government HAS to spend all this money in order to get the economy back on its feet.

On a very basic level, the problem with the economy is that there is insufficient wealth being generated in some quarters to cover the obligations those parties have accepted in return for receiving money for that wealth up front.  (People ain't paying their bills on loans cuz they ain't making 'nuff cheddar.)  This results in problems with the people who extended those loans because they are suddenly not getting the money THEY were expecting to get.  And so those people, in turn, start demanding more money from their other customers, usually in the form of increased interest rates.  But then the other customers can't afford their payments and the cycle repeats in a stomach-wrenching economic collapse.

This is usually prevented by lenders being very cautious about to whom they extend loans, but here in the US, we've been driving lenders away from their natural risk-averse stance and encouraging them to lend to people who obviously can't repay their debts.

Of course, one might effectively argue that an exacerbating factor in all of this is the existence of agencies which control not only lending practices but also interest rates, making it uncompetetive (or illegal) for lenders and borrowers to exercise their own judgment in these matters.

Before I go on, I think it is interesting that the notion of "trickle-down economics" from the Reagan Era, which contends that as wealthy people drive their companies and investments toward higher earnings the economy as a whole benefits, is widely rejected, particularly among liberals, but no one has difficulty believing that the hardship of the poor can roll upwards.  This, I think, is the definition of cynicism.

So, the idea that Mister Obama has is to have the government spend a LOT of money on everything from health care to making mortgage payments to education to ... well, everything.  This idea came up during the time of FDR who spent government money on bad art, dams, and other community projects.  Many people think that this practice of having the government lots and lots of money is what helped us get past the Depression and will help us get out of our current hole.

The problem with this view is that the government never actually produces any wealth and so it does not really make any money.  I don't count running printing presses night and day as making money even if the physical form of our accepted units of exchange do come out the other side.

Some people argue that the government does make money and produce wealth because people pay the government in the form of taxes for the goods and services it provides, such as missiles, parks, streets, libraries, bad art, dams, schools, and cheeses of the government variety.

The problem with this argument is that everyone who pays taxes pays for these things whether they want (or use) them or not, which is very unlike any other business which does not have the luxury of threatening its customers with fines and confinement if they decline to purchase their wares.

If you step back and look at the overall system of exchange, the freedom between buyers and sellers to decline the exchange is the fundamental strength of the system.  If a particular individual or group of individuals falls on hard times, they cut back their spending in order to maintain their overall health.  They simply choose to spend less on, say, missiles and bad art.  Sure, the missile producers and bad artists are sad for a second at the loss of a few customers, but they soldier on.  But if people are not permitted to stop spending, as is the case with things one "buys" with tax dollars, then they cannot be considered among the options one weighs in planning one's financial future.  One simply has to pay taxes.

The issue with continued and increased government spending during the tough times is that although the government can spend at a deficit without worrying that someone will foreclose on the Capitol Building, everyone else cannot.  And whatever money the government spends, has to be paid for eventually by tax payers.

In sum, when the government goes into debt, we all go into debt and the poorest people who pay taxes wind up suffering the most for this because they are the ones who can least afford to buy bad art during the hard times.

So, it's patently silly, this plan to just spend our way our of bad economic times.  I'm surprised so many people support it.

Posted by: Flibbertigibbet at 10:08 AM | Comments (1) | Add Comment
Category: Money, Money, Money!
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1 Really? This surprises you?

Seeing as how public education teaches nothing of the sort, and precious few individuals discover it extra-curricular exploration, and fewer still can reason it out on their own, I'd have to say it's only to be expected.

Look at it from their perspective. You have to have controls in place to make sure the common wealth is managed properly. If those controls fail, you need to try other controls, but in the meantime you can't let the basic systems fail because life as we know it couldn't exist without them. There is no consideration of any other way of living. There is obvious suffering that needs attention and the quiet suffering that wealth-redistribution creates in its first victims is invisible by virtue of its silence.

I think that given the blatant ignorance of even the most basic distinction between such things as democracy vs replubicanism, taxation vs trade, force vs persuasion (that's a biggie) among the commentators, pundits, and leadership at all levels, you should be surprised that anyone opposes it.

Posted by: Rachel at January 14, 2009 04:03 PM (6rNvL)

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