Gov. Spending Not Answer to Economic Recovery – FDR Proved That!

The Heritage Foundation’s Brian Reidl printed a paper in January of this year (click here) and it provided some very astute points about government spending and how it DOESN’T stimulate the economy.  Here for educational purposes, your reading pleasure and to aggravate liberals/progressives with the facts, is what the Heritage Foundation provided:

  • The idea that government spending stimulates the economy has a long history of failure.
  • If deficit spending represented “new” dollars injected in the economy, last year’s $1.2 trillion budget deficit would have already overheated the economy even before the stimulus bill added an additional $200 billion to the deficit.
  • Spending-stimulus advocates claim that Congress can “inject” new money into the economy, increasing demand and therefore production. Yet every dollar Congress injects into the economy must first be taxed or borrowed out of the economy. No new spending power is created. It is merely redistributed from one group of people to another.
  • Even money transferred from “savers” to “spenders” does not create new spending in an economy. The financial system already converts one person’s savings into another person’s spending.
  • The only way to increase economic growth is by increasing productivity and the labor supply.

Their points are right on target as is the abstract of the paper:

Abstract: Despite decades of repeated failure, President Obama and Congress continue to promote the myth that government can spend its way out of recession. Heritage Foundation economic policy expert Brian Riedl dispels the stimulus myth, lays out the evidence that government spending does not end recessions—and presents the evidence for what does end recessions. Hint: It’s not another “stimulus package.”

Now comes the “government spending saved our hide” report co-written by an admitted/known partisan and “big government is better” economist.  In fact, the authors claim that the problem with the “American Restoration and Recovery Act” aka, stimulus was it wasn’t big enough! Fortunately, there is at least one quoted expert saying the findings were hogwash.

The report, published by the Kansas City Star,Federal efforts avoided a depression, economists conclude. You really don’t need to read more than the first line of the article to understand the savior complex contained therein; “The Great Recession wasn’t a depression, thanks to federal stimulus efforts.”  Liberal/progressives are pretty good at using words that appeal or sound good, but as in most cases, they don’t match up with the reality being felt in every state capitol in the country including Jefferson City.

The zeal and glee of the report that “government saved us” mirrors the years of false economic reports, similar to this latest one, and false assumptions that FDR’s big government spending “saved us” from the Great Depression.  Economists have clearly shown that big government spending did not “save” us from the Great Depression.  There is no reason to believe basic financial principles have somehow been influenced by the election of “Hope and (pocket) Change”.

To the contrary, the analyses show that not only do these big government spending programs not “save” an economy, they damage and extend recovery.  The FDR spending actually extended the economic malaise and like the current “stimulus” carried the debt far into the future.

We are already seeing the same tell-tale signs that the New Owebama New Deal Stimulus is following the same path as FDR’s economic failures. Just as in the “stimulus”, the New Deal saw many new alphabet soup agencies like the WPA, AAA, NRA (not the National Rifle Association) and TVA.  And just like the Owebama fiasco, these agencies did not create sustainable jobs.  It’s a little embarrassing to read that in May 1939, our unemployment exceeded 20% while European countries averaged only 12% in 1938.

How could this possibly be?  The government had forced increased taxes (check), regulated just about everything that moves (check) got the same result as the Owebama stimulus is getting – discouraged entrepreneurs from investing resulting in businesses not hiring.  Checkmate.

The good news is that after FDR died, the DEMOCRAT congress at the time recognized that the New Deal spending was not the answer and told “Give ’em Hell” Harry “NO” when he wanted even more government spending and for the government to be the source of “full employment”.  Instead, they decided  tax cuts would result in expanding and stimulating the economy, and they were right!  John F Kennedy did the same in his term with the same results.

The bad news, they don’t make Democrat controlled congress’ that smart or like that anymore!

Carl Bearden
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