Laudato Si
Or, Why Government Spending Is Bad for the Economy. Behold:
Though President Barack Obama has spent trillions of dollars, the U.S. economy is stagnant, fewer people are employed than when he became president, the percentage of people unemployed for over a year has doubled since then, the poverty rate is the worst in two decades, and more than 40 million Americans — a record — are on food stamps.
More government spending has been widely-touted as a cure for unemployment, but support for that view seems to be eroding – not least because Obama has little to show for his spending spree except about $4 trillion of additional debt. America needed more than 200 years to hit that number, but Obama did it in only three years. The experience offers a reminder that there isn’t any net gain from government spending since it’s offset by the taxes needed to pay for it, taxes that reduce private sector spending.
When Obama was sworn in, his top priority ought to have been reviving the private sector, since the private sector pays all the bills. Government basically doesn’t have any money other than what it extracts from the private sector. Yet Obama decided to indulge his progressive whims and make government bigger.
His administration drained resources out of the private sector via taxes, then he signed his $825 billion “stimulus” bill, the American Recovery and Reinvestment Act of 2009 (ARRA), so that money could be redistributed among government bureaucracies. For instance, Obama authorized spending money to repair U.S. Department of Agriculture buildings, maintain the Farm Service Agency’s computers and inform the electronically disadvantaged about digital TV.
Obama essentially acknowledged that he didn’t know or care about how to stimulate the private sector, since he provided hardly any specific guidance for spending the money. For instance, ARRA awarded $600 million to the National Oceanic and Atmospheric Administration, saying only that the money was “for procurement, acquisition and construction” — which could have meant almost anything.
If the aim was really to stimulate recovery of the private sector, the most effective way of doing that would have been to leave the money in the private sector. After all, people tend to be more careful with their own money than they are with other people’s money. Undoubtedly people would have spent their money on all sorts of things to help themselves, things worth stimulating like food, clothing, gasoline, downloads, cell phones and household repairs.
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For [another] example, every year the federal government funds tens of billions of dollars worth of student loans for college. Altogether, the federal government has provided money for some 60 million students. In 2010, for the first time, student-loan debt surpassed credit card debt. There are about a trillion dollars of student loans outstanding.
By enabling more and more people to bid for a college education, the government has promoted inflation of college costs — some 440% during the past quarter-century, quadruple the overall rate of inflation. Vance H. Fried, author of Better/Cheaper College, reported that nonprofit colleges make huge profits on undergraduate education, and they’re spent on “some combination of research, graduate education, low-demand majors, low faculty teaching loads, excess compensation, and featherbedding.” Meanwhile, an increasing number of families have difficulty paying for college without financial aid.
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In the name of “affordable housing,” Congress passed the Community Reinvestment Act (1977) that required bankers to provide more sub-prime mortgages for people who would have difficulty making the payments. Moreover, the government-sponsored enterprises Fannie Mae and Freddie Mac spent several trillion dollars buying securities that were bundles of sub-prime mortgages. This spurred Wall Street firms to churn out those securities. Result: more and more people put all their money into a single asset – their house. They bid up housing prices until there weren’t any more buyers, and the housing market collapsed in 2008. As we know, the federal government subsequently spent trillions of dollars on housing-related bailouts. The Pew Research Center reported that black households lost more than half of their money. Hispanic households lost two-thirds. These were people supposedly helped by government spending.
Ever higher taxes are required to pay for all this and other government spending, which means draining more resources out of the private sector – making it harder to create growth and jobs. As these examples suggest, government spending often makes things more expensive, causes chronic inefficiencies, leads to more debt and disruptive financial bubbles. Far from being an economic stimulus and a cure for unemployment, government spending increasingly turns out to be bad for our economy.