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Richard Larsen: Government Spending Does Not Grow the Economy

September 23rd, 2009 by Halli

By Richard Larsen

Although current governmental efforts are directed at “transforming” the nation, there are laws of economics and common sense that can’t be evaded. They can only be obfuscated, hoping that we, the ignorant masses, don’t know any better. For example, government spending does not grow an economy, massive government debt does not stimulate an economy, and increased governmental control over the private sector does not improve service or efficiency. Since history has proven time after time the validity of these simple economic verities, why do those in power incessantly try to dupe us to the contrary?

Over 70% of the U.S. economy is retail driven. Over 95% of jobs in the private sector are with small businesses. Those small businesses are facing the prospect of higher taxes, increased fines from the government if they don’t comply with the “public option” for health-insurance, and diminishing sales and revenue because of a weak economic climate. That climate, especially for retail, is unlikely to improve as long as unemployment increases and those still with jobs fear theirs might be on the chopping block next.

The August Labor Department report revealed a spike in unemployment to 9.7%, from 9.4% in July. This is the worst job environment the nation has had in nearly 30 years. In January we were sold the $787 billion “stimulus” bill based on the premise that if they didn’t pass it, unemployment would surpass 9% from the 7.2% jobless rate in January. Well here we are at 9.7% unemployment, having passed the “porkulus” bill, and we’re undoubtedly headed to over 10%. In spite of all this spending the economy is still projected to shrink by 3% this year. At what point are our elected leaders required to be honest with us?

The White House continues to claim that the stimulus is working. Joe Biden last week had the audacity to claim that the stimulus is “doing more, faster, more efficiently and more effectively than most expected.” With that statement, the charade is perpetuated, in spite of all the evidence to the contrary.

Even more perplexing was his follow-up comment that it “was the right thing to do morally.” In order to eventually pay for that massive spending bill, over a trillion dollars in taxes will have to be collected from tax-payers. How can it possibly be a moral thing to take from the producers and workers of America to fund those congressional pet projects? As we detailed when the bill was passed earlier in the year, there was very little in that legislation that was actually stimulative to the economy, and almost none of it in the private sector. But to have the audacity and mendacity to claim not only that it’s working but that it was morally the right thing to do is blatant prevarication.

Not only hasn’t it worked, though only about 15% of the funds have actually been spent, history teaches us that it will not work. During the Depression era, we know that even with a tripling of federal government spending from 1931 through 1939, the U.S. was still in a dire depression, and unemployment was still over 17%.

FDR’s Treasury Secretary, Henry Morgenthau, said that “we have tried spending money. We are spending more than we have ever spent before and it does not work. After eight years of this administration we have just as much unemployment as when we started and an enormous debt to boot!” Well, Obama said he wanted to be like Roosevelt.

A statement released earlier this year by 200 economists affirms these principles. The statement said in part, “More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s. More government spending did not solve Japan’s ‘lost decade’ in the 1990s. As such, it is a triumph of hope over experience to believe that more government spending will help the U.S. today. To improve the economy, policy makers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth.”

If government spending was stimulative to the economy, it should be overheating now after the record $1.6 trillion spent this fiscal year, nearly all of it borrowed, adding to our deficit. Our economy will eventually rebound, but it will be in spite of what government policy is doing now, not because of it. Washington can spin their tale, but it’s fiction, as the facts tell a very different story.

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