There seems to be a lot of so called "experts" on the economy that have been calling for the financial bailout, the bailout of the Big 3 and are for this massive government spending called "stimulus". It seems like everyone is panicking and doesn't have the first clue on what to do, so they just want to throw money at the problem.

Ideological Issue

I think a lot of the people that support this "stimulus" assume that as long as people are working, the economy will improve and get better. If you make sure people are making some doe, they'll spend it and the economy will eventually bounce back.

I used to think that way. I remember thinking when I was in high school, "Why don't they have a Jobs Political Party? They'd only have one goal and that's to make sure people can work and make money. As long as people are working and making money, things are great."

There's a problem I see with thinking like this...

Jobs = Value

That is a pretty big assumption and it is something that is incorrect. Just because people are working doesn't mean that it is something of value. Sure they're getting paid, but by who and what? The government. And how does the government get its money? From you.

The best illustration I can give is paying someone to dig a hole and pay someone else to fill it in. Both people are working and making money, but we all know that this isn't a good thing.

Here is how things work in reality...

Production of Goods and Services = Value

It isn't the fact that labor is working that is of value, but it is what is produced that is of value. This is what is inherently lost in the "stimulus" debate.

This "stimulus" is to spend money on infrastructure which happens to be something of value. I agree with that, but there is only so much that is needed. A road is value, but we don't need a road to nowhere. Most roads need the potholes fixed, and hundreds of billions of dollars is more than enough.

Ideally if the government spent just the right money on just the right programs it might not be a bad thing. But we all know what politicians are like, they build bridges to nowhere and fill it with a ton of pork.

Even if the government does it perfect, this still doesn't address the economic pressures facing the private sector. I think it is first to identify the main cause of this economic mess we are in - the government. Despite the attack on "greedy" banks, it is the government that created this by destroying market risk. Fannie and Freddie were the reason the collapse happened. These businesses are government created businesses. The government guaranteed all securities that went through Fannie and Freddie. Since all risk was taken out of the housing market to help people "live the American dream" and own a home, the market lost a sense of risk.

The first and important way to help get the market going again is to step out of the way. The government has to stop distorting risk to push through a political agenda of getting people to buy as many houses as possible.

The second thing that needs to happen is that we need to stop impeding business and investors by cutting taxes. A major cut in corporate taxes means that there is more money to reinvest in their business which results in more hiring. We also need people investing, knowing that the government isn't going to eat into their return.

Lastly, we need to let this run its course.Essentially the market was drunk on the last bull run. When the bubble popped in the housing market, this was essentially the first headache of the hangover. The solution to this problem isn't to get the government spending because that's essentially drinking to get over the hangover. Let it run it's course and things will go back to normal.

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Posted by Christopher | 12:30 PM | , | 0 comments »


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