The New Clarion

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More On Obama’s Spending

December 9th, 2008 by Myrhaf · 2 Comments · Politics

In yesterday’s post I argued that increased government spending, including Obama’s plan to create government jobs that will “stimulate” the economy, will lead to inflation. Daniel J. Mitchell shows that government cannot create jobs — it can only take resources that would have been used more efficiently by the private sector.

President-elect Obama has announced that he wants a big “stimulus” package to create 2.5 million jobs by 2011. Many of the details are unclear, including how much new government spending he will propose and how he is measuring job creation. Press reports suggest the incoming administration is looking at $400 billion-$500 billion over the next two years, but the Washington Post reports that Democrats are talking about as much as $700 billion during that time period.

Not surprisingly, the prospect of all this new spending (above and beyond the record spending increases during the past eight years) has triggered a feeding frenzy among special interests. Home builders, auto companies, road builders, state and local governments, the education establishment, the food stamp lobby, the green lobby, and alternative energy companies are among the groups fighting for a place at the public trough.

$400 billion, $500 billion, $700  billion — it will be an easy trillion by the time politicians have put all their pet pressure groups on the gravy train. The line attributed to Senator Dirksen, “A billion here, a billion there, and pretty soon you’re talking real money,” will have to be updated to trillions someday.

If that money stays in the private sector, it will create jobs as capitalists use it to make a profit. Individuals pursuing a profit spend the money with great efficiency; it’s not hard to use the system of prices to figure out where money will do the most good.

Politicians, on the other hand, do not pursue a profit. They have to choose between many pressure groups clamoring for a piece of the pie. How do they choose? Do you think the donations each politician gets from various groups might enter into his calculations? How could it not?

The economist Greg Mankiw estimates that each job will cost $280,000. That’s $280,000 that would have been used more efficiently to produce wealth — and ultimately to produce jobs — than any government spending.

In the end, Obama’s stimulus plan will destroy wealth that would have been used by the private sector to produce wealth. However, the money will have been taken from individuals pursuing their greedy self-interest and spent altruistically by our noble philosopher-kings in Washington, D.C. That makes it a good deal to the statists.

2 Comments so far ↓

  • Burgess Laughlin

    What is unclear to me, as a layman, is what is new in this situation, if anything. I see no new ethical or political principles enunciated by the Obama administration-to-be. Are even the monetary amounts new in relation to the size of the economy overall, compared to the USA in the 1930s, for example? I don’t know.

    Also not new is inflation. It has been around a long time and at rates twice or more what it is at the moment. Is any trustworthy economist–one with a track record of successful predictions–estimating what the inflation rate will be and that it will be so much larger that it will cause chaos?

    In summary, the most striking feature–based on reports I have seen–is the _lack_ of anything new either in the ethics, politics, or economics of the situation. We are still sliding toward the abyss without knowing where the edge is.

  • Myrhaf

    None of Obama’s ideas are new. I don’t think the left has had new economic ideas since FDR or perhaps the Progressive Era. Leonard Peikoff has noted that socialism is a spent ideological force. In fact, since Bush presided over an explosion of spending and regulation, including bailouts for Wall Street and now Detroit, you could say that Obama is merely continuing Bush’s policies.

    Apparently, Peggy Noonan has made the point that if you walk around, everything still looks the same. There’s a lot to say about this, as it raises questions. Is this socialism? What landmarks should we look for that show decline?

    I think things will be clearer in a few years.