Dakota Beacon

Popular conception holds that the Obama stimulus plan will work. This is the $789 billion American Recovery and Reinvestment Act that will ultimately cost $3.27 trillion over ten years including $744 billion just to service the debt. The assumption is that money pumped into the economy will “create jobs” thereby “improving the economy.” This simplistic view is touted in easily consumable sound bites. There is, however, another more realistic and definitive understanding of the term “stimulus,” one a bit more insightful and sane. Neither views are mutually exclusive, but the second makes more economic sense. The first goes like this. The government has a responsibility to spend money. It doesn’t matter where or how, just spend it. The government’s role is to stimulate the economy with huge infusions of cash. Lots of it. Borrow it (debt instruments like bonds and notes), beg for it (print money) or steal it (tax citizens). Regardless of the source, just spend it. Bush gave checks to individuals to spend while Obama gives money to states and communities with impunity. Funding includes grants and other distributions for bridges, highways, parks, golf courses, pro-wrestling teams, origami classes -- the list is endless. See the federal government’s “Tracking the Money” official web site at Recovery.gov for details. As of September 2009, $622 million is available to North Dakota for 354 projects. That pittance gives North Dakota a ranking of 51st of all states and territories. More formally, this cash injection is what John Maynard Keynes advocated in his General Theory. Little matter that the money flows round and round giving the illusion of “stimulating the economy” by intending to pass money from hand to hand. However, if businesses and manufacturers are not hiring and banks are not lending, then the cash infusion is not circulating as intended. Add to that the government’s demonization of auto, banking, insurance, medical, pharmaceutical and investment industries and public incentive drops. Which is exactly the situation our economy faces. The “job creation” argument becomes spurious. Most of the jobs created are government jobs in an expanding bureaucracy. The stimulus was to have created 4 million new jobs. In fact, unemployment in the private sector is now 9.8% for people still looking for work. The actual figure is closer to 17% unemployment when including those that have given up job hunting or no longer qualify for unemployment benefits. That number is growing and these people do not pay taxes thus depriving the government of needed revenue. Government expands, but the private sector keeps shrinking. Yet, it’s the private sector that is called upon to pay for the expanded government bureaucracy with what little wealth the private sector is allowed to create. The second option for stimulating the economy goes like this. A growing economy is one that exhibits wealth accumulation through profits. Profits are used to purchase capital assets and expand production to satisfy the needs of new markets. Increased profits pay for new hires and expanded facilities. Adam Smith successfully and lucidly articulated the process 240 years ago. Our capitalist economy is not a zero-sum game. If you eat all of the pizza, I do not have to eat the box. There is more pizza where that came from. Our capitalist economy is flexible, dynamic and expanding if only government curtails interference. Cut taxes to release existing financial resources for use by the private sector rather than by government. The idea is to grow the private sector naturally without government interference. America’s accumulated wealth is far greater today than 200 years ago and the aggregate is not ill gotten gain. China, India, Korea and Japan are following America’s historic model to their great success reinvesting profits to produce new goods and services for expanding markets. By doing so, true jobs are created along with the wealth to sustain them. This, in essence, is how economies grow. This is how China and India eventually adopted a more capitalist society that may soon rival that of the United States. The first example certainly puts money into the economy. It puts a few people to work for awhile but without generating new capital in return. But, what happens when government money runs out and the economy has not expanded? Can the government return to a shrinking tax base expecting still more money? With high unemployment and less revenue coming into the federal coffers, who pays the bills? The second example is tried and true. It is how America became a strong independent world leader able to rescue other nations in hard times while taking care of its own. Fretting about the stimulus might be making a mountain out of a mole hill. Maybe Alfred E. Neuman had it right when he blithely begged the question, “What, me worry?” Dennis M. Patrick can be contacted at P. O. Box 337, Stanley, ND 58784 or (JavaScript must be enabled to view this email address).