Friday, November 16, 2012

Opposing the Stimulus Was Moronic

Though I don't expect the Friedrich Hayek Kool-Aid drinkers to pay any attention, Paul Krugman outlines the economic performances of four different regions, pointing out that the U.S. is by far the best-performing of the bunch. Why is this? Well, the rest of the regions have imposed huge budget cuts, while the U.S. spent money on a stimulus package.

Cutting government "waste" means people are thrown out of work. When people are thrown out of work, they have little or no money to spend. When people don't spend, local businesses suffer and lose money. Businesses that lose money go out of business. Businesses that go out of business pay no taxes. Lower tax revenue means more people get laid off, etc.

The only way to stop this cycle is 1.) Let things happen organically. This is what we used to do before the Great Depression. You are on your own. No unemployment insurance, no Social Security. Your deposits at your local bank are not insured and can evaporate in an instant if your bank makes a bad investment. No safety net. Nothing. Or, 2.) The government intervenes and issues bonds to help finance projects that employ large numbers of people. With this idea, we built huge projects like the Hoover Dam (it should be noted that stimulus spending actually began under Hoover, but he didn't respond quickly enough to save his presidency), and the Tennessee Valley Authority. We created the Civilian Conservation Corps, the National Recovery Agency, and a bunch of other government-backed programs designed to put people to work and fix our nation (can you imagine, though, if the administration actually tried to do this today, the screams from the right wing about Obama's army of socialist brownshirts?).

And being in debt isn't always a bad thing. Investment managers will tell you that if you can get a good rate, being in debt is one of the best ways to increase your wealth. If you can borrow money at two-percent interest, and then invest it in something that pays interest at a rate of three percent, you will become rich -- despite the fact that you're in debt. We go into debt all the time if we think it's money well spent. If debt is always bad, why would anyone pay anything other than cash for a house? Because homes typically increase in value. The recent housing debacle notwithstanding, we know that if we live there for long enough, our home will become our greatest asset, not a liability, and will be the major source of our net worth. And here we are the whole time deeply in debt, sometimes to the tune of six-figures.

Good debt vs. bad debt.

But the morons on the right think otherwise. And I call them morons for a reason. Anyone who looks at 2+2 and says it doesn't equal four isn't qualified to speak about economic policy. Yet, here they are, year after year, selling their snake oil to the nation. It's long past time we stopped listing to them

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