When I was young, my father taught me a very simple story:
A man walks by a big room and sees that it’s chest high in manure. “Quick,” he says “someone get me a shovel. There must be one helluva horse in here somewhere!”
Now the message was always clear: don’t be afraid of hard work and look upon every situation with an optimistic eye. Lately though, reading the paper has been a lot like running into that room; only I’ve begun to realize there’s no horse in there. Just a whole lot of shovelin’.
The latest pile can be found in a column by Dean Calbreath, a well-respected staff writer for the Business section of our local paper: The San Diego Union Tribune. You can read the full story here: Government Spending is Tool to Revive the Economy, although the title itself is about as subtle as a sledge hammer to the head. (I wonder if he was being ironic with the word “tool”?) In the column itself, Mr. Calbreath expects politicians debating the “stimulus package” will take heart in a new study by UCSD economist Valerie Ramey which concluded that for every $1 the government spends, it generates $1.40 in economic growth. Uh… yes, you read that right. The government is generating 40% growth on its spending programs. Wow! We really can spend our way out of a problem. I mean Mister, at 40% growth we’ll be out of this recession in a quarter or two if the government will just get it through their thick heads to spend enough. (When I read utter nonsense like this I am reminded, as I so often am, of the wit and wisdom of Homer Simpson. Upon realizing he and a few other characters were literally trapped at the bottom of a hole they themselves had dug, Homer hit upon an elegant solution: “We’ll dig our way out!” As the screen fades we can here Chief Wiggum say, “No, dig up, stupid…”)
“Raising spending stimulates the economy,” Ramey said. “On average, government spending raises gross domestic product and raises employment, although it sometimes leads to a small decrease in consumer spending, as consumers find themselves in competition with the government.” You think?! So let me get this straight: the “magic” money that the government has (we’ll come back to that in a second), stimulates the economy but stops small businesses and individuals from investing in themselves. Well, what’s a little shift in the welfare state if it means an increase in the GDP! Hey, I’ve got an idea; let’s triple the amount of money the government spends, move the majority of our citizens onto welfare and really bounce the GDP up to record heights.
I suppose it should come as no surprise that later in the article, Mr Calbreath describes an “economy laid low by the mortgage crisis.” The mortgage crisis? Is this economic shorthand? Was there not enough space in this 1100 word column to mention immoral investment banks, criminal ratings agencies, the CRA (ground zero of the housing problem), government regulators asleep at the wheel or rampant, undisclosed use of exotic creations like Default Swaps & CDOs? The mortgage crisis? Mr. Calbreath, your readers deserve more respect than that.
The UCSD study is not the only peg on which Mr. Calbreath hangs his hat:
A massive hole in demand is emerging as consumers, businesses and state and local governments are forced to cut back,” said Nigel Gault, chief US economist at IHT Global Insight, an economic analysis firm in Massachusetts. “The federal government is the only entity that can fill that gap, either by spending itself or by providing the financing for spending in the rest of the economy.
… either by spending itself… Ah yes, we come back to the financial gain we reap when the government reaches deep down into its pockets and spends some of its hard-earned money to stimulate the economy. What’s that you say? The government doesn’t have a job? The government doesn’t earn money, hard or otherwise? The government doesn’t even have pockets? Well, I guess you’re right. But WE have pockets. When these pinhead economists tell you that government spending is going to accomplish something, remember what they mean: the government’s going to confiscate money from you (or in the alternative print it and confiscate it from your unborn children) and spend it on things you very likely wouldn’t have. This is a zero sum game. When the government raises the GDP or employment by spending money – YOUR MONEY – you are, by default, unable to spend it yourself. So we have to ask ourselves: “Did anything really happen?”
To answer that question, I propose a quick thought experiment. Imagine yourself on your way to the grocery store with your allotted budget for groceries and I stop you on the street and take that money. Let’s say I repeat this up and down the streets. Now let’s say I take all that money and I go to the grocery store (although to be accurate we would have to make it a grocery store far away and poorly run, a store which I – in my infinite wisdom and obvious superiority to all those from whom I took grocery money – have deemed worthy of the business) and I spend all that money. Now tell me, did that store enjoy a boost in its gross profits? Certainly it did, no question. Now tell me this: did grocery stores as a whole enjoy a boost to their gross profits? No. All those stores that all those people would have shopped at suffered a loss; worse yet, it wasn’t even a dollar for dollar trade. Remember, I took all of your money and spent it at an inefficient, poorly run store. Not only was there no real gain in over-all grocery store gross profits, there was a net loss! (Unless you’re an economist, in which case you might discover a 40% return on the spending I did.)
Eventually, way down at paragraph 27 (of 28), we see a little piece of logic leak out. Ms. Ramey, our UCSD economist, states,
In the long run, for instance, we should take a look at reducing the payroll tax – which, after all, taxes people for something you want them to do: work. Economic theory tells us that if we reduce that tax, we can stimulate the number of jobs created.
Well that just makes too much sense. If we lower payroll taxes we can stimulate the number of jobs created. Ms. Ramey, why aren’t we following that piece of logical advice? Because, she explains, people might just save the extra money they make. Or pay off debt with it. It would not have “an immediate effect on the economy.” Not like, say… infrastructure spending would. Uh huh. I think I get it now. Taking my money and spending it inefficiently increases the economic viability of our economy. Building bridges and freeways two or three years from now, that will have an immediate affect on the recession in our economy. But reducing my payroll taxes, which I would feel as increased purchasing power within one pay period, that will not help the economy.
Here’s your shovel back. There’s no horse in here. Just a whole lot of BS.
