As an individual, let’s say you have no savings, owe more money on your house than it is worth, and have a 50% chance of losing your job in the next 12 months. Would it make more sense to:
a) cut your spending and save more money
b) take out another loan and spend more money
Most individuals realize that (a) is the best option. In other words, when times are difficult, shouldn’t there be a tendency for individuals to cut back and save rather than take on more debt and spend? If that is true for an individual, shouldn’t it be true for your neighbours?
If it’s true for your neighbours shouldn’t it be true for your town, city, and country? If that is true, why is the federal government attempting to take more money from taxpayers and investors in order to spend it? Shouldn’t the government be cutting its spending like everyone else?
If the government decreased its own spending and took less money from taxpayers, wouldn’t that immediately allow taxpayers to save more money by definition? If the government decreased its borrowing, wouldn’t that free capital up to be invested in private companies that are productive? Additionally, if the government decreased its borrowing, wouldn’t that tend to lower interest rates overall? If this is true, isn’t Obama’s proposal literally the exact opposite of what he should be proposing?
On Bloomberg.com, Betsy McCaughey reports that tucked into the “stimulus” bill is a provision that will dramatically affect individual health care.
But the bill goes further. One new bureaucracy, the National Coordinator of Health Information Technology, will monitor treatments to make sure your doctor is doing what the federal government deems appropriate and cost effective. The goal is to reduce costs and “guide” your doctor’s decisions (442, 446). These provisions in the stimulus bill are virtually identical to what Daschle prescribed in his 2008 book,“Critical: What We Can Do About the Health-Care Crisis.” According to Daschle, doctors have to give up autonomy and “learn to operate less like solo practitioners.”
One of the more troubling aspects of the structure of the TARP bailouts is the potential to have government officials and their political agendas influence the day-to-day operations of the corporations who received funds. Already we hear threats from politicians demanding that TARP funds be spent in certain ways. Now we see signs of actual influence in company operations. From yesterday’s Financial Times web article “Treasury pushes Citi to cancel jet order,”
The US financial sector’s new political masters began exerting their influence on Tuesday as Citigroup was forced to scrap the purchase of a $50m executive jet that was seen as a misuse of money at a time when the bank is reliant on public support.
Only a day earlier, Citi had insisted it would complete the acquisition of the aircraft. But it backed down after officials acting for Tim Geithner, the new Treasury secretary, expressed strong opposition to the move…
Mr Geithner and his colleagues know that any full-scale overhaul of the financial sector will almost certainly require more funds from Congress. So their immediate priority is to restore confidence in the recapitalisation process, which polls suggest is deeply unpopular. An essential element of this is convincing the public that the money is being used in ways that benefit the wider economy.
Two more expensive failures this week from our government. I am of course speaking of the Obama stimulus package which the Senate passed on Tuesday and the Treasury Department’s proposed plan for its continued effort to shore up our financial system, also unveiled on Tuesday. If someone had asked me to predict the worst possible scenario for these two efforts I would have suggested that a huge stimulus package (which fundamentally does nothing to help) and “more of the same” from Treasury (which doesn’t address the fundamental problems in the banking sector) would have been my picks. That is exactly what we received.
The stimulus bill is predicated upon the flawed view that the economy is in some sort of deflationary spiral, i.e. that the problem is fundamentally one of consumer panic, and for which the antidote is a government burst of spending. By putting money back into the pockets of Americans it is thought we can restore their confidence as they see that burst of spending stop economic decline. This of course ignores the question of how such spending is financed, through the sale of Treasury notes, in effect pulling that money from the pockets of consumers before putting it back, and mortgaging future taxpayers to do it.