There ain't no such thing as a free lunch; unless you are a Keynesian or a politician.
In 1905, Hispanic philosopher George Santayana sagely opined, "Those who cannot remember the past are condemned to repeat it." Outgoing President George W. Bush was buried during Inauguration Week in a hail of bombastic, spiteful contempt that went well beyond rage to a psychotic level of hatred. I won't pile on here, but I do want to offer my disappointment for his actions that initiated a string of knee-jerk federal bailouts to whomever could produce an empty hand the fastest. I certainly would have thought that Bush, the lone President in American history to have earned an MBA, knew better than to tamper with free market downturns by resorting to using our tax money in such a reckless manner.
At the close of the week, I had occasion to rifle through the "Special Obama Inaugural Edition" of the Pittsburgh Business Times. A general cross section of business leaders were quoted within on the burning issues of the day, mainly, the proposed federal economic "stimulus package" and their views on the potential effectiveness of pumping more than one trillion dollars into circulation. Needless to say, nearly all responded as you would expect precocious five year-olds to do when offered free candy. To a person, these CEOs, presidents, and entrepreneurs could hardly mask their zealous anticipations of getting at least a chunk of federal largess to heft in their hot, little hands. Forgotten or else shoved aside were the lessons that were learned following the mistakes of FDR in the 1930s and more recently, by Japan just a decade ago.
On the very first day of high school economics in the early 1970s, the teacher's opening statement was seared into my brain forever. "There ain't no such thing as a free lunch," he would croak in a husky rasp on that day and many times after, during the same school year. True enough, if it hadn't been for the onset of WWII, the "Great Depression" might have devoured the better portion of the 1940s. FDR's "New Deal" undeniably turned an eighteen-month belt-tightening period into a ten-year hideous economic shambles. But, FDR doesn't get sole blame. Herbert Hoover put up much of the framework for the ruinous federal intervention just before vacating office. Blame isn't the word applied to Roosevelt's mistakes, though. Public opinion has been exceedingly generous to Roosevelt, following his three plus terms in office. No other American President, save for JFK perhaps, has ever be so lionized and did so little to deserve such idolatry.
Japan learned to like eating humble pie during the 1990s. They endured economic free-fall for the better portion of that decade, following their cleaning of America's economic clock during much of the post-WWII era. Those who follow the theories of J.M. Keynes explain the bumps and bruises of normal business cycles as "a change in aggregate demand." Their solution? Prop up flagging investment, since consumption is described as "relatively stable." Keynes could never fully identify the reason for the lapse in investment. He usually put the thumb on some nebulous culprit, such as "animal spirits in the business community" or some similar jargon. Keynesian theory has long been described as "socialism lite," therefore, it's not hard to figure out why Keynes endorsed interventionist measures during periods of economic difficulty. Japan nearly spent itself into fiscal oblivion in trying to escape its hardships in the '90s. Ultimately, Japan employed ten fiscal stimulus packages, equaling a total of 100-trillion yen. The lone accomplishment of such a mind-numbing expenditure was causing public debt to exceed the country's total GDP. The best lesson to learn here was that in free market societies, governments do not create any real wealth, so how can increasing government outlays revive the economy?
We can safely see that it isn't mere spending that eases business slumps. It's the adequate flow of final goods and services that is most important. Money is simply a medium of exchange – a commodity. Its presence does not alter its essential nature. Without a tangible asset to tie to the flow of dollars (such as gold, for instance), the willy-nilly pumping of cash into circulation has a darker effect most often, and that's inflation – too many dollars chasing after too few goods. Barack Obama's stimulus plan may easily exceed two trillion dollars and open the door for inflation during the back half of this year. When you couple that bit of good news with the announced intent to raise taxes (to "pay for it all", we're told), Obama is certain to weaken the wealth-generation process and torpedo the prospects for an economic turnaround.
The ultimate trump card that no political pundit, whether liberal or conservative has yet to mention is that Congress is grossly overstepping its constitutional authority by enmeshing itself into private business.
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