Stimulus: Bread and Circuses, Part II

Government bread (stimulus) attempts to misdirect the citizenry into believing “something” is being done. Tragically, the bread is hollow. Inherent self-interest problems with government spending ensure that such spending is less efficient in terms of goods received per unit of money. In other words if government spends $1 they get 10 apples. If I spend the dollar I’ll get 15 apples. But there is another inherent problem with government stimulus – sustainability.

Government projects are always short term in nature (e.g. roads, bridges, etc) and when the project is done, that’s it. Those workers are out of work again… until we need some more bridges. Are we supposed to build bridges forever to keep the economy moving? Government spending is akin to a circus coming to town. Money is drawn into a community temporarily, and for awhile everything is great for local merchants. But clearly the circus is a bubble, it can’t stay in town forever. So it is a foolish business that expands based on the sales receipts generated while the circus is in town. When the circus leaves such a business collapses. It pleads for support from the government – the only thing they can do is bring the circus back. As long as the circus is there all is good. But clearly the circus is an unsustainable event, it was never meant to sustain an economy forever.

When people ask for government stimulus they are asking for “circuses” to maintain the status quo. Stimulus is supposed to spark some new more permanent venture, but exactly how can it do that? It simply reinflates the old bubble industries at their unsustainable bubble levels. Those industries can only be sustainable at their new post-bubble levels. Stimulus prevents this equilibrium from being achieved. Sustainable economic growth comes from industries responding to the direct desires of CONSUMERS. If consumers want it then a market will grow and that’s where the jobs will be. Consumer demand will not disappear overnight as can government spending. Consumer desires can change over time but it takes years for these changes to occur which is sufficient time for an economy to absorb the slowly shifting moods of consumer demands.

So this begs the question of why we had such a rapid change in the economy recently. If you’re astute you will have a good idea why. That’s right, it was a government-stimulated bubble inflated by loose fiscal and monetary policy and then popped by a reversal of that policy. It is these policies combined with the moral hazard of “too big to fail” that encouraged the RISKY behavior that is blamed for the crash. We must look beyond the risky behavior itself and ask what encouraged that behavior if we’re serious about preventing such things in the future. The solution is not to add more 20-20 hindsight regulation that attempts to prevent risky behavior but rather to remove the root cause that encouraged said behavior, namely the “too big to fail” policies of our crony-capitalist-big-government state. These polices are the manifestation of what government busybodies thought was the “right” thing (“home ownership for all!”) but sadly unintended consequences always come home to roost in a tragic mess. Treat the disease, not the symptoms.

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  1. Pingback: Porcupine Musings » Stimulus: Bread and Circuses, Part I

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