The problem with deficit spending to “keep the economy moving” is that it doesn’t really account for where the money comes from. That money is either borrowed or printed. The inflationary problems with printing so much money should be obvious, but people often ignore the borrowing side. When the government sells bonds so that it can spend more, it is diverting money that would be invested elsewhere. So, someone who might be looking to lend his money to a manufacturer or farmer or whomever is instead lending it to the government. Then the government turns around and gives it to someone else. In the first case, the lender decides who gets the money. In the second case, politics decides who gets the money. So, the money was going to be invested/loaned/spent in the economy either way. Arguing for deficit spending is essentially arguing that the government spends money in more productive ways than the private sector. I am unconvinced that politicians are really better at getting the most economic activity for our dollars.

And, of course, when money is routed through Washington, there is all sorts of what could charitably be called “overhead” in the form of bureaucracy and pork. And, at the end, instead of the people who got use of the loan paying the interest on it, as would happen if a business had borrowed it, the taxpayers pay the interest on the bonds and the principle as well.

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In the broader picture, this is why the problem is overall government spending, more than just deficits. Whenever the government grabs money, either via bonds or via taxation, it is depriving one type of economic activity of the money and redistributing it to another. So, instead of people deciding directly where they want to spend their money or to whom they want to loan it, it is diverted through the government to something politicians prefer. I think the economy does better when people have a direct choice in which transactions are best, rather than when those choices are made indirectly through the political process.

I know that Friedman’s the hero around here, but there was another guy named John Maynard Keynes who, I recall, wrote a bit about economics.

Here’s what one economic commentator for the Financial Times wrote:

Already there are warnings that all such devices [i.e., buying equity interests in financial institutions] will increase budget deficits and debt. So be it. Maxims about debt that might be prudent for families can be the height of folly for governments. Keynes in the above quotation was writing at the onset of the Great Depression. But can we not act pre-emptively? I realise that people find it psychologically difficult to take on board a crisis that calls for more spending rather than belt-tightening. We had a similar situation on a smaller scale in the US when President John F. Kennedy said: “Ask what you can do for your country” and then struggled to get a tax cut through Congress.

Frankly, what we may need right now (or very soon) is deficit spending to keep the economy moving. The problem with the free-market religion (like most religions) is that it prevents one from accepting options outside the religion even when they are necessary.

Every move by the federal government has further depressed the market and spread the depression world wide.

The very best thing the government can do is nothing.
The very worst thing the government can do is continue to interfere.

The free market cannot operate in captivity.

Anyone catch Bill Maher last night on HBO? He had the comptroller for financial oversight on at the beginning of the show. Apparently, the debts clock which is over 10 trillion dollars is wrong. This guy says there is 40+ trillion off the books for a total of 50+ trillion dollars. He seemed abit upset and pissed at the same time?

“put the pen down and step away from the spending bill …”

State and Local government need more money?

Looks like they could tighten their belts.

Maybe we need to refresh the idea of federal debtors’ prison. Let’s incarcerate each congressmoron who voted for the last bill (and who votes for this one) until they raise the money to pay for it. No additional borrowing allowed because they have no credit.

Okay, that’s silly, but don’t these suit-wearing chimps understand that they are broke? They don’t have this money they are being so magnanimous with. This proposal, of itself, is more than sufficient evidence that these people aren’t capable of making financial decisions. There is no way to know for sure, but I have the feeling that part of the upheaval on Wall Street this week is due to people unsure just how crazy Congress is going to go now that it is on a high from finding a new way to spend enormous amounts of money. The news last week that the government was going to be gobbling up a huge chunk of the available capital was bad enough news. Now, it looks like there may be no end in sight. Congress is giving people good reason to panic.

If each one of them who voted for the last scam were to die of a ruptured colon tomorrow (let’s be honest, they are too full of it), I wouldn’t shed a tear. Any net good they have done in their careers has more than been wiped out. Every stroke of their pens hurts this country.