Let’s Escape From Spending Hell

America needs to take a good look at the methods and results Western governments have used to get over recessions. The data is in; and it is incontrovertible. Cutting spending works much better than increasing taxes and government spending.

 Alberto Alesina, a professor of economics at Harvard University and a group of co-workers have examined the efforts of 17 Western nations between 1978 and 2009 in their policy changes designed to alleviate recessions. They looked at cutting spending, raising spending, raising taxes, cutting taxes, and all kinds of combinations of these measures. They found that both spending cuts and raising taxes often cause an aggravation of economic recession. But…the recessions associated with spending cuts have caused mild, short-lived recession; and in a few cases, no recession at all was experienced. Tax increases have been associated with prolonged and deep recessions.

The Keynesian “multiplier effect,” which was proposed by John Maynard Keynes in 1931 posited that more public spending will revive a struggling economy. President Obama has bought into this aged theory more than any other President. His Keynesian economic policies have pushed federal spending up to 25% of gross domestic product; and the growth produced has been anemic. It is time we get off of that old and worn-out, theoretical program and quit all this spending.

This blog post is redacted from The Wall Street Journal of 14 March 2013, page A15.

America’s Economists Should Look at Venezuela

The death of Hugo Chávez has focused the world’s eyes on Venezuela—and for good reason. The mistakes made in managing that country’s economy are being made elsewhere—even in the U.S. Chávez was a free spending socialist who nationalized much of the nation’s industry. His political vitriol deeply divided the affections of the people. Does this sound familiar? Chávez’ policies have resulted in an inflation rate of 29.1% in 2011.

One disturbing fact about Venezuela is that a huge number of people there love him. His populist policies of spending excessive amounts of money have crippled a lot of private enterprise and caused significant  shortages of foodstuffs and sugar. It must be admitted that Chávez’ has apparently raised many in his country out of poverty; and for that many in his country deeply revere him. But…it seems to me that the huge governmental spending deficits are catching up with the country in the form of the most pernicious economic effect known, i.e., INFLATION. Inflation cuts across all sectors of an economy and hurts everyone indiscriminately.

Here in the U.S, we see government spending programs outrunning money supply despite the Federal Reserve’s printing money at the rate of $85 billion monthly. This is bound to catch up with us soon. But…liberals and other who look only at the short term benefit of spending absolutely love it. And…like Venezuelans, I fear that they will outvote the conservatives who look at the long-term dangers of high levels of government spending.

The U.S. attempt to spend our way out of the recession has cost us hundreds of thousands of dollars per job created.

Of course, liberals are also worried about inflation—in a peculiar sort of way. They cried bloody murder about the Medicare drug benefit bill passed under President George Bush’s administration (and I, also wonder at the wisdom of that program) because they did not like the overspending it entailed. But they don’t seem to mind seeing the government pay for Obamacare, which costs hugely more money. Now, liberals are hell-bent on another government spending program, i.e., universal preschool education ($25 billion/year).

It will be hard to out vote a free-spending, high-taxing, high-borrowing, inflation-producing, administration in 2016. Like Venezuelans, the voting population will likely opt for the short-term gains rather than for sound fiscal policy.