The U.S. is fast approaching the third anniversary of the October 2008 stock market crash which was the symbolic start of the current recession. As bad as the stock market crash was, the housing market is at least as bad if not worse. Worst of all millions of Americans do not have a job. Millions more have stopped looking for work because the prospects are so bleak. Those millions do not get counted as unemployed so our elected representatives can tell you that things are not as bad as they really are.
Al Gore might say "the U.S. economy has a fever." There is little argument that the US economy is sick and needs intervention much the same way a sick patient would visit a doctor. The national discourse is centered on how to fix an ailing economy. There are two general methods that have been proposed. The democrat's proposal is stimulate the economy with government spending, and pay for it by a combination of federal government borrowing and raising taxes on the wealthy. The republicans on the other hand want to reduce taxes and put a ceiling on borrowing. This they contend will get the wealthy to invest funds they have been keeping on the sidelines which will stimulate the economy.
So which method should we go with? The democrats and Barack Obama in 2009 implemented the largest stimulus program in history and borrowed trillions from China to pay for it. They backed off increasing taxes because President Obama claimed that raising taxes was the wrong thing to do in a recession. What did we get for their efforts? We got a continued drop in housing prices, unemployment at over nine percent, the most volatile stock market in decades and a downgrade in our debt rating. It plain and simply did not work and yet they want to do more of the same. Moreover the previous stimulus plan created more damage than good. This is not surprising and here's why.
To measure the health of a business, we look at its cash flow statement. The cash flow statement shows two kinds of spending and two sources of funding for that spending. The two types of funding are 1) equity funding and 2) debt funding. The two types of spending are 1) capital spending and 2) expense spending. Spending money on expenses and increasing debt reduces the health of the business while capital spending or investing and equity funding increases the health of the business. Barack Obama's 2009 stimulus plan spent our money on low priority expenses that had very little stimulus value while steeply increasing debt. If we raise taxes on the wealthy, it will divert equity funds that would be invested in capital projects which would be highly stimulative and waste it on expense type government spending. The democrats plan, just like the effects of expense spending and increasing debt on a business, makes our economy less healthy.
If we revert to the medical metaphors, the wealthy are the economy's doctors and their wealth is the medical tools that allow them to treat the illness. Barack Obama and the democrats want to take these tools and put them in the hands of bureaucrats. Moreover they are implementing this strategy by vilifying the wealthy through class warfare. I suggest the democrats and President Obama could learn from the ethics motto taught to a first year medical student which is "First do no harm."
It is easy and cheap rhetoric to attack the millionaires and billionaires as if they all inherited the money from a rich uncle and did nothing to earn it. From listening to President Obama you would think they waste their wealth on lavish spending and riotous living rather than providing for the poor. Even if the wealthy spend a small portion of their wealth on extravagant purchases, such spending is more stimulative to the economy than the stimulus plan President Obama and the democrats propose. This is true because every dollar spent by the government carries the burden of bureaucratic overhead as well as a waste and fraud component. This means the economy and the beneficiaries of government programs get less than one hundred cents per dollar spent. While it may sound virtuous and big hearted to divert money away from the millionaire's extravagant lifestyle to the needy in our society, it just doesn't give the poor the bang for the buck. A job from a wealthy business owner is much better than a handout.
I, like the democrats, want the less well off in our society to benefit from the greatest and wealthiest society the world has ever seen. The poor benefit the most when our economy is running like a finely oiled machine. Those in our economy most able to bring this desired prosperity to pass are the wealthy, who will spend the vast majority of their wealth on equity based investments which will bring a return and permanent jobs to our economy. The least able to bring prosperity are the bureaucrats who will oversee the squandering of important investment capital on low priority projects that will do more harm to the economy than good.
Dickson lives in Pleasant View.