I watched President Obama last night, and spent some time thinking about this economic problem and the other things he said. What I’m about to explain is part of my understanding of how the world works, and isn’t really related to Obama except in how his thinking deviates from mine.
First, we need to understand that the Government does not produce anything. The Government is (supposed to be) a service organization for the citizens of the United States, to take care of things we need to handle as a group. For instance, foreign policy, international trade, to make us play nicely with each other, and to wage war when necessary. But in terms of economics, the government is parasitic – it produces nothing, and it’s sole source of income is ultimately the taxpayer.
We pay for government because of the services it provides. Just like paying a dentist to work on your teeth. Yes, the government can print money; but when it does, that money’s value is devalued by the amount it dilutes the existing money supply. The total value of the money in circulation does not change (except when something of value is created from scratch or raw materials by talented people). This dilution of the money supply is called ‘inflation’. When this happens, every dollar you spend gets you less value in return.
Obama thinks that expanding government is the solution to the economic problems, and he thinks this is also the way to pursue his socialist agenda of wealth redistribution. The problem with his approach is that it will in fact redistribute wealth – but it won’t produce anything. Some people and groups will in fact get work and jobs – but those jobs are being paid for by the taxpayer.
This is like trying to make a string longer by cutting a piece off one end and tying it back on the other end.
This is why the republican approach of cutting taxes and minimizing government is effective. It reduces the parasitic overhead cost of the government on the taxpayer. This in turn, allows businesses to have more cash on hand to pursue their businesses. And this results in more jobs, and produces more value, ultimately from raw materials and talented minds. In short, this approach results in growth because it produces value.
Government spending is incapable of producing value. All it can do is move it around. And that is why Obama’s plan is destined to fail, at least as far as saving the economy.