The Folly of the Economic “Stimulus” Package

The news is dominated by all the talk and debate of the so-called economic “stimulus” package, which, in the House-passed version is said to be $815 billion, while the version under consideration in the Senate is (not surprisingly) even more expensive at something closer to $900 billion. None of these figures take into account the true cost of the program when the interest on newly incurred debt is added (those figures have a range beginning at $1.2 trillion with a limit no one even knows).

Meanwhile, President Obama is trying very hard to control the terms of the debate, having stated in his inaugural address that “the stale political arguments that have consumed us for so long no longer apply.” Which arguments? During the presidential campaign, Republican nominee John McCain framed the whole debate around the practice of “earmarks”, something that he and many other Republicans have conflated with “pork barrel” spending. Congressman Ron Paul correctly pointed out to those willing to listen that earmarking itself is not the issue. Rather, it’s the massive amount of uncontrolled, unconstitutional spending that’s the real issue. The practice of earmarking, of course, which has been made more transparent by recent reforms requiring that earmarking requests be made public, is really an issue of who determines how the money is spent: is it the legislative branch, or is it the executive branch?

Obama has declared that there will be “no earmarks” and no influence of lobbyists in the writing and administering of the “stimulus” package. Apparently now that he is the President, he favors ceding power over appropriations from the legislative branch to the executive branch. Either the President is incredibly naive on this point, or he is simply being disingenuous in an attempt to shore up support for the measure. The K Street lobbyists do not exist in Washington without a purpose, and they most certainly will make every attempt to lobby on behalf of the myriad of corporate and other special interests for “their slice of the pie”. It cannot be any other way. This is how it is when government presumes to take money from the productive to give to the unproductive and reward the foolish and imprudent. The White House, of course, does not single-handedly write the bills that come before Congress. Therefore the President cannot simply wave a magic wand and expect the influence of lobbyists over members of Congress to disappear. Congress could try policing itself accordingly, but that would be unlikely. Assuming the rules of debate do not allow for earmarks, with the decision-making over spending details shifted to the executive branch, a likely outcome is that the lobbyists will go “underground” in their attempts to influence the executive branch, ironically leading to a decrease in transparency and a corresponding increasing in secrecy.

Getting back to the terms of the debate, Obama really means by “stale political arguments” the whole matter of what the role of government ought to be. In other words, if Obama has his way, we cannot have a debate about what the role of government ought to be, and whether it even works for government to attempt to do all of those things that are claimed will “jump start” the economy. Yet this is exactly the debate we should be having. If we do not recognize the true causes of the current crisis, namely, excessive government spending, central planning, and intervention in the markets (see Ron Paul’s recent Texas Straight Talk column [link is at the bottom of the page] for an excellent explanation), there is no way that we can avoid making the drastic consequences that will result both from what has already been done even worse by what is being proposed.

The Republicans in Congress are attempting, at least to some extent, to have a debate over the “stimulus” package. What kind of a debate is taking place? Some members of Congress, especially people like Ron Paul and Tom McClintock, are pointing to the real dangers of trying to spend our way out of the crisis at unprecedented levels. Unfortunately, however, the Congressional Republican leadership (and corresponding media commentators) are making it a debate over how much of the “stimulus” package is devoted to spending increases versus tax cuts. In other words, let’s have less in the way of new spending and more in the way of tax cuts. The trouble with this is that, if the Republicans get their way, spending is increased even while taxes are supposedly cut, resulting in a corresponding increase of debt. Which leads to an inconvenient truth: all of the tax cuts proposed are not tax cuts at all as long as spending and corresponding debt is increased.

As long as the national debt is allowed to increase, there will be a corresponding tax increase in its most insidious form: inflation. The money for the “stimulus” package does not exist. It will have to be created by the Federal Reserve on a computer and/or printed. This, the expansion of the money supply, is the very definition of inflation. The effects of inflation are typically delayed, but once this money comes into circulation, every single dollar of every person’s paycheck, savings, investments, and retirement funds will be robbed of its value. Contrary to being “stimulated” (a word that would imply the creation of new wealth), the economy (the sum total of all of us who take part in the daily transactions of the market) will be distorted and impoverished. The effects of the “stimulus” bill won’t be felt right away, but once they are, we can see massive price increases on an scale unprecedented in our nation’s history. We certainly won’t see the creation of real wealth or any increase in the standard of living of most Americans. Already, unprecedented amounts of new money have been created by the Federal Reserve. The consequences will be forthcoming. It’s a matter of when, not if, and the “stimulus” package will only exacerbate matters. Ultimately this will lead to the destruction of the dollar.

What is the solution? We can begin by moving in exactly the opposite direction of that proposed by the administration and congressional leaders. Spending must be cut, at the very least to the extent possible to balance the budget, so that the insidious practice of inflation can be stopped. The most politically plausible place to begin make spending cuts would be in the area of foreign policy and military spending, which can be accomplished by ending our current imperialist/interventionist policy and the myriad of activities that accompany this policy. A small amount of the savings could be used for needed infrastructure projects, which ideally should be administered by the states (something that would required a transition from the current system of federal funding). A complete reassessment of what the role of government ought to be, in light of the Constitution, is essential to determining the remaining budget cuts, from which should follow tax cuts, including the elimination of the income tax and IRS, and the repeal of the Sixteenth Amendment. All of these things together would provide for the best possible economic stimulus, but none of them can  happen without acknowledging that our nation, through its government, has lived well beyond its means. It will require a change of attitude on the part of many Americans who have become accustomed to looking to government to solve problems.

Another part of the solution involves looking for a long-term solution to the monetary problem. The root cause of the current crisis is the central banking system known as the Federal Reserve, whose inflationary practices have allowed government at the federal level to grow to monstrous proportions. The very fact that government has become so large as to require deficit financing of over a trillion dollars annually should silence any doubts as to whether the government is too large. Ideally the Federal Reserve should be abolished, and a new monetary system based on a gold (or silver) standard implemented (but with improvements over the earlier gold standard), as required by the Constitution. This is not something that can be accomplished all at once, but a good start towards this goal would be to call for a complete audit of the Federal Reserve (which has never been done before), followed by the enactment of very tight regulations on both the Federal Reserve and Treasury Department, prohibiting, among other things, the creation of new money out of thin air as a means of monetizing debt. This would logically be accompanied by the repeal of legal tender laws, and the establishment of a new, parallel gold-based currency. Over time, Federal Reserve notes would be abandoned in favor of a sound monetary system. Then the Federal Reserve could be closed down and placed upon the ash heap of history.

The “stimulus” package is so large and multifaceted as to require a series of articles to discuss its many implications. The purpose here has been to provide an overview. Articles from this writer will soon follow to discuss the many hidden and insidious aspects of this massive piece of legislation that few members of Congress have actually read.

Link to Ron Paul’s Texas Straight Talk column:,tx14_paul,blog,999,All,Item%20n…

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