Government spending is an ineffective method to create jobs. This is why Obama’s so-called “stimulus” hasn’t really helped the country get back on its economic feet.

Let’s define a few terms here for the sake of clarity and accuracy: The ‘Stimulus’ is not the same thing as the ‘Bailout’ of AIG, GM, and Chrysler et al. The popular folktale is that “Obama’s spending programs saved us from another Great Depression. If he hadn’t acted, we’d be worse off.” This is totally unprovable and in fact, is nothing more than uneducated economic double-speak, put forth by political sympathizers of the Obama administration trying vainly to explain away the lack of results with none in sight, two years in.

The Bailout came first. It shouldn’t have come at all. Shedding uncompetitive, inefficient, anachronistic entities that can no longer compete in the open marketplace is the natural order of a dynamic economy. Vibrant economies benefit when weak companies die and cease being a drag on the others.

The surviving companies become stronger, expand, increase their market share, and end up employing most of the displaced skilled employees of the shuttered companies. Pan Am, Eastern, Braniff, TWA, Studebaker, Packard, American Motors, Polaroid, Kodak, and dozens of others are not missed in their respective markets. Living markets have an inherent demand for their products or services. In the US, the annual sales market for new automobiles is between roughly 10-15 million units/year. The car buying population demands these cars. If Chrysler isn’t there to supply their 1 million units, those 1 million sales units do not “evaporate.” Instead, they get satisfied by Ford, Honda, Toyota, etc, more efficiently, at lower cost, and at higher quality. Artificially propping up a moribund company with taxpayer funds is an inefficient, wasteful use of those funds.

Let’s return to the subject of the Stimulus, which was supposed to create jobs, and leave behind talk of the Bailout, which most people confuse with the Stimulus (people tend to think of the two as one and the same. They’re not, obviously). The Bailout came first, and supposedly (but unprovably) “saved” our economy; the Stimulus came next, amid much fanfare, and was supposed to quickly create jobs once the Bailout had saved everything.

But a quick look at history reveals that Government spending programs intended to prop up employment and revive the economy do nothing of the sort. The biggest misconception in economic history is that Franklin Roosevelt (elected in 1932) brought the country out of the Great Depression with his “New Deal” government spending initiatives. But FDR’s New Deal did nothing whatsoever to ease the Great Depression. The following unemployment figures from the Government’s own Bureau of Labor Statistics tells the story, in a most emphatic and unceremonious fashion:

1930 8.7%
1931 15.9%
1932 23.6%
1933 24.9%
1934 21.7%
1935 20.1%
1936 16.9%
1937 14.3%
1938 19.0%
1939 17.2%
1940 14.6%
1941 9.9%
1942 4.7%
1943 1.9%
1944 1.2%
1945 1.9%
1946 3.9%
1947 3.9%
1948 3.8%
1949 5.9%

It was the onset of America’s entry into World War II in 1941 and the subsequent ramp-up in defense production that finally cured unemployment. In 1946 (the year after the War ended), unemployment ticked up just a little, but still, the post-War boom in housing and consumer spending was on and the rate stayed very low by long-term historical standards. The Cold War arms race with the USSR (and the start of hostilities in Korea in 1950) kept military production and factory employment high.

When unemployment peaked at 10.8% in November early in President Reagan’s first term in 1982 (because of the economic mess he “inherited” from Jimmy Carter—sound familiar?), he drastically cut taxes, which spurred the private sector and led to vastly increased economic activity. Within two years, unemployment had plummeted to 7.2%–a drop of 3.6% in an astonishingly short period of time.
(Source http://research.stlouisfed.org/fred2/data/UNRATE.txt)

President Obama has had the same amount of time as President Reagan had to fix the mess he “inherited.” As a matter of fact, the financial “meltdown” occurred in September 2008, before he was even elected. He knew full well about the economy’s weakness before he even took office, and was trying to convince prospective voters that he had the “answers” to turn things around. But instead, unemployment has actually risen as a result of Obama’s actions. Obama’s liberal economic policies of Government spending and tax increases are just flat-out wrong—if it is his intent to revive a capitalistic, free-market economy—and the economic historical facts bear this out, time and again.

Now that the Republicans have regained the majority in the House, it will be interesting to see if Obama will step back from his heretofore disastrous ultra-liberal economic ventures and work with Congress to pursue a more productive, pro-employment, pro-business economic path, or whether his ideological/egotistical underpinnings are so strong that he is incapable or unwilling to budge.

Comments