A trillion is the new billion

“Never confuse motion with action.” --Ben Franklin

This simple wisdom is apparently beyond the understanding of our elected leaders as demonstrated by the following headline:

Obama Warns of Irreversible Decline Without Action

Jan. 8 (Bloomberg) -- President-elect Barack Obama warned that without immediate steps by the government to revive the economy, family incomes will drop, the unemployment rate could reach “double digits” and the U.S. risks losing a “generation of potential and promise.”

In excerpts of a speech he’s scheduled to give today at 11 a.m. New York time in the Washington suburb of Fairfax, Virginia, Obama says that while the cost of his economic recovery plan will add to a deficit already projected to exceed $1 trillion, he “won’t just throw money at our problems.”

“It is true that we cannot depend on government alone to create jobs or long-term growth,” Obama will say. “But at this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and severe.”

Not to make light of what is now a very serious economic problem, but it often seems as though government's main function is to take something that should not have been a problem in the first place (had they been doing their job properly) and allowing it to snowball into a big crisis that only government can fix. This serves their real unspoken job rather well, which is the continual search for the justification of their own existence. At the risk of oversimplification, the main reason the Great Depression lasted as long as it did was that FDR firmly inserted government in the middle of all aspects of our economy. While his intentions were arguably well meaning, his policies were outright hostile to the private sector. So what did the private sector do? They kept their job creating, GDP expanding, entrepreneurial enabling capital on the sidelines for almost 10 years, which gave rise to the term, "idle rich." This had the effect of making government the only game in town, which further justified more government intervention.

What our economy needs is not more stimulation--overstimulation is what got us into this mess in the first place. Our economy needs to rest. Like a drunk coming down from a binge, you don't make him feel better by sticking another bottle of Jack Daniels in his hand and telling him to drink it, you let him sleep it off. Increasing unemployment (the reallocation of human capital) is a byproduct, but unemployment is in the future no matter what. Better for the private sector to put capital to work as soon as possible--creating real jobs--than letting government mis-allocate borrowed money to pay for "make work" jobs designed as a short term fix.

I feel we are in real deflationary danger. Private sector capital will continue to sit on the sidelines until our economy is well rested. But government will not let it rest, which will prolong the rough times ahead.

A better solution would be for government to temporarily cut all corporate and personal tax rates to say, 10%. It would reduce government revenues significantly of course, but borrowing money from the future to put in place a fiscal stimulus package that will surely be in excess of $1 trillion will have an even more drastic long term effect. Government can always borrow to keep critical programs and institutions running on a case by case basis.

I hold no illusions of anything like this happening, as the two things that are fundamentally anathema to big government are small businesses and the entrepreneurs that create them; for neither has any reason to pay tribute to an entity whose main purpose seems to be administering death by a thousand paper cuts. Small businesses employ far more Americans than big businesses do, but it is big business--through expensive lobbing efforts and campaign contributions--that have convinced our elected officials that they are "too big to fail" and are deserving of a taxpayer-funded bailout. Small businesses, having no such resources, are stuck scrounging for life lines of credit from banks who are simultaneously told to loan their TARP money and rebuild their capital base. If they do not secure a line of credit, they are forced to lay off workers, or close altogether, which perpetuates the economic downward spiral.

Alexis de Tocqueville had it right over 175 years ago:

The American Republic will endure until the Congress discovers they can bribe the people with their own money.

It seems the price of the bribe is somewhere north of $1,000,000,000,000