Friday, February 6, 2009

How Do You Decide Whether To Spend?

Hearing our new president go on about how the federal government now has the right to control how private industry operates, and how the federal government is the only entity that can forcibly spend the country back to economic health, makes me wonder how so many people could still be lapping up the reeking, sour kool-aid he's pouring in their bowls. The U.S. federal government, with their notoriously wise decision making capabilities, has used our tax dollars to buy control over those private companies. Today they're also on the brink of spending even more of our tax dollars, and our kids' tax dollars, and their kids' tax dollars to buy more stuff the citizens of this country _should_ have a vested interest in _not_ being publically subsidized, never mind publically owned and run.

So, the only theory about why all that government pork spending would prop up and revive the economy is that if money is flowing, jobs will be created, and the economy will recover. Having worked for a while as a contractor in a federally run organization, I have observed first hand how that ridiculously expensive bandaid will utterly fail to have any positive effect on the economy. The bottom line problem with government spending is that the government is incapable of choosing things on which to spend our tax money that will cause an overall increase in productive activity. And, it's the productive activity that improves the economy, and the standard of living, not the wasteful spending. Two people standing on a beach exchanging a stack of $100 bills all day but doing nothing would represent a _lot_ of spending but it would have _ZERO_ effect on the wealth of either person.

Spending to stimulate an economy depends on a multiplier effect. Entity A spends money with entity B, and they spend money with entity C, and so on. In exchange, B does something useful for A, C does something useful for B, and so on. When the federal government spends money with entity A, it pays entity A a great deal more than what anyone with any sense would pay (not efficient), requires entity A to comply with boatloads of regulatory nonsense (not productive), and ties up entity A's accounts receivable for and absurdly long time (not effective). By the time entity A has a chance to spend anything with entity B, entity B has lost hope that entity A will spend, entity C has abandoned pursuit of spending from entity B, and so on. With the government overhead superimposed on their spending, less and less useful stuff gets done. That means fewer and fewer people can be engaged to do useful stuff, so fewer and fewer people have income which would have allowed them to _be_ entity A, B, or C. The "government" spending multiplier effect is essentially the opposite of what occurs when money is spent efficiently to get useful things done.

If you have a different opinion about how things work, just think about how you decide when and how much to spend. Is it based on what you got last year? Maybe it would be if nothing else had changed, but we've got "change" now whether we like it or not. Is it based on what you expect to happen this year? I suspect that has quite a bit more weight in your decision process. Do you think your prospects of keeping your job and your income _improve_ as more people make the same kind of financial decisions you're making based on what you expect? I suspect not. Finally, do you think it is better to pay 150% of the price for something even if you don't want or need it just to be sure the person offering the good or service continues to have an income, or do you buy only what you really want or need, at the lowest possible price, so your money does as much for you as possible? Unless you're a little slow, I'd venture you'd choose the latter.

If so many people have such high expectations of the newly elected administration, and those people are supposed to have adopted the nirvana of new "hope" in what is to come, why then must the federal government spend us out of the retreating economy? Does nearly 1 trillion dollars of government spending on things the public does not need give you more confidence to go spend your money, or does it throw a giant, spooky, wet blanket on that "hope?" Do you think the prospect of government bureaucratic control over the largest and most troubled players in the economic picture will make things better, or are you willing to face reality and admit that that would surely be a soviet style trade from bad to horrible?

If you voted for BO, you must think all we need is "hope" and "change" so call your senator and explain to them why you want them to vote against this detrimental redistribution of funds towards inefficient and ineffective spending.

If you voted against BO, you most likely knew that what the country really needed was a pragmatic, experienced leader, but since we don't have anything of the sort, call your senator and ask them to please vote against this unwise expansion of the size and control of our federal government.

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