Recession Vindicates Republicans, Mostly

The economic stimulus plan to avoid the impending recession is essentially nothing more than a $150 Billion tax cut. Insanely, Democrats support this tax cut without acknowledging or realizing that if they had supported Republican tax cuts all along the economy would not need the tax cut stimulation they agree it needs now. Now, push has come to shove; they finally are conceding what is obvious: their much beloved taxes are a danger to the American economy and people. So, shouldn't the Democrats disband now that they've been forced, once again, to admit to their tax and spend lunacy and become supply siders for a day? At the very least shouldn't they abandon their plan to again damage the economy with more taxes the second they regain power in the next elections?

Sadly, the Democrats won't disband and go away simply because their venal lust for power and their pure ignorance easily overcomes their modest interest in doing the right thing. The ultimate irony here is not that Democrats haven't got a clue about economics, but that Republicans know that tax cuts alone do more harm than good. Still, they are going along with them though out of a cynical, political expediency.

It seems obvious that the money the stimulation plan gives back to tax payers came from tax payers in the first place, since the gov't generally can't magically create money out of thin air. So, giving taxpayers back their money to do with it what they would have done with it in the first place is just plain goofy, isn't it?

Firstly, the tax and rebate process itself is a huge waste of money, but more importantly, the rebate money will have to be re taxed immediately, and secretly, by the Democrats since they can't cut spending by the amount of the rebate, because they always need more and more money for the ever expanding social programs with which they buy votes at election time. If they could not subvert our democracy by selling social programs for votes they would, quite simply, not exist. So what exactly is the benefit of taxing, rebating, and taxing again, if not to help politicians get elected? The on going source of our current financial blight is the mortgage market; so why isn't all of the stimulation directed there? If sending money is legitimate why don't they spend it immediately through the Social Security system, military procurement, food stamps, welfare, WIC, or simple reductions in quarterly tax filings, rather than waiting 6 months at which time the economic environment might be totally different?


Some clever and sneaky Democrats will argue that tax rebates now or in 6 months, exactly when we are or will enter into a recession, will at least prevent the worst of it, blunt the worst of it, or speed our way out of it. This is extreme nonsense too; both intellectually and empirically. Milton Friedman became the most important economist in human history if not the most important human being in history by studying the monetary history of the United States. What he discovered was that whenever the Democrats added money to the economy in a preposterous effort to stimulate it, they often did it at exactly the wrong time, and with a disproportionate amount of money. It turns out that gov't bureaucrats, most of whom have never had a real job in the real economy, have no crystal ball and no idea whatsoever about the course or length of a possible downturn or recession. So, they pumped money in when they thought things were turning down, but , it turned out , weren't, and they took money out when they thought the economy was over heating (as in the case of a housing bubble), but wasn't.

If gov't bureaucrats could predict the future we'd all turn to them for stock market advice, among many other things, all the time but of course we don't and of course they know better than to even attempt to sell their wisdom to us in any measurable way for which they would be held accountable. The famous economist J.K.Galbraith once said, "economists don't predict the future because they know it, they do it because they are asked." To add insult to the Democratic fantasy about omniscient soviet-like bureaucrats controlling our money supply in a knowing, rational way, Friedman also discovered that taking money out of, or putting it into the economy, not only can't stimulate it, but can do nothing more that inflate or deflate prices needlessly. He concluded that Federal monetary policy can do nothing whatsoever to encourage real economic growth which comes, essentially, only when engineers make new or better products. It turns out that Democrats in Washington and apparatchiks in Soviet Moscow didn't do a thing except needlessly whip saw or churn their economies with their pompous guesses about how much money to print, burn, tax or rebate.

The best recent beneficiary of this sad phenomena is Bill Clinton. He beat George Bush(41) to become President, by a very slight margin, because the experts were telling us that Bush's policies were causing a recession. To complete the liberal media's image of Bush he was painted as being out of touch with the supposedly declining economy when he didn't know the price of milk or how a supermarket scanner worked. Clinton then won by a tiny margin, but then it turned out there had been no recession at all during the last year of the Bush(41) presidency. As a result, we're looking at 16 years of Clintons in the White House. How absurd, and tragic for America!

Similarly, in the Carter years we had 15% inflation, unemployment, and interest rates. And of course, there was no real growth. It happened because of Fed Chairman temerities that had dramatically expanded the money supply believing, megalomaniacally, that they could create real economic stimulation by throwing some real money into the economy. Arthur Burns, the next timorous chairman was afraid to extract the excess money and so the situation only worsened. It wasn't until Paul Volker, a Republican who understood how money worked, had nerves of steel, and had no social or megalomaniacal weaknesses, took over that the funny Democratic money was extracted, and the economy got back on a slow but steady growth track that continues largely uninterrupted to this day.

Ironically, no human being on earth was more aware of all this and understood it more than Federal Reserve Board Chairman Alan Greenspan, nevertheless, in the wake of the tech bust and 9/11 he pumped money into what seemed to be a slowing economy, over and over again, even as he saw the housing bubble grow and grow. When the bubble finally burst, with the consequences we're enduring now, Greenspan (the most Republican of Republicans; in fact a Libertarian, no less) may go down in history as just another party going, social climbing, star struck, Washington bureaucrat, would-be hero, money maestro, who guessed wrong about the future when he had no crystal ball with which to hazard a guess about the American economy's future in the first place.

The current Fed chairman is now on the same hot seat. The Greenspan housing bubble has burst; the economy appears to be slowing significantly, and so he's pumping money into the economy while knowing, thanks to Friedman, that there may be no recession looming at all, and that it can't help in any meaningful way. At best, the Fed action will drive prices back up (consumer prices already closed last year up 5%) at which point he'll have to guess yet again about when to slam on the brakes to reverse or stop the price inflation he has caused. All the while he'll be praying not to make matters worse rather than better with his inherently reckless prognostications. Worse, he's so panicked by the gathering hoards that he's even gone to Congress to lend his support to the tax rebate idea, which is none of his business as a central banker, and something he knows, intellectually at least, doesn't have a prayer of working.

The pressure from unemployed little old ladies, Democrats, Wall Street, and the vast liberal media to play God is great; to roll the dice, hit the numbers, to believe the Soviet idea was right: gov't bureaucrats can rule the world better than the free market. If the current Fed Chairman did succeed in managing the current, Fed created, housing collapse it would indicate pure luck at a game he has no business playing; a game that can at best create great inefficiency by whipsawing or churning the economy, but that can never be won. Democrats, and their reluctant, sometime Republican allies, can tax and spend all they want, and print and burn money all they want and do it whenever they want, but none of it can do what one engineer with a new or improved product can do to stimulate real economic growth.

Real growth comes from brilliant engineers who invent new products that make our lives easier or better; not bureaucratic, paper shuffling Democrats. The lesson here is to get rid of the Democrats at all costs and by any means necessary before they cause another great depression and then get themselves elected to end it with 10 years of preposterous monetary policy guessing, and absurd tax and spend programs, following by a world war.

Empirically speaking, any lay person can wonder intelligently about the stimulative value of $150 Billion in deficit spending, i.e., new Federal spending of $150 Billion without new taxes of that amount. After all, the Federal Gov't does a lot of spending without raising taxes. If fact, it is $9.2 Trillion in debt because of doing exactly that. If the concept made sense, $9.2 Trillion in extra spending or pump priming, as liberals like to call it, should have over stimulated the economy to the point where everyone became a millionaire and then died from complete exhaustion, but oddly all it seems to have done is recess the economy? Any household that managed its' affairs the way the Federal Gov't does would suffer the same fate. A monkey knows this, but not a Democrat!

It is true, however, that if the government prints money, lowers interest rates, and cuts taxes for the housing industry, for example, they can stimulate that particular industry tremendously, as we have all recently seen, but, most importantly, it is a destructive stimulation. The easy money given to the housing industry was taxed from other industries that then are depressed by the exact amount the housing industry is stimulated. There can be no net benefit. Similarly, if they print money or lower interest rates for the housing industry, the rate of home construction will expand dramatically. But, when the printing press or tax rebate is turned off the artificial growth is exposed as such, and the industry contracts by the exact amount of false money pumped into it.

That excess easy money then circulates concentrically to the entire economy where it in turn stimulates more false growth that, similarly, suddenly ends in a painful contraction as the new money supply is exhausted. The final result is higher prices, for everyone, that absorb the expanded supply of money, and a depressed economy that must reorganize at great personal expense during and after the title wave of funny Democratic money that has swept through it in a boom and bust cycle.

All the false economic activity that must be painfully unwound reduces everyone's standard of living in the end. What the gov't should do is create a highly stable economic environment for engineers in which real growth can take place, through consistently low taxes, (no business taxation at all because it only distracts engineers and their managers), a highly restrictive Fed intervention policy, and, for God's sake, a balanced budget amendment to the Constitution. That way, engineers, managers, and owners, would be free to work the magic which has caused the real economic growth that has lifted us from the stone age to the modern age. Democrats hate the notion of being so minimized by the importance of engineers and businessmen, and so we have a civic obligation to hate them too, at least in the voting booth. Republican politicians who must compromise with the dreaded Democrats, owing to an tragic error in the Constitution, or those Republicans who are temporarily corrupted by gov't power, can sometimes be forgiven.


Ted Baiamonte
bje1000@aol.com
The Intellectual Republican
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