To read the lofty coronavirus relief proposals from Democrats and Republicans is to detect confusion about what powers economic growth. Neither side gets it.
Up front, no one seems to have asked a simple question: was anyone calling for Congress and the President to craft a “stimulus” program in February? The question answers itself. No one was looking for economic relief simply because it wasn’t needed.
So why now? Why the call for Congress to spend with abandon? This question similarly answers itself, but for those still half awake, politicians on the city, state and national levels imposed lockdowns on economic activity beginning in March. Yes, you read that right. Even though economic growth has long been the greatest enemy of virus, disease and ill health more broadly, politicians decided that the answer to the coronavirus was to force an economic contraction that destroyed tens of millions of jobs, millions of businesses, and that otherwise created economic desperation. Historians will marvel at the matchless stupidity of the U.S. the political class. They actually disappointed us this time, which is saying something.
Even though wealth creation has long expanded the resources necessary for scientists and doctors to cure disease and elongate life, politicians decided in 2020 to freeze wealth creation given their belief that Americans are too stupid to avoid sickness and death on their own. Translated for those still half awake, your political leaders think you’re intensely dumb; so much so that you’re incapable of protecting yourself without politicians forcing you to do just that. But to make sure you would stay at home, they imposed job and business destroying lockdowns that kind of gave you no choice.
Don’t worry, the insults to common sense didn’t stop with the economic contraction politicians forced on what was previously the world’s most dynamic economy. Having wrecked millions of lives and businesses, they proceeded to extract trillions more from the economy, only to blindly throw money at their countless errors. Yes, you read that right: the instigators of misery somehow got it into their heads that they were the ones who should deliver you from it. It would be funny if it weren’t so sad. Wake up, people!
There’s no such thing as government spending. There’s only politicized allocation of precious resources first created in the private sector.
Governments can’t stimulate economic activity, nor can they offer relief, simply because they only have wealth to redistribute insofar as it was created first in the private sector. Governments can only move previously created wealth from one set of pockets to another. Politicized allocation of precious wealth is a consequence of economic growth, not an instigator of it. The “relief” proposals promoted by left and right will in no way generate new economic activity.
In truth, the trillions Congress is set to spend will logically delay recovery. Simple as that. It’s sad that something so basic requires explanation, but we’re living in a time of remarkable confusion within the policy establishment.
Since we are, it’s useful to remind readers that central planning failed in miserable, murderous fashion in the 20th century. In the 20th politicians around the world tried their hand at command-and-control economic planning that placed those same politicians in control of the economy’s resources. It didn’t work.
It didn’t because with government spending, there is no failure. There’s instead relentless spending on what doesn’t work. If government oversaw Silicon Valley, Friendster, Webvan, and theglobe.com would still be in business. What’s innovative, and a magnet for the best and brightest, would be backwards and bereft of talent.
What makes the Valley great is that bad ideas die, and do so quickly. This means that lousy businesses and witless managers are limited in their ability to waste precious resources.
Contrast this with government. Government as a rule relentlessly throws good money at bad. The Tennessee Valley Authority still exists, so does Amtrak. Citigroup has been bailed out five times in the last thirty years by politicians.
Economic growth is a consequence of intrepid allocation of limited resources to higher and higher uses. Economic growth is about investment in wealth that doesn’t yet exist. By contrast, governments can only fund the known, or what’s already known as a bust. If what’s a bust employs people, politicians will fund it forever. Medicare began as a $3 billion program. It’s rushing toward $1 trillion annually even though it still can’t meet its mandate over fifty years after its creation.
The politicized allocation of precious resources that some naively refer to as “government spending” or “economic relief” is the process whereby Chuck Schumer, Mitch McConnell, Kevin McCarthy, Nancy Pelosi, Barack Obama, and Donald Trump are handed control over the economy’s resources so that Jeff Bezos, Fred Smith, and Phil Knight have fewer resources to push to higher uses.
Politicized allocation of resources is the path not just to stasis, but to decline. Central planning that failed in total in the 20th century doesn’t succeed when tried on a limited basis in the 21st. What didn’t work then still doesn’t work now. Politicians can’t play investor. Period.
Readers should remember this as they see left-of-center thinkers like Jay Shambaugh, Betsey Stevenson, and Gretchen Whitmer join hands with right-of-center thinkers like Alex Brill and Douglas Carr in their call for more government to fix today’s sagging economy. The simple truth is that government actions caused the contraction. To subsequently pretend that government can fix what it broke by arrogating to itself the allocation of trillions first created in the private sector is a monument to double counting, and a false triumph of hope over experience.
Stated simply, the economy is weak because politicians imposed command-and-control lockdowns, and having done that, they poured gasoline on a fire of their own making with trillions more in spending. Let’s not vandalize common sense with more of what’s already failed. The only economic relief is an end to the lockdowns.
Reprinted from RealClearMarkets