Secretary of Agriculture Tom Vilsack claims that food stamps stimulates economic growth and thereby creates jobs. Somehow welfare handouts create jobs. For a while now Democrats have made ridiculous claims, hoping no one would challenge them. Perhaps there was a time when the media and academics would not. Here is a look at some of these silly claims and the theories behind them.
The basic concept of government spending creating jobs comes from economist John Maynard Keynes. The gist of his theory is that unemployment rises when money is being saved or “hoarded” rather than spent or invested. By hoarding money, individuals are taking it out of the economy, lowering demand and forcing companies to reduce production and lay off workers (lowering supply).
To Keynes, it was simple: keep demand up. To accomplish this, the government must increase spending dramatically.
Using Keynesian economics, President Obama, Speaker Pelosi, and Majority Leader Reid put together a huge stimulus program, paid for with borrowed money, to help replace the lost demand. Unfortunately most of the money didn’t go to public works projects as Keynes would’ve envisioned. Most of it went to protecting the bureaucracy and expanding welfare programs.
Somehow transferring money from private sector workers to bureaucrats was supposed to stimulate economic growth.
Here is a look at a couple of other silly claims:
Food Stamps Create Jobs
Some call President Obama the food stamp President. More Americans are on food stamps than at any point in the last few decades. Most would say this statistic is a sign of poverty and distress. Not Obama and not Sec. of Agriculture Tom Vilsack. A larger food stamp program is good.
The food stamp program is funded through taxes and borrowing. Basically, the federal government takes money from one group of Americans (high income earners and bond buyers) and gives it to another. The assumption is high income people won’t put the money to good use. In order to get that money into the economy, it has to be taken away from the hoarders and given to those most likely to spend it.
While the theory sounds compelling, it never works in practice. Welfare programs create dependency. Dependent people don’t contribute to the economy, they feed off it. People on welfare tend to stay on welfare as long as possible. For example, people receiving unemployment benefits usually don’t step up their job hunt until their benefits are on the verge of running out. Welfare programs encourage workers to stay on the sidelines and spend other people’s money. Having more consumers (welfare recipients) and fewer producers (workers) is not good for the economy.
“Investment” in domestic programs leads to growth
President Obama has touted “investment” in things like federal education programs, health care, government research, and other such things. Money is taken from the private sector and put into the public sector. The idea is public employees (i.e. bureaucrats) contribute more to the economy than high income earners.
If government programs are an investment, they have abysmal returns. Democrats don’t seem to realize that successful individuals and corporations are successful because they know how to manage their finances. They are the most successful in fact. Bureaucrats are not the best investors; if they were they’d already be wealthy and probably not working for the government.
There is also the alternative argument that a better educated, healthier workforce will produce more. By increasing funding for these public services we are investing indirectly into the economy.
However, increasing government spending on these programs does not improve their quality. Most problems are not solved by simply throwing money at them. For example, the federal government has tripled spending on Education since 1970, yet test scores are dropping. Around the country some of the worst schools receive the most funding. Colleges are flushed with cash thanks to generous government subsidies, and federal student loan programs. Yet by most measures the quality of college education in America is getting worse.
The same goes for every other public service program. Increasing government spending on public services does not necessarily improve them. At best it slightly improves services, at worst it is counterproductive.
Americans Save Too Much
I’ve heard several Keynesians and statists argue this. The economy is bad because the wealthy save too much. Somehow they’ve convinced themselves the economy took a turn for the worse because rich people stopped spending money and started saving. They believe individuals and corporations need to be coerced into spending money and discouraged from saving.
This reasoning is offensive, condescending and dangerous. It accepts the premise that individuals are not qualified decision-makers and need government to step in. The idea that the government or the state knows best offends the most basic American notions of liberty and entrepreneurialism. Government control is not how the United States became the largest most dynamic economy in the world. It can’t even manage its own finances.
The federal government doesn’t know about every individual’s financial situation and can hardly be expected to make the right decisions for them. Instead they look at everything in abstract “aggregate” terms, where the entire country is spending, saving, demanding, supplying, completely ignoring the fact that the economy is comprised of people. Each individual is in their own unique financial situation, has their own wants and needs, and their own unique plans for the future. What they do with their money is their own business.
Instead of telling people what to do with their money, how about asking a simple question: why are Americans saving so much? What caused the 2008 financial meltdown?
Before Obama, we were essentially following a Keynesian-style plan. The government borrowed hundreds of billions every year and Americans were spending and borrowing to excess. What were Americans spending most their money on? Houses. Thanks to subprime mortgage loans, many Americans bought homes they couldn’t afford. Americans were also incurring large amounts of debt on their credit cards because of their confidence in the future. Their homes were appreciating rapidly, increasing their personal net worth. Things were looking great.
Unfortunately it all rested on a foundation of cards. Subprime loans along with certain government incentives pushed demand up so high, home prices rose with it. The artificial demand formed a bubble increasing house prices well beyond their actual value. When the bubble burst, many Americans saw their net worth plummet. Many defaulted.
The collapse of the housing market changed everything. Trillions in new wealth disappeared. Americans were drowning in debt, losing confidence in their future. In the years that followed, Americans took advantage of the tax credits to help them pay down their debt. In other words, the tax cut portion of the Stimulus went mostly into savings – exactly where it would do the least amount of good for the economy.
Other government policies also added to the feelings of pessimism. Most expect taxes to go up, not only in 2013 but later on. As the government adds trillions to the debt, most businesses are preparing for more tax increases in the future. There has also been a dramatic expansion in government regulations, increasing the cost of doing business. In some cases, new regulations are making it impossible to do business in the United States.
President Obama’s economic policies have failed to encourage recovery and in many cases has made things worse. It ignored the underlying problems. Instead, it attempted to impose an abstract solution to a complex, real world problem. This is what you get when economic policy is crafted by Ivy League academics with little or no experience in the private sector. To make matters worse President Obama’s so ideologically married to Keynesian economics he unable to admit his mistake. Instead he blames everyone else for undermining his brilliant ideas. That is not leadership
Trying to pass this off as good economic policy shows this administration is out of ideas as well as out of touch with reality.
