Wednesday, March 4, 2009

Stimulating the Economy: Is Public Spending worse than Private Spending?

Tom Kando

Okay, so the problem is that people need to start spending money again, right? Banks must start lending again, people must start borrowing and consuming again. That’ll create jobs, etc. We all know the drill by now.But here is where the two sides - Democrats and Republicans - disagree: The former - let’s call them Keynesians - are happy to have the government do a lot of the “stimulating,” i.e. spending and creating jobs. And it’s obvious that if you agree with the Keynesians, you’ll also have to support a fairly high rate of taxation (or else very large deficits).
The latter - let’s call them Limbaughians, after the famous economics expert passing for radio commentator - keep saying that only the private sector can create jobs and foster a productive economy, and that high taxes destroy jobs and businesses, and kill the economy.

This has been the mantra of the Limbaughians. It was the central issue in the recent months-long wrangle and deadlock over the California state budget. It is also the argument used ad nauseam by the critics of Obama’s policies. Even the Obamaites agree. That’s why the new President prefers to talk about lowering taxes than raising them - even though he knows that he has to do the latter, too, of course, at least on the rich, who have so vastly increased their share of the pie during the past thirty years.

How come so few people question the Republican mantra? How come almost everyone gives in on the cliche that higher taxes kill jobs and businesses, because they reduce consumption? Isn’t it obvious that every penny handed over to the government also gets recirculated into the economy, i.e. spent, somehow?The difference between a socialized economy and one in which the government is small is not that there is less money being spent in the former, but how and by whom the money is being spent. In a more socialized economy, many of the people in department stores and supermarkets are state employees, that’s all.

Think also of the non-stop argument as to what put an end to the great 1929-1939 Depression. It has been almost universally accepted that FDR’s New Deal did not solve the problem, but that World War Two finally did. Conservatives have managed to totally bamboozle public opinion into agreeing with this. The implication is that public works and other government programs don't solve anything. But what was World War Two, if not massive public spending? Are conservatives suggesting that some public spending, for example global war, is an effective and therefore desirable way to get us out of a depression, whereas projects like the TVA are useless and a waste of money?

It’s amazing how easily the populace can be brainwashed. Just paste the label “socialism” on a proposed policy, and it’s dead. Just say, “the Europeans have proven that socialism is a failure,” and you have won the argument.

But the Europeans have proven no such thing. They have proven that totalitarian Communism is a failure. And now we have proven that unregulated Capitalism is also a failure. What has not been proven is that a mixed economy, an economy that is socialized to a significant degree, is a failure. The best economies in the world, the countries where there is the least amount of poverty, where the quality of life is the best, where people are the healthiest - countries such as Germany, Japan, Scandinavia, France, Canada - are all mixed and highly socialized, while at the same time utterly free and respectful of human rights and civil freedoms.

The optimal level of taxation is a legitimate topic of debate. But the shibboleth that if you raise taxes, you automatically destroy jobs and consumption, must be vigorously questioned. The only thing that happens is that more money gets spent by the public sector and less by the private sector.

Ronald Reagan and many others have often said, “people should have the right to spend their own money, rather than have government bureaucrats spend it for them.” Such slogans have a nice ring, but they are hollow: Money spent “privately” is every bit as often, if not more so, spent the wrong way. By that I mean on yachts, $300,000 Ferraris, private jets, million-dollar country clubs, palatial Wall Street offices, secluded billionaires’ mansions, and all the other accouterments of inequality. Personally, I prefer it if the government spends my money on hospitals, national parks, public universities, public transportation, highways and bridges, and everything else that works for me and for the vast majority of the people.
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