ALLOW me to inform you of the facts regarding the proposed “stimulus” package, and why it will not work. Basically, the program is intended to put money into the pockets of the American public. Let me pronounce that it DOES make a difference how the money gets into the pockets. Let me, for simplicity’s sake, assume that the money is there, in the bad way, as is being proposed now.
The theory is as follows. Joe Public wakes up with extra
dollars. He goes to the store, or
car dealer, and buys hot dogs, and/or a Chevy. The producer of this product, recognizing an increase in
demand, then goes out and hires more workers to make hot dogs and cars. These people, now (re)employed,
re-start the economy by paying more taxes, removing themselves from
unemployment rolls, and buying trips to Disney World, as well as more hot dogs
and Chevrolets. Then everything,
and everyone, is happy and prosperous.
The only problem is that this can NOT
work. This is because the planners
simply do not ever understand how producers (i.e. human beings) act. As many a jerk economist has said,
“There is nothing wrong with my policy; it is the people who malfunction!”
When a producer recognizes increased demand he
will do one or both of two things.
First, he will raise his price.
He may now be able to make as much a profit from selling one Chevy as he
did before from selling two. This
means more income for less work.
Who would---or could---refuse this option? This means increasing prices, i.e. inflation, which may lead
to terrible consequences (e.g. Hitler or Mao, as has happened before). The other course of action is that the
producer will increase supply, to profit more. But he will do so by overtime, or (re)using unused
capacity. He will NOT hire new
people, and thus be burdened with enemy unions, additional hospitalization, extra
processing and administrative costs, training expenses, etc. He may well simply outsource whatever
he can to Indonesia.
With
a doubt, if the “stimulus” increases for years and years and years, and then even
more years, the extra money MAY induce some new employment. But by then the increase in this “free”
money will drive prices higher, and higher, in a self-creating cycle. And such results were precisely what
Jimmy Carter gave us. Those were
the days of high inflation, high interest rates and high unemployment. This is why Hitler and Mao came to
power.
The proper course of action, as Reagan
understood, was to aid the producers, and not the consumers. That worked, and would work again. Do not expect Obama to try it. His ideology will not allow him to
support prosperity. He is, so far,
committed to doom.
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