Greece now owes more in loan repayments than the value of the country’s entire annual output. The Greeks have gone so hog-wild on socialistic entitlement spending that government debt owed to public lenders stands at 121 percent of 2010 gross domestic product. In America, the Obama administration’s projections show that our federal debt will exceed 100 percent of our 2011 domestic output.
Is America turning into Greece? I recently asked this, yet Financial Times contributing editor Niall Ferguson frames the question more emphatically. Greece’s problems are of the same nature as those that affect Iceland, Ireland, the UK, and the United States. Obama’s and Congressional Democrats’ wild spending will create devastating problems partly as a result of miscalculations made by these “progressives.” Ferguson points out,
…the impact of government spending (the hallowed “multiplier”) has been much less than the proponents of stimulus hoped. [and] …explosions of public debt incur bills that fall due much sooner than we expect.
The “multiplier effect,” to which progressives dogmatically cling, is utter bunk. Also, when government runs up successively more humungous credit bills using taxpayer money which that government has yet to collect, repayment schedules accelerate at a much faster rate than the big spenders count on. Addicted gamblers rarely notice how fast bills are piling up. None of these truths surprise anyone who has had their fill of the approach to life sanctioned by 1960s-era throwbacks: “If it feels good do it and screw the consequences.”
The “multiplier effect” is a fallacy. In the 1930s, British economist John Maynard Keynes advocated for massive government spending to jump-start the world’s severely depressed economies. Keynesian thinking depends on the accuracy of a theory that claims that when government injects money into the economy, that injection’s effects are “multiplied” by private sector spending in response to new government programs. The Obama Treasury assumed a multiplier of 1.5, meaning that for each stimulus dollar spent, Obama’s wild-eyed expectation is that Gross Domestic Product (GDP) will rise $1.50. The question then becomes, is this expectation realistic?
Not a chance. The National Center for Policy Analysis examined data for 1947 to 2007 and found an average multiplier of 0.46. Each dollar of government outlay yields forty-six cents in incremental GDP. Applying this finding, as well as a credible assessment of how much “stimulus” would be spent in time to impact recovery, the NCPA study found that only $47 billion of “stimulated” output would result from $787 billion taxpayer dollars. The Congressional Budget Office projected that the stimulus would depress economic growth starting in 2012, with national output being less than if Obama had not tried to “stimulate” it.
And that’s not all. The NCPA found that in every recession since World War II, most stimulus dollars were spent after economic recovery had begun. In other words, economic cycles play out naturally, without government “help.” Free-market capitalists already knew this. Additionally, because stimulus gets financed, producing more debt, government borrowing robs the private sector of recovery and growth funding, thus draining vitality from a recovery which would have proceeded more quickly had no stimulus been injected. Simply stated, stimulus slows recovery. The NCPA study flatly states:
Empirical evidence from past recessions shows that large injections of government spending have not worked [emphasis added].
So then, empirical data from the real world confirm that in recovering from a recession, no government action far outshines a government spending spree. But the real world rings mysterious to dogmatists whose powers of observation have atrophied to the point of nonexistence. Let it not be said that truth, facts, evidence, or common sense stop progressives from their appointed rounds. We are supposed to believe that the mammoth list of partisan agenda items in the $787 billion “stimulus” package have performed and will perform miracles. Perhaps we’ll yet see gasoline prices at 1960s levels after Big Oil gets stimulated to ignore the importance of profits. Maybe we won’t even need oil. What with the wonder of biofuels, all we’ll need are a few ears of corn, really sunny days, and breezy nights.
President Obama’s 2010 budget explodes the federal debt to more than 100 percent of America’s Gross Domestic Product in 2011—a staggering crossover that hasn’t occurred since the end of World War II. The 2011 budget makes things worse. The President’s own ideologue economists confirm that the bills due for their boss’s spending will surpass the entire annual output of the American economy by 2012. In order for Obama and Congress pay off the debt that they are running up like irresponsible children, the IRS would have to confiscate from us an amount of money equivalent to the value of every product and service sold by every domestic producer for a year. The IRS could spread the confiscating over five years and take a fifth of everything we produce in each year. But with the five-year approach, the kiddies in Washington will meanwhile be racking up yet more debt for which we would get slammed eventually anyway.
Instead of confiscating the value of America’s output to pay for Democrats’ irresponsible behavior, if we instead examine the question from an income standpoint, the implications grow to shocking proportion. Every single taxpaying American—now only about half of all Americans—would have to surrender every bit of income to Uncle Sam over several years to completely pay off Uncle’s bills. The other half of Americans, the tax consumers, would sit back with outstretched hands in anticipation of gifts flowing from the oh-so-generous paying half. Of course this entire scenario is totally unsustainable. But you already knew that.