According to the economic theory currently being pedaled in Barack Obama’s Washington, spending huge gobs of money stimulates the economy. Funny, wouldn’t that mean that $4 gasoline should’ve been a stimulus? High energy prices sure had people spending there for a while, in amounts roughly triple what the so-called “stimulus” bill will pump into the economy. Yet the increased cost of this spending is part of what popped the debt bubble and sent the economy downward to begin with.
So, apparently, spending money does not necessarily stimulate growth and stability. What? High energy prices are a special case? Well then, that also doesn’t bode well for the stimulus bill, since nearly $100 billion of the proposed fiscal orgy will be directed specifically to “green” energy – the most expensive kind of energy there is. In fact, I think it might be called green energy because many of the technologies lumped under that banner are about as efficient as just burning dollar bills to generate steam. Now that I think about it, dollar bills, being made from cotton fiber, would probably qualify as biofuel under the bill.
Even worse, most of the money allocated for stimulatingly expensive green energy (rather than expensive regular old energy) would be doled out in grants and “infrastructure” contracts that would see most of the money not spent for months or years, long after the course of the current recession will have already been determined. With any luck, most of the funds will jolt into the economy just about the time the bailout funds and natural economic cycles start to move things along, creating a huge inflationary shock that will actually lengthen the economic downturn.
But at least the money to be spent will be borrowed, or just printed. Both actions will create a drag on the economy that is in many ways more pernicious than simple energy price increases, since these costs cannot be voluntarily lessened. As recent statistics show, you can always drive less if gas prices get too high. You cannot, however, choose to pay less in taxes or lower the rate of inflation if green energy subsidies get too high.
Borrowing money on a massive scale (for, say, a $1 trillion stimulus bill) also has the effect of drying up a lot of credit that would otherwise go to private debt markets. Essentially, the “stimulus” plan to end a crisis -- caused in part by a lack of liquidity -- is for the government to sop up all the remaining liquidity by issuing guaranteed bonds to risk-averse banks. Amazingly, the government just spent $700 billion on a bank bailout designed to increase lending, and now it plans to borrow $1 trillion from those same banks to fund a stimulus. Yeah, that should help liquidity.
Given the patent absurdity of borrowing money from the economy to pump money back into that same economy, it is no wonder that the Congressional Budget Office just issued a finding that, in the long run, the stimulus bill would do more harm to the economy that it would do good.
With all these issues, it’s no wonder that Congress is rushing the bill through without much debate. How could it stand any debate?
If you really believe that forced spending of borrowed money on expensive energy will stimulate the economy, then I have a better plan: let’s just bomb Iran. That should get oil up to around $200 a barrel overnight and cause us to have to take on massive debt to deal with the aftermath. And it can all happen quickly, too. There’ll be no need wait for a competitive bidding process or to repeal the laws of thermodynamics via Congressional subsidy.
On the other hand, if all this seems absurd to you, then there’s hope. We cannot spend our way to wealth anymore than we can borrow our way to solvency. Burdening the economy with expense and debt, while simultaneously mandating the energy choices that must be made by consumers is a formula for economic malaise, not economic recovery.
If you want to stimulate the private sector, shouldn’t the government stop borrowing all its capital? And if you want to stimulate the economy via energy policy, why not try making energy cheaper?
The only thing expensive energy has ever stimulated is unemployment.
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