Welcome to the Age of Something for Nothing

While American families are tightening their belts across the land, the federal government is printing and spending money as if there’s no tomorrow. And we can expect the incoming administration to ramp up spending to levels no living soul has ever witnessed.

Sunday morning the Syracuse Post Standard printed excerpts from an interview with newly elected congressman Dan Maffei (D-NY). (As of this writing the article is not available online.) Mr. Maffei is worried about the Syracuse Symphony and other non-profit organizations. I have nothing against the symphony, rumor has it that my late grandfather played violin in in the Syracuse Symphony. Maffei’s comment that left me concerned was:

The bottom line comes down to the fact that they’re all going to be suffering under major state funding cuts unless we figure out a way to help the state help them…The fact is at the end of the day (the state) cannot borrow money the same way the federal government can. So right now, in this economy, basically the only place, the only entity that can expand and do the Keynesian model is the federal government.

On the economic stimulus Maffei had this to say:

I think what we need to look at is the family. Right now familes are more in debt than ever. They have every possible kind of debt – they have mortgages, consumer debt at sometimes outrageous interest rates, usury-like interest rates, and they can’t get student loans. We’re starting our children with a mortgage with no house.

On a side note, Mr. Maffei was also quoted as saying “in some ways we’re in sort of a post-ideological part of politics…” I laughed out loud when I read that one. But the article wasn’t in jest and he was serious about Kenyesian politics and the federal government printing and borrowing money.

Apparently, Mr. Maffei (and the rest of the big spending Democrats) didn’t see Peter Schiff’s column in the Wall Street Journal Saturday morning. Mr. Maffei is correct in that we are “starting our children with a mortgage with no house.” Where he gets it wrong is that the mortgages on our children are ever expanding entitlement programs and exploding federal debt. Where do these people think the money comes from? Schiff explains it quite well.

Taking the theories of economist John Maynard Keynes as gospel, our most highly respected contemporary economists imagine a complex world in which economics at the personal, corporate and municipal levels are governed by laws far different from those in effect at the national level.

Individuals, companies or cities with heavy debt and shrinking revenues instinctively know that they must reduce spending, tighten their belts, pay down debt and live within their means. But it is axiomatic in Keynesianism that national governments can create and sustain economic activity by injecting printed money into the financial system. In their view, absent the stimuli of the New Deal and World War II, the Depression would never have ended.

On a gut level, we have a hard time with this concept. There is a vague sense of smoke and mirrors, of something being magically created out of nothing. But economics, we are told, is complicated.

It would be irresponsible in the extreme for an individual to forestall a personal recession by taking out newer, bigger loans when the old loans can’t be repaid. However, this is precisely what we are planning on a national level.

I believe these ideas hold sway largely because they promise happy, pain-free solutions. They are the economic equivalent of miracle weight-loss programs that require no dieting or exercise. The theories permit economists to claim mystic wisdom, governments to pretend that they have the power to dispel hardship with the whir of a printing press, and voters to believe that they can have recovery without sacrifice.

As a follower of the Austrian School of economics I believe that market forces apply equally to people and nations. The problems we face collectively are no different from those we face individually. Belt tightening is required by all, including government.

Governments cannot create but merely redirect. When the government spends, the money has to come from somewhere. If the government doesn’t have a surplus, then it must come from taxes. If taxes don’t go up, then it must come from increased borrowing. If lenders won’t lend, then it must come from the printing press, which is where all these bailouts are headed. But each additional dollar printed diminishes the value those already in circulation. Something cannot be effortlessly created from nothing. Read full article.

It seems we don’t have many Austrian economists advising our elected representatives. If so, perhaps they would think twice about mortgaging our children’s future to avoid a little bit of pain in the present. Why so few people fail to understand that you can’t get something for nothing continues to baffle me. I suppose as long as we have politicians promising voters the right to pick the pocket of another, whether it’s a current rich person or a child with no right to vote, we’ll continue to have people voting for something for nothing.

This entry was posted on Monday, December 29th, 2008 at 12:30 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed.