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You Can’t Spend Your Way to Wealth

In a deepening recession, what does the reasonable man do? Seeing friends laid off, he will get rid of all but essential credit cards, dine at home more often, terminate unnecessary trips to the mall, put off buying a new car, give up the idea of borrowing on the vanishing equity in his house. He […]

In a deepening recession, what does the reasonable man do?

Seeing friends laid off, he will get rid of all but essential credit cards, dine at home more often, terminate unnecessary trips to the mall, put off buying a new car, give up the idea of borrowing on the vanishing equity in his house. He will begin to save and start paying down debt.

A company that has reached the limits of its credit and is staring at Chapter 11 will batten down the hatches, lay off nonessential workers, cut employee hours, put off expansion plans, cancel year-end bonuses, and try to ride out the storm.

This is the natural behavior of people responsible for others in an economic storm of the magnitude of the category 4 hurricane heading our way. Yet, to see and hear our government, folks are doing exactly the wrong thing.

For the U.S. government is set to borrow on a colossal scale, unprecedented save in World War II, and to take America trillions of dollars deeper in debt to pick up the slack in the economy caused by the rational decisions of individuals and corporations.

The Fed, whose easy-money policy created the housing bubble that has exploded in our faces, is back printing money and shoveling cash into the banks. And, though the Bush deficits are said to have been responsible for our troubles, a new Congress and president have advanced a deficits-be-damned, full-spending-ahead policy.

On top of Bush’s $455 billion deficit and hundreds of billions in bailouts for AIG, Bear Stearns, Fannie, Freddie, and CitiGroup, Obama is talking up a new stimulus package of $500 billion to $1 trillion.

Our governors and mayors — who, facing deficits, had been cutting back — have now reversed field and are demanding to follow the federal formula.

When Obama arrived at the National Governors Association Conference in Philadelphia, they pounced. Led by Pennsylvania’s Ed Rendell, they handed Barack a bill: $138 billion. The governors want U.S. taxpayers to relieve them of what U.S. families face: the need to cut spending, pay down debt, make sacrifices, take pain, and live within their means.

According to the Wall Street Journal, the mayors have now followed the governors’ lead, declaring they have 4,100 projects “ready to go,” which they want U.S. taxpayers to fund.

What are these projects?

Under the ever-popular rubric “infrastructure,” they include roads, bridges, schools and public buildings. California Gov. Arnold Schwarzenegger says he has $28 billion worth “ready to go,” which he would like folks in the other 49 states to fund.

Now, historically, bridges, highways, roads and public buildings have been regarded as pork. In the campaign, they were “earmarks” — payoffs for powerful constituents, a form of political corruption that reformers like Barack and John McCain were going to end.

Now, it seems, earmarks are our salvation.

Why are governments at every level doing this?

Because government believes that the restoration of economic health requires us to act against our natural instincts in a recession, and start buying and financing new homes and cars, and get back to the malls, lest this Christmas season become a bummer for retailers.

After all, 70 percent of our gross domestic product is now based on consumption, though Americans in recent years have had a savings rate of zero.

The disconnect between the instincts of average citizens and the policies of government could not be greater. Governments want us to act prodigally, while natural instincts and inclinations are telling us to act conservatively.

Conservatism and capitalism are giving conflicting signals.

Average Americans are behaving as though in rehab, trying to kick a bad habit of spending more than they earn and borrowing more than they can pay back, while the U.S. government is suggesting that what we really need is to return to the auto showrooms and malls, and start spending again, only in radically increased dosages.

Beyond the present recession, questions arise as to whether the U.S. model is sustainable. If government spending were the remedy to recession, why, after Bush’s deficits, are we in recession? And if the easy money of Ben Bernanke’s Fed is the cure for what ails us, how did we get sick when Alan Greenspan’s Fed was conducting a never-ending policy of easy money?

How does it stimulate the private economy to pump hundreds of billions of dollars into consumer checking and credit-card accounts, when more and more of what we consume — from computers to cars to clothes — isn’t even produced in America anymore?

What do conservatives, few of whom have opposed the Obama plans and fewer of whom have called for repeal of Bush’s big-spending social programs, believe is the alternative approach to ending the recession and creating a sustainable economy?

For the economy we have seems to be condemned to an ever-deepening and widening cycle of crises, each brought on by the cure for the previous crisis, which is always the same: more government.

COPYRIGHT 2008 CREATORS SYNDICATE INC.

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