Posted by
Dave Smith on Tuesday, March 17, 2009 12:14:52 AM
As mentioned previously, President Obama has spoken about how "only
government" can provide the action required to get the economy moving
forward again. Over the past 13 months, the government has certainly
done a lot. The results are worth examination.
In the face of
what was considered at the time a potential economic slowdown, Congress
passed and then-President Bush signed the Economic Stimulus Act of 2008
in February of last year. The centerpiece of the act was a "rebate
check" for millions of Americans who fell below a certain income
threshold; those who the government determined made too much money
didn't receive the "rebate". The package also contained some tax
breaks for businesses. The total projected cost of the "stimulus" plan
was $152 billion.
At the time of the passage of the Economic
Stimulus Act of 2008, the Dow Jones Industrial Average stood at 12,348,
the unemployment rate was 4.8%, and the Gross Domestic Product was at
approximately $14.2 trillion.
Although considered expensive at
the time, the first stimulus bill seems a bargain when compared to the
government intervention that followed. As 2008 marched forward,
trillion became the new billion, as the Federal Reserve began opening
its funds to investment banks for the first time, and the government
bailouts began. The government oversaw the destruction of Bear
Stearns, the failure of Lehman Brothers, and other mergers, buyouts,
and cash infusions. Insurance giant American International Group (AIG)
was deemed "too big to fail", and began receiving its own infusions of
billions in cash (while famously refusing to give up spa excursions and
performance bonuses). American automakers when hat-in-hand to the
government for their own bailout billions, and of course there was the
passage of the $700 billion (and possibly more) "Troubled Asset Relief
Program" (TARP) , ostensibly passed to help remove the "toxic assets"
from the financial markets that were based on bad mortgages,
derivatives, credit default swaps, etc.
At this point, one would
be excused for thinking that the government was done throwing money at
the problem and taking stock of whether its actions were helping or
hurting the prospects for economic recovery. One would, of course, be
wrong. Following the inauguration of President Obama, the
European-style government intervention continued at an even greater
rate, with another stimulus package passing Congress and being signed
into law by the new President, this one with a price tag of another
$800 billion. More billions followed for AIG, GM, and Chrysler.
So in the past 13 months, literally trillions
of dollars have been injected by the government into stimulating the
economy to produce a recovery. Surely after all that government action
things are improving?
The results are sobering. The
unemployment rate has gone from 4.8% to 8.1%, with over 4 million jobs
lost. The Dow Jones has gone from 12,348 to a close of 7,216 as of
March 16. The Gross Domestic Product has shrunk to approximately $13.6
trillion -- approximately a $600 billion loss, with another $400
billion or so projected for 1st Quarter 2009.
The results show
that the massive expansion of government intervention is not stemming
the tide, stimulating growth, or creating jobs. Now consider this:
if, rather than massive government spending and regulation, in February
2008 the government had injected a dose of free market capitalism --
reducing taxes and tariffs on businesses and individuals, simplifying
the tax code, and streamlining cumbersome regulations. If those same
results had come to pass, is it not a certainty that the prevailing
conclusion would be in the media that free market capitalism had
failed, and it was time for a new approach? Yet failure of government
intervention yields only calls for more government intervention, more massive spending, and higher taxes.
It
has been said that insanity is attempting the same thing over and over,
expecting different results. The last year has shown that government
intrusion is not the solution. Throwing more money is not the solution.