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Thursday, February 26, 2009

Parable of the Broken Window

The most interesting thing about the Congressional Address by President Obama is the authority with which he believes that the government can solve our problems better than we can. Basically, the economy is broken, and they can spend money to fix it. There is a great fallacy that the Keynesian model violates outlined in the Parable of the Broken Window.
The destruction of property and/or an economy are never good. Rahm Emanuel (Chief of Staff) once coined the phrase "never let a serious crisis go to waste." The idea that one can fix the problems of a nation through intervention are never valid. Had a recession not happened, had a building not been bombed, or a window broken, what would those resources have went to that were used to fix them? Possibly to open a bigger store, buy current technology, build roads, etc.
Our government speaks of the need, now, to invest in an outdated infrastructure system. This is, infact, productive if you believe the government has the role of building such infrastructure for the nation. However, had the government not paid farmers not to farm, could those needs have been met long ago? Had the government not paid to bomb AND rebuild nations around the world, could we have afforded productive road expenditures? Had the government not subsidized low-income urban housing, would currently urban dwellers have found low cost rural housing on their own and made a life among themselves? And those subsidies gone to roads? Had the government not subsidized elderly and impoverished health care (historically the most expensive), could we have that great infrastructure that we're so desperately behind on?
There are outdated things in this nation that need work, and no one is complaining about the portions of bailouts that go to roads. To the contrary, I think many are happy. However, when those productive expenditures are the vast minority among the "stimulus" measures, and given the non-stimulative spending that has been pursued in the past, can anyone question why I don't trust the government to not consider the costs of the broken window now?
Nations don't spend their way out of problems, they produce their way out of them. This nation needs to learn this quick, because spending can buy lower unemployment in the short term, but productive employment is what ends a crisis. If this administration is giving money to pharmaceutical companies for research (might not be beneficial for 50 years), energy companies for research, subsidies for Hybrid vehicles, and for increasing unemployment benefits, welfare, entitlements, and the like, then we will see the opportunity costs of those non-productive expenditures come back to bite us in the very near-term.
Immediate productive spending is necessary. Absent of increasing the productive capacity of the American economy, all of the debt and artificial wealth that Obama wants to free up for us all will only delay the inevitable. And at the back end of it all, we will be about $3-5 trillion more in debt and turn a recession to a depression because of it.

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