The stimulus also seeks to supplement state government spending on municipal employment and government-owned infrastructure, making the Government the employer of last resort. Almost absent from the proposal thus far is any suggestion that market-oriented reforms will be given a chance. In fact, the stimulus is being administered in a way that suggest the President and his advisors believe that the Federal Government can replace the market as the economic engine of this country. Whatever one believes about the causes of this latest economic debacle, whether corporate greed or individual excess, the fact remains the free market system has a t wo-century long track record as the creator of unprecedented wealth in America. No government-administered program can match the ingenuity and strength of the American people.
One of the stated aims of the program, according to new commerce Secretary Geitner, is to restore consumer confidence and get them spending again. This philosophy seems to be predicated upon the mischaracterization of the market upheaval as a “liquidity crisis.” This euphemism needs to be instantly removed from the national lexicon. It disingenuously implies that there is some untapped source of wealth out there that can be released if only the government forks over massive amounts of capital to the banks. The term hides the fact that the credit markets are responding to a contraction in the total amount of wealth. In fact, what we are facing is not a crisis of liquidity, but a crisis of wealth itself. No amount of financial chicanery can hide the obvious and incontrovertible fact that Americans are, by even conservative estimates, at least $11 trillion dollars poorer now than when the financial meltdown began. No amount of increased liquidity – that is access to money – can hide the fact that the economy has contracted.
The good news is that a contracting economy is not necessarily a bad thing. Like a drunken sailor waking up just in time to hear the last port call, the effects of a night of binge spending may be wearing off. The last thing we need is to restore a false confidence in the market, which makes credit widely available to an already spending-drunk population. In fact, tightening our belts, have less access to credit, and being forced to increase savings is a better, but necessary pill that America must ultimately swallow.
It is also a bitter pill for the Government to swallow. President Obama seemed to suggest in his first press conference that the stimulus was necessary to get people spending again, and thus increasing government revenue that would be needed to pay for the massive debt being incurred by the government in the spending bill. As we have already seen, the first half of the financial industry bailout did almost nothing to spur private investment or extend credit to consumers, and almost entirely went to funding financial industry consolidation: that is, banks used the money to buy up other banks and not to extend credit to individuals and small businesses for whom the bill was purportedly passed. What makes us think that pouring more than a trillion more dollars on the flames will put out the fire?