However, the single most important thing that Congress and the president could do to help the economy recover is to hold down government spending. Government has no money of its own -- something liberals seem incapable of understanding. Government gets money only by taking it away from individuals. Corporations don't really pay taxes; they simply act as tax collectors, passing on to the government in the form of corporate taxes money that would otherwise have been returned to shareholders in dividends and capital gains, to customers in lower prices, or to employees in higher wages. Government spending, therefore, is simply taking individuals' money and spending it in ways they either wouldn't -- or couldn't, at least efficiently -- spend it themselves.
Uncle Sam is pretty much in the same position as most American families these days: Less money is coming in and there are few opportunities to change that in the short run. So what do families do under these circumstances? Most sit down and figure out what is essential to the family's well-being and spend only on those items they must. In other words, they learn to live on less. But not so the government. Instead, Uncle Sam figures out a way to borrow more and keeps spending as if the borrowed money never had to be repaid.
We know what happens to families who take this approach -- they eventually go bankrupt when lenders stop lending and demand to be paid. The process is a bit more complicated -- and takes longer -- when it comes to governments, but in the end, economic ruin is still the result when government continues to spend beyond the revenues it can ever hope to bring in. Mexico, Russia, Argentina, and Ecuador have all faced this in recent decades, and Iceland and Greece are among those on the brink now.
But if the president and Congress were to commit themselves to some real fiscal and regulatory restraint, it could have enormous positive impact. Right now, many businesses are worried that they will be asked to pay for new federal mandates, from health care reform to new regulations, as well as to pay higher taxes (or more accurately, to collect more taxes on the government's behalf). The uncertainty makes them less likely to hire more people or make capital investments they might otherwise.
If the feds showed some spending restraint, it might actually loosen up spending in the private sector. And that, more than anything else the government could do, would be the best medicine to aid the current recovery and prevent another recession.
Linda Chavez is chairman of the Center for Equal Opportunity and author of Betrayal: How Union Bosses Shake Down Their Members and Corrupt American Politics .
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