主题：04/01/2009 Market View -- 宁子

And you know what? We were WAY, WAY behind the Germans and the Japanese in technology because our industry had basically done nothing during the big government spending Depression years. We had to play catch up, and the GREATEST DISPLAY OF THE POWER OF CAPITALISM ever resulted as we bridged the technology gap between us and the Axis powers in a matter of a few short years. We not only conceived and then produced the best war machines the world had seen in a short period, but we also conceived the MANUFACTURING PROCESSES that allowed us to produce them quickly and cheaply. When the US entrepreneurs and workers were unleashed the results were nothing short of astounding. Germany did not think we could do it. Some in Japan feared awaking the 'sleeping giant.'

The Current Plans are a Throwback to the Old.

We awoke, but now we are being put back to sleep by the 'Europeanization' of our economy as we move toward massive government spending, nationalizing healthcare, the Executive acting as the 'Super CEO' for US businesses, replacing CEO's and making decisions for the companies.

First, where in the Constitution does it authorize this executive authority? Hint: NOWHERE. That begs the next question: why are we not rioting in the streets similar to the Europeans protesting the G20? Our rights are being taken in front of us without a whisper of protest. There are some getting involved in the 'Tea Parties,' but where are the advocates filing lawsuits to stop this action so that the Supreme Court can get into this power grab and put a stop to it?

Second, we have a President with no business experience and that has not, to our knowledge, held a post-graduate job for a for profit entity that did not receive large portions of its funding from the federal government. Not really the savvy business type you want to run a company and get it out of financial trouble. Yes, but what about his advisors? Larry Summers never ran a business; he is an ivory tower type spending most of his life lecturing or getting paid by the government. He was Energy Secretary under Clinton and did a fairly terrible job. There is another irony with Summers as well. A scholar that denies the leading scholars on the Great Depression and the historical, empirical evidence of the lack of impact of government spending, at least as far as improving the economy and our standard of living.

The Current Recession. Why not just spend our way out?

As noted above, this has already been a long recession by US and indeed global standards (throwing out Japan's 12 year depression starting in the 1980's), and now we are promulgating policies that duplicate those of the other long recession periods and indeed the Great Depression itself, namely massive government growth and massive growth in government spending.

But even if history shows that 'pump priming' doesn't work, it still appeals to people: get the money out in the system and let them spend it, thereby generating economic activity. Problem is, and sadly so, if you give it to the low end workers they spend it on basics needed to live, e.g. gasoline, food, rent/mortgage. Those areas DO NOT create more economic activity. You have to get money in the hands and provide incentives to those that will create new companies and technologies and thus new jobs. That is how you get out of these economic depressions.

Think about it, if more government spending worked, why would we only spend a measly 5 to 7 trillion dollars? The Obama administration says that for every dollar spent it will produce $1.50 in economic activity. If that is the case spend $10T or more and get $15T back. What a deal. Spend $1 to make $1.50. No businessman would turn that down.

Sounds great, but it doesn't work. As we have discussed, history is replete with attempts to spend our way to prosperity and each time it failed and failed miserably. And what of that $1.50 you get back for the $1 spent? EVEN IF THAT WERE TRUE, and history shows it is not, that $1.50 would be worth less than $1.50 was before the spending. Why? Because this kind of spending sends your currency down as if a rock was tied around its neck. Massive spending debases your currency. Just look at the recent bond sales needed to fund the stimulus. The US is the gold standard for bonds, but we had to pay a lot more interest last week to sell our bonds than normally required all because the trillions of dollars we are spending on these programs that many around the world don't think will work. So, a $1 spent today, even if it could return $1.50 down the road, would not really return $1.50. Indeed if we continue spending such massive amounts it will return less than the inflation adjusted value of the dollar initially spent. That is no deal. That is a recipe for prolonged economic malaise as we have seen in our past.