What Exactly Are We Stimulating?

By the time I post this President Obama will have signed into law one of the largest government spending programs in history. I realize that Congress needs to do something and many of the citizens of this Country and the world at large have called upon our government to DO SOMETHING, but I think we all expected that these elected officials would actually try to figure out how to do something that would actually help rather than hurt. This spending bill is more of the same pork barrel governmental waste that is symptomatic of the root cause of the mess in which we are mired. 

The problem is demand. Demand creates jobs. Demand increases production. Demand supports prices when it exceeds the available supply. The spending bill does not create demand for anything. It spends money taking unemployed people and putting them on the taxpayer's dole. 

Demand in our country is created by the consumption of goods and services by individuals and the private sector. Demand itself is stimulated by need. Individuals and the private sector are not in a position to need anything because of our massive increase in consumption over the past few years and their bloated debt. How many new TVs, cars, computers, ipods do we need? Freeing up credit and making it available to people who can't afford to take on more debt doesn't create real demand. It creates real bankruptcies.  It creates the overextension of credit issue that started this mess to begin with.

Any solution proposed by the government needs to focus on reducing our nations debt burden, and reducing the debt burden of the individuals and businesses who spend their dollars in a productive manner. Most americans get this. Over the last few months, we (collectively) have been charging less on our credit accounts and paying down some of our debt.  Certainly there are some who haven't and can't pay down debt.  There are those whe never should have borrowed to the extent they did in the first place and will have to endure a painful solution to reduce their debt.  Why can't the government take steps to reduce the debt of the people as well?  It is time to pay the piper.  

John Maynard Keynes postulated that while government debt matters in theory, it doesn't matter in practice because the debt will have no effect in his lifetime.  That has been our philosophy for the 3+ generations since Keynes.  Well, you know what? Keynes is dead.  His immediate followers are dead.  Government continues to rack up debt.  Someone needs to pay the debt.  Debt does matter now!  Keynes convinced generations to put it on the next generation.  We are that next generation, and we now need to pay the piper not only for our own excesses, but for those of the generations since the last great depression. Until we clean up our collective balance sheets - either by bankrupting debtors or devaluing the currency or by some other method - we will have a substantial barrier to demand growth.

Let's focus on the real problem!  Government spending does not create real jobs.  It is a stopgap measure that takes away labor and capital from the private sector.  Don't get me wrong, I am not saying that everything in the spending bill is evil - there are some noble pork projects that our elected representatives have been lobbied hard to deliver and might in a perfect world improve some standard of living in some segment of our society.  Those are issues for congress to debate.  Just don't do it under the guise of trying to stimulate the economy.  In the long run it chokes the economy.  While the long run may not have had a practical effect on our parents and grandparents, it does to us.  Deliver a real solution that addresses the core issues, not a band-aid for a symptom.