Once Again, Government Spending Can’t Spark Growth
John Kostrzewa mentions, as if it should be a surprise, that temporary tax gimmicks have been as unable to spur the economy as giving away loads of money:
The federal housing tax credit was supposed to be the bridge between a dead real estate market in early 2009 and a recovery this year.
The idea was that an $8,000 credit would stimulate sales and stabilize prices, forming a floor under a housing market that had been sinking for three years.
For awhile, it seemed to be working.
But when it expired last month, and the private housing market was left to stand on its own, another reality hit home — the federal tax credit had become a bridge to nowhere.
Used this way — especially by a government already running deficits — tax credits are little more than government giveaways. Economically speaking, they’re good, as far as government giveaways go, because at least they reward some sort of activity, but they’re still just a limited drop of resources.
In that, such credits are in keeping with the flawed and failed approach that the Democrats have been taking to stimulating the economy. Essentially, Obama and Co. have been gambling that the private sector would come up with something as government hand outs bridged the economic gap. Back in 2009, I likened the method to adding water to a pond in the hopes that it would overflow its bounds somewhere and expand.
There are two problems with this strategy:
- The government, by its nature, must take money from one area of the pond in order to dump it in another.
- The areas that it has sought most rapidly to fill — maintaining or expanding money in the public sector and in select, struggling industries like housing, finance, and automobiles — were a problem precisely because they were artificially high.
Kostrzewa cites uncertainty as the root cause of continuing malaise, but that’s more of a subsidiary cause. The free market thrives on uncertainty and risk. What makes the current uncertainty insidious is that it is the result of government usurpation of market mechanisms. In other words, it’s not that people are uncertain about what will happen in the future — which they always are — but that they’re uncertain about the very rules of the economic game under the micromanagement of a capricious government that’s easily manipulated by special interests.
At this point, the only way to change that dynamic — barring a surprise breakthrough like another Internet — will be a plausible mea culpa by the federal government for its actions over recent decades, the last two years most of all. New policies should lower taxes permanently and withdraw the government’s various fingers from the economy. And the only way for such a turnaround to be plausible will be in conjunction with major turnover in elected offices.