RALEIGH – Dr. Johnson may well have been right when he observed that a false appeal to patriotism “is the last refuge of a scoundrel.” I would submit that in the current economic and political environment, a false appeal to economic stimulus will prove to be the last refuge of a bandit.
In the run up to inauguration, both in Raleigh and in Washington, the incoming chief executives are expected to announce large-scale stimulus packages to battle the international recession. Yes, I underlined the modifier for a reason. The economic downturn is worldwide, reflecting the inevitable painful consequences of excessive monetary creation fueling a boom-and-bust cycle. Inflated asset prices – be they for homes, equities, infrastructure, and other capital – are adjusting to real demand. They are adjusting to more realistic expectations of the value of the stream of goods the assets allow their owners to receive. The single most-important thing that government policymakers can do to assist the adjustment process is not to get in its way, not to try to artificially prop up prices through screwy fiscal or regulatory policies.
Unfortunately, forbearance is usually too much to expect of the political class. Schooled in Keynesian claptrap and thrilled by the exercise of power, lawmakers feel compelled to jump into the economy’s “driver’s seat” and start pushing and pulling frantically on every control they can find. The result looks less like a racecar circling Lowe’s Motor Speedway and more like the first time I tried to drive a stick – fits and starts, grinding gears, and lots of furious activity devoted to very few miles actually traveled.
Automotive analogies about the economy frequently put politicians and political commentators on a collision course with certain immovable facts. First, the economy isn’t at all like a car and doesn’t have a motor. What we call “the economy” is really an abstraction representing millions of individual decisions about producing and consuming goods and services. It’s more like an ecosystem, bubbling up from below without a central plan and constantly evolving, than it is like a machine fashioned from blueprints and running on fuel and labor supplied from outside its confines.
An economic recession does not constitute evidence that someone needs to rev up the engine and turn the steering wheel. All too often, the exact opposite is the case – recessions follow well-meaning but counterproductive efforts by politicians to fiddle with the economy, for example by holding interest rates artificially low as a way to encourage “home affordability.”
Nevertheless, as state and federal politicians seem bound and determined to enact huge stimulus packages to fix what many of them broke in the first place, we can at least try to encourage them to do as little damage as possible. That means subjecting “stimulus” claims to strict scrutiny, because you can be sure that every lobbyist for every cause under the sun – education, health care, green energy, space exploration, even the arts and historic preservation – are about to affix the label to his top legislative priorities.
A good rule of thumb would be to ask if a project would make fiscal sense under more normal economic circumstances. For example, while groups such as aggregate miners and paving contractors obviously have a pecuniary interest in proposing highway projects, few would argue with the proposition that there are far too many rickety bridges and congested highways. Their repair, replacement, or expansion will provide significant benefits in safety, time, and freight costs.
But just as the Left has sought to turn every government expenditure into an “investment,” regardless of whether there will be any measurable and realistic rate of return, the bandits of the Beltline and Beltway will seek to turn every government expenditure into “economic stimulus.” Because all government expenditures must eventually be financed by taxpayers, now or later, their arguments will essentially boil down to the claim that removing money from your right pocket and placing most of it (sans shipping and handling charges, of course) in your left pocket will make you richer.
No, it will make you poorer, and slow rather than hasten an economic recovery. Deny the bandits their refuge. It’s your patriotic duty.
Hood is president of the John Locke Foundation