Earlier today I was asked to respond to the following question:
“I’m curious to know how you answer this question; When it comes to government stimulus plans, does history show that government stimulus plans have EVER WORKED? Particularly in relationship to FDR, the Depression, and the New Deal.”
For anyone interested in the more clinical explanation for this type of question, here is my response which I trust you will find of interest:
“In responding to your question, I believe the answer needs to be bracketed by a distinct series of foundational points, here are but a few:
- First, one has to create a distinction between what constitutes the role and practice of Government (as they are) versus what is the more functional role as they were intended.
- True, there are certain functions that can only be handled by the mechanism of government because of their global (i.e., national) domain. Examples of which are a functional legal and monetary system, infrastructure development and maintenance such as rail, road/highway, defense/armaments, a postal system and so on. However, these are not economically self-sustaining or incentive-driven/productive (though they have the potential of being so) programs. They are system-enablers/facilities and although they represent an enabling component to the economy, they do NOT produce collateral economic benefit to an economic system or to what I refer to as the Native Economy.
- It must be remembered that it is the Native Economy that generates the wealth required to pay for these system-facilities and ultimately, any and all expenditures of Government.
- As government does not possess the Tortional Economic Tensions required to produce economic efficiencies that are an integral component of the Native Economies self-directed capabilities, it then follows that it has no such collateral incentive toward economic efficiency. Further, it (government) possesses no instinctive prohibitions against economic waste, e.g., Defense Spending, Entitlement Spending (Social Security, Medicate/Medicare etc.), Community Reinvestment Acts, Great Society Mandates and including but not limited to, as your question identifies, FDR’s New Deal programs.
- Another great example of the lack of collateral incentive toward economic efficiency are Prevailing Wage Laws that require and/or institute mandatory wage minimums for government contracts. The Prevailing Wage Laws, such as those in California, require that the minimum hourly rate for any government contract conform to these so-called wage standards. This of course gives rise to the occurrence were you actually have flagmen on street/highway projects compensated at hourly wage rates closing in on $50/hr. The consequence of which illustrates the complete absence of the affects of tortional/tensional competition/efficiencies. One also witnesses fist hand the effects of what I refer to as Physio-Socio Economics, the institutionalized mandate of both excess, waste and inefficiency being adopted by the private sector who participates in these projects.
And so, to conclude:
Government does not possess the ability to mandate economic efficiency primarily because it is nonresponsive to economic prohibitions which drive economic efficiency. The reason for this is quite simple as it has the uncontrolled advantage of a rather unique ability: to legislate unto itself the ability to tax, borrow and spend at will. By extension of the same, this ability encourages and/or entices the private/native economy in to becoming non-productive as it also becomes detached from the native command toward economic efficiency and productivity. Even more so, due to the nature of governments spending and economic practices, business actually morph to configure their business models in such a way as to prey on these very same government processes instead of pursuing, adopting and developing native economic practices/opportunities/efficiencies (i.e., pro-generative and self-sustaining economic productivity and profitability.) These businesses, like the public, in effect actually concede to the course of least resistance – government handouts, stimulus packages and entitlements (GM, Chrysler and nearly every business in the Banking/Financial sector are examples.)
The illusion that FDR’s programs were functional has never been documented and in fact of those that survived, we see the validity of my observations above playing out before us in programs such as Social Security. The greater danger that is often overlooked by FDR’s New Deal programs is that they inspired similar excess that are directly related to the economic cataclysm this Nation now faces; Medicaid, Medicare, Community Reinvestment Act, Price Support Structures, Collective Bargaining and the list goes on and on. The ability to Debt-Subsidize Spending is not nor will it ever be an economic substitute for a productive, vibrant and Self-Sustaining Native Economy.
It is, in point of fact, WWII rearmament and reorientation of the U.S. Manufacturing infrastructure and not FDR’s New Deal programs that created the Post WWII economic cycle. It also proves the points made above, that without a productive wealth-creating native economic system, there is no measurable economic output. Trading dollars for dollars (as in the service sector) or distributing dollars to non-productive programs that are economic disincentives (as in the case with the government), also produces no measurable economic output but in fact, produces measurable economic consumption, massive debt accumulation and ultimate decline which is precisely what we see in the U.S. today.
Now then, as an alternative, here is the shortest possible answer which I’ve retrieved from a previous post You Can Fix What Prefers to Remain Broken:
Government Stimulus Programs (general)
Comment: These programs always fail for one primary reason; they produce no productive incentive. They are always selective entitlements and never designed to be economically self-sustaining. Thus, they are perpetually and exponentially consumptive. They are, as experience illustrates, proven disincentives.”
So, there you have it. “Simple Economics”!
Curtis C. Greco, Founder
