Let me get this straight. The Government is going to spend lots of money and that is going to create wealth for all of us. They plan on spending trillions in the next year or so. That is a lot of potential wealth creation. Let’s do some math on that one. Take your own estimate of how many taxpayers there are in the country right now. Not total population but taxpayers. Then divide that into say 2 trillion which seems to be a pretty conservative estimate now of the spending proposed between bailouts and stimulus planned for the coming year or so. (Indeed when you add in the extra money that is likely to be spent by the Fed which will be off the expense books it is quite likely too low). Anyway, do your own math and see what you come up with per taxpayer. It is a huge number, at least to my way of thinking. Then just cut whatever number you came up with in half. Let’s just write a check for those folks. It would be more efficient. Of course there is one big problem with creating wealth and a healthy economy with Government spending and that is that the money has to come from taxes ultimately. That means we are paying for it. We are advancing money to ourselves. Regrettably we don’t get it until it has been filtered through Washington and then redistributed the way the politicians want after they pick the winners and losers in our society. The winners you can be sure are the ones who are most likely to vote back into office the very politicians who parcel out the money.
We have had a tremendous reduction in wealth over the last year because of the drop in values of everything from stocks to housing. That loss may well continue for some time to come and I question whether new Government spending is going to restore that wealth. Every dollar spent has to be rasied by taxes. Even the money borrowed by the Government has to be repaid and you guessed it, that can only happen if the tax revenues are there to pay them back. The only alternative is inflation if the Government decides to simply print more money and make it worth less. It is a demographic fact of life that the housing market is not going to be robust for years because of the bust of the Baby Boom generation. We can’t change those numbers no matter what Congress does and doesn’t do. There will continue to be demand for housing but it will remain subdued compared to the ’80’s and 90′ and the early years of this century because there will not be enough buyers for all types of housing as there was during the prime time for the Boomers. That demand and the ridiculous regulations that not only permitted but urged lending to folks who couldn’t afford the house they were buying caused the bubble in housing prices for the last 15 years.
There was a long time rule of thumb that house prices would grow at about the same rate as overall wages. Historically that has been around 3% at year. Which is not bad for a long term investment and especially since it is an asset that the average Joe gets to use on a regular basis. He lives there. As you know the value of housing was increasing far beyond that 3% rate recently in many areas of the country for years. That was a clear warning sign to everyone. Anytime any asset starts appreciating much faster than an historical average you can be sure that at a point that rapid increase will disappear. Sometimes the value of gold will increase $10 in a day but it can’t do that day after day ad infinitum. Nothing can apprecite like that.
We are probably in for a fairly long haul of being thrifty because people are just now learning the lessons of excess. The excess was on all levels–private and governmental. We will truly be in an Age of Thrift for some time. It won’t last forever, nothing every does in economics, but it will endure for years. Government spending won’t make that change nor will it affect the demographics of the waning Boomer years. I want to see us have a robust and growing economy as much as the next person. I don’t understand though how taxing ourselves will do it. That
Government spending is a tax plan ultimately. I would love to hear someone explain to me how all that spending is not going to result in a huge tax bill. I fear we will not be spending our way to prosperity but taxing ourselves into economic oblivion. Just when things might seem to be improving the bills will start arriving in the mailbox.
Even the Government hasn’t figured out a way yet to create the free lunch. They will try mightly to persuade you that that is what they are offering now. Taxes or inflation. Those are our choices down the road if we embark on this profligate spree of Government largess. Neither has positive implications for our future. The market if left unfettered can and will correct itself by punishing the foolish and wasteful and rewarding the industrious and thrifty. Trying to be Mother Nanny will not solve our problems but merely surrender more of our freedoms to politicians and entangle our economy even more with the whims and caprices of those politicians who want us in thrall to Mother Government.
Scrip is not money but more akin to a redeemable coupon for assets, goods or services. As the Allies took over the countries of Europe during WWII they often would resort to scrip on a short term basis for the market to function at least on a primitive basis. The victors would issue it to the local population for use to acquire the necessities of life. Much like a ration card. Corporations can even issue scrip. In over 40 years of law practice I was involved in one case where we issued scrip to creditors. It is the only case I know of where it was done. Germany worked under a scrip and ration card system for about 3 years after the War. The new Marks weren’t put into circulation again until about 1948. Each person was issued a set number on a specific date and then they were off and running.