The federal government is a little bit like the Energizer Bunny. It just keeps growing and growing and growing. It expands through both sickness and health. It moves on through good times and bad. Here we are in the most miserable crisis of our lifetimes, with more than 30 million jobs lost, gross domestic product sinking by more than 30 percent, and major industries from airlines to retailers to hospitals to restaurants in financial free fall.
Amidst the pain and suffering, one sector of the economy was prospering. Can you guess? It was the federal government. While Americans shared in the sacrifice, lived with less, and tightened their belts, Uncle Sam became wider than ever. What do Democrats and several Republicans in Congress want to do now? Embark on more government spending and hiring so the public sector workers do not feel the crushing burden which has flattened private sector workers and business. This is spectacularly evident with the numbers from the most recent report on the economy. Private investment is down by 49 percent, while federal spending is now up by 47 percent.
The politicians are not nearly done spending. House Speaker Nancy Pelosi proposed a $2 trillion stimulus package that would push federal spending to above 50 percent of our gross domestic product for the first time ever. Democrats insist on more funds for the subway systems, pension benefits, and social workers. Pelosi also wants $500 billion shifted from the private sector to state and local governments. Perhaps most bizarre is the call for $100 billion for schools, even as most do not plan to open for classes.
Meanwhile, academics tell us we need another $2 trillion more in federal spending for a stimulus of the private sector. But this did not work under President Obama when we had the $1 trillion stimulus and the economy would lumber forward at the slowest pace since the Great Depression.
Government spending is the ultimate financial placebo. Politicians do not produce anything. They can only spend money, and they start by taking it. Yet experts advise the government to continue spending and worry about how to pay for this binge later. They even tell us that writing every person checks and paying workers to stay unemployed is a stimulus. It would be wonderful if this idea were true, but the basic fact here is that it is not.
The great Milton Friedman put it this way. “Since all spending is taxes on someone else now or later, the dollar cost to those who pay the taxes is exactly equal to the dollar gain to those who receive the spending. It is like a wash out. However, we are not at the end of the story. Getting the extra taxes requires raising the rate of taxation. As a result, the taxpayer keeps less of each dollar earned or received for a return on investment, which reduces his or her incentives to work and to save. Far from being the stimulus to the economy, the extra spending is a drag on output.”
If no one stops the federal spending binge, Congress could use another stimulus deal that sends the economy into another Great Depression.
Stephen Moore is an adviser at Freedom Works and a member of the White House economic recovery task force. Find him on Twitter @StephenMoore.