Wintery Knight

…integrating Christian faith and knowledge in the public square

Why is Obama spending trillions when government spending failed in Japan?

Story here at the UK Telegraph. (H/T Protein Wisdom via ECM)

Excerpt:

Regime-change in Tokyo and the arrival of Yukio Hatoyama’s neophyte Democrats – raising $550bn (£333bn) to help fund their blitz on welfare and the “new social policy” – have concentrated the minds of investors at long last. “Markets are worried that Japan is going to hit a brick wall: the sums are gargantuan,” said Albert Edwards, a Japan-veteran at Société Générale.

The IMF expects Japan’s gross public debt to reach 218pc of gross domestic product (GDP) this year, 227pc next year, and 246pc by 2014

“Can these benign conditions be expected to continue in the face of even-larger increases in public debt? Going forward, the markets capacity to absorb debt is likely to diminish as population ageing reduces saving,” said the IMF.

Japan’s $1.5 trillion state pension fund (the world’s biggest) has become a net seller of government bonds this year, as it must to meet pay-out obligations. The demographic crunch has hit. The workforce has been contracting since 2005.

“The debt situation is irrecoverable,” said Carl Weinberg from High Frequency Economics. “I don’t see any orderly way out of this. They will not be able to fund their deficit. There will be a fiscal shutdown, a pension haircut, and bank failures that will rock the world. It is criminally negligent that rating agencies are not blowing the whistle on this.”

[...]It wasted its immense fiscal firepower, scattering money for 20 years on half-baked spending projects to keep the economy afloat. QE was too little, too late, and this is the lesson for the West. We must cut borrowing drastically over the next decade, and offset this with ultra-easy monetary policy. Does Downing Street understand this? Does the White House? Does the European Central Bank? Clearly not.

And now is the time on the Wintery Knight blog where we teach Economics in One Lesson.

Economics in One Lesson

We are going to have to pay for all this spending on Obama’s favored special interest groups eventually, and that means that taxes will go up, or that the value of the dollar will go down, due to inflation. It has to be one or the other or both. There is no third way.

Perhaps it is time to review Henry Hazlitt’s Economics in One Lesson, chapter 4, entitled “Public Works Mean Taxes”.

Excerpt:

Therefore, for every public job created by the bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work. The employment argument of the government spenders becomes vivid, and probably for most people convincing. But there are other things that we do not see, because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $10 million taken from the taxpayers. All that has happened, at best, is that there has been a diversion of jobs because of the project. More bridge builders; fewer automobile workers, television technicians, clothing workers, farmers.

And consider Chapter 5 as well, entitled “Taxes Discourage Production”.

In our modern world there is never the same percentage of income tax levied on everybody. The great burden of income taxes is imposed on a minor percentage of the nation’s income; and these income taxes have to be supplemented by taxes of other kinds. These taxes inevitably affect the actions and incentives of those from whom they are taken. When a corporation loses a hundred cents of every dollar it loses, and is permitted to keep only fifty-two cents of every dollar it gains, and when it cannot adequately offset its years of losses against its years of gains, its policies are affected. It does not expand its operations, or it expands only those attended with a minimum of risk. People who recognize this situation are deterred from starting new enterprises. Thus old employers do not give more employment, or not as much more as they might have; and others decide not to become employers at all. Improved machinery and better-equipped factories come into existence much more slowly than they otherwise would. The result in the long run is that consumers are prevented from getting better and cheaper products to the extent that they otherwise would, and that real wages are held down, compared with what they might have been.

There is a similar effect when personal incomes are taxed 50, 60 or 70 percent. People begin to ask themselves why they should work six, eight or nine months of the entire year for the government, and only six, four or three months for themselves and their families. If they lose the whole dollar when they lose, but can keep only a fraction of it when they win, they decide that it is foolish to take risks with their capital. In addition, the capital available for risk-taking itself shrinks enormously. It is being taxed away before it can be accumulated. In brief, capital to provide new private jobs is first prevented from coming into existence, and the part that does come into existence is then discouraged from starting new enterprises. The government spenders create the very problem of unemployment that they profess to solve.

What Obama did, in effect, is to fire all of those millions of private sector people, so that he could reward the people who voted for him. Jobs are created far more efficiently by small businesses than they are by big government. When you take money out of the private sector, which creates jobs easily, and give it to the public sector, which is inefficient and wasteful, you lose jobs.

George W. Bush cut taxes in his first term and created 1 million NEW JOBS. Obama has LOST 3.4 million jobs in a few months with his trillions of dollars of spending that the private sector cannot pay for. Government spending is a job killer. And no amount of charm and teleprompter reading is going to change the laws of economics.

octjobsgap

This is the way the world works. It works that way in Japan, and it works that way here, too.

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One Response

  1. matthew says:

    STOP CONFUSING ME WITH THE FACTS!!!

    With Pied Piper Obama cleansing us of the evils of capitalism by playing his flutes of marxism, we needn’t be bothered by such sundries as facts, figures, history, and economics.

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