Letter to the editor: Government action can actually create prosperity - by Jerry DiMarco

Found here. Our comments in bold.

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The letter writer thinks that government creates prosperity, and gives a few fallacious examples based on an absurd premise.

Before we get to his letter, we need to understand the simple fact that government has no money of its own. It has to obtain money from others, either by taxing it or by borrowing it.

Regarding taxation, it means there was a dollar bill in Joe Blow's wallet, and Joe was going to spend it. But he was deprived of the usage of his money because government took it and spent it.

Economically speaking, it makes no difference who spends the dollar in terms of the effect that dollar has on the economy. Whether Joe Blow spends it or the government takes it from Joe and spends it, it's still the same dollar. There is no amplifying effect. The government simply substitutes its own preferences and objectives for Joe Blow's as to where that dollar is best spent.

Regarding borrowing, the government is the big player in the loan market. It borrows inconceivable amounts of money, and spends enough to give every single person in the US more than $20,000. Every year. 

The money it borrows is obviously money someone else cannot borrow. In the past there has been enough money to supply every borrower with loanable funds, but that's no longer the case. Government borrows so much money that it impacts what other parties can borrow. 

In addition, the government must service the cost of interest on the money it has borrowed, which eats up a sizeable portion of the annual budget. This means the a substantial part of the money it sources from taxpayers goes right back out the door to pay interest on the debt. That amount in 2021 was $413 billion, 6% of the budget. And this is just paying the interest, because the government has not paid back principal on the debt since 1957.

Only a foolish person would think that government borrowing does not affect the economy.

There is actually another source of money for the government: Inflation. Only government can cause inflation, because government controls the supply of money. The number of dollars in circulation determines what each dollar is worth. That is, the total value of US currency divided by the number of dollars in circulation is the value of a dollar. 

Government has printing presses, and can simply feed paper through the machine and create money. That's all that's required. This is known as fiat currency. It's not backed by something tangible, like gold. Government simply declares it to be money and it's money.

Simple math is involved here. If the total amount of dollars has a certain value, adding more of dollars to the economy means each dollar is worth less. That's inflation, the devaluing of currency. But since the economy is not a closed system, small amounts of change in the money supply has had limited effect. But that's not what's been happening for the past couple of decades, or longer. Huge amounts of dollars have been added to the economy, and it has now caught up with us. 

It would now take more than $17 to buy something that cost a dollar 100 years ago.

One might think that devaluing the currency is a deliberate strategy. Inflation certainly can benefit the the government in several ways. First, because the outstanding national debt becomes effectively smaller, it can be serviced with less valuable dollars. Second, as the appetite of government increases, the taxpayer simply cannot pony up enough dough to satisfy government craving. So the government simply prints it, puts it in neat little bundles and hands them over to various government departments, crony corporations, foreign entities, and yes, to taxpayers, thereby avoiding the bad press that comes with raising taxes. 

So the government can keep itself afloat (at least for a while), by spending money it simply creates out of thin air. Through various manipulations, juggling of funds, raiding trust funds, giving out loans and grants, issuing bonds back by the "full faith and credit of the United States," and "creative" bookkeeping, it can keep the balls up in the air well enough to make it seem like everything is ok.

But eventually inflation starts kicking in with a vengeance, which is the inevitable result of increasing the money supply. Now the taxpayer feels it in his wallet. Everything is costing more. A lot more. The taxpayer, though not being taxed for what the government wants to spend, is still paying for it. That's why economists refer to inflation as an indirect tax. The government got to spend oodles of money without directly taking it from the taxpayer's wallet.

Eventually, inflation will be bad for government as well, but one can be sure that government will invent new ways to kick the can down the road, most certainly leaving a trail of destroyed families and shuttered businesses in its wake.

We say all of this to set the reader up for the below letter to the editor, where the letter writer extols the virtues of big, oppressive government.

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Occasionally there are letters from one side of the aisle claiming government does not create prosperity. However, there are obvious examples we have all seen that show that’s not true. Government creates prosperity when it responds to disasters or recessions. We would not have pulled out of our recent recession without government intervening to keep us healthy and in our homes, and propping up businesses. (Which is obviously false. Government IMPLEMENTED the shutdown. Democrat governors and state legislatures shut their states down. Yet the letter writer wants to give government credit for "fixing" a problem it caused?

The states that reopened quickly or imposed minimal restrictions did much better with comparable or even better COVID results. It became clear early on that there was no need to continue the repressive COVID restrictions, but the government maintained the false narrative about the danger of the virus and the efficacy of the restrictions long after the data indicated otherwise.

So of course government cannot receive credit for solving the problem it created, exacerbated, and perpetuated.

Let's talk about the Obama "recovery." It was actually an extended period of lackluster economic performance, lasting much longer than historical recessions because of government intervention, and made worse by wild government spending. 

And by the way, both GM and Chrysler received bailouts, and both declared bankruptcy, while Ford did not and persevered through the recession. We are dubious of the claim that government "saved" businesses by its profligate spending.

It was government meddling that made the 2008 recession worse and prolonged it. For the many trillions of dollars of deficit spending, the American consumer got zilch, while big corporations rolled in the dough.

The letter writer has a strange idea of what constitutes government success.)

The economy got back on track, and GDP returned to its pre-pandemic trend much sooner. (There is no way the letter writer can know this, because we don't have control group. There is no way to determine if a lack of intervention would have yield better, the same, or worse results. 

And we are only a few months removed from the supposed end of the COVID crisis, so it's way too early to tell if we have returned to pre-pandemic levels.

Further, it should seem obvious, but when the economy is shut down, businesses are not selling, people aren't buying, and manufacturers are not making products, and the resultant economy is bad. So when the COVID restrictions were finally relaxed the economy began recovering. This means any activity looks good compared to no activity.

Lastly, we note for the record that the pre-pandemic levels which characterized the booming economy was led by Trump.)

Government provides for the orderly functioning of society, which facilitates the creation of wealth. (Yes, absolutely true. This is not in dispute. However, that does not speak to government intervention into the economy.)

Businesses benefit from government regulation of import and export markets. (All regulations do this? What about the Trump sanctions against China, which the Left vehemently opposed? Generic reference to government regulation does not speak to any specific benefit or detriment.)

Infrastructure improvements enable economic growth, and create markets where none existed before. (These are not government interventions into the economy.)

We also benefit from government investments in education, research and health care. (Hmmm. All three are in desperate states. Education is a mess, research is tied to Big Pharma profits, and healthcare is an absolute disaster. Where have we benefited from all this "investment?")

Many corporations in energy, agriculture, transportation and financial services benefit from subsidies. (Yes, they indeed do benefit from receiving other people's money. Which means the ones that are not subsidized are at a disadvantage. Government is essentially picking winners and losers, creating imbalance in the economy, and causing all sorts of mayhem. 

But of course, a subsidized business in not necessarily a successful business. That is the reason for subsidies. And, subsidies are tied to political agendas, which are intended to prop up otherwise unviable businesses or pay off corporate buddies. Solyndra, anyone?

And might we ask, aren't these these eeeevil corporations? Why should they receive subsidies?)

There are market failures that only government can address. (No, there are not. Market failures are not for government to "fix.")

Superfund cleanups protect public health, restore the environment, and improve economic and social conditions in communities. (Superfund cleanups are not failures of the market. A company that pollutes is breaking the law, and law breaking violates the market.)

The Superfund program would pay for itself in 38 years through reduced special education costs alone. Benefits of the Clean Air Act exceed costs by 30-1! (The letter writer's premise was that government can create prosperity, not that government programs can have a return on investment.

And, there isn't a single government program that pays for itself. It's not an objective of government programs. In fact, we would challenge the letter writer to produce a list of government programs that have been shut down because they solved the problem, or operate in a revenue-neutral manner, or generate an identifiable financial benefit paid to the taxpayer commensurate with the cost of the program.

The Clean Air Act costs $65 billion a year. So that means the 30x benefit comes out to $1.95 trillion, while the total US budget for 2021 was $6.818 trillion. So these supposed benefits amount to nearly 29% of the budget. That equals $6000 per person, per year. This doesn't even pass the smell test.

I want to know, where's my check?)

Social Security benefits provide the majority of retirement income for persons over 64. (That is, SS is the big player in the retirement income business, It has achieved this prominence by confiscating 15% +/- of worker's pay via the tax system. How might a private business compete with that?

Being the big player says nothing about the quality of the program. In fact, it is quite clear SS provides barely a subsistence level of existence.

And by the way, the proceeds of this confiscation are placed in the SS trust fund, which the government promptly borrows and spends, which means SS is bankrupt and government has even more debt to pay back.) 

It lifts more people above the poverty line (22.5M adults and children) than any other program, ("Any other program?" Now the author is comparing government programs with each other? Ok, let's go there. How about SNAP and other similar welfare programs? 59 million people are on welfare. 22 trillion dollars has been spent on these programs since the mid 1960s.

So what has been the result? Here's the historic poverty rates:

Does the reader see that the anti poverty programs of the 1960s came at the tail end of a long, steep decline in poverty rates, and have had little impact on the average poverty rates since then?

In addition, the poverty rate among seniors is 9.5%. They constitute 16.6% of the population, which is about 55 million people, which means about 5.5 million seniors are in poverty. Despite the supposed success of SS lifting people out of poverty...

And also, the Left is always complaining about seniors having to choose between healthcare and food. That also constitutes success, apparently.)

and reduces mortality among the elderly by 30%. (Compared to what? Again, what control group is there that we can compare to to derive this number? Mortality overall has improved for decades, even centuries. How is it possible that the piddling little payout of SS gets credit?)

Other social programs also pay for themselves or even pay dividends. When they reduce poverty, entitlement spending is reduced, (???? Giving people an entitlement decreases entitlement spending? What?)

and more people earn incomes that allow them to contribute to the economy and tax revenue. (So seniors, living sparse lives on the crumbs paid to the by SS, are being taxed? This is a good thing?)

This also has positive effects on children's education, behavior, health and career outcomes.

More government, more jobs, more prosperity and less taxes! There's one political party that just doesn't get that. Makes you wonder what idol they’re worshipping. (The author's ignorance is facilitated by his strict adherence to The Narrative. He thinks that more government is a good thing, so that should mean that even more would be better. And more. And more. We should therefore insist that government be as big as possible, because the letter writer says it's good.

In fact, there should be no market at all, correct? It can't solve problems, but government can. This would mean that the free market needs to be abolished because it must be what is causing problems like poverty. 

The letter writer can't come out and say it, but what he's really wanting is Marxism.)