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March 3, 2009 Is Spending the Answer? by Rep. Ron Paul, MD
If spending was the solution, we never would have had a problem. During the last eight years, we've blown up the size of government and certainly had no want of spending on foreign or domestic policy. The Bush administration increased spending almost 20% its first term, and nearly doubled the national debt by the end of the second term. Certainly the case cannot be made that lack of government spending created the problem or can be the solution. This is mirrored in American households. According to CNN private sector debt is 365% of private sector gross domestic product. Many relied simply on steady and continued increases in home values to enable spending and secure more debt. That trend has proven unsustainable and many Americans are adjusting their finances accordingly. For the first time, household debt is beginning to fall as consumers wake up to the realities of paying off debt and living within their means. Wouldn't it be great if the government would do the same? A lot of capital and liquidity is out there waiting in the wings as the new administration is bringing about government uncertainty, a concept discussed by Robert Higgs as prolonging the Great Depression. In other words, it is a foregone conclusion that government will act. But, like a chicken with its head cut off, no one knows which way it will run, just that it will flail about wildly until it collapses. Why start a business, when businesses could face the brunt of an increase in future taxation? Similarly, why hire a new employee if tax policy will just force you to fire them later on to stay afloat? Why buy a house, when you have no idea how future government meddling in the housing market will affect its value? Why spend at the shopping mall, or buy a new car when you don't know how tax policy will affect your family budget, or if your job will come under the axe because your employer's tax burden is increased? I argue that these kinds of questions and concerns contribute to the weakening economy. This type of tax policy keeps capital out of third-world nations, and now is keeping capital in hiding here in the US. People are concerned about security and savings again, retrenching their household and business budgets. The economy could be helped if the government would just get out of the way and restore sound monetary and fiscal policies.
Dr. Ron Paul is a Republican member of Congress from Texas.
Because The Radical Academy publishes essays and articles on its website does not imply acceptance or approval of the comments or opinions expressed by the author of the material. Nor is the Academy responsible for any misrepresentation of the facts included. It is your job to be a critical reader.
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This
week, Congress and the administration once again
showed their lack of economic understanding, as
they ramped up spending to record levels. On the
surface, maybe it does look to some like the
economic crisis is a liquidity problem, that the
economy is in trouble because money is not changing
hands at the pace it once did in the boom years.
They believe that to get back to a booming economy
money needs to start changing hands again -- and
the quickest way to do this is for the federal
government to massively expand spending to pump new
money into the system. If this is the extent of
their understanding, no wonder they call for
spending, taxing, bailouts and inflation.
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