A Clearer Perspective on "The Stimulus Package"

Last Wednesday's editorial by Holman Jenkins in the Wall Street Journal posed the question, "Can Obama Make Government Solvent?"

For some perspective, remember that, as of two years ago, when Frisco Nan's Democrats seized control of the House, they blathered on and on about 'paygo,' and how no tax cuts could be allowed without corresponding spending cuts, in order to preserve fiscal restraint.

Now, of course, the Democrats see no reason to even debate the 'need' to spend one trillion taxpayer dollars.

In the intervening two years, a global process of deleveraging private capital has occurred. As such, between actual losses on exotic structured finance securities, and the failure of investors to refinance increasingly longer-term liabilities, there has been a net loss of substantial capital on account books the world over.

As a society, we have thus deleveraged our private capital, which is distinct from the recession also underway, as I observed in this recent post on my companion business blog.

Into this situation, as Jenkins observes, goes forth the New Messiah, likening himself, evidently, to FDR. Yet the editorialist notes that in FDR's day, we had too little existing government to begin to cope with a much greater economic disaster.

Now, he further observes, we have too much of it. Programs litter the Federal budget from FDR to LBJ and after. So much spending has become disintermediated through Washington that much economic behavior is now hopelessly warped. Jenkins provides the example of health care, in which, because of WWII mistakes to control wages, we now have third-party payers and a perverse tax preference for corporations that notionally choose and fund health care providers, rather than the actual employees/patients.

Though he never quite states it like this, Jenkins essentially expresses the view that, as always, Washington is and will be good at spending taxpayer's money, in the sense that they can find ways to spread any sum around their constituents.

But from an external perspective, one wonders how a trillion dollars, borrowed from foreigners, or printed in US mints, thus devaluing existing dollar claims on our Treasury, will be repaid? If the spending just goes to those whom politicians feel are 'deserving,' how will the money ever bring positive investment returns that will fund the repayment of the trillion dollars, plus interest?

Congress was last seen pumping money, both GSE's and privately-owned banks, into mortgages for the poor, who, in fact, could not afford them. That capital is more or less permanently lost.

So much for our government's judgment on where to deploy capital for maximum economic return.

Instead of using the money to genuinely create positive net economic returns, the New Messiah is simply pumping it out to citizens as a sort of monetary 'feel good' drug. Whether the after effects can be endured will be one important test of the new President's programs.