Thursday, July 15, 2010

Stimulating Unemployment and Inflation

The policies of the Obama Administration are continuing to stimulate unemployment, not jobs. Moreover, rampant inflation is coming, a future result of those same policies. There are two very knowledgeable and well-respected economists who explain it quite simply—Dr. Walter Williams and Dr. Thomas Sowell.

The following is condensed from Dr. Walter Williams' July 14, 2010, article “A Failed Obama Hero”—

Let’s look at the failed stimulus program of Obama’s hero, Franklin Delano Roosevelt. The unemployment figures for FDR’s first eight years were: 18 percent in 1935; 14 percent in 1936; by 1938, unemployment was back to 20 percent. The stock market fell nearly 50 percent between August 1937 and March 1938. During the Roosevelt Administration, the top marginal income tax rate was raised at first to 79 percent and then later to 90 percent. In 1941, Roosevelt even proposed a whopping 99.5 percent marginal rate on all incomes over $100,000.

Where do the trillion-plus dollars come from that Congress and President Obama are spending in an effort to stimulate the economy? The only way government can spend a dollar is to tax or borrow it.

In the case of a tax, one should ask what would that taxpayer have done with the dollar had it not been taxed away. He would have spent it on something that would have created a job for someone. If the government hadn’t borrowed the dollar, it might have been invested in some project that would have created a job. When government taxes, borrows and spends, it shifts unemployment from one sector to another. Of course, the sector that benefits tends to be a political favorite of the shifter.

Between 1787 and 1930, our nation has seen both mild and sever economic downturns, sometimes called panics, that have ranged from one to seven years. During that interval, no one considered it to be the business of the federal government to try to get the economy out of a depression because there was no constitutional authority to do so. It took the government to turn what might have been a three- or four-year sharp downturn into a 15-year meltdown.

The following is condensed from Dr. Thomas Sowell’s July 13, 2010, article “Signs of the Times”–

Barack Obama has spent hundreds of billions of dollars of the taxpayers’ money just by using the magic words “stimulus” and “jobs.” It doesn’t matter that the stimulus is not actually stimulating and that the unemployment rate remains up near double-digit levels, despite all the spending and all the rhetoric about jobs.

Not only has all the runaway spending and rapid escalation of the deficit to record levels failed to make any real headway in reducing unemployment, all this money pumped into the economy has also failed to produce inflation [so far].

How can the government pour trillions of dollars into the economy and not even see the price level go up significantly? Economists have long known that it is not just the amount of money, but also the speed with which it circulates, that affects the price level.

The velocity of circulation of money in the American economy has plummeted to its lowest level in half a century. Business are holding on to their money. There should not be any great mystery as to why they don’t invest it.

With the Obama Administration being on an anti-business kick, boasting of putting their foot on some business’ neck, and the President talking about putting his foot on another part of the anatomy, with Congress coming up with more and more red tape, more mandates and more heavy-handed interventions in businesses, why would a business risk money it might not even be able to get back, much less make any money on the deal? Banks have cut back on lending, despite all the billions of dollars that were dumped into them in the name of “stimulus.”
Consumers have also cut back on spending.

People don’t know what to expect next from this administration, which seldom lets a month go by without some new anti-business laws, policies or rhetoric. Businesses have no way of knowing what additional costs the politicians in Washington are going to impose, when they are constantly coming up with new bright ideas for imposing more mandates on business.

One of the little noticed signs of what is going on has been the increase in the employment of temporary workers. Businesses have been increasingly meeting their need for labor by hiring temporary workers and working their existing employees overtime instead of hiring new people
because temporary workers don’t get health insurance or other benefits, and working existing employees overtime doesn’t add to the cost of their benefits.

There is no free lunch—and the biggest price of all is paid by people who are unemployed because politicians cannot leave the economy alone to recover.

Walter E. Williams was born in Philadelphia in 1936, holds a bachelor’s degree in economics from California State University (1965) and a master’s degree (1967) and doctorate (1972) in economics from the University of California at Los Angeles. In 1980, he joined the faulty of George Mason University in Fairfax, Virginia, and is currently Distinguished Professor of Economics. More than 50 of his publications have appeared in scholarly journals such as Economic Inquiry, American Economic Review and Social Science Quarterly and popular publications such as Reader’s Digest, The Wall Street Journal and Newsweek. He is also the author of several books.

Thomas Sowell was born in North Carolina and grew up in Harlem. He left home early and did not finish high school. Eventually, he joined the Marine Corps and became a photographer in the Korean War. After leaving the service, Thomas Sowell entered Harvard University and studied economics. After graduating magna cum laude from Harvard University (1958), Thomas Sowell went on to receive his master’s in economics from Columbia University (1959) and a doctorate in economics from the University of Chicago (1968). He has published a dozen books, as well as numerous articles and essays. He is a senior fellow at the Hoover Institute in Stanford, California.

1 comment:

  1. I have five apartment vacancies in July. That's never happened in almost seven years. Inflation has indeed hit Safeway, quietly but surely the prices of items I use every day are creeping up. Some as much as 20%.

    This is not the caliber of analysis that Williams and Sowell use, but I'm convinced that things are getting worse for me economically. I sure wish I knew when and how we will recover. I could make some sort of plans on where to invest what little I have to invest. In the meantime, I stay home and pay down debt.