A salesman at a car dealership in New York was gushing about the "Cash for Clunkers" program, under which the government will give $4,500 to those willing to trade in an older, less fuel efficient car for a new more fuel efficient car. He was quoted as saying, "It's a great stimulus package."
At face value it would appear as though the salesman's observation is spot on, as this program has certainly been a shot in the arm for the auto industry. But here is the dirty little secret: this money the government is giving away is borrowed. They don't have the money, they're printing it. It's money that you and I will have to pay back, with interest, in order to give some of our fellow citizens extra motivation to go buy a new car. Even though I myself cannot afford a new car my government finds it perfectly acceptable to add to my debt by lending my future money to someone else. For the politician the best part is a whole slew of people like our salesman will give them all the credit in the world for doing so. Are we really that happy that our money keeps getting spent on our behalf? It reminds me of that scene in Animal House where Kevin Bacon is getting hit in the rump with a wooden stick, and after every bruising slap he grunts "Thank you sir may I have another?"
Since when did borrowing money to grow the economy seem to make sense? Oh, yes, I remember. The Stimulus package. The problem with programs like this is that the best possible outcome is that the economic downturn slows or stops. But even in that best case we'll emerge with even more debt. Strange, but that doesn't seem like progress to me.
Here's what I would have suggested: every time you buy a new car you pay sales tax on your purchase. If the government would provide a holiday from that tax it could have the same stimulating effect on the industry without the negative effect of adding to our debt. As it is if you buy a $25,000 car you'd pay about $1500 in taxes with a 6% sales tax rate. Not as much money as in the "Cash for Clunkers" program, but it would have been worth a shot before adding to our debt even more.
Unfortunately for us, the current mindset in this country doesn't permit for such thinking. Being financially conservative would require more restraint on consumer spending, less grandiose promising on the part of our politicians and would contrast too much with our rising deficit. Until we change our way of thinking we'll continue to find ourselves being fooled into thinking that programs like this are good for our country and unable to see them for what they are: vehicles for our politicians to gain support and power.
Friday, July 31, 2009
Friday, July 17, 2009
Lessons in History
If you were living in May of 1776 you would be right in the middle of one of the most pivotal events in the last 500 years. Allow me to paint a picture.
You're living in the British colonies in the Americas and are currently at war with the British Empire, the most powerful empire on the planet. Roughly 30% of your countrymen side with the British in the struggle. The Second Continental Congress is currently meeting in Philadelphia, and you're naturally interested in what your delegates come up with. Especially considering the last time they met they drafted the Declaration of Independence. This Congress produces the first document that will bind the 13 colonies into a confederation: The Articles of Confederation. And on March 1, 1781 the Articles are officially ratified and the Congress is renamed the Congress of Confederation. For the first time it seems as though a nation is pulling together, a scant six years after the official start of the Revolutionary War.
The Articles of Confederation were our Founders first attempt at creating a government over a sovereign nation. Because of their experience with tyrannical government, in forming their own government they were first and foremost concerned with limiting the power any central government would have over them. As such they made sure that most of the power resided with the individual states (small, local government being their ideal). That was the intended goal of the Articles of Confederation.
However after only five years problems within the Articles began to manifest to such a degree that most started calling for their replacement. In meeting at the Second Continental Congress and in their desire to create strong local governments our Founders had underestimated the amount of power the central government needed to be effective. Under the Articles the central government could not regulate national or international trade. It could not levy taxes to generate revenue. And it could not draft a military, instead having to rely on the states to provide men on their own accord. Because of these deficiencies our Founders met again, and the Articles of Confederation were replaced by the Constitution on June 21, 1788.
The consensus in the early years of our nation's life was to avoid a strong centralized government. That desire is evident in the Articles, and even within the Constitution that followed. In the Constitution the powers of the Federal government are severely limited by the individual Articles and further more by the first ten Amendments (the Bill of Rights). It was never the intent of our Founders that the Federal government should get too large or powerful, because the reality for them was they just fought a war to be out from under such a government.
Over time our nation has evolved, and what was once meant to be small and in some ways subordinate to the State government has grown much larger and more powerful than at first intended. Because politicians all believe that the system is broken and must be fixed by them, the natural growth of the Federal government began almost immediately. Thomas Jefferson thought Alexander Hamilton was a traitor for proposing the creation of the First National Bank. Abraham Lincoln greatly expanded the office of the President while fighting the Civil War.
But things got really interesting in the 2oth century. This evolution in the basic structure of our government accelerated under Franklin Delano Roosevelt. Consider this: in 1929 all government expenditures accounted for approximately 3% of the Gross Domestic Product (GDP; the value of all goods and services provided in the U.S. during any given period of time, usually a year). Next year that number will rise to 28% before factoring in any new spending with the health bill our government is considering. That is an increase of almost 1000%. Today the government is almost ten times as large as it was 80 years ago.
It is difficult to over state how large that increase in the size of government really is, especially in terms of how it impacts our daily lives. So what happened?
Social Security. Followed by Medicare and Medicaid. All three of which are either currently bankrupt, or soon to be. But what really changed was the mentality of the American public. No longer possessing personal experience with tyrannical government we lost the desire to be free from their involvement in our lives. There is no fear in America of a government. We have moved away from "That government is best which governs least." When we experienced difficult times during the Great Depression we allowed the government to assume a much larger part in our lives. And that involvement continues today in all new ways.
Whenever someone is disappointed in the direction the country is headed they often lament about how sad it is that our nation has moved so far away from our Founder's original intentions. But normally those lamentations are motivated by disappointment in some policy decision. Even before we complain about how gay marriage, abortion, capital punishment or even the War in Iraq has changed America, in some very important areas this country already no longer resembles the United States at its founding.
This might be something to keep in mind when considering President Obama's new health bill. Not only have we just passed a $1 Trillion deficit (and it's only July!), but as a % of our GDP our government is already spending way more than our Founders could have ever conceived of. And that fact has drastically changed the function and fabric of our society. Whether people want to believe it or not, in setting up our society the way the Founders did they were warning us about the perils of a strong central government. They were trying to protect our personal lives by encouraging as little government involvement as possible. If we continue along the course we are taking we're going to discover why our Founders were warning us against the dangers of giving politicians too much control over our lives a lot sooner than most of us believe. And that isn't a comfortable situation to be in.
You're living in the British colonies in the Americas and are currently at war with the British Empire, the most powerful empire on the planet. Roughly 30% of your countrymen side with the British in the struggle. The Second Continental Congress is currently meeting in Philadelphia, and you're naturally interested in what your delegates come up with. Especially considering the last time they met they drafted the Declaration of Independence. This Congress produces the first document that will bind the 13 colonies into a confederation: The Articles of Confederation. And on March 1, 1781 the Articles are officially ratified and the Congress is renamed the Congress of Confederation. For the first time it seems as though a nation is pulling together, a scant six years after the official start of the Revolutionary War.
The Articles of Confederation were our Founders first attempt at creating a government over a sovereign nation. Because of their experience with tyrannical government, in forming their own government they were first and foremost concerned with limiting the power any central government would have over them. As such they made sure that most of the power resided with the individual states (small, local government being their ideal). That was the intended goal of the Articles of Confederation.
However after only five years problems within the Articles began to manifest to such a degree that most started calling for their replacement. In meeting at the Second Continental Congress and in their desire to create strong local governments our Founders had underestimated the amount of power the central government needed to be effective. Under the Articles the central government could not regulate national or international trade. It could not levy taxes to generate revenue. And it could not draft a military, instead having to rely on the states to provide men on their own accord. Because of these deficiencies our Founders met again, and the Articles of Confederation were replaced by the Constitution on June 21, 1788.
The consensus in the early years of our nation's life was to avoid a strong centralized government. That desire is evident in the Articles, and even within the Constitution that followed. In the Constitution the powers of the Federal government are severely limited by the individual Articles and further more by the first ten Amendments (the Bill of Rights). It was never the intent of our Founders that the Federal government should get too large or powerful, because the reality for them was they just fought a war to be out from under such a government.
Over time our nation has evolved, and what was once meant to be small and in some ways subordinate to the State government has grown much larger and more powerful than at first intended. Because politicians all believe that the system is broken and must be fixed by them, the natural growth of the Federal government began almost immediately. Thomas Jefferson thought Alexander Hamilton was a traitor for proposing the creation of the First National Bank. Abraham Lincoln greatly expanded the office of the President while fighting the Civil War.
But things got really interesting in the 2oth century. This evolution in the basic structure of our government accelerated under Franklin Delano Roosevelt. Consider this: in 1929 all government expenditures accounted for approximately 3% of the Gross Domestic Product (GDP; the value of all goods and services provided in the U.S. during any given period of time, usually a year). Next year that number will rise to 28% before factoring in any new spending with the health bill our government is considering. That is an increase of almost 1000%. Today the government is almost ten times as large as it was 80 years ago.
It is difficult to over state how large that increase in the size of government really is, especially in terms of how it impacts our daily lives. So what happened?
Social Security. Followed by Medicare and Medicaid. All three of which are either currently bankrupt, or soon to be. But what really changed was the mentality of the American public. No longer possessing personal experience with tyrannical government we lost the desire to be free from their involvement in our lives. There is no fear in America of a government. We have moved away from "That government is best which governs least." When we experienced difficult times during the Great Depression we allowed the government to assume a much larger part in our lives. And that involvement continues today in all new ways.
Whenever someone is disappointed in the direction the country is headed they often lament about how sad it is that our nation has moved so far away from our Founder's original intentions. But normally those lamentations are motivated by disappointment in some policy decision. Even before we complain about how gay marriage, abortion, capital punishment or even the War in Iraq has changed America, in some very important areas this country already no longer resembles the United States at its founding.
This might be something to keep in mind when considering President Obama's new health bill. Not only have we just passed a $1 Trillion deficit (and it's only July!), but as a % of our GDP our government is already spending way more than our Founders could have ever conceived of. And that fact has drastically changed the function and fabric of our society. Whether people want to believe it or not, in setting up our society the way the Founders did they were warning us about the perils of a strong central government. They were trying to protect our personal lives by encouraging as little government involvement as possible. If we continue along the course we are taking we're going to discover why our Founders were warning us against the dangers of giving politicians too much control over our lives a lot sooner than most of us believe. And that isn't a comfortable situation to be in.
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