Posted by
Andrews on Friday, February 13, 2009 11:12:32 AM
I was reading again the
MSN article about Obama's Oprah-like offer to "do everything we can" for the homeless woman in his Florida audience, and one particular line caught my eye:
Goodson flew to Washington on Thursday to meet with U.S. Sens. Mel
Martinez and Bill Nelson, pressing them to vote for the stimulus bill
and make sure it includes a tax credit to get stalled public housing
projects — like the one in his city — moving.
So, the solution to all our economic woes is putting up more public housing projects? And somehow creating dreadful public housing will make us all better?
I am sorry, but welfare as stimulus, even when it includes construction of new structures, is a bad idea. I know the Keynesian doctrine about stimulus, the multiplier effect, and so on, and I have made clear I think it is nonsense. Our problem is not a lack of "economic activity", our problem is simply that banks and others have assets they thought would be negotiable and provide liquidity, and they suddenly are valueless. There are related problems, such as individuals who gambled on ARMs and lost, or people who bought houses beyond their ability to afford, and, since the economy has started to slump, there are other problems for those who lost jobs, but overall the problem is not a lack of activity, it is that money was diverted into the wrong channels.
And building inadequate housing for everyone is not the solution. Especially not when it will be financed by massive new inflation. The solution is to return to money backed by a physical commodity to prevent rampant inflation of the money supply. Barring that, the solution is to sit back, weather the rough times, and wait for the economy to adjust itself. It will be a bit painful, granted, but all the alternatives cause more pain, either now, or in the long term, so there is no way to avoid pain.
As I said before, you can put off a hangover by drinking more, but in the end you only make it worse. Similarly, you can put off a deflationary recession, but only by making the next one much, much worse.
POSTSCRIPT
I know the government wants to help those workers who lost jobs, but I have to question the wisdom of the methods they usually use. Most often this help takes the form of extending unemployment insurance benefits. It sounds like a good idea, but in reality, as study after study shows, it just ends up creating more unemployment, as those who are not facing the immediate end of their benefits become more selective in the jobs they will take. So, instead of helping to cushion the blow of our current problems, it increases the unemployment rate, which the government uses to justify more intervention in the economy. (In fact, were it not for welfare, unemployment insurance, inflation, and unions, we would likely have little unemployment. There will always be some, but those four factors explain almost all of the spikes we see in unemployment. There are a few other contributing factors, regulatory schemes which hamper individual industries, for example, but those pale in comparison to the big four. Actually, I have a question for those who obsess on jobs being lost overseas: why not fight against those four if you worry so much about jobs? India doesn't steal as many jobs as the UAW prevents.)