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Tuesday, February 19, 2008

Congress Wastes Time On Stimulants

In a couple of previous posts ("Scott Ritter On Waxman's Inquisition Of Clemens" at http://livefreeormove.blogspot.com/2008/02/scott-ritter-on-
) and "Welch, Maple Syrup, Moose, & Guiness Stout" at http://livefreeormove.blogspot.com/2008/02/welch-maple-
), I've criticized Congress for wasting time on trivia instead of spending its time impeaching Bush, Cheney & Co. or at least ending the Iraq occupation and bringing the troops home.

Over at First Trust Advisors, LP, Brian Westbury and Robert Stein see hypocricy (or irony, at least) in Congress grilling Roger Clemens over his alleged use of steroids and/or HGH all the while Congress itself was working on a plan to inject the American economy with credit and/or tax rebates--viz., a stimulus plan:

"Let’s hear it for irony. In almost simultaneous events last week Congress attacked baseball players for taking performance-enhancing drugs while at the same time supporting artificial and temporary stimulus for the US economy no matter what the long-term costs.

Forget the interesting question of why Congress thinks it has the time to waste investigating major league baseball in the first place; focus instead on the similarities between baseball players (or athletes in general) and the economy (or wealth creation). . . .

Successful economies are built on innovation, creativity and technological ingenuity. The better a country is at creating a positive environment, where this human ingenuity has a chance to bloom, the stronger its underlying growth, the more wealth is produced and the higher the standard of living climbs. . . .

Politicians, enticed by the potential to gather more votes, use temporary economic stimulus for short-term gain. Accelerating recovery from an injury is a positive use for these drugs. In fact, many doctors prescribe them to nonathletes for just this short-term benefit. Unfortunately, using these drugs persistently to enhance performance can have harmful side effects and produce long-term damage.

The same is true for economic stimulus, like Federal Reserve interest rate cuts. Sometimes, interest rate cuts are just what the doctor ordered. But this is only true when they were too high in the first place. Using easy money to alleviate pain that was not caused by hard money is dangerous. It may boost economic growth in the short-term, but this comes with harmful side-effects like inflation, a weak dollar, and eventually much higher interest rates.

The other kind of stimulus favored by Washington DC leans heavily on rebates – money – that politicians get from one group to give to another. But paying rebates, when a budget deficit exists, means that someone, at some point down the road, will be forced to pay it back. Moreover, because the money to fund rebate checks must be borrowed, it crowds out domestic private investment that might have been used to shore up losses at financial institutions.

Many people don’t like professional baseball players using steroids because they mask the underlying ability of the player. They taint the results. But so does artificial economic stimulus. Monetary policy accommodation can help people feel wealthier for awhile, but it cannot create wealth. Printing money does not make anyone wealthier. If it did, then counterfeiting should be made legal and everyone in the world would then be wealthy. The same is true for tax rebates. If they really could increase wealth, then why not make them much larger and much more frequent?

In the end, trying to increase spending without increasing the country’s productive capacity is a fool’s errand. Boosting demand without boosting supply causes a misallocation of resources. Like with steroids any boost is temporary and risks longer-term economic problems. Both interest rate cuts and rebate checks will boost
economic numbers as spring turns to summer . . . ."
--from "Unnecessary and Artificial Stimulus" at http://www.ftportfolios.com/Commentary/EconomicResearch/

HT: Mark J. Perry in "Congress and the Pros/Cons of Artificial Stimulus: They Feel Strongly Both Ways" at http://mjperry.blogspot.com/2008/02/congress-and-artificial-


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