You cannot spend your way out of a recession

As the Senate reached a "compromise" and made "huge" cuts lowering the Porkulus plan to a "mere" $780 billion. While that seems significant when compared to Friday afternoon when the bill stood $938 billion, it is only 39 billion dollars less than when H.R. 1 passed the House.

Porkulus has been tried before. The New Deal took a deep recession and turned it into a depression after the sock market crashed. (The stock market dropped for a record high of about 2000 to zero, and rebounded within about 6 months... the subsequent 12 years of misery were designed by the government, not the free market system.) In the 1970's Carter teamed with congress to take a mild recession on the heels of run away inflation and mired in stagnation and watched as interest rates reached 22%, unemployment reached 12%, and protectionism drained our GDP (then referred to as the GNP).

Porkulus (which I am defining as unfettered government spending) has also been tried to fix the economies of Japan, USSR, western European countries and cold war eastern European countries. It failed every time.

Now I am a student of history. But I began getting into economic theory when it became evident the schism between the left and right on the economy had to be more than ideology.

It became rapidly apparent that it was. There is plenty of historical data proving that you cannot spend your way out of an economic downturn. A true stimulus package, the traditional tax breaks on small business and the investor and middle classes along with targeted spending on shovel ready jobs can work to jump start a hesitant economy and drop unemployment a bit. And when mixed with demand side stimulus programs can help by jump starting consumer confidence.

Consumer confidence is a key component of our economy, it is a primary driving factor. The key to the economic booms of Reagan and Bush 43 were consumer confidence. Congressional liberals understood this which is why they downplayed the effects of supply side economics as they prefer demand side economics because they can buy more votes by directly giving people handouts rather than indirectly giving people jobs.

In the 30s, like the 70s, people had little confidence based, in part, upon the government talking down the economy and positioning itself as the sole savior for the people. Since 2006 we heard how bad the economy was despite the overwhelming evidence that it was not at all, to the contrary 2006 was the fourth year of America's longest period of economic growth without a correction. And now after 2 years of trying to lower consumer confidence the Democrats, now in charge of the legislative and executive branches of government, are still dragging down the economy by keeping consumer confidence low.

Why do that? To better position themselves by claiming the only way to end this problem is through government spending and unbridled expansion of the federal government. And this despite the knowledge that government expansion and spending has NEVER made an economy better, but instead made it worse every time.

But demand side (Keynesian) policies are loved by the electorate because it puts money right into their pocket. So the big government statists support them even though demand side stimulus programs work only when the economy is on an upswing to jolt consumer confidence, or on the down swing, to keep consumer confidence from plummeting. They don't, and can't, have an effect on a stagnant economy, just as they have no effect on a good economy.

Demand side economics combined with government austerity programs can and do stimulate the economy. But because they don't directly buy votes (they provide the jobs people have and the tax revenues the government needs but don't pander to anyone) they are knocked by the political left who described them as "Voodoo Economics" when Reagan instituted his supply side economic theory that dominated US policy for 25 years.

Which brings me to the roughly $400B in waste left in the package. This is comprised of big government spending packages and earmarks. If the government were facing such dire economic times why would Obama not step up and demand that Pelosi and Reid bring him a bill that is free of earmarks and fat. For one it would support his claims of bringing change to Washington, and two, it would allow him to acknowledge that Washington is tightening their belts too, as they realize the money they spend is coming from the pockets of the people.

Instead at Thursday's Democrat retreat in Williamsburg Obama tried to ridicule Republicans by saying, "of course there are earmarks in this legislation". And then asked rhetorically, "When have you ever seen a spending bill this size with no earmarks?" Which meant that two weeks and two days into the job he was acknowledging that he was not a leader and that he is not able to effect change at a time when these qualities are most important.