Friday, July 3, 2009

Somebody please explain it to me

I heard a writer yesterday make the statement that, “In World War II, we had the greatest increase in government spending in history…spending far more than we had coming in…and things worked out just fine.” That is absolutely true, but my wife and son thought I was crazy when I screamed at the TV like a lunatic.

“Yes, but that spending went for stuff!” I screeched.

And that is the point, one I hope I can make rationally and without screaming at the keyboard.

The point that government spending during World War II built tanks, airplanes, ships, submarines, uniforms, rifles, things that blow up, all to support the war effort. And those things were made in honest-go-goodness factories that hired people and bought steel, rubber, oil, and other raw materials to create something tangible. The money went to pay salaries and bought things that other factories created...factories that paid people to design it, make it, or mine it and then to ship it. And it went for transportation providers who hired drivers and pilots and rail engineers and ship crews and built or leased warehouses built by others and who bought ships and airplanes and trucks and trains that had to be manufactured by factories that paid wages to people.

Now I am not advocating starting a world war to stoke the economy. I'm just saying the reason the government spent all the money it could print in the 1940s and things actually got better was that the money went for SOMETHING. I make the same argument about the space program. The money does not end up buried in a big hole on the moon. It goes for things that are created--tangible things that go for wages at many levels down the chain and that gets recirculated. The guy who works the machine on the production line that stamps out o-rings for the rocket ship has a job and makes more money so he buys a house, a TV, a car and sends his kids to college, all of which keeps the money circulating. Or he invests some of it in stocks, bonds, mutual funds or CDs so the money gets reinvested to modernize a factory or add equipment or open a new plant somewhere so more people can be hired.

It's a wonderful thing! Wonderful when government helps the economy by spending on things that are needed and stays out of the way of commerce except to enforce reasonable laws that make the whole thing fair for everybody, and avoids taking away the incentive to work and invest by levying too many taxes. Every dollar goes to work to make more dollars. More dollars and more tax revenue. More tax revenue so less taxes are needed. It's like all those "beget" statements in the Bible!

That begs the question: Where is this new spending going?

Really, somebody explain it to me. Where do all these billions the government is spending now end up and, other than make us feel like something is being done, how does it really help in the long run? It has to be going somewhere. Somebody is getting it. How many wages are those "somebodys" paying and how many more people will they hire? How many factories will they build? How many warehouses or railroads or machinery for other people who are making something? What other parts, supplies or raw materials will they invest in with that taxpayer money so it goes around and around?

What in hell are they creating with this wealth? What are they making that can be sold, transported, and used to make something else that creates jobs and wages…or used to fight a war?

Yes, some of it went to the automakers who have factories producing something tangible, made by people who earn wages, but it will likely be used to pay down debt, modernize plants so fewer workers will be needed to make cars that consumers have already proved they don’t want to buy. To buy advertising to try to convince us we want that dog car. To meet pension obligations so those retirees who left after 20 years of age 40...won't have to go back to work, God forbid.

And I know there was talk that this dough would be used to repair our infrastructure...highways, bridges, airports. What happened to that plan? That would do double duty. Companies would have to expand, hire people, buy bulldozers, trucks, and cranes, contract for concrete, rebar, asphalt, engineering, and more. And all those people would pay taxes...payroll/income, sales, etc. Of course, my cynical side says most of the infrastructure that got improved would be in the districts of those Congressmen with the most power and influence. That bridges would be built to nowhere and perfectly adequate airports would become super-airports, just so the Congressman could crow about all the money and jobs he brought back to his state or district.

Believe me, too, that I am not advocating the government spending us out of the recession or that it is even government's role to create jobs by tapping into the treasury. But the infrastructure needs some work. And World War II needed to be won. I'm just saying, if we are going to spend trillions, let's spend it on something that needs to be done, and something that would create wages, tax revenues, and stuff that is tangible.

And if someone can tell me where all this money is going, who is going to get the most benefit out of it, please tell me so I can invest there.

Man, I am glad I live in a country that has a bottomless treasury. Otherwise, I'd be really worried.

Don Keith


goody said...

Yes, WWII absolutely had to be won, but outside of defeating Nazi Germany and Imperalist Japan, what did the spending accomplish as far as material long-term benefits? Everything went to Europe and the Pacific and was either blown up or at the bottom of the ocean when everything was said and done. Although it could be argued that we were left with a much more trained and diversified workforce.

I agree with you on investing in infrastructure, but one thing I think we have to realize is that the days of manufacturing being king in the US are over. We're transforming into a post-industrial era of information and technology.

What to invest in? Broadband and green energy technology....

Anonymous said...

Doesn't really matter, Goody. We made stuff we needed, we used it for what we intended, and we created factories and--as you noted--a trained workforce. Those factories weren't boarded up just because many tanks and submarines and ships rusted away. They switched over to making cars and TVs and passenger airplanes and more.

You are absolutely right about manufacturing in the USA. But we do need roads and bridges, airports and alternative energy, technology and software though. People will always need cars, airplanes, trains, etc. and I have not totally given up on America's ability to build that stuff.

Point is, bailing out failing banks and manufacturers who just don't get it is not good use of taxpayer money.

Don Keith

Admin said...

Government has no place in the economy, unless it needed an anchor. Drags the bottom, not worth much else than its' specific role, stopping progress.
Obama is the downfall of America as we have known it. I hear it on shortwave broadcasts everyday since he was elected. However, I digress...
I am all for wireless broadband & green relays but I am still stumped how the wind & sun will get me to my appointmented rounds?


goody said...

We survived eight years of Bush driving this country into the ground, we'll survive four or eight years of Obama.

Of course everything you hear on shortwave is true or believable (cough, cough... Radio Moscow....cough cough... Radio Habana)...

Anyway, a Republican prez will probably be elected in 2016 so we can start the cycle all over again.

goody said...

Point is, bailing out failing banks and manufacturers who just don't get it is not good use of taxpayer money.

What's the alternative? If we let the banks fail, businesses won't have access to working capital and will stagnate and layoff more people. If GM and Chrysler were to entirely fail, beyond the thousands of auto workers that lose their jobs, thousands of support businesses fold as well, causing more job losses. Do we try to do something or wait ten years for this to all work itself out? It's easy to describe how unpalatable this bailout is but I haven't heard any alternate solutions.

As it is, the bailout has allowed Chrysler to stay in one piece and get acquired in an orderly fashion. GM is getting reorganized rather than going through an ugly fire sale. If I had to wave one magic wand, it would be to dissolve the unions, however ironically with their new ownership stake in the companies they actually have a direct connection to the bottom line. Any increases in wages or benefits negotiated by the union will have to result in productivity increases, otherwise the union's investment takes a hit. I do hope the government can unload its interest in the companies as soon as possible.

ne1rd said...

That begs the question: Where is this new spending going?

The short answer is: investing in America and Americans.

Even a poor choice for this stimulus package is better than shipping pallets of hundred dollar bills to bribe Iraqi and Afghani tribesman, the previous definition of "patriotic". I, for one, would rather see Americans invest in its roads, bridges, public infrastructure, and education of its people.

No endeavor of government, or business, is devoid of waste. I'm sure there is and will be some here. But, we shouldn't take our eye off the ball--this is by us, for us, and for our long term prosperity.

The experiment of doing nothing (or little) has already been done in Japan. They now call it the "lost decade". I don't have so many decades left that I'd be willing to "lose" one on purpose.

Anonymous said...

During WW2, US industry produced incredible amounts of war materiel - much of which went to battlefields and Lend-Lease countries, and never came back. Much of what was left was sold as surplus or scrap for pennies on the dollar.

The war also shut down production of civilian cars, trucks and airplanes for several years, as well as home construction and much infrastructure maintenance. The result was a lot of demand for those things in the postwar years.

On top of all that, the war left Japan and Europe devastated to the point that competition from foreign manufacturers wasn't an issue for American companies for years.

There was also the New Deal, the GI Bill, strong US labor unions, and a progressive tax structure.

The result was prosperity and growth in the USA.

But things have changed since then.

For one thing, the USA has not invested nearly enough in infrastructure, education, and energy independence.

We've allowed major industries, and the good jobs that go with them, to move "offshore". This works in the short term but is a disaster in the long term.

We've allowed the protections of the New Deal and the strength of the middle class to be eroded to the point that simply being middle class is difficult.

We've also over-regulated some industries and under-regulated others - both of which result in big problems.

It's going to take a lot of time and money to fix those mistakes.

73 de Jim, N2EY

Don Keith N4KC said...

I would like to see what would happen with the free enterprise system, given reasonable but non-choking regulation and minimum government interference. Greed would cause problems, but I have to believe most companies would operate responsibly, attempting to give good customer service and innovative products. That's the way money is made long-term. Those who fail should fail, so long as the table on which they play is not tricked.

There are problems, though. Unions that exist only for power and to enrich their leadership, a stock market that rewards short-term spikes and adherence to artificial "guidance," and venture capitalists who make nothing of value but merely buy businesses to stoke the furnace and then spin them.

I don't think more government--or one that ends up owning businesses to keep them afloat--is the answer, though. Show me one thing the government does well. Just one.

Don Keith N4KC

Anonymous said...

"Show me one thing the government does well. Just one."

Let's see....

It was "the government" that fought and won WW2. There were lots of regulations, rationing, secrecy, standardization of production, and much more during the war, all orchestrated by "the government".

There's the interstate highway system, and all the state and local highways, bridge commissions, etc. No, they're not perfect, but roadbuilding has never been something private industry was big on.

There's the space program from the first attempts to catch up with the Rooskies to the present day. Yes, there have been spectactular failures, but do you really think private industry would have had fewer? Or that private industry would have even tried?

The post office will deliver a 1 ounce letter anywhere in the USA, regardless of distance or remoteness of addressee, for less than half a dollar.

Where public education is properly funded and supported, the results are amazing. Problem is, public education funding and support are mostly local, and the level varies all over the place.

Sewer and wastewater treatment systems are almost all run by "the government" in the interests of public health. They work.

Now you may argue that private industry could do all of these things better. And in some cases, that may be true. But in many cases government is charged with providing service to ALL citizens, not just those from whom a profit can be made. For example, a private elementary school can pick and choose which students it admits and retains; a public elementary school has to accept all within its defined boundaries.

The current mess in the home mortgage business is the direct result of greed, short-term gain and inadequate regulation by folks who told us that "the free enterprise system" would do the job better. It didn't.

The US auto industry is hurting because they don't make the cars people need. The same thing happened in the 1970s when gasoline prices quadrupled in less than a decade; Chrysler had to be bailed out then too. US auto companies had focused on the short-term profits of big cars rather than the long-term need for efficient cars. Look at all the Priuses and other hybrids on the road - why didn't those cars come from Detroit?

Look at the growth of the national debt from 1980 to the present, and see who was in charge when it grew the most. See also what the money was spent on. It wasn't infrastructure or education!

EVERYBODY wants the smallest government possible, the minimum amount of regulation possible, and the most free enterprise. The devil is in the details of how, exactly, that is to be done. Should we dismantle, say, Medicare and let senior citizens pay for their own health care? Should we dismantle public education and make families educate their kids using only their own resources? How about NASA?

It's easy to demonize unions, particularly when some of them are corrupt and others resist change to the point of killing the goose that laid the golden egg.

But organized labor has shrunk to the point where it is only about 10-12% of the US workforce. And it was organized labor that built the middle class in the USA.

73 de Jim, N2EY

Don Keith N4KC said...

OK, Jim, you caught me being loose with hyperbole. As any good Libertarian knows, a central government is necessary to perform certain functions, most of them granted by our dang-near-perfect constitution: wage war, negoatiate international treaties, maintain a monetary system, regulate interstate commerce, build roads across state lines, etc.

I suppose we could argue about how well and efficiently our federal government does, especially when it comes to things like education and retirement (Social Security). And I'm not at all sure the post office is a good example. Look at how much tax money is going down the PO dark hole. That letter costs you far more than 42 cents!

A part of me says the states or individuals could do much better with less waste on much of what the central government now does, but then I look at my own state--or at California--and say, "Well, no." If left to my state, I'm afraid black kids would still have to go to "colored schools" and the word "evolution" could never be uttered in a classroom.

Retirement is a multi-pronged monster. No, I don't want to have to be responsible for millions of people who would not/could not save for their old age, but Social Security is not the answer either. Any more than me supplying medical insurance to people who prefer spending money or cars and houses than on insuring their family's health. (I still can't believe the federal government created the 401K. That's the way to get people to save! Don't pay taxes on money put into the account or its capital gains until the owner retires. Great incentive and I think it works...except for the risk/greed factor...and there are ways around that.)

Unions? They committed suicide. When it became more important for leaders to get rich at the expense of the rank and file, or when they became involved in political stuff that had nothing to do with the plight of their members, they lost their focus and their power.

Thanks for the comments, Jim. Always a pleasure to spar with you! But I bet we agree on far more than we disagree on.

Don Keith N4KC

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