Central planning of an economy doesn’t work in large, diverse, environments, and works poorly in small homo-genius societies (Greece, Spain, Portugal all collapsing).
Government spending does not create wealth and in only limited circumstances does it have a long term positive impact with a high velocity of money. Politicians do not spend money on the greatest needs of individuals, businesses and communities; rather they spend those dollars with the hope that it will buy votes, increase influence, and come back in the form of campaign donations. People tend to act in their own self interest, so how can a politicians best interest be everyone elses?
Central planners are also very fond of “tax credits” which they call “tax cuts”. You get a tax credit if you engage in a behavior that the government approves of. This causes people and businesses to act not in what is best for them, their family, their business, their economic needs or the needs of their customers, rather they are acting in the interests of a politician. How is that good for the economy when it comes down to you feeding and taking care of your family? This also results in mass corruption as the tax code becomes a behemoth filled with politicians picking winners and losers. This is called “crony capitalism” or “state run capitalism” (all of which is just a mutation of socialism/corporatism).
Tax credits are also used as the politicians rhetorical ruse. Very often government tax credits are such a regulatory burden they are an economic non starter or they are so “targeted” it means that almost no one will qualify for them [Example: Tax credit for a family of four who makes under $40,000 per year, who is buying house over 2,000 square feet, that is ran by solar power].
The more the planner’s plans fail the more the planner’s plan – Ronald Reagan.
With a flamboyant downgrade of the outlook for economic growth, jobs and profits, Wednesday’s 280-point Dow plunge to launch the so-called June stock swoon is a warning shot across the bow.
The Dow tanked alongside a batch of dismal economic data. The ISM manufacturing index, ADP employment, Case-Shiller home prices and consumer confidence are all pointing to 2 percent growth or less, rather than the kind of 5 percent growth we ought to be getting coming out of a deep recession.
The economy now looks like a Government Motors engine that’s stalling out. Or perhaps, with energy and food inflation, and housing deflation at the same time, the economy is acting like a pinball machine on permanent tilt.
There’s a key message here: Big-government stimulus never works.
First there was the massive Barack Obama stimulus spending. Then QE1. And now QE2 is winding down. And what did we get for all this? Slower growth overall, paltry job creation, more energy and commodities inflation, continued housing deflation, and virtually no new business start-up entrepreneurship.
We know the Obama spending package failed to create a 7 percent to 8 percent unemployment rate, as advertised. And now we’re learning that the Fed’s QE2 has actually done more harm than good.
All that money-printing stimulus worked to depreciate the dollar and jack-up commodity prices, especially oil and gasoline, but also food. So both companies and consumers have been punished.
Some demand-side boneheads on Wall Street want the Fed to move to QE3, allegedly to fight a stalling economy. But if the central bank prints another $600 billion or so, all that will do is sink the greenback another 10 percent and drive oil and gasoline prices higher and higher. And that, in turn, will slow business and consumers even more.