Governments can’t create jobs and spend their way out of economic problems, yet they continue to try with disastrous results.

Our government’s long-term reckless spending and debt policies—backed by most members of Congress—along with flawed government enterprise schemes don’t produce a strong economy and will impoverish our children.

Yet presidential candidate Democrat Joe Biden believes the government will create prosperity by raising taxes by $4 trillion as well as another spending spree to create tens of thousands of “good paying jobs” in the environmental sector.

“We can and must build a thriving, equitable, and globally competitive clean energy economy that puts workers and communities first and leaves no one behind. We will help rebuild our economy from the COVID-19 pandemic and President Trump’s recession by mobilizing historic, transformative public and private investments to launch a clean energy revolution,” Biden writes in a paper co-authored with Senator Sanders.

Biden’s allies say the government must spend more to achieve prosperity.

Congressional leaders, many of whom have already passed stimulus packages, want more. “We must think big for the people now. Not acting is the most expensive course,” said House of Representatives Speaker Nancy Pelosi, speaking of her original $3 trillion dollar legislation.

Republican Senate leaders originally said the House bill was “dead on arrival.” However, Republican opposition is not philosophical; it is political.

The GOP, which already helped pass several stimulus bills, has its own new package. It is not as large as the original $3 trillion plan, but it’s the same idea: Only government spending solves the problem.
Biden also wants the government to spend trillions more. He pledges to use “federal resources and authorities across all agencies to accelerate development of a clean energy economy and deploy proven clean energy solutions; create millions of family-supporting and union jobs; upgrade and make resilient our energy, water, wastewater, and transportation infrastructure; and develop and manufacture next generation technologies to address the climate crisis right here in the United States.”

These dirigiste policies, combined with additional stimulus spending, will fail if we judge by history. Biden doesn’t mention costs, but obviously they mean trillions in new government spending. He says his plan creates “tens of thousands of new jobs.” The idea isn’t new.

For example, there is President Carter’s 1980 failed Synthetic Fuels Corporation. That was going to create energy independence for the United States. It didn’t. Private sector initiatives, including fracking in some states, did.

There was the Obama administration’s bad investment in Solyndra. Here, the government once again invested millions of taxpayer dollars in a solar energy company. It failed.

In the Biden paper there is no mention of New York governor Andrew Cuomo’s Buffalo Billion projects. It was designed to use taxpayer dollars to redevelop perpetually depressed upstate New York. As with the Carter and Obama plans, the government spent taxpayer dollars but never created the promised “good jobs at good wages.”

But “despite millions of dollars of state funding, selected high-tech projects in New York have yet to create the expected number of jobs,” writes state Comptroller Thomas DiNapoli. The project, in which several Cuomo aides ran afoul of the law, didn’t generate many jobs, but generated “a whole mountain of corruption,” the New York Post wrote.

But besides venality, which often accompanies various government enterprises, there is another issue: Do lawmakers understand that these schemes are based on the flawed Keynesian idea that government spending, not the private sector, is what turns around economies?

These policies were used by FDR—and Hoover to a lesser extent—but didn’t cure the 1930s Great Depression. However, there is a more effective policy.

“Tax cuts are always better for the economy than stimulus,” says Arthur Laffer, an economist who worked for presidents Reagan and Trump. Here’s a recent example. The Obama recovery plan was more stimulus oriented. It generated roughly one percent annual growth. The Trump approach emphasized tax cutting. Which was better?

Until the Corona virus, the Trump plan generated about 2.5 percent annual growth. It may sound pedestrian to note this but for those without a job it is critical. Two and a half percent is 150 percent greater than one percent. In the former, millions get jobs who don’t in the latter. But there is another danger in the Keynesian/government enterprise strategy: We sock our scions with huge bills.

The U.S. debt topped $26 trillion for the first time, according to the U.S. Treasury’s June report, but it has gone up much more since.

Who is at fault for reckless spending?

Both parties. A recent Government Accountability Office (GAO) report notes the debt went from $5 trillion to $24 trillion over the past 25 years. Both major parties ruled in this period.

This continued red ink is “unsustainable,” the report says.

That is the assessment of “The Nation’s Fiscal Health,” a GAO report. The report warns these spending levels can’t continue because of entitlement promises.

“While spending on Social Security already exceeds $1 trillion per year, health care and net interest are expected to grow faster than GDP and be key drivers of federal spending in the future. Medicare spending is projected to reach $1 trillion per year by 2026, and net interest is projected to hit this milestone by 2032,” GAO wrote.

Today, we not only have unprecedented levels of red ink, but there is another danger: A huge part of it will end up paying for nothing. It will leave the nation with a perpetual debt.

“Over the past 50 years, net interest costs have averaged 2 percent of GDP but these costs are projected to increase to 7.2 percent by 2049, when they become the largest category of spending,” the GAO wrote.

Why does spendthrift government go on and on, despite occasional objections from a few mavericks?
Politics.

Career politicians, of both parties, want to win and hold power. Spending is often viewed as the magic elixir. Yet there has always been an easier way to turn the cycle; a solution that has worked several times before and could work again: Less spending and taxing.

A century ago, as the Spanish Influenza outbreak was raging, the United States was in a depression. Few people know about this depression because it only lasted 18 months.

Why?

The government didn’t try to spend its way out of its problems.

After World War I, the federal debt exploded because of wartime expenditures. Annual consumer price inflation rates had increased some 20 percent by the end of the war. Unemployment peaked at 11.7 percent in 1921.The same year, the new president, Warren Harding, promised traditional laissez-faire policies.

So, instead of “fiscal stimulus,” Harding cut government spending. The rest of Harding’s approach was largely laissez-faire. Tax rates were slashed for everyone. Harding was guided by Andrew Mellon, one of the greatest Treasury secretaries. Mellon’s book, “Taxation; The Peoples Business,” is an ode to small government.

Mellon, in what would be an eloquent answer to Biden’s call to raise taxes by $4 trillion, warned high taxes not only hurt the rich, but everyone.

“High taxation, even if levied upon an economic basis, affects the prosperity of the country, because in its ultimate analysis the burden of all taxes rests only in part upon the individual or the property taxed. It is largely borne by the ultimate consumer. High taxation means a high price level and high cost of living, “according to Mellon. But tax reduction, he wrote, helps everyone.

By 1923, the economy, unaided by a stimulus or massive government enterprise projects, boomed.

So which approach do we want?

Keynes/Biden/Pelosi or Mellon/Harding/Laffer?

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Gregory Bresiger
Gregory Bresiger

Gregory Bresiger is an independent financial journalist from Queens, New York. His articles have appeared in publications such as Financial Planner Magazine and The New York Post. The eBook version of his latest book "MoneySense" is available now for Free Download by clicking HERE

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