The Futility of "Spending to Prosperity"

“Like politicians?” asked our friend, Michael. We couldn’t help but laugh. “Yes,” we answered. “Just like politicians.”

Your editor occasionally spends his Saturday afternoon helping a Taiwanese friend with his English. Our friend manages a large retirement fund here and, as with many professionals in the developing world who interact frequently with western business people, Michael is tireless is his pursuit to improve his second language skills. Part of this past weekend’s lesson was devoted to explaining the word “parasite.” Michael, as you can see, is a fast learner.

“Yes, yes!” he exclaimed. “We have many parasites here, too! And in China…they have them also. And Europa. They are everywhere, it seems.”

“Eu-rope, Michael,” we corrected. “It’s pronounced ‘you-rope.’”

“Haha… Yes. You…Rope! Good one, teacher Joel. Like rope for hanging. ‘You rope’ is hanging. Good one!”

We had just been chatting about Greece’s woes and, like we said, our friend is a fast learner.

Of course, not all parasitic relationships result in death by hanging for the host. Some result in death by torture…or by starvation…or taxation. In the wild world of economics, parasitic governments can and do employ all of these methods to snuff out their free market hosts. Not unlike the strangler fig, which begins its life as a seemingly innocuous seed, deposited high in the forest canopy by passing birds, government programs invariably start out very small. But as these seedlings germinate, plunging their roots down to the earth below, they gradually envelop the very tree atop which they sit.

Eventually, the stranglers sprout leaves, which soon monopolize the host’s access to sunlight. Then, when their roots reach the ground, they gradually overtake the supply of nutrients in the surrounding soil. What was once a miniscule seed, lodged high in a tiny crevice of a great elm, eventually becomes the prison of a rotting trunk.

In an interview with 60-Minutes last March, Fed Chairman Ben Bernanke used the term “green shoots” to describe what he saw as early signs of an economic recovery. The Federal Reserve’s “Beige Book,” a survey of regional economies, found that a number of districts displayed “signs that activity in some sectors was stabilizing at a low level.”

With an increasingly entangled public and private sector, it is sometimes difficult to tell whether it is the host or the parasite that is growing stronger. In the year that has passed since Bernanke’s “green shoots” interview, stock markets on Wall Street have soared. So has the average salary for public sector employees. Main Streets outside the DC area, however, have not faired so well.

According to a report from the Commerce Department’s Bureau of Economic Analysis, real personal income for Americans has fallen by 3.2% over the last year.

“This is hardly surprising,” Douglas Holtz-Eakin, an economist and former director of the nonpartisan Congressional Budget Office, told The Wall Street Journal. “Under President Obama, only federal spending is going up; jobs, business startups, and incomes are all down. It is proof that the government can’t spend its way to prosperity.”

Of course, that won’t stop it from trying. After factoring in government “transfers” – which include things like food stamps, Social Security, unemployment insurance, Medicare and assorted other federally-funded employment disincentives – personal income has actually risen under Obama’s watchful eye. From January 2009 through to February 2010, “adjusted” income is up 1.2%.

“Progress,” as defined by parasitic governments, is whatever helps its roots reach the ground.

Joel Bowman
for The Daily Reckoning