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Hornberger's Blog is a daily libertarian blog written by Jacob G. Hornberger, founder and president of FFF.
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Economic Stimulus Lunacy

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Obviously becoming increasingly concerned about the U.S. economy, President Bush is offering a band-aid solution: an “economic-stimulus package” entailing a federal welfare check of $800 being sent to every taxpayer. Oh, sure, he’s not calling it a welfare check. He’s calling it a “tax rebate” but in fact it’s nothing but a welfare check, one that he wants the welfare recipients to go out and spend to “boost the economy.”

What lunacy! But what the president has going for him is that most Americans have learned their economics in public schools and in state-supported universities. So, it’s all going to make sense to them, until they’re mugged by the reality of what happens when government spending bankrupts empires and the citizenry within empires.

First things first: The problem facing the American people is out-of-control federal spending. Such spending arises from both the welfare state and the warfare state. There is one — and only one — solution to this fundamental economic problem facing Americans — slash federal spending.

How likely is that possibility? Not likely at all. Americans are not about to tolerate any reduction in their domestic welfare programs and U.S. officials are not about to tolerate any reductions in military expenditures. The problem will remain. As Milton Friedman put it, the real burden of government is not the amount of taxes being collected but rather the total amount of government spending.

Ever since 9/11, the government has been spending far in excess of what it brings in with taxes. How has it accomplished this feat? Fearing taxpayer ire, U.S. officials simply borrowed the difference, throwing the government into ever-increasing mountains of debt. The borrowing sucked massive amounts of money out of the private capital markets, leaving less money for home mortgages than otherwise would have been the case. The feds also turned to foreigners for loans, which is how the Chinese communists became one of the federal government’s major creditors.

Ordinarily, those debts must be paid off. But rather than raise the taxes to pay off the debts, the Federal Reserve has agreed to simply print the money to pay off the debts, which is why the value of the dollar has cratered in the past 5 years, with more debasement undoubtedly coming down the pike.

Today, the government continues to spend much more money than it brings in with taxes. So ask yourself: How in the world does it perform the magical act of sending every taxpayer a welfare check of $800. Where is it going to get all the money to pay those $800 checks?

To understand the answer, you must first understand why it’s a welfare check and not a tax rebate. All the tax money that the IRS collected in 2007 has been spent. It’s gone. It’s not in a tax fund. Therefore, no one is having his tax money refunded to him. Keep in mind, after all, that the feds are not telling everyone to reduce their 2008 taxes by $800 when they file their income tax returns in April. They’re sending everyone an $800 check even though they’ve spent all the 2007 tax revenues.

So, where are they getting the $800 payments? You guessed it! They’re borrowing it! That’s right — they’re adding to the debt that taxpayers are ultimately responsible to pay back! And their plan is to use the Federal Reserve to simply print the money to pay the debt back so that taxpayers don’t realize how they’re being duped. After all, how many Americans realize that a debased dollar and rising prices are a direct result of the Federal Reserve? Don’t most Americans blame rising prices on speculators, greedy capitalists, OPEC, illegal aliens, terrorists, free enterprise, or (my favorite) “unseen forces”?

Unfortunately, government officials, from the first grade on up, have ingrained into Americans that the key to prosperity is borrowing and consumption rather than savings and capital. With the power of indoctrination, Americans have been led to believe that massive government spending is the key to their economic salvation. Failing to understand that the federal government is the primary cause of their economic woes, they continue to look to the federal officials to bail them out of their economic plight. Thus, Americans will undoubtedly fall for this economic-stimulus nonsense, even as the welfare-warfare state and its massive, uncontrolled spending continue to take them down as well as our nation.

This post was written by:

Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at the Foundation for Economic Education. He has advanced freedom and free markets on talk-radio stations all across the country as well as on Fox News’ Neil Cavuto and Greta van Susteren shows and he appeared as a regular commentator on Judge Andrew Napolitano’s show Freedom Watch. View these interviews at LewRockwell.com and from Full Context. Send him email.