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The Coming Fiscal Train Wreck

by

New York Times editorial today provides a perfect example of the statist thinking that has produced the out-of-control federal spending and massive debt that now threaten the United States with bankruptcy.

The editorial points out that several state governors refused the U.S. government’s offer of billions of dollars to fund mass transit programs. Among them was Florida Governor Rick Scott, who rejected a $2.4 billion grant with the expectation that it would help alleviate the nation’s fiscal problems.

Now, wouldn’t you think that that would be an admirable thing to do, especially given the enormous fiscal problems facing the federal government?

Not according the Times. They consider Scott to be a dolt. The editorial said that he “thoughtlessly” rejected the money and that Scott’s belief that the rejection would help relieve the federal government’s fiscal problems was “nonsense,” especially since U.S. officials simply turned around and gave the money to officials in the Northeast to improve rail service there.

Imagine that: Due to its enormous spending and borrowing, the federal government is traveling down the road to national bankruptcy, just like Greece, Ireland, Portugal, and other countries. So, here come offers by a few states to save the U.S. government billions of dollars.

Wouldn’t you think that U.S. officials would be happy about saving so much money? Nope. They just turned around and gave the money to officials in other states, who eagerly accepted them. And good for them, according to the editorial board at the New York Times.

The Times also brought up the standard canard that comes with federal projects: that they supposedly create jobs. You’ve no doubt seen the signs next to some federal public-works project in your locale: “Jobs for Your Community.”

So, according to the Times, not only did those state governors fail to save the federal government any money, they also cost their states jobs.

Oh, it gets worse. The Times also pointed out that the rejected monies “stimulate the economy.” Thus, the implication is that by trying to save the federal government some money, the governors have actually damaged the nation’s economy.

Do you see why this country is in a world of financial and economic hurt, thanks to the statists?

In pointing to “jobs” and “stimulus,” the Times falls for one of the oldest economic fallacies, one that was described in the 19th century by the French economist Frederic Bastiat and then again in the 20th century by the American economist Henry Hazlitt.

Bastiat and Hazlitt described the fallacy in terms of “what is seen and unseen” with government spending. When billions of dollars in federal grant money flow into a state, U.S. officials love to call people’s attention to the project itself, along with all the jobs and stimulus the project has brought into the community. That’s what is seen.

Needless to say, statists never focus on what is unseen: the jobs and stimulus that never were permitted to come into existence because people had their monies taxed from them and spent on the government’s public-works project.

Let’s say you have an income of $40,000 and that there is no income tax. You spend, invest, or donate all of your money, which obviously has a positive effect on the areas where you put your money. If you buy a car, that means more jobs and stimulus in the car industry. If you invest, that means more jobs and stimulus in the investment arena. If you donate to your church, that means more jobs and stimulus there.

Let’s assume, however, that the federal government seizes $10,000 of your income to fund its rail project. That’s now $10,000 less that you have to spend, invest, or donate the way you want. That obviously means less jobs and less stimulus in the car industry, the investment arena, or your church.

At the end of its editorial, the Times mocks those states that turned down the federal government’s free money. The governors “will have to defend them [their “shopworn principles”] to their voters when the public hears the passenger trains whistling from the next state over.”

Meanwhile, many statists continue to assure us that everything is fine notwithstanding the federal government’s out-of-control spending, borrowing, and inflation. They don’t want know that the light at the end of the tunnel is the oncoming locomotive whose whistle they’re hearing.

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.