Hurricane Irene: Our New Stimulus

In a perverse assessment of last weekend’s tragedy, some in the media now report 4th Quarter GDP could rise by a full percentage point as a result of clean-up and infrastructure rebuilding. We are told the markets rallied on the news. This knowledge should provide us comfort during a very difficult time for many. At least through the tragedy something positive will come out of it is the implication. The billions of dollars in property lost to Irene’s wrath are going to lead to a construction boom. Somebody should check in with Louisiana and Mississippi to see how much money Hurricane Katrina brought in.

It would appear many journalists, already desperate for a third stimulus, will now use this event to triumph new jobs and root for a much needed recovery in time for President Obama’s 2012 re-election. In a bizarre, twisted, measure of thinking, Irene’s torrents of rain along the East coast are somehow a precursor to economic revitalization. Taking this to its logical conclusion, minus the human suffering and loss of life which nobody wants, more future natural disasters could be our lifeline out of this economic stalemate. It would appear the bigger the disaster, the more rebuilding needed and higher our future growth prospects. This is modern-day Democratic thought.

The logic behind this fake stimulus comes straight from the heart of John Maynard Keynes. This man’s destructive economic model keeps rearing its ugly head. Keynesian economics is our government’s “demand creating” machine at work, and the modern day Democratic Party takes most of their economic agenda straight from his playbook. In short, Mr. Keynes believed an economy’s demand determined its long-term structural employment. It doesn’t matter where the demand comes from just so long as there are dollars chasing goods. If the private sector experiences decline, the government should artificially inflate things by priming the pump with as much spending as is necessary. Instead of letting the free market run its course through natural highs and lows, government is the spender of last resort even if it has no money to spend. Where Keynes and most Democrats part ways is the endgame after this artificial demand is created. Keynes advocated government paying off the newly created debt at its first opportunity to do so. Democrats just continue spending.

In a similar vein, many on the left sounded the call for increased unemployment benefits last year as another means of spurring growth. Apparently, more unemployment benefits beget higher GDP. Maybe the government should just print each household a check for $100,000 and demand us to spend it all? Can you imagine our economic vitality then?

We need to be about the business of making things again in this country. When we stop giving credence to the notion that spending equals GDP, we can begin a process of putting together effective policies to encourage making more things others in the world actually want to buy. Only then will we have real GDP without the scourge of runaway debt, and I fear shortly, rampant inflation. Capitalism does not champion government spending. Just as people can’t spend their way out of debt, governments cannot either. The Tea Party understands this. I wish President Obama and his friends did too.