Why "Stimulus" Spending Doesn't Stimulate the Economy

Governments don’t tax away dollars to stare at them lovingly. The dollars taken from us signal growing government control.

“They weren’t making technical decisions, but political ones. From then on, we all tried to leave the company.” Those are the words of a former employee at Venezuela’s El Guri hydroelectric complex, in an interview with the Wall Street Journal.

In February of 2016, twelve courageous El Guri technicians told Venezuela’s Maduro government that its operation of the electricity plant was set to cause long-term damage. They were ignored. Political considerations would trump profit and loss. The bill for this obnoxious bit of governmental expropriation recently came due as rolling blackouts hit a country already devastated by collectivism.

America's Presidents Aren't Dictators

There’s a useful lesson in all this. And no, this is not an opinion piece making a case that the U.S., if it doesn’t “get its act together,” will soon be Venezuela. Please. That’s just not serious, even though certain Trump partisans said it was possible if Hillary Clinton was elected. In their defense, Clinton partisans made similar arguments about the eventual impact of a Donald Trump victory. Both sides insulted their great country.

The lesson is, genius, or expertise, or simple competence can’t be taken.

If Clinton or Trump were remotely capable of destroying the greatest country on earth, then it wouldn’t have been worth saving to begin with. The good news is that the U.S. didn’t, nor does it, need saving. It would thrive even if Bernie Sanders were in the White House, or the Representative from the Bronx, or if Steve King were in charge. Thanks to the separation of powers, no one can be too powerful. President Obama signed no serious legislation during his last six years in office, and President Trump likely won’t either. Good. Presidents aren’t dictators.

Still, there’s once again a useful lesson that comes from the El Guri plant. It’s a reminder that genius, or expertise, or simple competence can’t be taken. And it's extraordinarily difficult even to vaguely mimic as fans of Roger Federer, Tiger Woods, and LeBron James know all too well. The Maduro regime expropriated El Guri only to hand it over to cronies. As previously mentioned, blackouts ensued. Only a fool could have expected a different outcome. In a very real sense, El Guri is no longer El Guri. What was an electricity plant was run by electricity experts. 

Regulations Kill Businesses

That’s what’s so sad and misguided about regulation. The best and brightest corporations are notoriously hard for even the most skilled and degreed people to get a job with, but the previous truth doesn’t factor with regulators. They get in the proverbial back door. Using the power of government, the very individuals who could never hope to be hired by private corporations wind up influencing them via regulation. Regulation is the sad, business-neutering process whereby the non-experts are empowered to lean on the experts.

Regulation is a substantial cost, and it’s one that can’t just be measured in terms of the $2 trillion per year spent on compliance. Much more troubling with regulation is unseen; as in how much more productive and profitable would companies be if they didn’t have those who couldn’t work for them in a free economy telling them what to do. In football terms, how imposing would Nick Saban’s Alabama Crimson Tide be if Chuck Schumer and Mitch McConnell suddenly inserted themselves as his co-defensive coordinators?

Governments don’t tax away dollars to stare at them lovingly. The dollars taken from us signal growing government control.

Readers may laugh, but that’s what happened when the Maduro government took over El Guri. When you replace engineering expertise with the political kind, or those close to the political experts, it’s the equivalent of Schumer calling Saban’s defenses. With similar results.

Ideally what happened at El Guri will force a rethink among some readers about government spending. Ideally, it will because what’s government spending other than the political expropriation of precious resources whereby non-experts get to dictate their usage over experts in the private sector?

Lest readers forget, governments don’t tax away dollars to stare at them lovingly. The dollars taken from us signal growing government control over the economic resources (mechanical, and more crucially, human) that, when effectively deployed, power progress.

Government Spending Restrains, Not Stimulates Economic Growth

That’s why readers should scoff when economists talk up about “stimulus” from government spending, or perhaps more dimly, when they pretend that government spending stimulates growth “to a point.” No, it doesn’t. Government spending, as a rule, restrains economic growth simply because it’s El Guri, only on a larger scale. It’s the politically motivated allocation of precious trucks, tractors, computers, offices and human beings to the politically connected.

Contrast the above with the private sector. As any successful entrepreneur will attest, the early years (and often decades) for a start-up are defined by sleepless night after sleepless night. That’s the case because it’s so intensely difficult for private business owners to be entrusted with the capital without which businesses die. There are quite simply no businesses without investment capital, yet business owners will confirm that it’s beyond hard to attain.

Government spending is the process whereby the experts are replaced by the average, with predictable and economy-sapping results.

Readers might consider the above truth as they contemplate a federal government that is rushing toward $5 trillion in annual spending. Oh my, the economy-sapping waste. Oh my, the great private businesses that die too early because the political class is so aggressively frittering away what private businesses would give anything to have access to.

So government spending powers economic growth, or powers growth “to a point”? That’s just not serious. That’s the equivalent of saying Maduro’s cronies can run El Guri better than, or nearly as well as the technicians with actual engineering skills. Stated simply, government spending is the process whereby the experts are replaced by the average, with predictable and economy-sapping results.

This article is republished with permission from Real Clear Markets. 

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