Sunday, April 19, 2009

Economic Wizardry

Growing up here in Iowa, my sister had a book that was a collection of the funny papers classic "The Wizard of Id." I remember one particular cartoon in that book. The wizard was standing knee-deep in the sea, his sleeves were rolled up and he had his arms pointed out to sea, furiously casting lightning bolts and cartoon magic at it. Behind him, on the beach, the king watched the wizard's hard work proudly with one of his underlings. The wizard could always get the tide to go out, the king explained to his subject, even if it took twelve hours to do so.

I recall looking down at that cartoon as blankly as if I'd just read the day's relative humidity in Scranton Pennsylvania. It was only after my older and wiser sister explained to me that, after twelve hours, the tide would have gone out by itself anyway, that I got the joke. The wizard was an absolute fraud, but he sure wasn't going to let his sugar daddy (the king) know it.

I'm reminded of that cartoon now as I watch our government's economic wizards work their best mojo to make the recession retreat. However, unlike the good wizard of Id, who merely cast his fake magic harmlessly out to sea, our federal wizards are casting their lightning bolts into a pre-existing economic tinderbox of their own making and mortgaging our children's future to fund the enterprise.

Market forces are remarkably resilient (but not indestructible). Some economists were predicting as early as January that the recession may have been bottoming out. If left alone, the recession would end eventually and would do so sooner without all the "help" from the government. A UCLA study of the Great Depression, for instance, concluded that New Deal programs to alleviate the depression actually added seven years to it. We can expect similar results from current "stimulus."

We already have $11 trillion in public debt and that is set to get much worse as the Social Security and Medicare promises that the federal government made to baby boomers (with no way to pay them) come due. By 2030 it will take half of all federal income tax dollars to fund just these two programs. According to the Congressional Budget Office, by mid-century Medicare and Medicaid will require the entire federal budget, leaving no money available for national defense, security or any other federal program. In order to keep Medicare and Medicaid and still fund the government's other functions, a middle-income family will have to pay two-thirds of its income in taxes. (Medicare/Medicaid figures are from John C. Goodman in the March 2009 "Imprimus.")

It's not hard to see that piling trillions of dollars in additional debt on top of these unfunded liabilities, to fund current stimulus of dubious usefulness, will not help our economy in the long term. But by the time the tide rolls back in, the wizards will be long gone with the kings gold.

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