The fatal flaw in Obamanomics

Friday’s Wall Street Journal published an article about Obamanomics written by Robert Reich, a former Secretary of Labor under Clinton. Although not intended to, the piece provides perhaps the clearest description of why Obamanomics is doomed to failure.  The article is only available in the print or on-line edition, so, unless you subscribe to either, you’ll have to trust me on the quote.

According to Reich, and, basic Keynesian economics, the first thing one needs to look at is,

… the extent of government spending needed to offset the continued reluctance of consumers and businesses to spend.

And in that little sentence… the first step of the government’s solution… lies the problem.  Consumer spending can never be offset by government spending unless the government purchases the very things that consumers do.  Consumers buy televisions, and the money they spend doing so is used to manufacture more televisions to be sold to more consumers, and so on.  Government ”buys” roads.  The money spent building the road stops there.  You can’t sell the road, and, the road doesn’t produce more roads.

This is no doubt why, when writing about the Great Depression in 1937, Henry Morgenthau, FDR’s Secretary of the Treasury, penned in his journal (and I am paraphrasing), we have been throwing money at the economy for four years, and, it has done nothing.

It did nothing, Mr. Morgenthau, and it never will.  Government spending does not, and cannot replicate private spending.

So, let’s turn back the hands of time.  It is once again February, 2009.  Congress passes the $800 billion Stimulus Bill.  The money goes to the people.  Do you think they would spend it building roads, bridges and high speed rails, or buying televisions?  And which do you think would have been better for our economy?