2009 Five Presidents, President George W. Bush...

Image by Beverly & Pack via Flickr

Do you remember your mother or father telling you the old saw, “Money doesn’t grow on trees.” You were a child and wanted something your parents could not afford. You may have thrown a fit, but if your parents were responsible, they would not give in in order to teach you a valuable lesson about human limitation. Human beings can only buy as much as their resources allow. Any responsible parent knows that going into unnecessary debt can harm the entire family. A family receives a finite income every year. A family whose income is $50,000 a year should not buy a $40,000 car or a $1,000,000 home.

Businesses also realize that they can overreach–when a business overspends beyond the benefits and loses money, that one failure can sometimes destroy, or at the very least weaken–that business. The same thing is true with local governments and most state governments. California, with its past history of profligate spending, is an important exception–and an important lesson on recognizing that resources have limits.

The federal government has not learned these lessons. George W. Bush began the current spending spree, with the mainstream Republicans in Congress, wanting to gain votes, appropriating the money. When the banking crisis occurred, Mr. Bush and Congress spend billions on a massive bail out. But what Mr. Bush did is child’s play compared to Mr. Obama’s free spending ways. What was billions in debt quickly became trillions, to the point that there seems no end to the massive debt of the United States. China holds us over a more precarious pit than was present in the Bush administration. Problems with the Euro have helped the dollar to survive as a viable currency despite massive supply due to the government printing more money–but eventually supply and demand will catch up with the dollar. The threat of hyperinflation looms over the United States to a greater degree than in any recent decade except the 1970s.

The American people’s desire for a utopia on earth has driven massive spending. Unlike Europe, which spent freely due to people wanting la dolce vita after seven years of brutal war, American’s desire to benefit from government had already begun in the 1930s with the Roosevelt administration‘s rapid expansion of federal programs in response to the Great Depression. Americans, no longer disciplined by hardship and war, turned to government to solve social problems and to provide benefits for the middle class. The idea was that only government had the massive resources to fight poverty (Lyndon Johnson‘s “Great Society“)  and protect the middle class through social security, unemployment insurance, and Medicaid. Now government has been used by Mr. Obama to solve another financial crisis and to expand social welfare benefits. Cuts in defense spending are not nearly enough to make up for massive social programs. Thus the problem of debt is just as unsolvable in the United States as it is in Western Europe. Mother was right–money does not grow on trees–and the worth of money is not guaranteed by the government’s printing more bills.  Currency traders will not ignore economic reality forever. The United States, like Western Europe, will be driven to recognize its limitations if it must be driven kicking and screaming.

Classical liberalism is superior to social democratic liberalism, but it still has an overly optimistic view of human nature and often does not recognize human limitations. Many classical liberals believe that science and the private sector will create an ideal society, and such a belief can clash with economic and other human limitations. Adam Smith believed that a society made up primarily of virtuous people, civilized by Christianity and Western culture, would make the “invisible hand” work. With the breakdown of key virtues such as taking responsibility for one’s behavior and integrity, the capitalist system will be corrupted. Even if it were not corrupted, resources for the well-being of people are finite, not infinite. Science and the market can substitute for God just as much as “the People” substitute for God in Marxism.

The truth is that there is no ideal world that any economic system can make. The world will always be a mixed bag of good and bad. People can do what they can to alleviate the negative and “accentuate the positive” (as my late colleague Parker Wilson used to say). To do so with massive government aid programs or social engineering programs creates programs that almost always fail, and the government spends more money and goes deeper into debt. Because social democratic liberals cannot follow a mother’s or father’s aphorism that “Money does not grow on trees,” the country in which I was born and reared may become unrecognizable sooner rather than later.

Advertisements