Sunday, November 11, 2012

Middle Class Spending Does Not Grow Economies: Savings And Private Investment Do: Government Spending Crowds Out And Distorts Job Creation Investment And Lowers The Standard Of Living

From Real Clear Markets, "Obama's Destiny, and The End of Laissez-Faire" by John Chapman:
That is to say, American voters ratified a course set by President Obama and his allies in the political class to purposely lower living standards in the United States in order to level the distribution of income - exactly akin to the welfare states of Europe. Of course their policy aims are not stated so crassly: instead, Mr. Obama talks of a "new security for the middle class", ensuring that "everyone has a fair shot" by all "paying their fair share", and of "building the economy from the middle out" by financing government-directed "investment" in education, energy, health care and infrastructure programs with progressively higher taxes.

In describing this better society, his phraseology is vague if not vacuous, and his quotient of economic literacy in such pronouncements is poor. Economies don't grow via middle class spending, for example; that's an effect, not a cause, of economic growth. Rather, prosperity is engendered via saving and capital investment, as Mises noted. In fact, government-directed spending programs crowd out and distort the very capital allocation that drives efficient job-creating investment, and Mr. Obama's programs are thus in so many ways tantamount to the eating of seed corn, directly leading us to lower living standards in the long run. [Emphasis added.]

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