Deficit Spending for
September 19, 2005
Some economists estimate that
rebuilding New Orleans and other areas impacted by Hurricane Katrina will cost
taxpayers at least $200 billion, which may be a conservative figure considering
it could takes decades to fully restore the city. The problem is that our Treasury does not have an extra $200
billion dollars on hand. This means
the money either will be printed or borrowed, both of which bode ill for the
American economy. Several
conservatives in Congress, however, are cautioning against throwing more and
more taxpayer money at the problem with no accountability.
While we all want to help the victims of Katrina, we must remember that
no one is better off if we create record deficits that hobble our children and
grandchildren for generations.
The tragic scenes of abject poverty and
distress in New Orleans prompted two emotional reactions.
One side claims Katrina proves there is not enough government welfare and
government spending in general. The
other side claims we need to pump billions of new dollars into FEMA, the very
agency that performed so badly, while giving it extraordinary new police powers. Both sides simply assume hundreds of billions of dollars in
new government spending are needed. But
history shows us that “compassionate” deficit spending hurts poor people the
most, by devaluating the value of the dollar.
When the Treasury prints new money, the
ruling class benefits because they can cash in on inflated assets like stock or
real estate early in the cycle of printing and spending.
The poor, by contrast, are totally dependent on the immediate buying
power of their meager resources. A
fiat money system that engenders cycles of new money and deficit spending is not
the savior of the poor, but rather their worst enemy.
Every new dollar makes the dollars that eventually trickle down to the
poorest Americans worth less and less. Do
we really believe we can resurrect New Orleans, and address the needs of her
poorest citizens, by printing money out of thin air?
Katrina also has exposed the failed
welfare policies of the past 60 years. In
New Orleans, hundreds of thousands of impoverished citizens lacked any resources
to safeguard their families and their property from the storm.
Virtually everyone who stayed behind was poor.
It is time to recognize that government assistance over several
generations did not eradicate poverty in New Orleans, but rather created a
deadly form of dependency on government.
Congress reacted to
Katrina in the expected irresponsible manner.
It immediately appropriated over $60 billion with little planning or
debate. As with all rapid
government expenditures, the amount of waste and mismanagement will be
staggering. Congress knows it
won’t need to raise taxes to pay the bill, because the Federal Reserve will
accommodate reckless deficit spending.