“I find myself in a lonely position. While many states and local governments are lining up for a bailout from Congress, I went to Washington recently to oppose such bailouts. I may be the only governor to do so.” — Mark Sanford, Governor of South Carolina
The complete Wall Street Journal piece has some interesting points, including “There’s something very strange about issuing debt to solve a problem caused by too much debt.” and “Those [states] that have been fiscally responsible will pay for or lose out to the big spenders. California increased spending 95% over the past 10 years (federal spending went up 71% over the same period). To bail out California now seems unfair to fiscally prudent states.”
Some similar points are made in “Why Spending Stimulus Plans Fail.” The author points out that “Every dollar [Congress] injects into the economy must first be taxed or borrowed out of the economy.”
The second article referenced here – “Why Spending Stimulus Plans Fail” – discusses the topic of deficit spending and is interesting for a couple of reasons.
The writer writes “If the money is borrowed from American investors, those investors will have that much less to invest or to spend in the private economy.” The state of the U.S. economy today is that consumers have cut back drastically on spending and investors have pulled out of the stock market and have run towards government bonds. This has pushed down interest rates, making it a good time, relatively speaking, for the government to borrow money.
The assumption the writer makes is that, because investors are investing in government bonds and not handing their money over to Wall Street, less money will be invested in businesses and that will hurt economic growth. However, it doesn’t make any sense at this point to assume that investing on Wall Street helps economic growth. Look at the hundreds of billions that they have wasted by lending money for the constuction of condos in Miami and McMansions in California that are currently sitting empty.