More Government Spending?

Ask your friends or colleagues if they believe the U.S. Government should be spending more in order to get us out of the recession. The reaction we have gotten from both conservatives and liberals alike has been a resounding “NO” – many times it has been a resounding reaction. In our last update, we talked about how Americans are fixing their balance sheets. Polling strongly indicates that Americans want our government to do the same. Many are concerned about the deficit and it is now a leading issue for candidates. Republicans lost their majority in Congress due to their careless spending (i.e., the “bridge to no where”, Bush not vetoing any spending bills, etc.). It looks likely that the same outcome will beset the Democrats as well. Politicians, in general, seem to have an easy time spending our money.

Many of our politicians have looked to Noble prize winning economist Paul Krugman from the New York Times for additional support of their spending spree. Mr. Krugman believes that more spending is the answer to the current weak economy, with such action preventing a double dip recession as it did in 1937. We respectively disagree with him. In 1937, the main reason for the double dip was uncertainty. FDR won re-election in 1936 and started off with a robust agenda that caused uncertainty in the markets and with business leaders. In our opinion, specifically, two major policy initiatives caused the double dip recession. First, many of FDR’s initiatives in his first term were overturned by the Supreme Court. In order to prevent this from happening again, he proposed raising the number of Supreme Court Justices from 9 to 17 in order to insure the sustainability of his programs. Secondly, and even more destructive to the economy, he increased taxes for both corporations and individuals. For example, the Undistributed Profits Tax, which was enacted in 1936, made it less attractive for companies to reinvest their profits for long-term growth.

Our point is this – no country has ever taxed themselves into prosperity. Americans are not happy with government spending and, we believe, not in the mood for more taxes. Many are hoarding cash because of the uncertainty they feel both personally and in business. If Washington eliminated this uncertainty, it would go a long way in repairing our economy.

Sincerely,

Your THOR Team