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Reading the article, "G-20 leaders facing worries about rising deficits," I came across the following...

Treasury Secretary Timothy Geithner and Lawrence Summers, head of the president's National Economic Council, emphasized Wednesday that "without growth now, deficits will rise further and undermine future growth."

What our economic experts in Washington fail to understand is that spending is not growth. Economic stimulus may boost demand, but it mostly just causes inflation.

So what is growth? Growth is when we are able to produce the same product faster, cheaper, or better, thus increasing the standard of living for everyone. For instance, if a farmer finds a way to produce more vegetables on the same amount of land using better agricultural techniques, there will be more vegetables available and the price will go down. This will allow everyone to eat healthier for less money, thus increasing the standard of living. Simply giving farmers or consumers more money, does not create more vegetables, it simply increases prices because there are more dollars chasing the same amount of goods. This does not benefit anyone except the farmer or the consumer who receives said money - and it only benefits them in the short term. The rest of us pay for it in the long term.

The more money we take from people through taxes now and taxes later (deficit spending), the less money farmers and businesses will have to produce goods that benefit society. The government does not produce anything. High debt and deficit spending by the government is what will actually undermine growth.

And to those who argue that deficit spending makes more money available to farmers to come up with better methods of production, this is also untrue. First, the government doesn't know which future methods will work better then others, so "investing" our tax dollars this way simply distorts the market. If the government guesses wrong (which it probably will as they are not farmers), private money will follow government money, thus taking money from potentially good ideas and delaying or even eliminating true innovation. There is also the fact that in order to redistribute our money, the government must pay the bureaucracy who does the redistribution. So if private industry could spend a dollar on a new idea before taxes, there may only be 50 cents or less left after taxes as the bureaucracy collects, processes, and redistributes that dollar.

It seems like "progressives" tend to point to France and other European countries as examples of how wonderful a capitalist/socialist mix can be. This of course ignores their high levels of unemployment and other chronic economic problems caused by socialism, but maybe Frances latest commitment to reducing their deficit spending can be a guide for our politicians as well.

France expects its budget deficit to grow to 8 per cent of GDP this year and it intends to reduce that to 3 per cent within three years. The Government has frozen public spending and intends to increase the retirement age and reform the pension system to reduce its debt.

I doubt similar measures will be taken in the United States as our leaders would see such measures as "shortsighted."

If anyone actually believes that this new health care plan will actually decrease the deficit as is being quoted by politicians and the news, here are some previous estimates congress has made.

"In the case of the Medicare Program, the government estimate was off by over 816%."

"In the case of the Medicare Part A, the government estimate was off by 165%.."

"In the case of the Medicare Home Care Benefit, the government estimate was off by 150%."

"In the case of Social Security pay outs, the government estimate was off by a massive 2,600%."

"In the case of the Medicaid DHS Program, the government estimate was off by 1,600%."

- Capitol Comment 432: How Reliable are the CBO Cost Estimates for Healthcare Reform?

And for those who say that this is so important that cost shouldn't be a factor, see this:

And finally for those who think we live in a free society, you may need to redefine the term "free society":

But the individual mandate extends the commerce clause's power beyond economic activity, to economic inactivity. That is unprecedented. While Congress has used its taxing power to fund Social Security and Medicare, never before has it used its commerce power to mandate that an individual person engage in an economic transaction with a private company. Regulating the auto industry or paying "cash for clunkers" is one thing; making everyone buy a Chevy is quite another. Even during World War II, the federal government did not mandate that individual citizens purchase war bonds.

- Constitutionality of Obamacare

Another good article from Cafe Hayek today, Adults Are Responsible.

Adults' conversations about financial matters are mature and responsible because adults typically earn and spend their own money. Children's conversations about financial matters are childish and irresponsible largely because children live off of wealth earned by adults. "Buy me this toy!" "Get me that dress!" "Take me to DisneyWorld!" - children too frequently issue selfish demands such as these precisely because children have little to lose by doing so. If these demands are met, other people foot the bills.

Sound like any politicians you know?

The other day, the CBO said it expects deficits for next year to be $1.35 trillion. It expects similar deficits for the next decade, and says it could be higher depending on legislation passed this year. Today Congress will meet to expand the deficit "ceiling" by $1.9 trillion. They are also expected to quash an effort to reduce the deficit by voting against a bi-partisan panel that would make the hard decisions for them. Later, they will start deliberations on Bernanke's reconfirmation - the head of the organization that makes all this debt possible. He is expected to be confirmed for a 2nd term (although I have called my senators and told them not to vote for him).

I see absolutely no way out of a complete collapse of our currency and economy. The vast majority of politicians simply don't care about the deficit, our economy, or us. They are in it for the power, for as long as it lasts.

Obama is going to put a freeze on discretionary spending next year. The CBO said it will save almost $300 billion over 10 years. Sounds good right?

Well, since it won't go into affect for another year, next year's deficit is still projected to be a whopping $1.3 trillion. If nothing else changes, the year after (with the freeze) will see a deficit of 'only' be $1.27 trillion. Of course the freeze doesn't really mean a "freeze" freeze, budgets will still rise with inflation. So with 2.7% inflation ("nothing else changes" includes inflation), tack on another $34.29 billion to the deficit. Ok. Now... wait... yep. That's a increase of $4.29 billion.

It does nothing.

Just saw an article citing Fitch Ratings as saying, "the US will lose its AAA credit rating unless acts to bring the budget deficit under control, citing a spiral in debt service costs and dependence on foreign lenders."

On an unusually positive note, it appears at least two senators are taking the deficit seriously.

"We're literally going to pass on to our children a country they can't afford," Gregg says. "Their standard of living is going to go down dramatically, the tax burden will go up dramatically, the benefits for senior citizens who are retired will be adjusted dramatically if we allow ourselves to go over this cliff."

What they are proposing is an 18-member task force made up of 16 members of Congress - eight Democrats and eight Republicans, and two representatives from the administration, including the secretary of the Treasury. The committee would weigh proposals to lower the national deficit, and if 14 of the 18 members agreed on a proposal, it would go to the House and Senate for a vote. The proposal would then need to pass both chambers by a supermajority: 60 votes in the Senate and by 60 percent of the House. The president would also retain his right to veto.

Senators Propose Commission To Explore Deficit

Even if this commission does happen, and they do come up with ways to stop the red ink, I don't think the President or the Democratically controlled congress has the will power to do anything about it. It simply would not pass. Everything they are doing, or trying to do, requires massive amounts of money - money they don't have. Doing what would be required to stop the red ink would cause a big (and necessary) recession. Policies to create jobs would mean reducing the size of government and getting out of the way of the free market. I just don't see it happening.

UPDATE: One thing I forgot to mention, someone is coming on NPR tomorrow morning to try and explain why balancing the budget would be a bad thing. That should be interesting.

Ok, final "reality" post I promise. But it is pretty sad that when businesses and households are struggling to make ends meet, the government has absolutely no concerns about their own spending habits.

The Senate on Sunday passed a $1.1 trillion spending bill with increased budgets for vast areas of the federal government including health, education, law enforcement and veterans' programs.

The spending bill passed Sunday includes $447 billion for departments' operating budgets and about $650 billion in mandatory payments for federal benefit programs such as Medicare and Medicaid. Those programs under immediate control of Congress would see increases of about 10%.

The FBI gets $7.9 billion, a $680 million increase over 2009; the Veterans Health Administration budget goes from $41 billion to $45.1 billion; the National Institutes of Health receives $31 billion, a $692 million increase.

- http://www.usatoday.com/news/washington/2009-12-12-spending-bill_N.htm

But doesn't this help the economy you ask? Aren't we investing in our future or something? Quite frankly, no. The government doesn't create wealth, it uses it. It has no way to make money of its own. Well, it does own some things like the Post Office and Amtrak (and some banks and auto companies as well), but they actually LOSE money while keeping businesses that could run things more efficiently from expanding into those areas. Some of what the government spends is necessary and is required by the Constitution. We need these things. If we need more, then we should amend the Constitution. The majority of government spending however, is not.

Taking more wealth out of the economy in a time when it really needs it for investment is simply counter productive. The article above says that "$650 billion" will go to "mandatory payments for federal benefit programs." In 10 years from now, we will have to add another $500 billion (we pay $200 billion/year right now) just to pay interest on our debt. Reality is catching up.

The late Milton Friedman on the four ways we can spend money and why government welfare programs are so inefficient. In this case he was talking about public schools, but it can be applied to anything (health care included).

Milton Friedman was originally a believer in Keynesian theory (government consumes instead of consumer in economic downturns), but reinterpreted the Keynesian consumption function in the 1950s which challenged the basic Keynesian model. Keynesian economics is what our government uses to justify inflation and deficit spending. And by our government, I mean both Republicans and Democrats, past and present, with few exceptions.

(via RedStateEclectic)