Davis Claims Government “Smothering” the Economy by Not Spending Enough
Public Enemy Number One, to hear Danny Davis tell it
On occasion, Congressman Davis has been a good champion for some causes, but economics has never been his forte, and he proved that all too well this Tuesday on Fox News when he insisted that the government has been “smothering” the economy by not spending enough.
“If you hold your fist too tightly, and nothing goes out, nothing comes in. And ultimately, you smother whatever is in there to death,” Davis said.
But is that really the case?
The federal government is currently running the highest deficit in history, $1.36 trillion, and counting the shortfall in Social Security, it has been running deficits for most of the past several decades. Personal savings in the U.S. have been falling since the 1980s, and the debt accumulated by corporations like GM and AIG is now legendary.
Despite all this very un-tight-fisted spending, America is now facing an enormous economic crisis.
By contrast, China, which has had the highest personal savings rate in the world since 2000 and whose government holds the world’s largest foreign reserves, has shown double-digit economic growth for decades, despite the “tight-fisted” attitudes of its citizens and government.
Why is this?
It’s because the Chinese have been spending their money in a better way than us. They’ve been saving it.
In the modern world, all savings is actually spending. When money is saved in a bank or in a stock or bond market, it gets invested in the economy to produce things like machinery, bridges, and college educations. This creates jobs, expands the economy, and makes society wealthier.
In the U.S., however, money goes increasingly not towards investment but toward consumption. When Americans aren’t being deterred from saving by government-slashed interest rates, politicians like Congressman Davis tax them and “invest” their money in failing car companies, worthless housing stock, and ongoing wars. But real investments always produce something more, not something less. The spending that the Danny Davis’s of the world are perpetuating is just more wasteful consumption masquerading as investment.
Consumption destroys wealth, and when wealth is destroyed, there is less left for everyone, including the government, to spend.
So, if Congressman Davis really wants to point the finger at someone for being too tight-fisted on spending, all he really ought to do is find the nearest mirror.
