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Obama’s Public-Works Folly
by Jacob G. Hornberger

Americans might well rue the day when they trusted the federal government to spend the nation into prosperity. It just isn’t going to happen. All that Barack Obama’s massive public-works spending spree is going to accomplish is either more debt added to the national debt or more depreciation in the value of the dollar, or both. Either way, Americans are going to be hurt, possibly very badly.

After all, let’s not forget that ever since 9/11, George Bush has engaged in one of the biggest spending sprees in U.S. history. Have you noticed all the economic prosperity that Bush’s military spending spree has brought our nation?

Let’s also not forget what conservatives used to say about how Ronald Reagan supposedly brought down the Soviet Union — by causing the Soviet government to spend so much money that it bankrupted the nation. So, if a Soviet spending spree was bad for the Soviet Union, how likely is it that a U.S. government spending spree is going to prove good for America?

Keep in mind that the U.S. government does not have an independently produced pool of wealth. Thus, there are only 3 ways that Obama can get the money to pay for his big public-works project: taxation, borrowing, and printing the money.

We already know that he’s not likely going to resort to taxation, unless he taxes only the rich. But if he does tax the rich to fund his project, all that he accomplishes is having the government, rather than the rich, spend the money. That is, to the extent that government taxes and spends money, to that extent the taxpayers are deprived of spending or investing the same money. Thus, to the extent the government’s public works sectors (e.g., highway contractors) benefit, to that extent the rich people’s sectors in which they would have spent or invested the money are damaged. Government hasn’t created wealth, it has simply redirected it.

More likely, Obama will borrow the money, which is precisely how George W. Bush has been funding his spending spree for the past 8 years. One of the primary lenders has been communist China, which is one reason that U.S. officials must be very careful about offending China. It’s never a good idea to insult or abuse your loan officer.

According to an article in Saturday’s Washington Post, the national debt is expected to jump $2 trillion this year, bringing the total to more than $14 trillion. Of course, hardly anyone thinks about the fact that U.S. taxpayers are ultimately responsible for repayment of that ever-growing debt.

Moreover, forty percent of the debt held by private investors comes due this year. Naturally, federal officials feel that they can continue to pile on the debt and that they can keep rolling it over when it comes due. Perhaps that’s true, but I wouldn’t count on it. If people start thinking that there’s a risk of default, they might well decline to invest in the roll-over debt. Moreover, in a panic there’s always the possibility that China or other major debt holders might begin dumping their supply of U.S. debt instruments onto the market, thereby causing a major and immediate plunge in the value of the dollar.

Could there be a default on U.S. debt? That raises the third way that Obama could finance his big public-works project — by simply printing the money. Federal officials could also resort to the printing presses to pay off the ever-growing debt. If they do that, that will constitute a default because debt holders will be receiving less than they contracted for by virtue of being paid off in depreciated dollars. That prospect could easily trigger a run on the dollar.

In other words, all 3 options that Obama has at his disposal will produce bad, maybe even catastrophic, consequences for our nation. Alas, however, the same trust that Americans place in George W. Bush to protect them from the terrorists, they’re now placing in Obama to protect them from the economic crisis. The result will be the same as it has been in Bush’s war on terrorism — more centralized power in Washington and less freedom and security for the American people.

Jacob Hornberger is founder and president of The Future of Freedom Foundation. Send him email.