Thursday, August 5, 2010

The Circular Reference of Government Spending. Lee's Summit School District Purchases Electric Trucks from KC Plant

I am a software engineer and am familiar with the dangers of creating a circular reference or an endless loop.  An endless loop could be described as a the sum of the sum of a number where the number is defined as the sum of itself.  Basically, there is no real start or end.  Most importantly, you never move beyond that string of code.  Government stimulus money works much the same way.  It feeds itself, but creates nothing.  For example, a school district in Lee's Summit, MO recently purchased several electric trucks using government grants from the Stimulus package.  These trucks were manufactured by a Kansas City, MO plant that is subsidized through Stimulus money.  The purchase of these trucks was reported as progress from Stimulus.  The problem is that the purchase of government funded trucks by a government entity using government funds produces nothing.  It is just the shuffling of government funds from one bucket to another.  Nothing is produced. 
Let's break this down further.  A truck plant opens up to make electric trucks, however, this plant can only open up so long as it receives government support as there are no market forces demanding the production of electric trucks.  Now take a government organization that is in need of trucks.  While governmental, they do have budget.  They have a demand for trucks, but not for electric trucks.  But, because they will receive a grant to help in funding the purchase of the electric trucks, they purchase the electric truck.  Remove the government funding and the whole equation falls apart.  This is why capitalism works and socialism does not because a government cannot successfully pick winners and losers and have growth in an economy. 
You know, the thing about a circular reference is that if you draw it out on paper, you get a big zero.  That is what Obama is giving to the nation.

No comments: