Screw the stimulus -- let's scare off the lenders

Barring divine intervention by a team of heavenly economists, President Barack Obama's massive spending spree ... err ... stimulus package, will pass into law. That probably can't be stopped. But the money to be spent isn't yet in government hands; it will almost certainly have to be borrowed -- probably from overseas. That threatens to bind generations to come to paying off the bills run up today. Unless, that is, enough Americans dissuade lenders by announcing ahead of time that they plan to repudiate the debt the government intends to incur.

To be successful, such repudiation will have to be open and massive. And it will be most convincing if it's voiced loudest by young Americans -- those who have the potential to assume political power in the future. Millions of twenty-somethings saying, when they're in Congress 20 or 30 years from now, they won't honor hundreds of billions of dollars of treasury securities issued by today's profligate politicians, just may raise serious doubts among the world's lenders.

There's good reason to take such drastic action to kneecap the stimulus package after it passes. Harvard University economist Robert J. Barro points out that massive government spending in the past -- particularly, during World War II -- actually did economic harm.

[T]he war lowered components of GDP aside from military purchases. The main declines were in private investment, nonmilitary parts of government purchases, and net exports -- personal consumer expenditure changed little. Wartime production siphoned off resources from other economic uses -- there was a dampener, rather than a multiplier.

Barro suggests that peacetime spending would be even more damaging than that during war, since people might perceive it as long-term policy and permanently adjust their own habits.

If he's right, the stimulus plan not only places us, our children and our grandchildren under the onerous burden of paying off massive debt -- it does so with the knowledge that the debt the government took on actually hurt us.

This really isn't surprising. As Professor John Cochrane of the University of Chicago puts it:

First, if money is not going to be printed, it has to come from somewhere. If the government borrows a dollar from you, that is a dollar that you do not spend, or that you do not lend to a company to spend on new investment. Every dollar of increased government spending must correspond to one less dollar of private spending. Jobs created by stimulus spending are offset by jobs lost from the decline in private spending. We can build roads instead of factories, but fiscal stimulus can’t help us to build more of both. This is just accounting, and does not need a complex argument about “crowding out.”

And Barro and Cochrane aren't alone. Roughly 200 prominent economists have signed a newspaper advertisement (PDF) sponsored by the Cato Institute that rejects the idea of massive government spending as a solution to economic troubles. Running in The New York Times and The Washington Post, the ad says, in part:

More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s. More government spending did not solve Japan’s “lost decade” in the 1990s. As such, it is a triumph of hope over experience to believe that more government spending will help the U.S. today. To improve the economy, policymakers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth.

Despite such sentiments among many economists, the stimulus plan is certain to be passed by Congress and signed by President Obama.

Which means the last chance to head off "stimulus" boondoggle is to make sure the money isn't there to be spent. And since our debt-ridden government has no money of its own to flush away, and will have to borrow the cash, scaring off potential lenders is the best bet.

So, come on America. Say it in print, on the radio, on TV, on blogs and in advertisements. Say it loud and say it proud: If the world is dumb enough to loan more money to the U.S. government, don't expect it to be paid back. The Americans who will be making decisions in the decades to come won't be bound by the folly of the current crop of office-holders.

If enough of us say it, the world will listen, and cut off the tap.

If that doesn't stop the spending spree, nothing will.