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The Fatal Conceit


We've been rolled again.

Sure, the economy is in bad shape — though the late '70s and early '80s were worse in many ways (, but is it true that every economist agrees that massive "stimulus" is the solution?

"A failure to act, and act now, will turn a crisis into a catastrophe," President Obama said.

If someone expresses skepticism, Obama and other political leaders suggest that economists are unanimous in believing that government spending is the only answer.

"We have a consensus that we need a big stimulus package that will jolt the economy back into shape," Obama said.

House Majority Leader Steny Hoyer agreed: "Every economist from right to left, Republican, Democrat, advises that it has to be a very substantial package."

It's a lie. There was no consensus. (Anyway, a consensus doesn't mean something is true.) Finding an economist who opposed government spending as a way to fix the economy was easy. More than 350 signed a petition ( opposing the bill. You can hear some of them on "20/20" this Friday at 10 p.m.

"How is it the government is going to be able to spend a dollar in such a way that it generates a dollar or more in value?" asked George Mason University economist Peter Leeson. "A more likely possibility is that a dollar that government takes out of the private sector is a dollar the private sector doesn't have to spend."

Leeson is referring to the "broken-window" fallacy, which comes from Frederic Bastiat's story about a boy who throws a rock through a shop window. Since the shopkeeper has to buy a new window, some believe the mischief will actually stimulate the local economy. The fallacy lies in overlooking that the shopkeeper would have spent the money some other way if he didn't have to replace the window.

Every penny the government spends will first have to be borrowed from someone in the economy. So where's the stimulus?

It's also quite a conceit to believe that a few men in power are smart enough to know precisely how to spend trillions of your dollars.

"They're exploiting a minor correction in the economy.

... Markets go through corrections all the time," Lydia Ortega of San Jose State University told me.

I pointed out that people say this correction is worse — maybe like the Depression.

"But markets need to go through this correction," she said. "What's happening now, what's making it worse, is that people don't know what's going to happen. There's so much uncertainty generated by the government spending."

The more the government does, the more private investors wait.

"Part of the reason that people aren't spending is they don't know what these characters in Washington are going to do," says Howard Baetjer of Towson University.

"Japan tried six spending packages in the early 1990s. The result? A decade of lost growth," points out Ben Powell of Suffolk University. "It's the government's own policies that contributed to the bubble. The government's not the answer to it."

I wanted to ask the bailout's big boosters about that. Two agreed to talk, Maxine Waters of the House Finance Committee and Majority Leader Hoyer.

Hoyer conceded that he "overstated the case" when he said every economist endorsed government action.

Wasn't the bubble caused by too much debt? I asked.

"No doubt about it."

So the answer is more debt?

"Most economists believe that's the case."

This stimulus spending is this going to work?

"I hope so."

Might it cause hyperinflation?

"We hope it doesn't. "

Well, that's comforting.

"Government can't sit and just twiddle its fingers," Rep. Waters told me. "We have got to interject money into these banks and these systems that help this economy work."

How are you going to pay for it?

"We have borrowed money before. We continue to borrow money, but we pay it back."

She left a few things out. Debt means interest payments and higher taxes in the future. It also means inflation when the Fed prints money to reduce the real value of the debt.

But the politicians are confident that they can wisely spend trillions of your dollars. The arrogance of the political class is stunning.

John Stossel is co-anchor of ABC News' "20/20" and the author of "Myth, Lies, and Downright Stupidity." To find out more about John Stossel and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at




3 Comments | Post Comment
Do you think it is arrogance alone or a basic failure to look at simple facts? Before this financial mess began, 20% of the total annual federal revenue (receipts) were required to pay the interest on the federal debt ($9 trillion). Projected total national debt is now $13 trillion, minimum, and climbing. Total revenues for the next few years will decrease due to the massive losses that will be applied by taxpayers. The % of that revenue stream required to pay the interest on that debt will increase from 20% to at least 33% (& that assumes that interest rates do not increase which is highly unlikely). While it is mathematically possible to pay off this debt, it is not likely given our elected officials penchant for spending programs. National bankruptcy is the likely answer.
Comment: #1
Posted by:
Wed Mar 11, 2009 7:18 AM
Fed Chairman, Ben Bernanke, stated and I'm quoting ‘We really had no choice in bailout of
AIG!' Yes, Mr. Bernanke, you did have a choice! When AIG received first bailout, why
weren't strict guidelines imposed on them; such as, NO MORE BONUSES, cut ‘CEO fat cat'
salaries, freebies, and retirements to maximum $25,000.00 year. Older employees, offer
them an early retirement package! All other salaries to be cut by at least one-quarter, as a
slice of the pie is better than no slice at all! Mr. Bernanke this includes you and the rest of
politicians! The other option would have been to let AIG file bankruptcy so they could start
over, and maybe this time they would be more concerned and knowledgeable of what it
takes to run a company by tightening their pocketbooks! You see, Mr. Bernanke, bad
choices is what's put America into Bankruptcy and borrowing money from foreign
countries that we can't pay the interest on! Where's the common sense in these matters?

Taxpayers understand Bay of Thailand is buying AIG Retail Bank Company and deal is to
be completed April 2009. Since this is really Taxpayers money, will you and rest of
politicians make sure AIG pay off the trillions of dollars borrowed, without Taxpayers'
consent, to foreign countries?

That brings Taxpayers to the latest for AIG's bonuses and the statement “If we don't pay
them big bonues, they'll sue us!” How dumb you are? It's Taxpayers' money, not yours to
give! It's time for for AIG, Freddie, Fannie, Banks, Automakers and anyone else standing in
line taking Taxpayers money to immediately file Bankruptcy! Enough is Enough!

President Obama's top economic advisers vigorously defends his 3.6 trillion budget! News
flash for you -- “Taxpayers don't defend this nor any of the so-called put people back to
work programs, called infrastructures. I just left a meeting in which one of the ‘economic
advisers' from a bank stated he'd been in DC for a week!” I asked him why he thought
America needed infrastructures if we didn't bring textile and furniture manufacturing jobs
back to America? He stated ‘they' didn't discuss this, just infrastructures! Remember, these
large banks like Citicorp, Wachovia, etc. were bailed out! Taxpayers wonder why we're
bailing them out if politicians continue allowing the ‘economic' idiots to advise them. He
had no answers! Guess what, Mr. Economic Adviser was hoping the floor would open up
and I'd fall through it! You see, all the expert politicians and economists know as much
about ‘thrifty management' as a newborn and this, folks, is the reason for Change and not
Obama's change methods, either!

There seems to be a lot of ‘experts' in government and financial institutions with no
common sense. It's time to run America like a private business; meaning, President, Vice-
President, Secretary, and Treasurer. All these cabinet members collecting huge salaries
and benefits will have to come to an end. Taxpayers know it's time to cut salaries to
$12,000.00 yearly for all politicians. After all, these Public Servant jobs give less than 30
days of service and, in today's world of mismanagement, deceit and greed, so this is more
money than they deserve.

Why aren't we prosecuting the people handing out Taxpayers monies and the people
who's receiving it? The reasons being very clear-who's collecting and benefiting!

Comment: #2
Posted by: Shirley deLong
Sun Mar 15, 2009 4:09 PM
We've been getting rolled for a very long time. We've been subsidizing the SUV industry all the while - See this ABC article:
Comment: #3
Posted by: "SAM"
Sun Mar 15, 2009 9:33 PM
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