Thursday, 4 July 2013

Killing the Stock Market

By Llewellyn H. Rockwell Jr. (21 September 2001)

It is conceivable that stocks might have come back after September 11, just as so many people had hoped. But the meddlers in DC seemed to be doing everything in their power to make sure that it would not happen. As a result, the government has compounded the destruction wrought by the terrorists, and added to the economic miseries of the moment.

The week following the attack unleashed an amazing barrage of legislation and proposals that can do nothing but harm American productivity. This was the last thing the economy needed even before the attack. Remember that stock prices reflect an estimation of the future. If the performance this week is any indication, bad times are on the way. That's exactly what you would expect given the blizzard of statism coming out of D.C.

We can start with the $40 billion that Congress authorized for counter-terrorism, rebuilding, subsidies, and other purposes known and unknown. Nobody stopped to ask: where does this money come from? The answer is that it is sucked right out of the private economy.

One way or another they will get it from us, whether through taxes, debt payable later, or inflation. For days, there was talk of the need for a special wartime tax, and the need for all of us to cut back. Say what you will about this kind of rhetoric, it’s not good for stocks.

Some people say: it will come from the surplus. But any spare change lying around Capitol Hill is better used for more tax cuts, for which this spending package has killed all hope.

Others say: but this will provide a stimulus to the economy. In fact, not a day goes by when another commentator doesn’t claim that all forms of destruction, whether terrorist attacks or government spending, are actually good for us because they lead to more aggregate demand. Timothy Noah at Slate was the first to make such a claim, but Paul Krugman of the New York Times, then Larry Kudlow of National Review stepped up to the plate to say the same.

As Frederic Bastiat explained long ago, this view disregards the alternative uses to which the resources might have been put had terrorists not destroyed them or had government not decided that it needed scarce resources more than we do. Government spending is a drain, not a stimulus, to economic activity. This is true regardless of whether you think such spending is justified.

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