Why the Massive Spending Bill Will Fail

I was thinking this afternoon about the "Big Debate" over the Massive Spending Bill (which is what it should be officially known as). There are as many reason why this spending bill will fail as there are people arguing against it.  

I could point out the fact that most of the spending bill is spent in areas that will not stimulate the economy at all. I could point out that much of the spending will take place years down the road, not right away. I could point to the failed business practices of the automakers and financial institutions that are not going to change as a result of this bill.

However, the primary reason that this bill will fail has little to do with the bill itself, and more to do with a fundamental problem in the economy.

To understand my point, we must first understand how wealth is created. And to understand how wealth is created, we have to understand what wealth is and what it is not.

Contrary to the belief of many (most?) Americans, wealth is not money, it is stuff. We can print all the money we want, but we won't be any wealthier. The numbers on our bank accounts may be bigger, but that doesn't make us more wealthy. What makes us wealthy is the ability to accumulate stuff. To put it another way, wealth is our ability to live a higher standard of living.

Think about this: Five hundred years ago, the wealthiest kings and princes of Europe did not have air conditioning. They did not have TV or video games. They did not have telephones, wall-to-wall carpeting,  computers, cameras, wristwatches, stereo systems, toasters, motorcycles, or snow blowers. Most of the things we take for granted that make our life enjoyable were not in existence even as little as 75 or 100 years ago.  These things were manufactured. And our ability to own them is wealth.

How is wealth created?

We create wealth in three ways:  We can manufacture it; we can grow it; or we can mine it.  

When we build a house or a car or an electronic device or a piece of furniture, we are manufacturing wealth.  When we grow crops, we are growing wealth.  When we pump oil out of the ground or mine coal or mine for iron or other metals, we are creating wealth.

Now to the fundamental problem.  America is not creating wealth.

Not in sufficient quantities, anyway.  Most of our manufacturing has been moved to Mexico or Asia.  Due to government regulations, mining is becoming increasingly difficult.  Logging in America is declining because of regulation.  Generating energy is becoming more and more expensive, not because of a lack of coal or other forms of raw energy, but because of environmental regulation.  And while America's agriculture is more productive than at any time in history, relative to our population, our agricultural production is in decline.  Furthermore, much of what we produce spoils or is given away or sold to foreign markets at a price that is much less than it costs to produce.

Our current economic crisis has been a long time coming.  Really, beginning in about the 1960's, America's trade deficit has been heading in the wrong direction.  Every year, we have bought more and more from other nations and produced less and less here in America.  And every year, the Chinese, the Japanese and people from the Middle East, India and other nations have bought up American corporations, factories and American wealth.  A crash was inevitable. 

And it may be permanent.  

As long as unions prevent manufacturing companies from being competitive worldwide, and as long as government regulation prevents us from mining, logging and pumping wealth out of the ground, it will be impossible for America to create its own wealth.  In 2009, the only area in which America is out-producing other nations is in the area of information technology, and that is soon going to change.  Already, information technology is rapidly being outsourced to places like India, Malaysia and China.  Eventually, America will lose its lead in this area as well.

So no matter whether the coming Massive Spending BIll ends up being $1.3 trillion, $900 billion, or $750 billion, America is incapable of producing enough wealth to pay the bill.  

Until we address the fundamental problem of our inability to create wealth (in sufficient quantities to support our population), our current financial crisis will not be resolved.  And more government jobs isn't the first step.