Your Loss Is My Gain, Sucker!

I am being enriched by a vast expansion of government that will impoverish you and your family, and shrink the size of the economy in the long run.

Across the country, and probably where you live, home values have declined by 20 percent or more. But my house, located where many federal employees live, has lost much less value. Indeed, the tax assessor claims (with some exaggeration) that my home’s value is down only a few percent over 2007 and 2008, and is still well above its 2004 purchase price.

A Washington Post story today suggests why. It notes that thanks to Obama’s huge spending proposals, fueled by deficit spending on an unprecedented scale, up “to a quarter-million” bureaucrats could be added to the federal payroll. The Post reports that “President Obama’s budget is so ambitious, with vast new spending . . . that experts say he will probably need to hire tens of thousands of new federal government workers to realize his goals.”

Many of these new federal employees will end up living in Arlington, Virginia, the suburb right next to Washington, D.C. where my home is located, increasing demand for housing there. (Federal employees are better paid than the average private sector employee, although their pension and health benefits are not as generous as for many state and local employees, whose compensation far outstrips private sector employees). So essentially, you and your family, through higher taxes and higher national debt that will have to be paid off in the future, are subsidizing the value of my home.

The relatively resilient housing market in Arlington reflects large, deficit-financed government spending that has poured money into the Washington, D.C. area while sucking money out of the rest of the country. The compensation of federal employees has substantially outstripped inflation, and that trend seems likely to continue and increase under a Democratic Congress and Administration. (Spending rose, rather than fell, as a result of the Democrats retaking control of Congress in 2006).

This spending can’t be justified as a long-term cure for the economy. The Congressional Budget Office has recently issued a letter reaffirming its prior conclusion that the stimulus package passed by Congress and signed into law by Obama will actually reduce the size of the nation’s economy “in the long-run.” That’s because of the “crowding-out” effect — money that the government borrows to “stimulate” the economy results in a higher national debt, which results in higher spending on interest to service the national debt, which in turn results in money being taxed or borrowed to pay that interest, rather than being left in the private sector where it can be invested to create jobs. “In economic parlance, the debt will ‘crowd out’ private investment.”

Investors have already reached the same conclusion. Stock markets rise even in recessions (like the 1981-82 recession) when investors expect the recession to eventually end and lead to strong economic growth. That’s why they are called leading economic indicators.

But this year, the stock market has fallen like a stone, because investors — unlike the general public — realize that Obama’s economic policies are destructive and will retard, rather than speed, a recovery. The Washington Post today reports that stocks have lost 52% of their value since their peak, and have fallen to their lowest level since 1997.

The fact that the stock market has continued to fall this year is a sign of incompetence in Washington, and an illustration that the welfare-filled, deficit-exploding, trial-lawyer-enriching, $800 billion stimulus package pushed by Congressional leaders and Obama was a terrible mistake that will do nothing to address the root causes of the current financial crisis.