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Alan Schram

Alan Schram

Posted: December 30, 2008 03:00 PM

Federal Spending Out of Control


I am concerned with the budget deficit and the many spending initiatives now being floated around Washington, DC.

Recently, the U.S. Conference of Mayors went to Capitol Hill to ask for a handout, or as they put it: "A total of 11,391 infrastructure projects are 'ready to go'...at a cost of $73 billion."

A wish list that is 11,391 projects long! What vital infrastructure taxpayers get for their $73 billion? If you think these are highways, bridges or schools, you are wrong. Here's a sampling:

- Hercules, Calif., wants $2.5 million for a "Waterfront Duck Pond Park,"
- Natchez, Miss., "needs" a new $9.5 million sports complex,
- Arlington, Texas, needs $4 million to expand its tennis center,
- Miami, Fla., needs $3.6 million to build a covered basketball court and $94 million for the Orange Bowl parking garage,
- Oakland, Calif., needs $1 million for a Latino Cultural and Performing Arts Center.

This is not what Alexander Hamilton had in mind when he set up the first federal debt program.

We must recognize that government has no money that isn't ours. It is not the "government" that hands out these bailout packages and money for projects. Government is simply a middle man, a tool to join our resources together. The cost of these bailouts is borne by us taxpayers, and the whole thing amounts to a giant transfer of wealth to the employees and shareholders of the weak and failing industries, and to the citizens of towns that have the most assertive and brazen mayors.

In addition, government intervention in private markets keeps productive assets---be it steel or capital goods or labor---in an inefficient condition. And deficit spending does damage on several levels: First, when the Treasury borrows money, it pushes aside private borrowers who could put the money to more efficient, productive use. Second, when the Fed prints money it devalues the dollar, to the detriment of all Americans except those receiving payments directly from the Government. And third, government spending obscures the process of finding optimal prices and production levels, thus creating an unsustainable situation, a fake recovery that will end when inflation stops.

To me it seems like the Fed is trying to debase the currency, i.e. make the dollar cheaper so that the Federal Government can pay its huge debts with cheaper dollars. This pernicious policy will have major adverse consequences on our economy, among them rampant inflation and a run on the dollar, and will not serve the recovery from the current financial crisis.


Alan Schram is the Managing Partner of Wellcap Partners, a Los Angeles based investment firm. Email: aschram@wellcappartners.com.