In the Middle Ages wizard chemists called alchemists were rumored to be able to make gold in test tubes from common substances. Outfitted in pointed hats and robes with celestial stars and crescents they conjured precious metals from junk.

Used as a positive metaphor in business or finance, alchemy refers to the creation of value from ideas and strategy that lesser competitors could not comprehend or accomplish.

Used as a negative metaphor in business or finance it is a delusion that you can create something from nothing. We also call it “smoke and mirrors”.

Discussion of the so called Stimulus Bill and the budget sounds like political alchemy; the notion that we can create jobs, forestall bankruptcies, and support housing prices without any apparent cost or counter effect.

If the government can simply create jobs by spending money why would we ever tolerate any unemployment? Because the government can not create a single job, much less 3.5 million of them. Nor can the government save a single job.

After eight years of massive spending under the New Deal, the original mother of all stimulus packages, unemployment remained double our current rate. FDR’s Treasury Secretary, Henry Morgenthau, considered the New Deal a failure at creating jobs.

Every dollar the government spends must eventually come from the private sector. That dollar the government “spends” either directly or indirectly through contractors was extracted from the private sector and destroys at least a job of the same value, except that the private sector spends for the job in a sector that consumers wants rather than in a sector deemed worthy by a bureaucrat or a Congressman.

When the private sector decides they no longer want the services or product they very quickly stop paying and the worker is ultimately transferred to a sector producing something else desired by the consumer. In a government job the worker stays employed long after the need has passed.

Thus in reality the creation of a government job destroys more than an equivalent job in the private sector. Every political grandstanding speech about creating jobs is an outright lie- they are only transferring at least an equal number of jobs from the private sector to the government sector or to another private sector benefitting from the government largesse.

It is the same as cutting 18 inches off one end of a blanket and sewing on the other to make the blanket longer.

Our government is capable of providing any program you want and capable of solving any problem we have. The only choice the legislators really have is how to pay for it.

They can increase the burden on current taxpayers by whatever is necessary to fund the proposed programs. This rarely happens because our elected officials are not comfortable with clarity and the truth, and the voters do not want to hear the truth.

They can borrow the money, but then you must add interest to the cost. Borrowing, like inflation, may also devalue the currency and increase the cost of imported goods. You are still paying the bill; it is just hidden in the prices of the other goods you buy with your weaker dollars.

Or you can just inflate the currency to pay for the debt with cheaper dollars in the future. You also pay the cost with lost purchasing power.

One way or the other you are going to pay.

If government spending gets too high as a percent of GDP, it begins to crowd out private capital creation and the ability of the economy to grow and generate real job growth is impaired; income growth is restrained and the taxes generated off the income to pay for the government programs is limited or reduced. You enter a spiral of increased government expenditures with decreasing tax revenues to pay for it. The ultimate pain to resolve this increases the longer it continues.

The central problem of any elected government official is to be able to say no to worthwhile projects they can not afford. The government’s claim to create or save jobs is no different than the alchemist’s claim to make gold from base metals: it is a myth.

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