A few notes before this week’s editorial/rant. For those entrerpreneurs who want to minimize tax, I guest blogged on Canadian Tax Resource yesterday on tax savings strategies.This blog is one of those hidden gems so please do subscribe to it.

Today is also the 400th post of this blog! Thanks for everyone for reading and commenting. If you keep reading, I’ll keep writing.

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Paul Krugman is a famous economist-to the extent any economist can become famous. Before he became known as a frequent critic of W’s economic policies,  Krugman wrote a paper called the “The Myth of Asia’s Miracle” during the 1990′s which ruffled a lot of feathers in political and academic circles (sensing a pattern in Krugman’s career here?).

His assertion was simple. There was no mystery, or secret sauce, to Asia’s economic rise in the 80′s and 90′s. Quite simply, Asian economics developed by a mass mobilization of resources, moving people from farms to cities, employing them in state-built factories and educating workers to be literate. However, a mere increase in these economic inputs (to use his terms) without an increase in the efficiency of these inputs will eventually lead to declining returns and limit growth.

In other words, throwing money at the problem will give you an immediate lift but with declining effectiveness over time if the money is not spent wisely (or work smart not hard). The best example being the Soviet Union who enjoyed a great rise in the 50′s and 60′s by forcing citizens to factories but could not think of how to make any further gains after that initial rise and the system imploded onto itself as the gap between it and America kept growing.

How is this related to our current situation?

There has been some quite article posts of the credit crisis and whether the home bailouts are economically feasible. However, the question I keep coming back to is if we are throwing trillions of dollars at the problem, what exactly is supposed to be at the light of the tunnel? Where are we going as a nation and society?

The end result of a stimulus is to put life back into the economy.  But for what purpose? If the government handed out $250 rebate cheques to shop at Costco or buy a locally made cars, we end up back in Krugman’s observation. It merely gives a temporary jolt to the economic system which fades in time.

While this may provide much needed temporary relief, one has to remember that the economic system that crashed was unsustainable: we were leveraged to the hilt, fraudsters manage some of our money and we consumed and not produced.

And, yet, I get the distinct impression from our leaders that the stimulus is intended to put us back to that lifestyle instead of telling us the truth which is: “We can only sustain this lifestyle by destroying the earth, mortgaging our children’s future and living materialistic and empty lives. We need to use this opportunity to really set ourselves onto the right path for many years to come.”

Certain parts of the stimulus do address productivity issues such as infrastructure build funds but I hear very little about those funds being used to rebuild old schools, attract more world-class academic talent to conduct research locally or to rehabilitate populated lands for other uses. Fixing roads should be done for safety reasons alone but it is a bit of a sad comment that we are using this opportunity to do what should be the government’s basic duty every year.

More than anything else, if the government is going to use taxpayer funds, many of whom did not speculate on real estate or buy shaddy investment products, it better say to these good and hard working citizens, here is the future we are crafting using your funds. Give us a light at the tunnel to look forward. If you are taking hard earned cash from the people who did not contribute to this issue, it should be to shape a sustainable future they want and not to maintain the lifestyle of those who got us here.

But all I see and hear are confused leaders who know nothing more than to throw cash at the issue without a real plan and, to use the Krugman analysis, this type of policy making can get us out of this mess but probably put us right back in it not soon thereafter unless our leaders actual articlute a crystal clear vision of getting value for all the money being spent.

Have a great weekend and enjoy the March break if you have it off next week.