There is an interesting economics column in the Wall Street Journal on the similarities between the Greek meltdown and our own fiscal policies. I have long been a critic of the wild spending of both Congress and President Obama, including the recent proposal to simply pay for an over $200 million short-range missile program for Israel (here). This article discusses the possible disaster awaiting the United States as our leaders blissfully assume that a recovering economy will pay for their various programs and pet projects.
The column questions the logic of being able to tax their way out of this deficit. While I am socially liberal, I tend to be fiscally conservative and I find the current situation extremely alarming.
This article is interesting for its proposition that higher taxes are not able to close such a gap:
The feds assume a relationship between the economy and tax revenue that is divorced from reality. Six decades of history have established one far-reaching fact that needs to be built into fiscal calculations: Increases in federal tax rates, particularly if targeted at the higher brackets, produce no additional revenue. For politicians this is truly an inconvenient truth.
This is a different take on the problem. I have always been skeptical of the “spend out way out of the crisis” approach — which is an awfully convenient theory for members who are always inclined to spend more and put off payments to the future. Once back in power, the Democrats seemed to immediately fulfill a stereotype of higher spending and immediately turning to higher taxes as the solution. This is precisely the course that led to the last Republican takeover of Congress. In their defense, Democrats faced a crisis left to them by the Republicans and particularly George Bush who was one of the greatest spendthrifts in our history. However, they have shown no serious commitment to tackle these dire economic forecasts — gushing money in Iraq and Afghanistan while watching cities and states shutting down basic programs. Our debt is now growing at a record pace — roughly $5 billion a day (here).
This is not to excuse the Republicans who, under Bush, showed no restraint and left Obama with a massive debt. I simply have little faith in our current economic policies or a sense that leaders are seriously addressing the growing threat to the nation from our growing debt. Various countries have raised alarm over our debt and the similarities to the Greek meltdown, here.
For the column, click here.
Two words: Paul Krugman.
For instance:
Refuting the comparison between Greece and the US (a month ago):
http://krugman.blogs.nytimes.com/2010/05/12/are-we-greece/
apropos TonyC’s point:
http://krugman.blogs.nytimes.com/2010/05/19/feeling-deflated/
And he’s not as popular as you might think he is. Or I think he sould be.
1) You can borrow and spend your way out of debt. Companies borrow money to build businesses that build profits. The US can borrow money to build infrastructure (or repair it), do R&D, etc. That employs people at every level, and generates real returns. Most of our prosperity was the result of massive WW II spending on R&D and infrastructure. The Interstate Highway system is still generating hundreds of times its cost. We don’t want to give it away or spend on pointless crap, but it is not senseless to borrow for the right reasons.
2) People don’t seem to realize that inflation is pretty progressive. We don’t actually “print money” anymore, we just change some numbers in a computer. But think about something like 5% inflation: The average citizen’s net worth is tied up in objects like their house, cars, furniture and stuff. The utility of these already-bought things does not change, and if sold, their prices will have risen with inflation, so they are inflation neutral. Fixed interest debt is even better: Since income tends to rise with inflation and the payments do not, inflation reduces the number of hours of work needed to make a payment. And finally, inflation is a tax on cash assets. A lot of us have at least some cash, but the more you have, the more inflation costs you, and it costs the wealthiest most of all. That is progressive, and an ASSET tax, not an income tax.
You don’t want to collapse your currency, but actually “printing money” can be a pretty progressive solution, when it is politically impossible to tax the wealthy directly.
@John
“Russia has gone broke…”
Incorrect. On purely economic grounds, the nation is doing very well. Its treasury is running a surplus which has allowed it to pay down its debt, unemployment is low, inflation has been moderate, and the currency is stable. Under Putin’s leadership (and he is still in power if not offically) the GDP has doubled. This is mainly due to oil and natural gas exports, and Putin’s authoritarian policies.
Buddha:
I rounded off to make it easy.
$60,000,000,000/310,000,000 = $193.55
Bdaman:
not very much 60×10^9/30 x10^7 = 2×10^2 = 200 bucks.
Slarti is that right I don’t have my calculator 🙂
Byron, leaping nearly $60 billion since Friday.
So if there are 310 million people in the U.S. and this administration wants to redistribute the wealth, how much money could we all have since Friday, if the government just past out the $60 billion to us all.
We are paying trillions in interest due to the Bush administration’s mismanagement. It is a mess. We need stimulus to get the economy going and Obama has inherited a huge debt. Bush wasted so much money on the wars and Obama is still spending on them. I don’t think a few teabaggers can straighten this out. There are no easy answers.
Bdaman:
that is like the pot calling the kettle black. They all spend at every level of government with no consideration that it is our money. Vote them all out in November and elect people who will have the nickel before they spend it.
Debt under Obama increases $5 billion per day thats 3 times the amount under Bush.
The federal government is now $13 trillion in the red, the Treasury Department reported Wednesday, marking the first time the government has sunk that far into debt and putting a sharp point on the spending debate on Capitol Hill.
Calculated down to the exact penny, the debt totaled $13,050,826,460,886.97 as of Tuesday, leaping nearly $60 billion since Friday, the previous day for which figures were released.
At $13 trillion, that figure has risen by $2.4 trillion in about 500 days since President Obama took office, or an average of $4.9 billion a day. That’s almost three times the daily average of $1.7 billion under the previous administration, and led Republicans on Wednesday to place blame squarely at the feet of Mr. Obama and his fellow Democrats.
http://www.washingtontimes.com/news/2010/jun/2/federal-debt-tops-13-trillion-mark/
This is intentional. Bush 41, Cheney, Biden, and Bill Clinton all belong to the Council on Foreign Relations. The treasonous goal of that organization is world government and the dissolution of the nation-state and national sovereignty and borders.
That cannot be achieved UNLESS the US is brought to its knees economically in order to willingly submit to world or regional governance.
This is why we don’t get a presidency without a council member at Veep or Prez.
CFR runs the country and their openly stated goal is rubbing out borders. There is no conspiracy theory here, its right out in the open, people are not just paying attention (and the CFR knows it).
Obama knows it too. Our leaders loath America.
If a $200 million expenditure was worth at least one article, shouldn’t the $1,000,000,000,000 that just went down a rat hole in the Middle East generate 5000 articles?
Or is it just a convenient way to bring up Israel?
“Are We Heading Into an Economic Meltdown?”
Sadly yes, as long as we spend trillions more than we take in. It is no longer a question of “if”, it only a matter of “when”.
Tax and spend didn’t get us in this mess, Byron. It was taxing and fraud by government contractors, the financial industry and their lobbyists. Crime. Not taxing and building infrastructure, that function of government that has been around since the beginning of governments. The Pyramids, the Colosseum, The Great Wall and Gemini/Apollo Missions were all built with taxes. But you can’t build those kind of impressive projects if you allow thieves to charge you $800 for a toilet seat, $500 for a coffee maker or $400 for a wrench.
The democrats had to spend to keep us out of a depression. How can you cut spending in the midst of a deep recession caused by the prior administration? Apparently the jobs report tomorrow will show a 500000 plus increase in jobs. We were losing in excess of 700000 jobs a month. I know some people think the only worthwhile job is a private sector job but I don’t agree with that. We don’t live like the Greeks. US productivity is up but wages are not.
@ anonymously yours:
http://www.tnr.com/article/trb-defense-waste
“Once back in power, the Democrats seemed to immediately fulfill a stereotype of higher spending and immediately turning to higher taxes as the solution. This is precisely the course that led to the last Republican takeover of Congress. In their defense, Democrats faced a crisis left to them by the Republicans and particularly George Bush who was one of the greatest spendthrifts in our history.”
here’s a graph that shows what actually happened:
http://www.tnr.com/blog/jonathan-chait/dispelling-conservative-magical-thinking-baby-steps
Bryon,
Unfortunately, when I was in College Keynesianism Economics was taught and these are the people that are making the behind the scene decisions. I still remember the Professor who, woefully graduated from Wharton School of Business trying to convince us that this was the way to go. I did not believe it then and I don’t believe it now.
However, Sometimes the Government does need to create job until the private sector can take over. FDR proved this. I am not a fan of toll roads in the least. They are what I would call a Traditional Government function. I think we all agree that you can’t spend your way out of the financial mess that w had gotten us into. But how do we stop, cold turkey? We cannot just walk out of the middle east. Too much is invested there to not get a return of some sort.
You cannot spend and print money indefinitely, there are no free lunches.
Hopefully November will bring a group to congress that understands you can only spend what you make and that the private sector creates jobs, not government spending.
“What Keynesianism unleashes is wicked inflation that no one can control.”
From: Tiger by the Tail, Hayek on Keynes by Sudha Shenoy
We are in the process of figuring that out again, how many times does an idea have to fail before government will discard it?
Tax and spend got us into this, lets try reducing taxes and spending for a change.
Russia has gone broke, India, and now the Greeks…but somehow people here think it can’t happen…
The only reason our money is worth anything is the demand for it. OPEC countries have used American dollars exclusively for buying their oil, but now they want to be able to accept other currency’s.
When this happens, bend over and kiss our economy bye bye, our money will be worth toilet paper…maybe!