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.
Byron,
Although, looking back, I could see how you might think I was talking about inflation. My apologies for the terse tone, I’ve got a cranky toddler and two dogs that think that barking at the baby rabbits will somehow make them able to eat them.
puzzling
Lottakatz,
You seem to think that central planning of an economy is so vital that the idea of individual freedomz should itself be deemed traitorous.
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That is your spin on lotta’s words and not at all what was written.
Traitorous??!! … hyperbole
Hazlitt was a critic of Roosevelt’s New Deal interventionism and a proponent of the “morally superior” free-market capitalism as opposed to the State interventionism. His stance that free-market capitalism has done more to rescue people from poverty, disease, and slavery than any socialistic interventionist project or government was made without the benefit of having to contribute his tax dollars to bail out the “free-market” gooney-birds on Wall Street and in the banking houses.
He was, of course, a libertarian.
Gyges:
a couple of thoughts on inflation:
“You have heard economists say that they are puzzled by the nature of today’s problem: they are unable to understand why inflation is accompanied by recession—which is contrary to their Keynesian doctrines; and they have coined a ridiculous name for it: “stagflation.” Their theories ignore the fact that money can function only so long as it represents actual goods—and that at a certain stage of inflating the money supply, the government begins to consume a nation’s investment capital, thus making production impossible.”
“Egalitarianism and Inflation,” Philosophy: Who Needs It, 134
“Inflationism, however, is not an isolated phenomenon. It is only one piece in the total framework of politico-economic and socio-philosophical ideas of our time. Just as the sound money policy of gold standard advocates went hand in hand with liberalism, free trade, capitalism and peace, so is inflationism part and parcel of imperialism, militarism, protectionism, statism and socialism.”
Ludwig von Mises
On the Manipulation of Money and Credit p. 48 Inflation
“Economists often think of inflation as “money dropped from helicopters”. They mean that, with everyone suddenly having more cash in their pockets, they will be prepared to spend more, and prices will rise. Only then do they discover that they’re actually no better off.
Hayek was more subtle, explaining that money or credit never enters the economy evenly, it always goes in at some point. Since it is created by government, it’s often government industries that enjoy the first boost.
Then it slowly spreads out to other industries, like honey being poured onto a table. End the flow of money and the mound of honey-money in the middle collapses – but not before the higher prices in that sector have attracted in resources and human effort.
When it collapses, that investment is shown to be a failure, and something real has been lost, and has to be rebuilt.”
Eamonn Butler The Adam Smith Institute
Byron,
You’re really not doing so hot with the whole “addressing what I said thing lately.”
I pointed out (in as few words as I could bare) the inherent contradiction in saying that increasing your (non-debt) income to meet your rising costs leads to higher debt.
See:
“Tax and spend got us into this, lets try reducing taxes and spending for a change.”
and
“So increasing income so that it would match increasing spending leads to an increase in debt?
It’s actually NOT taxing and then spending that leads to huge debt.”
Byron Right now we are in a deflationary period so it is less of a concern.
Gyges:
Inflation robs the people. You are paying people with fake dollars. As Puzzling said above the first benefit the rest do not.
If I am a miner and mine gold for a living and put it in my safe so that I can purchase more mining equipment and have something to live on during the winter when I cannot mine gold what happens if my brother takes some of that gold and replaces it with gold covered lead?
Furthermore what happens when he takes it to town to buy drinks and dinner for everyone at the local restaurant?
What does the restaurant owner do with that influx of cash?
What happens when I go to purchase mining equipment in the spring?
What happens when there is less gold because I cannot mine enough because I could not afford to buy additional mining equipment?
What happens to the mining equipment manufacturer?
What happens when I discover my “gold” is nothing but gold colored lead?
What is the difference between government printing additional money and my brother making “gold” from lead?
Byron,
Thanks for the comments. I do not have anything to do with ARC. Should I know of it?
*freedoms, plural.
Lottakatz,
You seem to think that central planning of an economy is so vital that the idea of individual freedomz should itself be deemed traitorous. Aside from your comments on the wars in which we may agree, I’m not even sure where to begin when you start with such a premise. Vesting such power in government is immoral. I own my life; the government does not own it.
You might consider starting with Economics in One Lesson by Henry Hazlitt.
Byron,
So increasing income so that it would match increasing spending leads to an increase in debt?
It’s actually NOT taxing and then spending that leads to huge debt.
When what you’re saying completely contradicts itself like that, you might want to erase your work and start all over again.
Byron” “Lottakatz: I think we need a dictator as well to implement all of your policies. One that can really crack the whip and skulls to get people to do all those things. Then we wouldn’t need to worry about anything and everyone will live in a harmonious society where everyone is taken care of and there is no poverty or disease or war.”
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What we need is a new Roosevelt and a sense of urgency and self sacrifice we had after the Great Depression. The problem we have with an endless series of band aids and corporate welfare/bailouts is that they postpone the opportunity to alter the means and methods we use to implement our fundamental aims as a society. Or to even pubilcly examine them in a through and in-depth manner.
Was Roosevelt a dictator or a decisive leader with a great plan that could command the will of the average citizen?
Bdaman:
he ought to know, the little guy’s and his buddies policies are causing it.
Economist Robert Reich, the former secretary of labor under Bill Clinton, says we’re falling into a double-dip recession.
http://www.businessinsider.com/its-were-falling-into-a-double-dip-recession-2010-6
Lottakatz:
I think we need a dictator as well to implement all of your policies. One that can really crack the whip and skulls to get people to do all those things. Then we wouldn’t need to worry about anything and everyone will live in a harmonious society where everyone is taken care of and there is no poverty or disease or war.
Who do want to appoint as dictator? Personally I think I would like Hillary Clinton because we also get Bill and he would temper her.
Hopefully we can get this done sooner rather than later. Individual rights are such an annoyance when trying to change society for the better.
Swarthmore Mom,
I am with you and Seattle Joe on this one. We had no choice but to spend money to stimulate the economy. I even think building roads will aid that because the jobs created or saved, even if temporary, will put money back into the economy as people are able to pay bills and spend. Tax breaks for the wealthy do not work and have not worked.
“Are We Heading Into an Economic Meltdown?”
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Oh, Hell Yes!
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Swarthmore mom: ” 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? …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.”
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Excellent points. And Tony makes excellent points about borrowing/spending ones way out of a recession/depression also.
We need to get back to basics and we need the kind of leadership from the President and Democrats to make a complete realignment of the economy and the sacrifice that will be needed to do it a challenge citizens will want to take up. The problem is we as citizens don’t know where we need to go or what to do because there is no comprehensive accounting of where we are, in language plain enough to understand. That needs to change just to get the citizenry on board.
We need to do whatever we can to find a real bottom line for our national income. Then we need to start implementing programs to protect our resources, our health, our financial security and growth, our environment and our very lives.
We need IMO a comprehensive “Marshall Plan” for America and people that stand in the way, be they Republicans, Blue Dogs, Business, religion, anyone, needs to be called out as a traitor.
The playing field must be leveled between the classes, breaking up the big banks, taxing run-away companies until they bleed from every pore and unilaterally voiding any treaty that encourages jobs to move off shore is a good start.
The wealth class and corporate profits must be taxed at much higher levels and the LLC option needs to be ended or restricted to business’ making $1 mil. or less in profits.
The only real trickle-down that has ever worked (in my observation) has been tax dollars that create jobs and public sector jobs are a great way to do it, infrastructure works and frankly, if I have to pay a contractor to do something and hire an on-sight 24/7 inspector or teams of inspectors to make sure it gets done without illegal profiteering I’d just as soon the government hire employees directly to do the work and cut out the fat- the middlemen. Give someone a good job with good benefits and some predictable security and they become wedded to your mission real fast.
Hire a gazillian inspectors. Every regulatory government office is starved for inspectors. It’s been part of the move to self-regulation which is no more than a gift to business. It kills people in mines, with e-coli, and in every endeavor where citizens eat, drink, breathe or labor. Everything will get more expensive if the protections are appropriate and ruthlessly enforced. And tax junk food. So be it. I’d buy less but I wouldn’t be under a self-imposed, as-close-to-meatless diet as possible. Maybe every 3rd person I see wouldn’t be verging on morbidly obese and chronic illness 20 years from now. That’s a debt for society that will cone on the heels of us baby-boomers all needing massive health care and then dying off. The health industry is going to be 1 in 4 jobs before you know it.
Energy independence should be paramount. If that means opening vacant factory spaces and staffing them with government employees, government trained to make solar panels that’s just the way it is. We are buying solar panels made in China. WTF? Sell them for a song- put them on every home and building in America while working on large scale alternate energy alternatives. Wind and solar farms should blanket every place in America that has a breeze or a stray photon of sunlight. And really, why shouldn’t government own our energy sources and production? It’s a security issue.
End the wars. Just end them. Declare victory and get everyone back home. The endless wars are bleeding us dry. War may be a jobs program in the minds of some but it’s the least effective of the job’s programs available. I mean everyone too; what are we doing on American bases in Germany and Japan and just about every country that will accept us 60 years after the end of WWII and 20 years after the end of the cold war.? WTF? Pick a couple that meet reality-based needs to keep open and close the rest. Stop buying billion-dollar fighter planes. Srsly, who are we thinking about having dog-fights with these days? Defense spending is pork. Lets stop spending 40% of our taxes on it.
The list just goes on but I’m getting hungry and need to fix supper. Later.
Puzzling:
Do you have anything to do with ARC?
Good essay.
I especially like your understanding of war funding. Yep, Bush and Greenspan caused that bubble to fund that war. Only conclusion you can come to if you think it through. People were fat dumb and happy.
And people think Greenspan was a capitalist?
Tony C:
it has been pretty much determined that spending during the depression did not pull us out and neither did the spending during WWII, we had rationing.
The depression ended once consumer production started at war’s end. Roads are necessary but they do not produce sustainable jobs, those only can come from the private sector. Where do you think the money comes from to build bridges and roads and water treatment plants?
See the inflation in Germany after WWI it devastated that country. Inflation hurts everyone, not just the rich which is doubtful because most of the smart rich people have inflation “proof” investments. The mother of 3 who has a job which pays $500/week is going to be hit very hard.
The best way to help the little guy is to have a vibrant growing economy, taking money from the rich is a very short term/short sighted solution. First of all they earned it and second of all the accumulated wealth of the top 400 people in the US if distributed to all 300 million Americans would amount to about $5,000.
Marx was wrong and so was Keynes and so is Krugman.
Roads cost money to maintain and goods can be shipped more cheaply by railroad, trucking should be used for local distribution only. Roads are not an asset unless they are a toll road.
Puzzling: great explanation about counterfeiting money….I mean printing money like it was growing outside on trees.
Tony,
Printing money is theft.
He who gets to use the money first benefits while all others lose. That means that the creator of money – the United States government – is the primary beneficiary of inflation.
Inflation doesn’t tax the wealthy. The wealthy can change dollars into real estate, equities, inflation protected bonds, or assets like gold.
Inflation levies the highest tax on those who have saved for their lifetime and have a fixed set of dollars to spend in retirement. Your policy penalizes those at the end of their lives who often have no way to work to maintain their lifestyle against the declining purchasing power of their dollars.
The ability of the government to create money – inflation – is also the same mechanism that allowed Bush to wage wars without taxing the citizens to pay for his aggressions. If people had to write a check for the cost of our wars there would be heavy, sustained opposition to our actions and empire.
Inflation also encourages heavy risk taking in investments and speculative bubbles. Parked cash loses purchasing power year after year. It is little wonder that stock market bubbles, housing bubbles, and other asset bubbles result. Inflation destabilizes the economy.
Your arguments are simply apologies for endless expansion of government and continued global wars.