Friday, August 5, 2011

I was in the process of working on an absolutely brilliant post about the debt ceiling debate and the lack of progressive voice in the discussion but someone beat me to it. It's really a shame too, I had found wonderful graphics to illustrate my points and there is a great chance that it may have become an over-night sensation and changed the entire tone of discourse in the United States.

Shame on you, Dan Froomkin,
for depriving the world of this genius.
I may wind up writing more about the subject but Dan hit many of the important points I intended to address, mainly that the discussion was between a conservative group of politicians who wanted to cut federal spending in an attempt to lower the deficit and a group of more conservative politicians who wanted to cut federal spending more in an attempt to lower the deficit. Missing entirely from the discussion was the voice asking why we're trying to cut spending during a recovery that is looking more and more like a recession every day.

Look at this creepy socialist.
He's such a tax and spend liberal.
In a discussion with someone about this topic I mentioned that domestic federal spending, with the recent budget deal, has returned to the level as a percentage of the GDP that it was at in the 1950s when Eisenhower was president. I was then asked why I wanted the government to take more money from the economy than it did when Ike was president. I'll put aside the fact that the top tax rate when Ike was elected was 92% and 91% when he left office while the highest burden of federal tax today is 35%. I will rather make an appeal to reason.

All I want is economic policy that is based upon facts rather than fear-mongering, flawed ideology and feelings. I want it to be based upon things we know, facts. For example:

1. We know that markets hate uncertainty. Uncertainty is almost always a major indicator of a flailing economy, I haven't made a stringent effort to look for one but I've never known of an economist who would argue against this.

2. We know that battles over raising/lowering taxes, cutting/growing government and deficits create uncertainty within markets.

3. We know that raising taxes certainly has an effect on business owners, corporations, ie. everyone who hires anyone. We can argue over how much of an effect but to deny that taxation affects business is ludicrous.

4. We also know that cutting government spending has an economic effect, namely raising unemployment and removing from the economy the money that those government employees, now unemployed, would have made as pay. Again, we can argue about how much effect this has on an economy but it is impossible to argue that it doesn't have an effect.

It only makes sense, then, that we avoid these things that we know will hurt the economy and do something instead that we know will improve it, to create jobs. The government only has two means of creating jobs, cutting taxes or creating government jobs. The first has already been tried with little to no positive effect on the economy in the Bush tax cuts. It only makes sense then to get unemployed people working again, and imagine that, there's plenty for them to do. Our roads, parks and electrical infrastructure are in a catastrophic state of disrepair, public transportation in the form of high-speed rail is looking to be an efficient and relatively inexpensive way to get people where they want to be fast and that is only a small part of what work there is needing to be done.

It's a good thing we're not trying to find
work for plastic surgeons, no more
work needs to be done on this.
A temporary public works program would get money in people's pockets, lessen the unemployment problem and pump much-needed cash back into the economy. It helped the last time it was tried, we've little reason to think that it won't work again some 75 years later.

I suppose it'll also be necessary to explain why the budget deficit and national debt are unimportant distractions in our current situation but that is for another time.


  1. Question was why you'd want the government to take a larger percentage from the economy than it did when Ike was president. At the current amount it beat inflation by a large margin so the government is effectively larger than it should be by tracking inflation but the same when compared to the size of the economy.

    The economy does hate uncertainty, but that has only increased since the creation of the myth of "Too Big To Fail". Now the greatest uncertainty is who will the Federal Government bailout when under duress? When and where the government touches the economy it does so in a way that distorts it and makes winners and losers that would otherwise have to compete under the same conditions.

    As much as uncertainty affects the market so does long term analysis. Regardless of how much the Federal Government spends it must balance it's long term balance sheets and that has not been happening. Until that is done in earnest it will be a cloud over the economy.

  2. As for why the government needs more money, the government simply does more that the private sphere isn't capable of doing. The EPA, consumer & civil rights protection etc. these things cost money and if the government doesn't do it nobody will.

    When it comes to the whole "Too Big To Fail" we're on the same page. If there is no consequence to failure in private markets that takes all risk out of private industry and risk is pretty much what it's all based on. When companies are too big to fail that tells me that we need to fix our laws against monopolies to include companies that are literally endangering our way of life.