Tag: deficit

–Get rid of big government

An alternative to popular faith

Ever since Ronald Reagan said, “In this present crisis, government is not the solution to our problem. Government is the problem,” (then proceeded to run the largest federal deficits in history), the chic thing has been to criticize big government as an affront to our self reliant, can-do, cowboy heritage. The media pundits, both major political parties and the Tea Party repeatedly call for less government.

On March 24, 2009, Bobby Jindal, governor of Louisiana said, “There has never been a challenge that the American people, with as little interference as possible by the federal government, cannot handle.” Oh, really? Today, May 31, 2010, the Chicago Tribune published a wonderful article written by Leonard Pitts, all government haters should read. I’ll quote a few passages:

“. . . Bobby Jindal . . . is singing a new song . . . Now, he’s BEGGING for federal ‘interference.’ He wants federal money, federal supplies, wants the feds to help create a barrier island to protect Louisiana wetlands from oil.
[…]
“One hears pointed questions about President Barack Obama’s engagement or lack thereof in the unfolding crisis. One hears accusations that the government was lax in its oversight duties and too cozy with the oil industry it was supposed to be regulating. One hears nothing about deregulation, about leaving the free market alone to do its magic […] the sudden silence of the apostles of small government and free markets is telling.

“Yes, government is not perfect […] Any bureaucracy serving 309 million people . . . is likely to have flaws. […] But . . . people like Jindal rail against the very concept of government itself, selling the delusional notion that taxation and regulation represent the evisceration of some essential American principle. They wax eloquent about what great things the free market and the free American could do if government would just get off their backs.

“One thinks of one’s meat oozing with salmonella, one’s paint filled with lead, one’s car getting 12 miles to the gallon, one’s self being breezily denied a job for reasons of race, creed, gender or sexual orientation and yes, one’s ocean covered from horizon to horizon with a sheen of oil. And one shudders.

“[…]there are no small government disciples in massive oil spills. No, . . . Bobby Jindal turned righteously to that big, sometimes bloated, often intrusive federal government and asked for help. He said, Send money, send resources. You will notice he never once said, send less.”

Yes, it is so terribly chic, so wonderfully clever to criticize big government, as though each of us were ready to shoulder the responsibilities of the army, Social Security, Medicare, roads, bridges, education, policing and the thousands of other tasks we happily delegate to the bureaucracy.

I have spoken about this on many occasions, for instance YOUR CHILDREN WON’T PAY FOR DEFICITS and EUROPEAN WELFARE STATE and TEA PARTY CONFUSION, but Leonard Pitts said it better.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

No nation can tax itself into prosperity

–French bread French fried

An alternative to popular faith

Sun May 30, 10:20 am ET, PARIS (Reuters) – “France’s Budget Minister Francois Baroin said on Sunday the objective of keeping the country’s AAA rating was ‘a stretch’ and had an impact on economic policy decisions related to cutting the deficit.

“[…] talks are taking place on pension reform — a key part of the plan to cut the deficit — and France has frozen central government spending barring pensions and interest payments between 2011 and 2013. . . Talks are taking place on — a key part of the plan to cut the deficit — and France has frozen central government spending barring pensions and interest payments between 2011 and 2013. . . France is also considering introducing a constitutional amendment that would set binding budget deficit limits.

“Baroin added: ‘We must maintain our AAA rating, reduce our debt to avoid being too dependent on the markets, and we must do this for the long-term.’

“Fitch Ratings said on Friday the recently stepped-up dialogue in France was an important first step in addressing France’s fiscal deficit. France has forecast its deficit will come in at 8 percent of GDP this year, and aims to bring it down to within the European Union’s 3 percent limit by 2013.”

To summarize:
1. Since economic growth requires money growth, France’s economy will continue to be limited by EU rules, which restrict French money creation.
2. Worse yet, France’s economy will be sent into recession by a constitutional amendment further restricting money creation. This is quite serious. The EU has the ability to change its rules quickly, but constitutional amendments are slow to pass and slow to undo.
3. Thousands of people who depend on pensions, interest payments and other government cash will receive less spending money, a situation that not only will punish them, but will punish then entire French economy, leading to an economic disaster.

And this is the damage the debt hawk mythology can wreak.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

No nation can tax itself into prosperity

–Committee For A Responsible Federal Budget

An alternative to popular faith

On May 19th, I received the following Email from the Committee For A Responsible Federal Budget:

“Dear friend, I am excited to share with you the latest CRFB initiative that I believe will quickly become a critical tool in educating the public regarding the fiscal outlook and motivating policymakers to take responsible action to put the country on a sustainable course. Today, we are publicly launching our “Stabilize the Debt” budget simulator (http://crfb.org/stabilizethedebt/).

“The ‘Stabilize the Debt’ challenge continues CRFB’s distinguished tradition of engaging policymakers, opinion leaders, the media, and the public in deliberating and discussing what it takes to be fiscally responsible. This new online endeavor is part of our long tradition of developing timely “Exercise in Hard Choices” exercises, and we are excited about our newest version.
[…]
“‘Stabilize the Debt’ challenges the user to think about reducing the debt in the longer term and maintaining it at a sustainable level, as opposed to simply balancing the budget for a single year. It promotes thinking about the need for both medium- and long-term term fiscal goals and how to attain them. It uses the goals from the Peterson-Pew Commission on Budget Reform from the Red Ink Rising report of stabilizing the debt at 60 percent of GDP by 2018 and keeping it low.

“I encourage you to take the challenge and share with all your friends. Since Congress appears unlikely to produce a budget this year and have the needed debate over fiscal priorities, this simulator can fill that void by enabling Americans to discover and discuss the difficult choices that must be made and engage in a nationwide dialogue on how best to put the country on a sound fiscal course. Sincerely, Maya MacGuineas, CRFB President

“For press inquiries, please contact Kate Brown at (202) 596-3365 or brown@newamerica.net.”
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Not having had Ms. MacGuineas’s Email address at the time, I wrote the following letter to Ms. Brown on May 19th. And again on May 20th. And May 24th. And May 27th. To date, no answer, which is normal for all debt hawk organizations. Knowing they have no data to support their claims, they simply ignore requests for data, even when, as you’ll see, I offered to promulgate their beliefs:

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“Ms. Brown,

If you can supply historical, statistical evidence that the U.S. federal debt and deficit need to be reduced or are not sustainable, or that the federal debt needs to be stabilized at “60 percent of GDP by 2018,” I would be glad to post this data on my web site, https://rodgermmitchell.wordpress.com. I also will mail this information to my list of 100+ economics professors, 50 newspaper and magazine columnists, and 30 newspaper and magazine editors around the country.

Rodger Malcolm Mitchell”
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Try it yourself. Write to any debt hawk organization or any debt hawk politician or economist, and ask for data to support the idea that the debt is too large. In the unlikely event you receive anything that constitutes evidence, please forward it to me.

Subsequently, I did find Maya MacGuineas’s Email address and wrote to her and Ms. Brown. For your interest, here is a calendar of my requests to supply evidence and my offer to send this evidence to economists and the media all over America:
May 19: Wrote to Ms. Brown
May 20: Wrote to Ms. Brown
May 24: Wrote to Ms. Brown
May 27: Wrote to Ms. Brown
May 28: Wrote to Ms. Brown & Ms. MacGuineas
June 1: Wrote to Ms. MacGuineas

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

No nation can tax itself into prosperity

–David Malpass: Less money = more money

An alternative to popular faith

On May 26, 2010, the Wall Street Journal published an article by David Malpass*, which began : ”When Ronald Reagan became president, the world had too much inflation, i.e. too much money chasing too few goods. Economists argued for higher taxes to sop up extra demand. Instead Reagan chose to cut tax rates to encourage more output and pursued an strong dollar policy. The result was more goods and better balance between the supply and demand for the dollar. The malaise ended 18 months into his administration, with inflation declining gradually for nearly 20 years. We now face a different, equally severe problem – too much government spending and debt.”

See anything wrong with this? Forget, for a moment, the inaccurate definition of inflation (“Too much . . . too little . . .” See: INFLATION ) and think about the overall substance of the paragraph. He begins at the right place (Cutting tax rates) and ends at the right place (encourages more output), but wanders aimlessly and illogically in between.

First, there is no way cutting tax rates can end inflation, simply because cutting tax rates increases the supply of money, and increasing the money supply never has been considered disinflationary by any economist. However, because cutting tax rates increased the money supply, this did encourage output. So, all right, Malpass may have been a bit confused, but at least he arrived at the right conclusion. More money = more production.

But then, in the article, he wanders off again, claiming: “[…] too much government spending and debt.” Huh? After WWII, the Reagan administration began the greatest debt growth in U.S. history, and it was this debt growth that created the mighty engine of economic growth in the 1980’s.

Malpass spends the rest of his article decrying the federal deficit and debt he helped create (“nosebleed levels,” “debt the size of the Grand Canyon”), and even throws in a couple of non sequiturs about bill length (“health care reform . . . a whopping 2,700 pages,” “financial reform . . . 2,000 pages”), while as usual with debt hawks, not providing any evidence whatsoever that federal debt and deficits have an adverse effect on our economy.

He claims the debt and deficit are “starving small business of capital” without telling how an increase in federal money creation could starve anyone of money, and he finishes with this telling statement: “[…] true leadership requires . . . reducing government spending substantially enough to convince the private sector to invest again.”

So, he wishes us to believe that if the government pays less money to soldiers, military equipment manufacturers, doctors, nurses, hospitals, road and bridge and dam builders, farmers, poor people, teachers, home builders, railroad personnel, security-related firms and to all the other businesses selling to the government, the private sector somehow will have more money for investment.

And once again, this is the way our leaders have managed to guide us into an average of one recession every five years.
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*David Malpass was deputy assistant treasury secretary in the Reagan administration, and is president of Encima global LLC, and a Republican candidate for U.S. Senate in New York.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

No nation can tax itself into prosperity