Debt and Taxes Part II

Debt and Taxes Part II

By Raymond Freeman 01/23/2014

 
It’s 2 a.m. You’re writhing in pain. Has the Big Bad Deficit come to kill you in your bed? Cheer up. Doc Raymond’s on the way.


We’re told the federal budget should be managed like a household budget. Republican House Leader John Boehner’s quite certain: “Every family in America has to balance their budget.” Most voters believe that balancing the federal budget would “significantly increase economic growth and create millions of American jobs,” according to Politico.


But it’s entirely false. “The trouble ain’t what people don’t know. It’s what they know that ain’t so.” (Mark Twain)


Robert Shiller, Joseph Stiglitz and Paul Krugman (economics Nobel Prize winners) have explained the difference between a family budget and a national budget. It’s pretty obvious. A family’s small. Uncle Sam’s family is 319 million people, namely, the American economy. A family is a small closed system; an economy is a huge open system. The father’s spending is not the mother’s income. But my spending is your income; your spending is someone else’s income, etc., etc. There’s a “multiplier effect” as spending ricochets around the economy creating jobs.


Uncle Sam can issue bonds to raise money. These are impressive IOUs with low interest rates. He can raise taxes. And he can print money, then burn it later if inflation becomes a problem. Inflation isn’t even remotely a problem right now. (The Economist, Nov. 9, 2013)


Uncle Sam doesn’t die. Unlike a family, he can borrow forever. In fact, Sam has borrowed forever (well, since 1836). Yes, the size of the debt has increased over the years, but so has the size of the economy. What matters is the ability to pay the interest out of current earnings, just as wtih any other debt.


Right now, America’s debt and earnings are about the same. Put formally, the debt-to-GDP (gross domestic product) ratio is around 100 percent. So what? After WWII, it was around 120 percent. And there were millions of unemployed soldiers. But rather than cut spending, we grew the nation out of this debt with MORE government spending. “Look after the unemployed and the budget will look after itself.” (John Keynes, economist)


Notable efforts were building the interstate highways and sending GIs to college. So more people were put to work, they had more money to spend, more businesses hired more people to supply the higher demand, etc., etc. Ever heard how the Hoover Dam workers got Las Vegas going? Sam did the same for the entire nation. Americans were earning more money and paying more taxes. As a result, the debt-to-GDP ratio (Sharper Focus, “Debt and Taxes, Part I”) fell from around 120 percent to around 30 percent in 1975. So, why don’t we do this again?


We did. Lest we forget, President Obama approved a “stimulus” to pull the economy out of its fatal nosedive in 2009. But it was tiny. The poor sap thought he’d get Republicans to buy into it. Brainless Republicans attacked all stimulus efforts, like a sinking warship firing on the rescuers.


Why so? The super-rich weren’t affected much by the Great Recession of 2008. Republicans aren’t worried about you plebs. They care only for the super-rich. President Bush Junior even said that his base was the “haves and the have-mores.” Next time you drive to Las Vegas, and fume over that miserable two-lane highway, remember that God gave you a brain. Use it. Kick out Republicans like Paul Ryan who won’t make it three lanes. Their friends have private jets. Vote Republican only if you have a private jet.


If you must worry about a deficit, worry about the Deficit on Current Account. This is mostly the excess of imports over exports. It’s massive, around $400 billion, every year. After 10 years, that’s the entire cost of WWII. It’s wealth siphoned out of the economy, leaving workers unemployed. But importing cheap stuff makes the super-wealthy even wealthier, so Republicans couldn’t care less. Republicans aren’t worried about you plebs.


If you must worry about debt, worry about household debt. Since 1975, Americans have not been paid higher wages in line with higher productivity (earlier Sharper Focus, “Short of Money?”). To make ends meet, Americans went into debt, big-time. This was one of the causes of the Great Recession.


This household debt, around 81 percent of GDP (http://research.stlouisfed.org/fred), is holding the economy back. Yes, it’s fallen substantially, but Americans are still paying it down. This means we’re not spending that money to keep the economy going. It’s like the sand trap that wrecks your golf game. Economically speaking, we’re in a “liquidity-trapped demand-deficient economy.” The super-rich aren’t affected, so Republicans don’t worry about it. Frankly, Scarlett, Republicans aren’t worried about you snot-nosed plebs.


Well, Doc Raymond had good news. It’s only food poisoning. You’ll be OK. Finally it dawns on you. Thanks to Republican stupidity, there were cutbacks on food inspections. 

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Comments

Here's a simple reply to a simple essay. Those without debt have more fun because in the absence of debt there is wealth.
If you owe the credit card company a bunch of money. Taking a vacation seems like a dumb idea. It is a dumb idea.
If you have no debt, you can pay cash for the vacation and feel much better about taking it. Is it prudent to borrow money to take a vacation? Is it prudent to give citizens benefits with borrowed money? Any person with common sense would say NO it is not prudent.
Freeman can sugar coat debt all he wants. It gives the average working person the heeby jeeby's.
Freeman is wrong as usual. BTW so was Dick Cheney when he declared the same a few years ago.
A last note. Most sane people see Paul Krugman as a noble prize winning boob. He's really pretty dumb. oh yeah, didn't Obama win that thing for doing ZIP?

posted by Scapegoat on 1/30/14 @ 10:11 p.m.
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