I disagree with Hightower.

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Wednesday, May 23, 2012

Raise Taxes? Cut Spending? Or ??

I see where the Congressional Budget Office has released a report that begins, "Policymakers are facing difficult trade-offs in formulating the nation’s fiscal policies. On the one hand, if the fiscal policies currently in place are continued in coming years, the revenues collected by the federal government will fall far short of federal spending, putting the budget on an unsustainable path. On the other hand, immediate spending cuts or tax increases would represent an added drag on the weak economic expansion."


It goes on to predict that if the Bush tax cuts are allowed to expire on schedule and the agreed upon required spending cuts take place, it will reduce the deficit by about $607 billion between 2012 and 2013.  But it would also lower estimates of annual GDP from about 4% to about .5%, all other things remaining equal.  Of course all other things won't remain equal and so begins the downward spiral toward recession. 

This subject has been addressed on this blog a few times and so this is not a total shocker.  I think it was Wayne that quoted "we are all Keynesians now".  But it does illustrate for me the serious complexity (the proverbial rock and hard place) of the problem our policy makers are going to have to address very, very carefully and with much thoughtfulness and consultation with our best economists.  This needs to be addressed very soon.  Though from a practical standpoint, this being an election year, nothing could realistically be expected to be done until after the election.

 I guess because I live in Texas all I ever hear about from our politicians is cutting spending "to the bone".  Well that plays to standing ovations I'm sure in a house full of Texas conservatives, but the CBO's report makes clear the follie of such a move in the short run.  In some places maybe all you hear is raising taxes on the wealthy, and although I don't think that would hurt the economy as much as raising taxes on everyone, I have become convinced that it would be spitting into the wind.  A token move at best.

I see clearly the need to reduce our annual deficits, but it is my continued belief that our number one goal (and no it is not to make sure that Obama is a one term President) should be to get our economic engine back on line, whatever it takes (legally), and ramping up our annual GDP so that good jobs are created, tax revenues increase, and the ballgame likely changes enough that we can actually see our way to achieving some acceptable level of national debt down the line. 

What do we need to do to achieve this drastic improvement in the economy?  Well, that is another post.  Anyone please feel free to enlighten us.  I don't claim to have the knowledge, and I definitely don't have the experience, to lead us to the promised land, but I have a thought or two, for what that's worth.  But I feel strongly that economy over budget problems, where the two may conflict, should be the top priority in the short run.  And I would request PLEASE no one suggest cutting taxes for the "job creators" so they will create more jobs.  See Nick Hanauer's TED presentation for more on that.

A realistic plan to reduce the deficit, balance the budget and pay down the debt has got to include a much improved United States economy.  As sung by the band Styx in a song called Rockin' the Paradise, "Don't need no fast buck lame duck profits for fun, Quick trick plans, take the money and run We need long term, slow burn, getting it done, And some straight talking, hard working son of a guns".


  1. I noted what I thought in an earlier post .
    We need a plan that will assure the right that the debt and the long term problems in entitlements (trillions in commitments that are not even listed in the debt) are on a path to "sustainability" - the current buzz word. The right will not accept promises that cuts will happen - Lucy has pulled that particular football away once too often. The law will have to be written now so that the default will be reductions.

    The right has to agree to serious "revenue enhancement" (aren't euphemisms wonderful).

    Both of those have to start later or be phased in because Keynes won't let us do those kinds of things in a recession.

    Short term pump priming: I don't remember who put together these two facts - a) we desperately need to rebuild the infrastructure, b) we have a lot of people out of work, and c) right now we can borrow a trillion dollars for 10 years at 2%. Can you integrate those facts into a plan?

    PS There are 3 kinds of people, those who can count and those who cannot count.

  2. Agreed. I especially like your 3rd paragraph about rebuilding infrastructure and the unemployment problem. I was going to mention that in my post but the moderator here doesn't like it when I go on and on and on and on and on.

    I love euphemisms. A whole industry has grown up around the ability to make up good focus-shifting euphemisms. They crack me up.