The Truth About Budgets, For Both Left and Right

[stockholmer]

http://market-ticker.org/akcs-www?post=190174


The lies are flying fast and furious this weekend (and all last week for that matter) related to the "debt ceiling" and partisan wrangling has reached a fever pitch, with some representatives now claiming that the Republicans are "racist" for refusing to raise it. Let's look at the facts, and deal with them - because we really have no other choice here. I apologize in advance for the length of this post, but there's simply no way to make it shorter.


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The following facts are in evidence and cannot reasonably be disputed:
1.We do not have ten years to get to the point where government deficits grow slower than GDP does. We may have five years. It is possible we're already beyond the event horizon and squandered our chance in 2007. Nobody knows exactly where the cliff-edge is, and anyone who claims they do is lying. The longer we take to get to sustainability the greater the risk is that we're too late, and there are no "mulligans" in this game.


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5.Printing money, QEx and whatever else cannot change this outcome. Distorting the interest rates on government debt, which is what QE does, temporarily changes the amount of time you have before everything blows up but for any positive interest rate you blow up anyway. Simple emission of currency (which is what unbacked QE eventually devolves into if you keep at it long enough) destroys the purchasing power of each unit of currency (the dollar) which cannot work either; due to slippage and offshoring of labor this simply destroys your tax base and therefore trashes the government's coverage ratio (or the ratio of interest payments related to tax revenues.)


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7.We must fix the medical system. If we don't, nothing else matters. Notice I didn't say "Medicare" or "Medicaid." I said the medical system. I have written extensively on this and cover it in depth in my upcoming book Leverage, http://www.amazon.com/Leverage-Cheap-Money-Destroy-World/dp/1118122844/ref=sr_1_1?ie=UTF8&qid=1310919056&sr=8-1 which is currently in copy editing and will be out soon (estimated publication date is currently in November.) The simple fact of the matter is that we can write checks with technology in the medical space we cannot cash, and we've tried to cover this up with all sorts of ridiculous and destructive distortions, from EMTALA to providing $1m births "free" to illegal immigrants to cartel-like behavior in diagnostics to barring re-importation of drugs and devices. It's simply outrageous that the local Best Buy must post a price on their 46" TV and honor it for everyone, yet I cannot walk into a doctor's office or hospital and get a price on having my gallbladder removed which must be honored for everyone. This sort of behavior is illegal in many other industries (see the Sherman and Clayton Acts specifically) but the medical and insurance industries are, through various devices, exempt.

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this is one of many charts in the article


http://market-ticker.org/akcs-www?get_gallerynr=962

[hfojvt]

1. the first point already seems wrong

even as the author claims it is beyond dispute

"We do not have ten years to get to the point where government deficits grow slower than GDP does."

Say what? Considering the record deficits of the last two years, keeping them from growing slower than GDP seems like a cakewalk, not a major crisis requiring all of us to poke out our left eye.

Now if he/she is talking about the DEBT growing slower than the GDP, that is another issue. But understanding the difference between the debt and the deficit is pretty basic. You shouldn't screw it up if you are gonna try to sell your profound undeniable truths about the budget.

[stockholmer]

4. real GDP, adjusted for real inflation (not the hedonically adjusted joke that the Fed puts out)

is growing at a negative rate. Even the nominal GDP growth rate, when the false, low-balled Fed inflation number is applied is completely flat, and is constantly being revised downward. The US CBO predicted a 3% growth in GDP for the US this year, and in reality that is close to double what even the nominal rate will be. these and other reasons are why the government's preditions on what the debt and deficit will be over the next 5 to 10 years are such a falsehood. They always overstate growth and understate spending.

Bottom line, the author's analysis is correct.

[hfojvt]

8. okay, so make up your own numbers and call them real

and you can 'prove' anything.

[stockholmer]

9. "make up your own numbers and call them real" -- pretty much what the Fed and Treasury do everyday

:rofl:

[JDPriestly]

5. Good points. Private debt may be a bigger problem than public debt.

But I think Denninger was talking about all debt.

And he is right -- interest payments should never be tax deductible -- not even for business.

Those who save and do not borrow should not be penalized on their taxes.

How many people rashly bought a house they could not afford because of their crazy belief that they could save money if they only could deduct their interest on the mortgage payment?

I know. Crazy, but a lot of people think that way.

Suddenly wiping out the mortgage interest deduction would wreak havoc, however. The change would have to be very gradual.

[JDPriestly]

2. Whether Market Ticker's

analysis is erroneous or correct, the problem in implementing his solution or any other solution is the lack of national unity and purpose.

The wealthy see the poor, the elderly and the disabled as leaches trying to steal their money.

The poor, the elderly (many of whom have worked for low wages for many years as the wealthy skimmed the profits and the borrowed money from the top) and the disabled, on the other hand, are the victims here.

I worked on fundraising for a homeless project for many years. Poverty is a vicious cycle. The poor are unproductive, in part, because they are poor. CEOs argue that they need their huge salaries as "incentives" to work hard. Well, that a good salary is a positive incentive for productivity is no more evident than in very poor people. "What's the use?" is the prevailing philosophy in impoverished communities.

As for stealing the Social Security funds from Americans who paid their taxes on the first dollars they earned since their first high school summer job, forget it. It is politically stupid. Sacrifices really have to be across the board in order to be politically acceptable.

On edit, with regard to Social Security, I would like to mention that very elderly people are often not capable of handling their money. The Social Security system would have to be invented even if it were bankrupt. In general, in your 90s, ordinary people are overwhelmed by the task of balancing their checkbooks. There are exceptions, but Social Security is the best system for providing for the elderly. The money that was taken out of paychecks for Social Security should not have been spent on Bush's wars. Don't blame seniors for the excesses of the government since the Reagan administration (and I would place the beginning of this problem if not at the time of the Viet Nam War then certainly at the time of the first oil crisis in 1973-74).

"Government expenditures" cannot just be cut back with any mathematical precision. You simply cannot cut social programs for the poor, force immigrant women to have their babies in their homes or on the street, for example, and expect that society's problems will be resolved peacefully.

I remember the race riots of the 1960s. I remember the LA riot of 1992. Those events were fairly local and limited in scope.

The cost of policing desperate, hungry mobs not just in terms of money but also in terms of damage to infrastructure and social adhesiveness would be
greater than the cost of borrowing the money to continue the programs.

As I read the analysis, and based on my knowledge about the oil industry, the best place to start is in reducing our energy imports. That is where we incur the most debt. I think that we have to bite the bullet and simply ration energy use.

Gasoline should be rationed -- using ration tickets the way we rationed sugar in WWII. Those of us who are retired generally use very little gasoline anyway. Some of us no longer drive and already use public transportation. Young people are moving toward bikes.

Then, we should impose taxes on imports. Rather than default on our debt, why don't we simply explain to the countries with which we have trade agreements that, in order to pay our debts, we are tightening our belts. From now on we will impose import taxes on all imports until we have balanced our budget.

A lot of DUers complain that sales taxes, import taxes and tariffs are regressive. But they are far less regressive than the benefit cuts being proposed by the conservatives at this time.

So, my suggestions are to cut way back on energy use -- although it will reduce GDP, and impose taxes on imports.

A public option for health care perhaps based on a German or Austrian model would be great. I would not copy the German or Austrian method for organizing hospitals, but I would copy the German payment of non-profit health care insurance directly out of the paycheck and the selection by each individual of a specific general practitioner who is the primary gateway to healthcare.

Having used that system, I would say it might work here. People can choose their doctor. Generally, you do not end up with either too little use or too much use of medical services.

[LeftishBrit]

3. Karl Denninger? Seriously?

Not only is he a right-libertarian on economic issues, as this article makes fairly obvious; he was one of the founders of the Tea Party, and a very vocal 'birther'.

Not the sort of person (or should I say poisonous snake rather than person?) to be quoted on a progressive forum.

[stockholmer]

6. although you may not agree with all his prescriptions, his outline of the issues is spot-on

I get so frustrated some times with all the knee-jerk dismissal of any analysis that comes from a 'non-approved' sourced. The false left-right paradigm so poisons the well of debate.

We can all argue about what the money is being spent on, (I for one think that empiric wars, banker bailouts, and debt service is killing the US) but the money is being spent, and there is no end in sight to the debt explosion. The key is to find a societally just way to avoid this collapse, and not have the wealthy rape the poor any more than they already have.

[LeftishBrit]

11. But the left/right paradigm is NOT false!

It's true that *political parties* often distort their relationship to this distinction (in particular, 'left-wing' parties quite often aren't). But there is a fundamental distinction between the right-wingers who place private enterprise above public services, and who generally wish to fuck the poor and the otherwise vulnerable, and the left-wingers who value public services over private enterprise, and who want to protect and empower these groups.

It's true that basic facts are the same regardless of who presents them, but priorities aren't. The idea that debt is catastrophic and that ANYTHING is justified in terms of reducing the debt is fundamentally a right-wing meme, used to justify spending cuts that damage poor people, and more generally the destruction of public services. Just as 30 years ago Thatcher and Reagan presented the control of inflation (a laudable aim, but not one that trumps absolutely everything else) as being much more important than the prevention or relief of unemployment. Debt is undesirable. Other things, notably mass unemployment, are MORE undesirable and dangerous, but you don't see the likes of Denninger expressing concern over that.

I agree that we need to avoid endless wars and banker bailouts (and this includes the need to build a a much more diverse economic base that doesn't have all its eggs in the two baskets of the military-industrial complex and the financial/banking industry). Also, higher taxes on those who can afford to pay them would go a certain way to reducing the deficit. But even at times when the banks weren't requiring bailouts, and Britain and America were not involved in major wars, the likes of Denninger were still promoting 'the smaller state' (i.e. no public services and no social safety nets) on ideological grounds. This needs to be fought.

[JDPriestly]

7. True. But his recommendations are precisely what we have to repond to.

We need to discuss our responses.

As I said above, the social cost, the unrest of simply laying the burden for paying debt on the poor and elderly, would be greater than the burden of raising taxes on the rich, cutting back on imports starting with oil and of course I did not even mention it -- drastically and quickly reducing our military expenses.

[stockholmer]

10. I agree with what you say needs to be done, JD