Thursday, October 3, 2013

Cuts will only lead to more cuts.

The right wing today likes to argue that we just need to cut $900 billion of spending (though many seriously believe the deficit is still $1.5 trillion, a sort of Earth is round Earth is flat pissing contest, pardon my language) and that this will solve our budget woes. This is forgetting that Economists have said our deficit is not our biggest woe, and Paul Krugman has made some excellent points on this which I don't need to repeat, and that the economists that are arguing about the "unsustainability of our deficit" are routinely wrong on their major claims. Let's just look at the promised reductions to Greece's debt following austerity which just simply isn't happening and is undebateable. The deficit is 0, but unemployment has gone from 8% to 27.9% and their GDP growth went from positive to negative territory after austerity began. Even though austerians claim to care so much about inflation, austerity hasn't helped with that either. Clearly, austerity has not helped the Europeans. If the laissez-faire school of thought was correct none of this would have happened. It is similar to other times their plan has been tried, such as in the US and Germany simultaneously between 1929 and 1933 which didn't work either. When someone has been so very wrong about so very much so frequently there comes a point where the point of view needs to be treated like arguing for a flat Earth. Historically speaking, cutting government spending doesn't simply lead to a lower deficit, economics is more complex than that. There is no data to support it.

The next popular thing is saying the Republicans are fiscally responsible. Correct me if I'm wrong but in 2001 we had a Republican government which started with a surplus for the government which is good following the beliefs of Ronald Reagan. The deficit went from a surplus to a $400 billion deficit overnight upon George W. Bush signing the budget. I don't believe the Republicans when they say they want a balanced budget, because historically they have stopped caring as soon as they get into office. I also don't believe their policies will create economic growth because the Bush tax cuts went mostly to the rich and were succeeded by a stock market crash and mild recession.

All of this right-wing rhetoric has to do with one thing and one thing only, tearing apart the welfare state and going back to the Guilded Age of cheap labor and less opportunity. The major part of this plan was in 1981 and 2001 turning surpluses into large deficits and then blaming Medicare. If you look at the estimates from the GAO entitlement spending will rise to 60% of GDP by 2080, but when you look at the pieces you find that half of this is not going to the entitlements at all but interest on government bonds to cover entitlement spending today with such low taxes and actual entitlement spending won't even hit 20% of GDP 70 years down the line. By raising these massive deficits and saying they come from the DHHS and other social programs (but not from our $600 billion military budget, larger than the next 10 largest military budgets combined, and the 9th largest as percent of GDP) they claim the deficits from the Bush tax cuts belong to social programs and they put these two unrelated numbers together. To be completely honest, our military budget is not limited to the Department of Defense and is actually closer to a trillion dollar when you look at all departments, which adds up to a quarter of all government spending, but that's an issue for another post. This interest is from the government budgets and by borrowing money to cover their debts and having compound interest working against the government in perpetuity. Given how President Clinton went from a roughly $300 billion deficit he inherited from George HW Bush and ended up with a $128 billion surplus when he left which George W Bush promptly signed into a $157 billion deficit within 12 months, it is hard for me to give the Republicans credit at being what they would call fiscally responsible on the evening pundit shows. History does not support their claim.

If we cut our way out of debt we could end up like Greece today or the USA in 1932 eventually with a less vibrant economy and repeat the same mistakes that were made in the early 1930s. This would be from the massive reduction in spending the government and employees bring as we are seeing with this government shutdown.

The solution then is to look at our tax code and make it a progressive tax rate again because as long as we tax capital gains separately at a low rate (20% on potentially a billion dollars of income? Seems regressive to me) we will find that we will have to keep borrowing money or see seniors starve and go without health care unless if their families give up on spending money for their children's education and the future of their family. If we change our tax code by taxing capital gains as regular income we can close the budget deficit and we will find that the big red bars on the GAO graph will not happen because we will have compound interest working in our favour by investing for the future instead of spending interest on people who are already dead from the weapons we ship abroad. If we do this and make our population more productive and enginuitive we will have a more vibrant economy, which will create a higher GDP. By having a higher GDP and a more efficient economy the percent of government spending as percent of GDP will drop or stay the same in the long run which means that this whole scenario doesn't have to happen. But this will only happen if we choose to make our country great. If we choose the easy path of being small we won't keep up with other nations and will mimic the failed policies of Merkel in Europe which has literally destroyed the economies of Southern Europe, which will take decades to fully recover from at this point. I choose growth and opportunity.

Source for budgets and deficits:

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