The funny thing about the US economy is that if we treated it like it were a teenager, we’d have taken away it’s credit cards decades ago!
Think about it. This whole issue with Financial Cliffs and Debt Ceilings is because we all decided that it’s much easier to borrow lots of cash, spend lots of cash, and not really pay the bills. To the tune of trillions of dollars. That was essentially what that ceiling was supposed to be, but whatever, we just raised the credit limit and put the whole thing off for a little while more. No worries. We’ll let the next generation deal with it. Sorry kids, not our problem!
In all fairness, some debt is good. Well… that’s what my finance and economics teachers always said. Personally, I’d rather only buy something if I new I could pay for it… But what do I know? Honestly, I wouldn’t mind paying a bit more taxes for a few years if it meant that it would be spent to kill off the debt in like a decade. Then, of course, NEVER let it get that bad again! Wishful thinking, I know, but what can ya do?
So, who out there is getting kinda worried about the state of affairs here? Any thoughts on how we could go about fixing things?
Simple, let’s cut back on the paychecks of all these congress folks. Let them work for min wage for a few years and get this paid off. I do like your teenager analogy. Perfect for this, still I don’t understand why they can’t get it through their heads you have to pay off debt. Let it keep stacking up and your just burying yourself. Only it’s the whole blasted country taking the hit. We need some actual adults in congress not these bunch of reckless teenagers.
Well I suggest you read Starship troopers (book!!! or at least listen to it… it is in audio on youtube)… there are few paragraphs about adulthood, franchise, etc.
Somehow I have feeling that the “vision” of the book (the fall of Anglo-American-Russian alliance before Chineese hegenomy… with all flaws like teenager gangs terorizing parks and schools because uf inability of state to deal with them) Heinlein only missed the time when it will happen. Geez… somehow I hope there will actualy be someone to start Terran Federation.
There are several problems and non-problems there, most of which are too complex for non-economists to even understand, which causes simplifications and bad decisions.
For example, government borrowing money to do something good is a good thing overall, because 100$ invested in something like infrastructure will bring around 240$ in extra taxes from extra economic benefits over 10 years which will easily allow to pay back the 100$ plus 50$ of interest. The only limit on how much borrowing is a good thing is … how much people a willing to lend to the government, which is characterized by the credit rating. As long as USA has a AAA credit rating, there is little to gain and a lot to loose by reducing the borrowing.
Now there is a confluence of interests to prevent reasonable deficit reduction measures - Republicans are strongly opposed to any and all tax increases, Republicans are strongly opposed to any cuts in the military spending (even when wars are ending and the military says that it does not need the money), Republicans oppose removing tax cuts and subsidies given to big corporations (most of them having larger profits now then in 2006/2007), Republicans want to reform Medicaid/Medicare into a private voucher system (which would actually increase the cost) and strongly oppose a cost-cutting single-payer system like in Canada, Democrats oppose cuts in entitelments to the poor people (which is some of the most economically effective way of spending money to grow an economy), Democrats want more infrastructure investment (which makes sense with roads and bridges crumbling and thus hurting local economy), Democrats want more police men, firefighters and teachers hired (way too many have been let go, which is hurting local economies and morale).
All of that is is for more spending. There is really very little real incentive to cut spending. Even tea party guys that call for that publicly do not realize any of that rhetoric when they get in power locally.
Thankfully, those of us non-economists who operate in the realm of reality instead of entirely abstract world of pure theory that you seem to operate within aren’t ready to jump off a cliff because an economist tells us to.
Infrastructure spending:
Decrease wasteful federal spending and the federal tax burden so that states can increase their own revenue, and the problem can be handled at the state level where it is most efficiently handled in the vast majority of cases. Like many problems, the solution is simply for the federal government to simply quit meddling and let the states solve it themselves.
Republicans are strongly opposed to any and all tax increases:
Total government revenue in America is likely going to be over one third of the nations GDP in 2013. Are you honestly going to tell me that the government needs that much money and more when it already wastes vast amounts of the money it already gets? Increasing taxes only brings the government more money to waste instead of leaving the money in private hands where it can be spent and invested (things that actually might help the economy).
As long as USA has a AAA credit rating:
The USA credit rating has already been downgraded by two prominent ratings agencies. If we continue down the path of reckless spending it will be downgraded by more agencies. The moment this happens, the interest on the debt could increase ballooning the deficit another few hundred billion dollars a year.
Republicans are strongly opposed to any cuts in the military spending (even when wars are ending and the military says that it does not need the money):
You don’t cut military spending due to a war ending; you simply stop making appropriations for the money needed to fund the war. That is happening over time as the wars draw down. What Republicans are unwilling to do is consider vast cuts to the baseline of the military budget that would cut more than just war spending. The percent of the budget that has gone to defense has been relatively stable over the past 20 years being between 16% and 21% of the federal budget. Currently, defense spending is at 18% of the budget and falling due to war appropriations not being passed for the ending wars. Entitlements on the other hand have increased from 48% to 62% of the federal budget in the past 20 years. Military spending is going down on its own without cutting more from the baseline of the military and remains at a historically normal level. If you want to look at the driver of the increased federal budget, it is inarguably entitlements.
Republicans oppose removing tax cuts and subsidies given to big corporations:
Good. If you raise their taxes (and removing subsidies without a corresponding decrease in tax burden as would be logical has the same effect as increasing taxes) meaningful amounts, they will ship more jobs overseas even faster because we have inflated the price of labor in this country to such a ridiculous level and higher tax rates only compound the problem of the unaffordability of operating a great many businesses in America instead of overseas. If you start trying to tax companies at higher rates, you are going to harm American workers just like Obamacare harmed workers (read up on how many laborers are having their hours cut because of the massive additional cost Obamacare levied on labor prices above and beyond their already inflated value). If you want to remove subsidies, I’m all for it, but I want all subsidies including subsidies on green energy and unemployment removed.
Republicans want to reform Medicaid/Medicare into a private voucher system:
Since anything that anyone proposes for those entitlements immediately gets demonized (see commercials of Paul Ryan pushing an old lady over a cliff), Republicans are trying one idea after another to try and find something that Democrats won’t simply play the YOU WANT TO KILL OLD PEOPLE AND MAKE GRANDMA EAT DOG FOOD card on.
and strongly oppose a cost-cutting single-payer system like in Canada:
Socialism and the ridiculous amount of inefficiency that such a system would bring in the American government would do untold damage to the health care system within this country. If you think it’s bad now, it would be horrendous if you wanted to try and let the federal government fully manage it. If you want to cut government costs related to funding medical care, stop funding the medical care. The nation needs to realize that the price of the best medical care is increasing far faster than the ability of most of society to afford and will continue to do until the point that the best medical care will only be financially accessible to the super mega wealthy. If we continue to adopt the theory that everyone should get the best or even second best care available even if they can’t afford it, we are dooming ourselves to an ever increasing deficit that may eventually exceed the national GDP.
Democrats oppose cuts in entitelments to the poor people (which is some of the most economically effective way of spending money to grow an economy):
I would first like to say that the idea that entitlements go to poor people is foolishness. The vast majority of people receiving entitlements are not poor and only use the entitlement as an excuse to not work (see various statistics showing that those on unemployment benefits take many times longer to find another job as those who lose benefits). The way to grow the economy is for people to get working again. The way to get people working again is to take away their free money and force them to actually take one of the jobs that is being offered (there are a great many job openings (potentially up to as many as a third of all unemployed people) that the unemployed are currently qualified to fill). Taking money from those who produce and giving it those who don’t produce to buy things from those who do produce doesn’t help the economy recover, it simply creates an entitlement class (which may well be partially the goal of the Democrats in this case to create a larger voting base for themselves).
Democrats want more infrastructure investment (which makes sense with roads and bridges crumbling and thus hurting local economy):
If a bridge or road works, it works. It doesn’t matter if it’s crumbling or brand new. If the bridge is usable then building a new one provides no benefit to the local economy beyond that of redistributing wealth from the rest of the state or nation to that local area to pay for the ridge itself (that redistributed money which would otherwise have been used in its original locations for those localities and their economies).
Democrats want more police men, firefighters and teachers hired:
Again, decrease federal spending and the federal tax burden and actually let local and state governments hire more then. Like many problems, the solution is simply for the federal government to simply quit meddling and let the states solve it themselves.
All of that is for more spending:
Only in the flawed theoretical world that you seem to think in. You don’t borrow and spend your way to prosperity, you produce and work your way to prosperity.
Thing is you have to pay it back, if you borrow the $100, and get the $240 in benefits, but don’t pay back the $100, the interest of $50 plus late fees and extra interest easily outweighs the $240 in extra taxes that you have gained in the project.
Some debt can be good, but when your debt is increasing far faster than your ability to produce is increasing or will increase, you’re just digging yourself into a hole that you won’t get out of. Borrowing long term to get something needed now when your long term earning potential is going to grow to the point of easily being able to pay off that debt is a good thing in many cases since you can quite often earn more money by investing than you are paying in interest on that temporary debt.
Debt that you have a reasonable profitable plan to pay off is good, snowballing debt that has no end in sight that you don’t think you will ever be able to fully pay off, stop the growth of, or earn enough to finance the debt forever is not good or sustainable and is what we currently have with the national debt.
I too would be glad to pay more taxes if I knew it meant the country would be on a path to eliminating or reducing the debt. In reality I know that paying more taxes just means that more money will be spent (read “wasted”) and that the problem will not be addressed, therefore I will not support paying more taxes. Taxes spend reasonably are a necessary, accepted evil in order to live in an ordered society. Taxes wasted are nothing but theft and I cannot condone them or their increase.
How do we fix things? Taxes can’t solve the problem. Tax revenue would need to increase about 45% to be able to eliminate the deficit (that’s just to stop the bleeding, that doesn’t even address the debt we have now). An increased federal tax burden of even 10% much less 45% would instantaneously blow up the US economy and most likely plunge the world economy into another rescission after we fell back into one. Spending needs to be cut in a manner that would increase productivity (AKA cutting entitlements that discourage working) on top of the elimination of the federal minimum wage. If you eliminate whole classes of entitlements as well as cut the taxes meant to fund them, you have an economy with more money in the hands of those who produce it giving the economy a boost from the resulting investment as the lowering of the capital gains tax did under President Clinton, and you have a labor force that must get to work in order to eat (instead of lounging on government benefits paid for by those who do work) driving down the price of labor (thanks to elimination of the federal minimum allowing for that) which drives down the price of all goods produced. Employment goes up, goods are cheaper for everyone (including for those whose wages are lower but with nearly the same purchasing power due to lowered costs of goods), off shoring of jobs slows down (with a great many jobs potentially being brought back to American in a short time due to a more sane price of labor), tax revenue goes up, deficit goes down, imports decrease (screw China) due to domestic goods being cheaper, exports increase as more is produced in America and manufacturing prices are lower making it more profitable to ship and sell overseas, and overall the nation as a whole is better off. Unleashing the free market of America (a sleeping giant at this point for what it is capable of achieving but is not allowed to) once again is the true path to growth and renewed prosperity over the current state of stagnation.