Tuesday, February 15, 2011

An odd silence

Obama's so-called budget plan is a feeble effort to compete with the more radical Republican schemes (when they are honest enough to admit to what their supposed commitment to fiscal responsibility actually amounts to).

What seems clear to me is that last year Congress should have just sat on its hands and let the disastrous Bush tax cuts expire. Or Obama could have vetoed the restoration, and not just bleetingly talk about keeping the old taxes just for the superrich. Abolishing all the cuts would have meant a situation in which we all would suffer the pain--without unnecessary tinkering with Social Security.

Briefly, the columnist Paul Krugman, in one of his few sensible comments, advocated letting the Bush tax cuts simply expire. But he no longer talks of this. Why not?

And why doesn't anyone else in the punditosphere?



Blogger Burk said...

Hi, Wayne-

Let me take a stab at this. To get your juices flowing, take a gander at this analysis which I think is spot-on.

We need to be in deficit for macroeconomic reasons. The economy has deficient demand, and China and others persistently save dollars. We need to supply them. The whole idea that our government is somehow living beyond its means is wrong- totally wrong. Inflation and unemployment tell the story that spending is too low, not too high.

So the question is how to spend the government deficit which we are so blessed right now to be allowed to spend. The trend over the last several decades has been towards crumbling public goods and infrastructure, at the same time as income and wealth has strongly concentrated towards the top. These are very serious, corrosive long term trends in our society.

So Obama is completely correct in his aim- to distribute some of the deficit spending to the middle class in tax cuts, and in public goods spending for infrastructure, etc.

The Bush tax cuts were not bad in macroeconomic terms- the federal government is not at all like a household that needs to balance its budget. It prints the money, and needs to print more for growth, savings, etc... it needs to be in perpetual deficit, generally.

The Bush tax cuts were bad in a social sense, giving more money to those who have. Over the long run, this shrinks the whole economy, since these folks spend less of their income and save more. We are awash in capital- companies are sitting on tons of cash. But there is no demand, because the poor are poorer and are losing their jobs.

We are, in short, slowly becoming a feudal society, and that is a bad thing. I would say that this is just the natural course of a free market economy, so there is nothing evil in it. But the state does have a role to remediate this process (redistribute, if you will!). And a more progressive tax system is one way to do it.

Best wishes!

PS- Obama agreed to extending all the tax cuts because he correctly sees the stimulus effects as more important right now than the good fight for progressivity. It also showed the Republicans in their true light- embodying pure greed, which has long-term political benefits for Democrats.

9:05 AM  
Blogger Dyneslines said...

To be quite honest, BB, your view sounds like a variation on the mantra "deficits don't matter." Its most famous recent advocate is Dick Cheney. But plenty of other people are along for the ride, including (most of the time) Paul Krugman.

Deficits do matter, and it is time we got control of them. Clinton left office with a budget surplus, which George W. Bush squandered by getting us into two unfunded and unnecessary wars. The time for reckoning with that dual folly is overdue.

9:44 AM  
Blogger Burk said...

Could you explain how deficits matter?

The one point I would agree on is that more government debt is less preferable than less. But we could easily have spending deficits without issuing matching debt.. that is unnecessary and a relic of the gold standard era.

For instance, Japan has three times the relative debt we have. Inflation is low, the debt still sells, unemployment is lower than ours. The sky is not falling. I would suggest that you will be unable to explain why and how deficits matter in the manner the conventional wisdom claims they do. That position is without merit.

For all the evils of Dick Cheney, he was a smart guy and under our given conditions, was correct on that point. Deficits only matter when inflation is rising.

10:45 AM  
Blogger Dyneslines said...

Page one of today's New York Times has a piece about how concern over the deficits is spreading across the board. Even Senator Charles Schumer is chiming in.

The issue has been vigorously stated by Megan McArdle in her column at www.theatlantic.com. Here is the money quote:

"I know the arguments for stimulus, but at this point, I don't think we can afford the luxury of a more stimulating economy. Our politicians can't be trusted to do the right thing later; we need to make them do it now. If we let them, our politicians will give us deficit reduction that is all jam yesterday and jam tomorrow, but never jam today--and we'll end up in an ugly fiscal crisis that will force ugly tax hikes, cruel and sudden service cuts, and ugly debt service requirements on all the folks on both sides who are hoping that if they delay long enough, they can somehow get a better deal for their side. Unless politicians get serious about deficit reduction right now--not seven years in the future--they're going to tax-cut-and-spend us straight into the poorhouse."

7:10 AM  

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