FIXING THE DEFICIT: NY TIMES CHALLENGE TO READERS

After 40 years of cutting costs and spending the American government has somehow avoided a conclusion that is so obvious that any child over the age of 10 would be able to give you the answer. This reminds me of the 30 year study by the American Medical Association in which they concluded that children grow in spurts rather than growing  in one continuous nicely drawn straight line. Any parent dating to the beginning of the human race has known that children grow in spurts and yet the AMA needed this study to be sure. Any child of average intelligence will tell you that it doesn’t make any difference what plans you make for taxes or spending if you don’t have any money.

The key to a stable budget for any government or any business or any person is the amount of income they deposit at the bank, and the amount of money they have at the end of the month. Government can plan higher taxes, but if there is no income or commerce to tax, there still won’t be any additional revenue. Government can plan to reduce spending, but if there is no income there can be no spending. There doesn’t seem to be any better foundation for government planning than developing policies that will increase economic activity which in turn will increase income and thus increase the amount of taxes paid to the government regardless of the rate of taxation. A quick look at the government surplus that accumulated during the economic activity under the administration of President Clinton will show that neither taxes nor spending had anything to do with the surplus. It was all about rising median income, rising employment, and therefore rising tax revenue simply because there was more to tax, not because taxes were raised or lowered.

The bottom line is that we must raise median income for the majority of Americans. And after decades of reducing spending and reducing costs by reducing labor expense we have eliminated the ability of our population to consume what we produce. Yet we maintain an economy that is based on the ability and willingness of consumers to spend. Under the self-serving theories of Wall Street we pursued policies that encouraged consumers to continue spending despite flat or declining median income.

We accomplished this miracle by giving the consumers money under the guise of credit cards, other plans of consumer credit, and of course using their homes as ATM machines, fueling a meteoric rise in debt that could never be repaid. Somehow we have managed to be surprised or at least act surprised when the time came for a credit crisis. The income that was once available for taxation and tax revenues has simply been converted to corporate income that is somehow not taxed at all. In a nutshell that is the reason for the recession, and that is the reason government has no money.

By shifting ownership from the average Joe who has no choice but to pay taxes, to the top Aristocracy who pay little or no taxes, we have cut off our noses to spite our faces. The demand that the average American pay for this shift of income and wealth, tax free, to the Aristocracy with fewer services and higher taxes is now on the table — unless it involves allowing yet another private enterprise being allowed to interpose itself and add to the bloat to take profit from a cost stream that was already too high. In my opinion you might just as well wave a red flag in front of an enraged bull.

Somehow we accepted the notion that allowing banks and non-financial institutions to get involved in the creation of money for the lending process was a good idea. Somehow it was acceptable that rates of interest that were previously regarded as crimes could be legal. Somehow we consented to plans which allowed the creation of industries that were unthinkable and unacceptable. Much of our prison system is now privatized, supported by lobbyists who want and get laws criminalizing behavior in order to keep prisons full, thus receiving about $40,000 per year per inmate. Somehow we thought it was a good idea to add private insurance companies to the delivery of medical care and yet we are surprised that the addition of a new layer of private enterprise seeking profit has resulted in higher costs.

I will not pretend to have all of the answers. But I think that some of the major answers are just too obvious to ignore. The wealth and median income of the majority of Americans must increase in order for our country to prosper. Without that you can increase taxes to 100% and you’ll still have an unworkable deficit. Reducing taxes on people who are not making any money anyway is absurd political showmanship. In order for wealth and median income of the majority of Americans to increase there are two things that must happen. The credit burden under which most Americans currently are buried must be adjusted; and their share of income received from revenue derived from the production of goods or the delivery of services must increase both at the point of production or delivery and at the point-of-sale. Without those simple directives, any other policy will amount to rearranging deck chairs on the Titanic.

This is neither radical nor revolutionary. Under the administration of Pres. Eisenhower the top tier of taxes was 90%, households were operating with one income, and overall the wealth and prosperity of the nation was rising. Thus looking at the administrations of a Republican president and a Democratic president and seeing the same result, we can conclude that we have gone astray. We had the right formula but we changed it anyway. We fixed what wasn’t broken. And now what we have is a broken system.

Printing more money and attempting to unilaterally adjust the foreign exchange system is not going to do much to raise median income or the wealth of the majority of Americans. Once again the only parties that will benefit from pursuing such policies will be the tiny fraction of wealthy Americans who frankly do not need any help. Each step we take widens the divide between the wealthiest Americans in the top one half of 1% and the rest of the country. Just the thought that there is a mayor in Michigan who was literally begging for donations to keep the city running should send shudders down any patriotic American’s back. But it doesn’t.

A quick scan of world history will tell you how this will turn out. The founders of our country were right––government exists solely by consent of the governed. They recognized that a change in government was required frequently in order to prevent disparities and oppression. They devised a system for changes in government that did not involve blood or violence. They did this because all of human history showed that such changes in government were inevitable and that without a system of laws accepted by the governed and the government, the change would be chaotic and usually involve bloodshed. It turns out that Jefferson was right. People will withstand all sorts of oppression, immorality and stupidity in their government right up until the point when they decide that they won’t stand for it anymore. On this blog and in my e-mail I already see the signs of people who have had enough. The polls and the elections strongly indicate that most people are coming to the conclusion that they have had enough.

Change is coming. The only question for government is whether it will lead or follow.

Mortgage Meltdown and Savings

Any questions about the fundamentals of our economy? This is the result of driving consumers to pay for goods they don’t need or want with money they don’t have, and then covering it with equity from their house which is now vanishing before their eyes.

 

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