Straightening out Keynesians

John Maynard Keynes' "spend your way to prosperity" theory is still alive and well even as we see the negative effects that the "stimulus" plans, designed based on his theory, have had on our economy. Commondreams.org author David Morris illustrates, in his August 7th article, some of the common misunderstandings that people have about economics.

Morris, like many progressives, equates government spending with "the economy." Therefore, he concludes, cutting government spending must hurt the economy.

Nothing could be further from the truth. Government spending (at least the way our government does it) does not create longterm jobs or stabilize any sector of the economy; it only creates more debt and more problems. In the short term, according to Keynes, some deficit spending could help bolster a flagging economy. In theory, that might work. The problem, however, is that the money must be spent in the right way and under the right circumstances in order to produce any real benefit.

So how do you put money back into the economy in a way that effectively stimulates growth (or at least helps to mitigate a disaster)? I think that the only reasonable and fair way to do it would be as an across-the-board tax refund. That puts money into the hands of businesses and individuals alike and would create liquidity in both the consumer and producer markets.

The approach that the Bush and Obama administrations have taken is to pump money into banks and big businesses, which is absolutely the wrong way to do it. Shoring up failed industries and debasing the dollar with cash injections from the Federal Reserve is a quick way to end up worse then when you started.

What we need to do is wean people and corporations off of the government teat and let the markets balance out on their own. Once the country has paid off its debt and is running a surplus, then we can talk about planning for rainy days.

Debt Ceiling Compromise: The Best We Could Expect

While the "debt ceiling compromise" is far from perfect, it could have been a lot worse.

This bill does not contain any tax increases. That's a big concession by the Democrats. It doesn't mean that we won't see any new taxes in the next few years -- it just means that they will have to vote on them like any other bill.

The most important part of the new bill is the spending cuts. The new committee that will be formed by this bill must find specific spending cuts totalling 1.2 trillion dollars or else $1.2 trillion will be cut from the budget across the board.

These spending cuts and the bill's ultimate goal of deficit reduction will help slow the unchecked growth of the Federal Government. We cannot keep spending billions on entitelment programs and keep borrowing billions for our wars under this new plan.

The big concern here is that Congress won't follow this bill. They will allow the debt ceiling to increase as scheduled, but will create loopholes and exceptions for the spending cuts.

Even the journey of 1000 miles starts with one step, and this bill is a (very) small step in the right direction.

CBO BOMB: 'Deficits will cause debt to rise to unsupportable levels'...

Below is the text from the Congressional Budget Office website (which has been inaccessible due to apparent inability of government servers to present data efficiently).  The document details the importance of lowering federal debt by cutting spending or by increasing federal revenues (or both).  

Federal Debt and the Risk of a Fiscal Crisis
Over the past few years, U.S. government debt held by the public has grown rapidly—to the point that, compared with the total output of the economy, it is now higher than it has ever been except during the period around World War II. The recent increase in debt has been the result of three sets of factors: an imbalance between federal revenues and spending that predates the recession and the recent turmoil in financial markets, sharply lower revenues and elevated spending that derive directly from those economic conditions, and the costs of various federal policies implemented in response to the conditions.

More after the jump...

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President Obama's Proposed Budget Would Add More Than $9.7 Trillion to the National Debt

When most people think that $12 trillion is a lot of money, we get this story:

President Obama's proposed budget would add more than $9.7 trillion to the national debt over the next decade, congressional budget analysts said Friday. Proposed tax cuts for the middle class account for nearly a third of that shortfall.

The 10-year outlook released by the nonpartisan Congressional Budget Office is somewhat gloomier than White House projections, which found that Obama's budget request would produce deficits that would add about $8.5 trillion to the national debt by 2020.

When is it enough? When do our officials in Washington have to wake up before they realize they are destroying the country through debt?

It has been said that the greatest danger we face in this country is our fiscal irresponsibility.