Third Party & Independents: Archives

I agree with what you want to do, but there are two things I argue with about the analysis and presciption.

The strength of the dollar is not directly correlated with the budget deficit. Primarily the trade, not the budget deficit, affects the dollar. The trade deficit is self-correcting. It is not a pleasant correction, but it will correct. The declining value of the dollar is part of the correction.

The things you suggest to close the deficit would not work. Each year the percentage of entitlements in the budget rises. It is now more than 67%. That means that the president and congress have no immediate power over 67% (and growing) part of the budget.

Reform of entitlement is the essential step in fixing the budget deficit. The only way to tackle the budget deficit is to tackle the entitlements.

Reforming the tax system is the essential step in fixing the trade deficit. To tackle the trade deficit, we have to save more. The way to do that is to change the tax system. O

ur income tax system still discourages saving. The only way to get Americans to save more is to make sure they are rewarded more for saving. This means going over to some kind of consumption taxes.

By the by, a weakening dollar has never been associated with depressions or recessions. There’s a first time for everything I suppose, but I’m not unduly worried at the moment.

Jack and Zeek, I am not going to try to convince you of anything. I would hope however, that you and other readers, go to the linked article with an open mind and ask yourself what it means in this NEW and UNPRECEDENTED dependency situation we find ourselves in with regard to 41% of our national debt held by foreign investors and catalytic effect of Bridgewater Associates shift in strategy.

New economic relationships and paradigms are in play that have never been seen before in American history. Those who don’t look anew at what is happening with and inquiring and critical view, are like teleporting a general from the Civil War into the Iraq situation and asking him to call the strategic and tactical moves. His view is outdated and his ability to predict responses and outcomes are wholly inadequate to deal with the new and modern warfare situations.

It is obvious to me that our growing national debt, service on that debt, and trade deficits on this ever increasing trend for last decade, seriously limit our government’s options to deal with, respond, and balance out other economic adversities like China disconnecting the yuan from the dollar. The effect will make investments in China more appealiing in the long term than in the US. Many other economic adversities are possible as well which we would be unable to compensate for quickly or efficiently due to our current debt load and creeping skepticism about America’s ability to make good on its borrowing.

Jack, your comments raise in an interesting question. If you do not see any downside to our current fiscal policy, why would you agree with the end of reducing our debt? If there is little risk with current debt and even larger future debt, why would anyone want to raise taxes or cut spending.

BTW, politically speaking, there is a whole lot of other spending that will have to be cut before cutting entitlements will become palatable to the public. NASA spending is not necessary. Spreading democracy on our dime in other nations is not necessary, though more border defense would be. Pork spending by congress persons for their districts embedded in omnibus bills, the failed star wars defense and many other spending programs should be cut before asking the people to suffer hits on their wallets.

David,
“BTW, politically speaking, there is a whole lot of other spending that will have to be cut before cutting entitlements will become palatable to the public. NASA spending is not necessary. Spreading democracy on our dime in other nations is not necessary, though more border defense would be. Pork spending by congress persons for their districts embedded in omnibus bills, the failed star wars defense and many other spending programs should be cut before asking the people to suffer hits on their wallets.”

Though you make a valid point … how many of these programs would cause job loss?
No one in Congress will cut their pork if it means even a dozen jobs lost. How could they possibly explain this in their home district?
When they are on Capital Hill they are supposed to be their to benefit ALL of us - I would think that anything that would help the Nation as a WHOLE should be put ahead of each individual district - but how do the politicians get this through the heads of their voters? and be re-elected? How do they get other jobs to replace the lost ones (NASA)- that are comparible in pay and benefits?
These too are ‘hits in the wallet’.

David,

If the minority party/partys want to cut spending, the budget, pork, shouldn’t they put that in their platform and run on those issues?

Its far too easy for a minority party to tell the party in control to make big cuts in programs that will anger some voters, just so the really big snoots can get back to the troff.

Wouldn’t a balanced budget amendment be a better way to do that?

That way the voters could crush the “big piggys” at the ballot box, and the extra programs or tax hikes on election day.

If someone wants “the arts” or any other program, fund it privatly.
They were drawing on cave walls long before the IRS was extracting money from people that could care less about paying for producing it.

Some things only the Fed gov. can do, but its a very short list.

If a state wants “the big dig” , or any other silly program, let the voters in that state deside if they wish to pay for it.

I’m all for freedom, any group or state, that wishes to elect stupid people with dumb idea’s has that right, but unless the the entire country gets to vote on them, don’t try to force the entire country to pay for the ideas/actions of said dummys.

David

I see a lot of trouble with our fiscal policy and I don’t like big deficits.

But the solution is a revolutionary change in the way we tax and spend.

All the pork barrel and all the military and all the parks and all the road building, all the homeland security and all the all-discretionary programs in general make up only 33% of the Federal budget. And this parentage will be less next year and even less the next year. We are fighting over little cuts while the whole house is burning around us.

We have to address that growing burden of entitlements.

The problem of U.S. saving also requires big solutions. We can get at that through the tax system. We need to institute a modified consumption tax.

Some of President Bush’s ideas on SS would also address the problem of savings.

Dawn asked: “Though you make a valid point … how many of these programs would cause job loss?”

Dawn, forgive me for answering a question with a question, but, how many jobs will be lost if current recipients of Soc Sec. and Medicare/Medicaid see their checks cut? Entitlements get spent supporting jobs. Cut the entitlements, and you cut demand for medical and housing. But, you could look forward to increased demand for homeless shelters and mortuaries. Perhaps that will balance out, eh?

Beagle said: “If the minority party/partys want to cut spending, the budget, pork, shouldn’t they put that in their platform and run on those issues?”

They did. They offered to rescind the wealthiest Americans tax cuts increasing revenues, and they proposed pay as you go legislation. Republicans would have none of that.

Beagle asked: ” Wouldn’t a balanced budget amendment be a better way to do that?”

Well, in the short run. But, when our national debt is reduced in 10 years as a result of the balanced budget law, do really want to face a recession without the ability to infuse the economy tax incentives and spending programs that put people back to work after losing their jobs in the recession? What then, repeal the balanced budget amendment? Our Constitution was not designed to be amended quickly nor easily, and for very good reasons.

Jack said: “All the pork barrel and all the military and all the parks and all the road building, all the homeland security and all the all-discretionary programs in general make up only 33% of the Federal budget. And this parentage will be less next year and even less the next year. We are fighting over little cuts while the whole house is burning around us.

We have to address that growing burden of entitlements. “

Entitlement reform, especially in Medicare/Medicaid needs to happen soon. There is little argument about that, even among liberal think tanks. However, given that, it would not take a whole lot of discretionary spending cuts to bring us back into surplus. The distance from our current deficits to surpluses is not that large if you remove Iraq, star wars, and all new and proposed NASA proposals for a decade or so.

Also, do not forget, the wealthiest are not spending their tax cuts, they are investing them. The economy is on a steady footing for the time being, so the simple act of not renewing tax cuts for the wealthiest also would help bring us back into surplus alleviating the need for some spending cuts.

Politically speaking, the approach at this point should be centered around Medicare/Medicaid reform to include competitive bidding by pharmaceuticals for the Rx program. With cuts in entitlement spending it then becomes fair to ask the wealthiest also to relinquish much or all of their recent tax cuts. In this way, sacrifice is asked of all stratas of our society for the good of the nation.

Privatizing SS while trying to save SS is out. It would add a couple trillion to the debt and this is absolutely the wrong time for such a move IMO. Raising the retirement eligibility age, doubling the FICA tax income caps, would buy us another 1.5 to 2 decades on the SS system pushing the problem years out to 2056 to 2061. Plenty of time between now and 2025 to design another fix to be implemented in 2025 when our economic situation and national debt are under much better control.

David,

Right. It has to be a balance.
You are talking about government programs being cut - the money that comes from income taxes.
Cut programs, cut jobs, cut tax revenue - cut programs.
I do agree that there is favored spending and it should be cut.
I also agree with Beagle in that projects like ‘The Big Dig’ should not come out of everyone’s tax money in total. These were Democrats who got the Dig funded. How many other things could have been paid for with the money spent to build a tunnel that leaks - and will cost more to fix? It was a ‘pet project’ to get a road named after somebody - a democrat.
Saying something when running for office is completely different than actually doing it. Just too much ‘I’ll rub your back, if you rub mine.’ going on. None of them will do the right thing for the country as a whole. Their #1 priority is bringing home the pork and getting re-elected.
TERM LIMITS!

Dawn, I have vascillated on term limits in the past. However, you are quite right, I think, now. Congressional term limits are what is needed. The only problem is, a congress full of incumbents would never pass it.

This is why I am totally lost when it comes to our government being full of ‘checks and balances’ …. Did the founding fathers intend for our political leaders to give themselves raises and term limits? or should another branch be responsible for such things?
Of course that wouldn’t work these days either - because of all the stroking.
George Washington was urged to run again but declined because he didn’t want ‘President’ to become ‘King’.

Dawn, term limits are no panacea. Getting elected would still require gobs of money and even if Congresspersons were elected to only one term, many would still be beholding to special interests, and most certainly the party would be beholding to special interests.

We have had many stories in the last few years regarding the immense power of ‘The Hammer’ and whips and party leaders over freshman Congresspersons.

The answer lies in term limits, probably 4 for the House, and 2 for the Senate, something like that, in conjunction with campaign finance reform with teeth.

But getting teeth into campaign finance reform has the same problem as term limits. Incumbents won’t vote for it. That is why I believe the only hope is a groundswell anti-incumbent moving that sweeps through voter rolls. With a majority of incumbents out of office, replaced by more idealistic freshman beholding to the voters for getting into office, real campaign finance reform and term limits may actually have a chance of passing.

It is a small hope, but, a plausible one, as the voting public moves more and more to the internet for their political news and debate. You can’t surf without uncovering some truth regardless of how bent you are left or right.

David

You actually make the point that the problem is more complex than taxing the rich. We Americans have a trade deficit because we buy more overseas than we sell. We, in other words, consume too much. We also save too little.

You mention that the rich invest their tax cuts. This is not a bad thing. You are right that the rich are more likely to invest when they get a tax cut. What does that mean? It means that they are not consuming. Buying a new machine to increase output is better than buying a new car that just gets old. To the extent that they investing in productive enterprise, they are increasing the country’s wealth. To the extent that they are just not consuming, they are not adding to the trade deficit. Spread the wealth and you will spread consumption while at the same time lowering investment.

We can only increase consumption if we increase productivity. Running more money through the government doesn’t help this and usually causes harm.

Once again, for the trade deficit, we need to address consumption and the U.S. savings rate.

For the budget deficit, we have to address entitlements.

A good place to start is by changing the tax system to allow for a consumption tax to replace some income taxes. Beyond that, we have to address entitlements, which starts with Social Security, Medicare and Medicaid. Unfortunately, whenever President Bush brings up the subject, his critics claim there is no problem to be solved.

Jack said: You actually make the point that the problem is more complex than taxing the rich.

Actually, I make the point that the solution is more complex than taxing the rich. Taxing the rich up to a point is helpful, cross over that point and it harms levels of free capital necessary to sustain economic growth. Cutting spending cannot be the whole answer either, since cutting too deep will create homelessness, illness, and diminshed demand for local services and products. Growing the economy is also no solution by itself. Most think tanks on both sides of the aisle now agree growing the economy is not a solution by itself - the debt and service on that debt (which will keep growing for years to come even if we don’t deficit spend one extra dime from this day forward) are going to simply be too large and dynamic.

The rich investing tax cuts is not a bad thing when the economy is on a good footing like it is currently, and the its future appears sound (which is not the case now). Even in the worst of times, free flowing capital is required to maintain growth. But the question is what opportunity cost is associated with tax cuts or no tax cuts.

Available capital for growth is in abundant supply today. One need only look at corporatate profitability overall to see that is the case. The opportunity cost for making the wealthy American tax cuts permanent however, is huge, no matter how you slice it.

Buying a new machine to increase output is better than buying a new car that just gets old.

Here Jack, your argument fails. Buying a new machine to increase productivity is better than a car when demand exceeds supply. It is not better than buying a car when supply exceeds demand. Then buying the car is better. We are talking economics here - a balancing act that optimally maintains supply and demand at equalibrium as the worst case and supply exceeding demand slightly when times of growth and economic acceleration are a positive. Growth and acceleration are not always desireable when inflation is tearing at pocketbooks and unemployment is rising.

You argument also fails on trade deficits. Exports are a relatively small part of our economy. One to one correlations between domestic supply and demand do not correlate with the consequences foreign demand and supply of exports. Our economy is far more dependent for health on domestic demand than it is on foreign demand. Sacrificing domestic demand to improve foreign demand is a fool’s trade indeed. For the economy to balance itself in a healthy zone, a minimum support level for both foreign and domestic demand must be maintained at a level that produces GDP growth (currently) at between 2 and 4% year on year average.

This means we can sacrifice domestic demand (through lower wages, loss of entitlement checks, or even job losses) only to a point, and beyond that point where GDP growth falls below the rate needed to compensate for inflation, things get very out of balance and the economy suffers (i.e. American workers and voters).

Reducing consumption does not solve the trade deficit, Jack. Reducing imports will. There are two ways to accomplish that, dry up demand in general by restricting consumer discretionary income, or more narrowly by elevating trade barriers. Neither is a viable solution for the economy as a whole over time. The fact is, a credible answer to resolve our deepening trade deficits does not yet exist. Not one where the opportunity costs aren’t far higher than any reductions in the trade deficit would provide.

For the budget deficit, we have to address entitlements.

Curtailing entitlements, yes, up to a point. But here again, like all economic problems, negative contingencies accompany all solutions. (Remember the definition of economics, the allocation of limited resources amidst infinite demand). Cut entitlements too deeply and you cut off domestic consumerism and thus domestic demand for goods and services provided here in the states, which will slow GDP growth, lower tax revenues, and layoff workers. This is why the only rational solution will have to be a combination of tax increases, entitlement cost reductions, and large cuts in Congressional discretionary spending.

Anything less has opportunity costs which will exacerbate and accelerate the economy falling out of that balance of 2 to 4% GDP growth while maintaining slightly more supply than demand and near maximum productivity and maximum employment.

It is one helluva a balancing act. The Fed is holding up its end, and like Greenspan has warned on many occasions over the last year and a half, if Congress does not hold up its end, the Fed’s hands will be tied and the consequences of their actions over interest rates wholly insufficient to maintain a strong, resilient, and adaptable economy.

…America will have a few trillion dollars of IOU’s which could become viewed as worthless sending the US into a potential default on its treasury certificates and bonds.

David, the problem is, I’ve heard conservatives shrug that off with, “What are they going to do, repossess Iowa?”

Jack, anytime President Bush wants to address Social Security or Medicade reforms Democrats are ready to jump into the discussion. As David pointed out, no one is denying there’s a problem. But, as the administration itself has admitted, private accounts don’t solve it, and they add nothing to national savings.

The problem is, while there may have initially been some willingness on the right to address entitlements, it’s become a political landmine for all involved. Discounting the totally useless, and even fiscally detrimental proposal to partially privatize accounts, no one wants to be the first to suggest raising taxes or cutting benefits. It’s blue-ribbon panel time, I think.

Bridgewater says it believes that the dollar is already beyond the point of no return. To keep the currency at its current value, private investors will have to buy more American securities as central banks desert them,

Really interesting article, David. Thanks. I remember the last time the Treasury tried to raise money selling securities, the reaction from central banks was poor and they were only able to cover the US debt because private investors made up the difference. I wonder how long that will last, since private investors are spooked more easily than central banks.

I also remember Malaysia’s old PM Mohamad complaining that it was private currency investors that triggered the Asian currency crisis.

But inflation sure looks like it’s under control since the Bush administration stopped including the price of gas and food in the index.

David, really good article - though very alarming in the way your articles on the economy have been for quite some time.

“The time is now to get angry and vent that anger upon our Congresspersons via mail, fax, and phone demanding, in no uncertain terms, fiscal responsibility which means cutting spending and raising taxes,”

Although I have written to my congresspeople before on this subject, after reading your piece I’ve just done so again — and this time cited quotes from the NYT article you linked to. Trouble is, whether people get on board in writing angry letters or not, after reading the same scary paragraph AP just quoted above, I’m not sure what we do can make a difference at this point. I keep getting the feeling that we’re going to be forced to stand by and watch the slow motion train wreck of our economy that’s been barreling towards us for years, thanks to the irresponsible actions of George W. Bush and Co.

There is no majic bullet for getting our fiscal house in order, no one single thing is going to do it, it must be a combination of things.

Everything you do will effect something else, there has to be a balance.

Taxing the rich sounds good and buys votes, but how many here, that work in the private sector, work for a poor person?

Term limits sound good, but we would be booting the good ones with the bad.
Would any sane company manager draw names from a hat when it was nesassary to cut back and someone must me laid-off?

The reason unions have declined in the private sector is because workers are classified by job title, wages are set based on meeting minimum standards for that job. It tends to produce groups of workers that preform at a minimum level.
Only the government can get away with operating in that manner in a world market.

We can’t fix todays problems with the economy by looking back at what worked in the past, we only can look back to what didn’t work,(learn from mistakes).

Pork spending is enhanced by congress being able to bring projects,money, jobs, back to their state and getting the rest of the country(that didn’t elect them) to pay for it.

We need to detimine what ONLY the Fed. Gov. can do (short list) and move the rest back to the states.
By doing that they must sell their pork/project to the voters that will have to pay for it.

What would happen if we elected more Mfg. managers, and fewer lawyers to congress, on both the Fed. and State level, I wonder?
What if teachers of a certain subject( that were able to grasp the three R’s) were teaching that subject based on real life experiences ?

Would anyone here hire a carpenter that had never pounded a nail, only read about it?

BTW David,..great article.

Beagle, Clinton balanced the budget and shrunk the size of the federal govt to 1950’s levels. Why can’t Bush do that?

I have a question for everyone -

Besides just cutting spending (which I do see as necessary for a lot of programs), what can be done about how the money that the government does spend is managed? Everyone has heard about the “$100 toilet seats” legends. There seems to be a crushing amount of beaurocracy in a lot of things that make the processes take three times longer and cost twice as much.

The reason I ask (instead of just saying “the government needs to change how it spends money”) is because I don’t know if this is actually feasible. I understand that a certain amount of beaurocracy is needed for the checks-and-balances, but has it gone completely overboard?

I have been part of a few government projects as a sub-contractor, and was amazed at the money getting thrown around. Projects that should rightfully cost $X are costing taxpayers $2X or even $3X.

Is there a management problem here?

No, it’s an ethics problem. Why would a private sub-contractor charge it’s government 2X or 3X what a job is worth. There should be penalties for price gouging, just like there should be penalties for the war profiteering that’s going on in Iraq.

Many things the Gov. buys , cost more because of the spec.’s they require if its military or aero-space.
Many companys wont even bid on a contract if requires the product to meet Mil. Spec.’s.

Lots of companys are turned down for contracts because they can’t prove the ability to produce the products to those tolorences.

I agree that lots of money gets wasted, but the knowledge that comes from all that testing gets passed on the common products everyone uses, making them cheaper and last longer.

Many things the Gov. buys , cost more because of the spec.’s they require if its military or aero-space.

Heh. Yeah, I remember that episode of West Wing with the military ash tray.

In any case, in Tad’s judgement - whatever the specs - the job was 2X or 3x more than what he thought it should be.

Downsizing military spending would be worth a shot. Spend less, get ripped off less. I mean really, if you have a limited size volunteer force and they are equipped and you nuclear weapons, how much more do you need? I know I am oversimplifying, but, their is a whole lot of pork spending on military and a whole lot of monopolization in the industry. If Congress would find R&D on a longer timeline, they could afford competitive bidding and walking away from contracts where the specs aren’t met. It would do the industry good to have competition and it would do industry ethics good to have the US walk away from payments on projects that don’t meet contractual specs.

AP,

You saw a segment on left-wing, or west- wing, or whatever, why didn’t you mention south park or another cartoon ?

I tryed to offer reasons why government contracts may cost more, I didn’t site any soap opera’s or cartoons for a reason…real life debate of facts.