Monday, March 14, 2011

Broke or Not Broke? That is the Question.

What's in a word? One of the Washington Post writers goes on on rant saying we are not broke. Before going into the detail the question should be asked as follows:

1. Who is the we?

2. What do you mean by broke?

Now the we seems to be the states and the Federal Government, not each and every person in the country. Thus as the writer jumps forward to say that there are many people in the cumulative United States who are not broke, he will use that false argument to then say that the collective we is not broke. The we not spending or using the money should just run faster, make more money, and throw it in the common pot. Unfortunately a capitalist system does not work that way. Possibly under Lenin, even a bit under Stalin, but not under Adam Smith. The we is each of the separate governmental entities.

What is broke. Well you can always take away money from those who make it. But alas, it is those very people who use the money to create new businesses. The Government has really never created a new business.

Let me digress. There is always the example of the Internet and ARPA or NASA. Let me dismiss each as follows. ARPA funded the ARPA net and then walked away in the 1980s. But how did it find itself in this position. Simply, in about 1972-3 the principals at ARPA met with Bell Labs and ATT folks to get assistance to build a packet network. ATT as a Government sanctioned monopoly, Kingsborough Decision and Antitrust carve-out, had the power and it was a de factor Government agent. It demanded that it control everything, and fortunately ARPA had the ability to send the money to universities and industry and thus began the telecom revolution. The causal agent was de facto big Government in the guise of ATT. Frankly they have not changed even today. Now NASA, in the 1960s they drained much of the technical talent from the US and focused it on a space program along with DoD in their military programs. That let the Japanese take the lead in the 1980s, leaving the US behind. I argue that we are still suffering from that problem with the paucity of engineers.

Thus my argument that the Government never created a single real job has legs.

Now broke. The Government taxes and taxing takes money from investment and as such reduces the ability to support entrepreneurs. I would argue that for every dollar of tax the future reduction in GDP is multifold. I will not play Christina Romer and give a number, wrong as all here numbers were, but it is greater than one. Thus taxing beyond a point, and we are most likely there, is counterproductive.

The author states:

Just one problem: We’re not broke. Yes, nearly all levels of government face fiscal problems because of the economic downturn. But there is no crisis. There are many different paths open to fixing public budgets. And we will come up with wiser and more sustainable solutions if we approach fiscal problems calmly, realizing that we’re still a very rich country and that the wealthiest among us are doing exceptionally well....Bloomberg News looked at Boehner’s statement and declared simply: “It’s wrong....The U.S. today is able to borrow at historically low interest rates, paying 0.68 percent on a two-year note that it had to offer at 5.1 percent before the financial crisis began in 2007. Financial products that pay off if Uncle Sam defaults aren’t attracting unusual investor demand. And tax revenue as a percentage of the economy is at a 60-year low, meaning if the government needs to raise cash and can summon the political will, it could do so.”...Precisely. A phony metaphor is being used to hijack the nation’s political conversation and skew public policies to benefit better-off Americans and hurt most others.

The conclusion is to tax the rich, whoever they are. Now the US can borrow at low rates because of the FEDs manipulation. We had shown that almost two years ago and have been following it ever since. But that manipulation will end in disaster. The structure deficit problem has been a reduction is tax revenue from the excess unemployment plus the excess expenditures due to the payments to the unemployed. However, the expenditures from the current Administration go well beyond that level. That is the problem. The same holds true for states, just look at New Jersey. Here we allow our state workers to simultaneously hold three or four jobs, all with separate pensions and health care! We have had mayors who were senators, Commission heads and members of state college boards! Each with six figure salaries and accelerated pensions. They retire with half million dollar pensions! And the goodies rattle down.

Thus the we is the government entities and the broke means that to pay for all the goodies we will be bleeding our future. The future hemorrhage will be due to the fact that we will have exceeded the tipping point in the government taking money and putting it to no good whereas it should have been left in private hands and put to building new economic value.