Obama always frames the point about taxes in a political context, something like: “the last eight years have proven that tax cuts are bad for the economy.” So by taking him at his word, I’m at risk of misreading statements that may be meant only to shift blame for the difficult economy onto the Republicans. But here goes, anyway.
The great and abiding fear of Obama and his advisers, is a deflationary spiral, in which wages and prices fall, and people who owe money find it harder and harder to get by. (Debt-service generally consists of periodic payments of fixed size, so if the real value of the payments increases as overall prices fall, then debtors start defaulting more.)
And history suggests when you get a deflationary spiral, you can’t get out of it, and it sticks around for years. What history? The Great Depression, and the “lost decade” in Japan. (Shockingly, Obama even mentioned the lost decade in his press conference the other night. Aren’t Presidents supposed to avoid talking about worst-case scenarios?)
Unfortunately, there are several big problems with Obama’s approach.
Second, the President is profoundly misreading the mood of the country. The other night on national television, he repeated almost literally the conventional wisdom that the economy suffers when people save more money. (Confusingly, he also warned us that the era of debt-financed consumption and investment is over.)
The President’s people are hoping against hope that a big pulse of spending will keep us from tipping over the edge into full-blown deflation. There is a deep error baked into this, which is this: the deflation is already here. We shouldn’t be pursuing counter-cyclical macro-policy at this point. Rather, we should be looking for ways to keep individuals from hitting the wall, where they face the choice of making their mortgage or credit-card payments, and buying food.
Americans figured out months ago that they should be paying down their debt. There’s almost a sixth sense for when job losses will increase, and salaries and wages will fall even for those who don’t lose their jobs. This “paradox of thrift” absolutely will result in a weaker economy, but the Administration needs to face the fact that there’s nothing they can do about this.
Instead, they need to figure out how to support the people who are desperately scrambling to pay down their debts. This is a way to directly avoid the deflationary spiral.
The standard argument against cutting taxes in a recession is that people who receive extra money will tend to save it and pay down debt, whereas countercyclical economic dogma says that you have to spend more, rather than save. That’s what Obama is talking about when he says that tax cuts aren’t the answer.
But tax cuts actually are the answer. The economic weakness is a forgone conclusion, because it results from de-leveraging. You can’t put that genie back in the bottle.
The most radical, and effective, thing we could do for the economy right now is this: Stop collecting all forms of Federal business, income and payroll tax. EVERY PENNY OF IT. RIGHT NOW.
Gasp! Yes, I said it, and I meant it. Go on an absolute, 100% Federal tax holiday. That’s a real shot in the arm that would suddenly inflate the economy by a solid $1.5 trillion or more per year.
Are you worried about the resulting fiscal deficits? Don’t be. There is a huge amount of demand for debt from global investors, and the credit crunch has blown a huge hole in private debt formation. That leaves a lot of room for the government to borrow more.
It’s absolutely NOT the case that my radical tax holiday would cause GDP to shoot higher. People absolutely WILL save a very big chunk of the money and pay their debts down. But that’s going to give them the ability to weather the coming deflationary cycle, and do wonders for their confidence. A few years from now, we’ll all be in a position to start growing again, from a lower base.
But we’ll have avoided the most socially corrosive and damaging effects of deflation. We’ll avert many of the personal and business bankruptcies that would have occurred, and we’ll put a floor under the unemployment rate. We won’t return to strong growth soon, but that wasn’t going to happen anyway.
Moe Lane
bs
Caleb Howe
Dan McLaughlin
Vladimir
Since Obama won't be taking any of your advice
scottbomb Wednesday, February 11th at 9:04AM EST (link)I’ll be praying for my fellow citizens to realize what an enormous mistake they made in electing this socialist.
If the Republican party can take back Congress in 2010, will they be able to enact policies to reverse the damage? If not 2010, what about 2012?
It’s a catch-22 for me. On the one hand, I hope we suffer enough to make the American people never again trust the Democrats with 100% control of government. On the other hand, my tolerance for economic suffering right now is rather low.
http://www.HowObamaGotElected.com
“The American people will never knowingly adopt socialism. But, under the name of ‘liberalism’, they will adopt every fragment of the socialist program, until one day America will be a socialist nation, without knowing how it happened.” - Norman Thomas, U.S. Socialist Party presidential candidate 1940, 1944 and 1948
But but but
10ksnooker Wednesday, February 11th at 9:14AM EST (link)That won’t grow the government.
And therein lies the answer: It's not about making the economy grow, it's about making the gov. grow.
janis Wednesday, February 11th at 9:20AM EST (link)Which we all know is just what we need and want–more gov.
As for blackhedd’s idea–IF ONLY.
Au contraire
Francis Cianfrocca Wednesday, February 11th at 10:05AM EST (link)It’ll grow the government as much as anything else. They’ll still have to borrow the same amount of money to fund the tax cuts. That’s actually the point: it’s where the needed inflation will come from.
Oh, you mean it won’t grow the socialist programs that the Democrats are so fond of? Oh, well, in that case, guilty as charged.
Brilliant! But for Democrats the point of having power
papalee Wednesday, February 11th at 10:24AM EST (link)is the ability to inflict pain and suffering on those you rule. And for them, “rule” and not “govern” is the appropriate word. Obama is only a socialist to the extent that socialism is a subset of Communism. His first major influence, the man his grandfather handed him over to was a Soviet agent.
The long term cure for this mess if Republicans are ever allowed back into power by anything less than a military coup would be the end of all communist and socialist programs - ALL of them. That would mean that the income tax and business taxes have to go completely so that we see just when, where and how much we are actually being taxed. But does anyone actually have the courage for that?
Isn't Socializing what this is all about?
Scope Wednesday, February 11th at 10:55AM EST (link)With Geithner’s speech yesterday, those that Geithner thought were not as smart as him, proved that you can see right through him, and his non-plans. If Geithner and the BO administration were being honest about getting the economic problems solved, in the best way possible, they would at least be giving an ear to others that do have honest, reasonable and rational ideas for the best resolutions, including yours Francis. It doesn’t fit the plans for the rush into Socialism, as quickly as possible, so that before too many wake up and see where we are headed, we are already going to be there. We are told, the Stimulus will not create the number of job’s that BO is claiming, and the jobs it does create are not long term, or even in as many industries as needed to encompass all skills. Unemployment will continue to increase, the government handouts with unemployment and welfare will keep people only able to survive. That is when the real “mood of the country” will take hold, but, then it may be too late to change course. I am starting to agree with Glenn Beck, Obama is not the floundering idiot so many are seeing him as, he is an evil genius, and has the right people in his administration to promote his goals. Be afraid, be very afraid.
Isn't Socializing what this is all about?
Scope Wednesday, February 11th at 10:55AM EST (link)With Geithner’s speech yesterday, those that Geithner thought were not as smart as him, proved that you can see right through him, and his non-plans. If Geithner and the BO administration were being honest about getting the economic problems solved, in the best way possible, they would at least be giving an ear to others that do have honest, reasonable and rational ideas for the best resolutions, including yours Francis. It doesn’t fit the plans for the rush into Socialism, as quickly as possible, so that before too many wake up and see where we are headed, we are already going to be there. We are told, the Stimulus will not create the number of job’s that BO is claiming, and the jobs it does create are not long term, or even in as many industries as needed to encompass all skills. Unemployment will continue to increase, the government handouts with unemployment and welfare will keep people only able to survive. That is when the real “mood of the country” will take hold, but, then it may be too late to change course. I am starting to agree with Glenn Beck, Obama is not the floundering idiot so many are seeing him as, he is an evil genius, and has the right people in his administration to promote his goals. Be afraid, be very afraid.
This was a master stroke by the Republicans
izoneguy Wednesday, February 11th at 10:59AM EST (link)For the ones that propelled Geithner into his position. They knew he was a bozo and wanted him as Obama’s clown to both entertain us and shine the spotlight on the “administration of fools”.
“When the government fears the people, there is liberty. When the people fear the government, there is tyranny.”
Thomas Jefferson
Izoneguy- I hope you are correct!
Scope Wednesday, February 11th at 11:30AM EST (link)and that something “drastic” happens before it’s too late. The “I will have my mortgage paid by the government, and they will give me money for gas” crowd are hopefully becoming less and less enamoured.
We wish
posterposter Wednesday, February 11th at 3:13PM EST (link)Most people don’t even know what direction up is as far as any of this is concerned, and more importantly, don’t want to be burdened with the problem of knowing. My college and graduate school educated friends dismiss these economic and political topics without the slightest pause because they are confident that even bad decisions will eventually work out to be alright. I mean, they always have in this country in the past right? (eye roll) My generation has never known true discomfort so they don’t think they have to pay attention, and that politicians - while they’ll grant that they are robbing thieves for the most part - can handle whatever issues we face.
Communism and socialism are threats from a different era to most people.
I worry that we will never break through all the noise and propaganda to recover.
One other point in favor of the tax cuts,
The_Gadfly Wednesday, February 11th at 1:05PM EST (link)every time they’ve been tried, they’ve worked — even W’s weak one after 9/11. Now, I’m not talking about those $300/$500/$1000 “rebate” checks they sent out a while back, I mean an honest to goodness tax cut where the rates are reduced and you wind up with more money in your pocket every paycheck, and you know you’ll be able to count on the increase until at least the next congressional election. It broke the wage/price spiral Carter in his cardigans couldn’t. It worked for JFK. It even worked in Russia when they tried it immediately after the dissolution of the USSR.
We’ve been called racists enough now that it shouldn’t bother us any more.
-AChance, http://www.redstate.com/moe_lane/2009/11/03/what-men-may-do-we-have-done/#comment-24463
If NY23 was a beat down for Conservatives, what do you call what happened to Progressives in NJ and VA?
inspired by ColdWarrior, http://www.redstate.com/hooah_mac/2009/11/04/ny-23-the-agony-of-defeat-not-so-much/#comment-156
Too bad we're governed by a bunch of socialists.
itrytobenice Wednesday, February 11th at 9:10PM EST (link)If you were in charge of things, we might have deficits, but at least there would be the potential for future growth. Economic growth I mean. Obviously their goal is growth of another sort.
The problem with America is stupidity. I’m not saying there should be capital punishment for stupidity, but why don’t we just take the safety labels off of everything and let the problem solve itself?