Monday, July 13, 2009

George Will is one of the best

Excerpts from his latest column, in which he exposes the absurdities which seem to be driving U.S. economic policies.

In January, the Obama administration, shiny as a new dime and bursting with brains, said that unless another stimulus was passed immediately, unemployment, which then was 7.6 percent, would reach 9 percent by 2010. But halfway through 2009, the rate is 9.5. For the first time since the now 16-nation "euro zone" was established in 1999, the unemployment rate in America is as high as it is in that region, which Americans once considered a cautionary lesson on the wages of sin, understood as excessive taxation and regulation.

"Everyone guessed wrong" about the economy's weakness, says the vice president, explaining why Stimulus II has not yielded anticipated benefits.

But before embarking on Stimulus III, note that only about 10 percent of Stimulus II has yet been injected into the economy. This is not the administration's fault, the administration's defenders say, because government is cumbersome, sluggish and inefficient. But this sunburst of insight comes as the administration toils to enlarge governmental control of health care, energy, finance, education, etc. The administration guesses that these government projects will do better than the Postal Service (its second-quarter loss, $1.9 billion, was 68 percent of its losses for all of 2008) and the government's railroad (Amtrak has had 38 money-losing years, and this year's losses are on pace to set a record).

Let's guess: Will a person or institution looking for a place to invest $1 billion seek opportunities in the United States, where policy decisions are deliberately increasing taxes, debt, regulations and the cost of energy, and soon will increase the cost of borrowing and hiring?

Yet while government diminishes America's comparative advantages, liberals are clamoring for . . . higher taxes. Partly because of changes endorsed by presidents from Ronald Reagan to Barack Obama, approximately 60 percent of taxpayers now pay either no income tax (43 percent) or less than 5 percent of their income. Because one cannot raise significant money by that tax without nicking the middle class, or without bringing millions of people back onto the income tax rolls, attention is turning to a value-added tax.

Before he became an economic adviser in the Obama White House, where wit can be dangerous, Larry Summers said: Liberals oppose a VAT because it is regressive and conservatives oppose it because it is a money machine, but a VAT might come when liberals realize it is a money machine and conservatives realize it is regressive.

At the June 29 White House briefing, press secretary Robert Gibbs was asked, with reference to health-care legislation, if the president's pledge not to raise taxes on couples making less than $250,000 is "still active." Gibbs answered: "We are going to let the process work its way through." What is your guess?

5 comments:

alstry said...

Notice how George fails to address the rapidly contracting tax receipts.

Maybe because it is obvious that a material amount of government taxes was generated during the Bush era simply because of consequences from reckless lending practices that were encouraged by the Fed.

We will never see these revenues again any time soon and deficits would have exploded regardless which party came into office.

It is clear that regulations must be streamlined and spending must be contained. But unless Republicans address the issues of over burdensome debt on the private sector, evaporating tax receipts to government, and balance it against constraining spending, our nation's economy will inevitably collapse into a deflationary depression or uncontrollable inflationary depression depending whether we simply monetize government spending.

There are no other mathematical choices when little in the way of tax receipts is coming into government against a massive budget which mushroomed over the past eight years. In fairness to the current administration, relatively little blame for the evaporating revenues can be placed on the President.

But I have to admit, once he got behind the wheel, he sure loves to press the pedal just like those before him.

Antonio said...

Scott,

I noticed the article explains VAT, a concept which unfortunately is normal in european countries and I'm afraid it is coming now to USA.

Even in Spain, people are not very aware of the fact that VAT means a 16% extra-burden added to the whole economy and almost to every imaginable good of the supply chain. Imagine you earn 100 € and suddenly a politician raises your taxes 16 € more...after having taxed you up to 42 € (personal income tax). I don't mention Social and welfare burdens, neither muni or city taxes.

In the end, you are working more than 60% of your time for Big (and in some countries, such Spain, inefficient and corrupt)state. Incentives to invest and work more are close to nil. I realy hope America doesn't turn to that easy way.

Cheers.

Public Library said...

With Goldman Sachs recording another blowout earnings season thanks to Han, Helicopter Ben et al, it is not difficult to wonder why America is so polarized. Obama policies may seem alarming but the power struggle between the gluttonous banks and greedy politicians should come as no surprise to anyone. The banks robbed America to sustain their lifestyle while trickle down economics remains the only hope for the rest which we all know means dire times lay ahead for the ordinary man. We are running from one extreme to another and until someone wants to address the extremes on both sides consider America the Bizmark during its last hours drifting in circles while taking on gunfire all around…

Scott Grannis said...

Antonio: thanks for the warning. I sure we can avoid Europe's fate.

alstry said...

Scott,

Speaking of Europe, I thought you might find this interesting:

This from France:

Workers at a failed French car parts supplier are threatening to blow up their factory unless the company’s two biggest clients – Renault and PSA Peugeot Citroen – stump up extra compensation.

Employees of the engine parts maker New Fabris have rigged up a series of gas canisters inside a factory workshop which they say will be detonated on July 31 if the two carmakers fail to pay €30,000 to each of the 366 workers facing unemployment.


http://www.ft.com/cms/s/0/88b42742-6fd2-11de-b835-00144feabdc0.html?nclick_check=1

The problem facing the world's economy is that over the past ten years, the banking system infected the private and public sectors with too much debt. Now the debt is simply unsustainable. As the economies inevitably contract, debt service will consume a greater and greater percentage of GDP.

Eventually, if the debt is not removed, the GDP will contract to the point where debt service payments equal or exceed GDP and the only money available is directed to pay the bankers and practically nothing for goods and services. This is the concept the Institute of Alstrynomics defines as Concentric Contraction and the slowdown is now being felt EVERYWHERE.

Think of the California family where 80% or more of its income was going to pay taxes, interest, and insurance. There are thouands upon thousands of families in this situation. After a 20% wage cut, the family will have zero dollars for discretionary spending including food and clothing.

Concentric Contraction also applies to government. As government tax receipts dwindle from lower consumer spending, outstanding debt service begins to consume a greater and greater percentage of tax revenues leaving little for services. Eventually, debt service consumes so much that government must start taxing citizens assets and savings simply to pay the politicians wages and bankers at the same time.