One of the most amazing things to me recently has been the level of outrage over government spending. However some people think it is just nuts. Rather than take a political approach let’s try to look pragmatically at rational fact. First a look at the two sides in opposition. On the one hand those on the left support the Keynesian arguments regarding spending that the government can spend it’s way to prosperity. I saw a youtube video of the president’s head economic adviser, Christina Romer, arguing that FDR failed to keep spending enough to prove it. (It may have been removed) Look up New Deal spending and see if you agree. On the flip side would be the total libertarian view of small government. FYI you might consider founding father Thomas Jefferson, the lead author of the Declaration of Independence, a bit libertarian as he said “Government governs best that governs least”.
Now let’s consider a rational evaluation. I saw former head of the DNC, Howard Dean, say on the news today that the president inherited deficit problems and has been working on it with the stimulus. Ummm… Wasn’t the stimulus $787B in deficit spending? I have learned to develop the skill of active listening. My reason is simple. The easiest person in the world to lie to is yourself. I believe the most natural thing in the world is to repeat those lies to others when the subject of the conversation comes up. That’s how I learned to market our products, by addressing the misconceptions we all have. We have those misconceptions by registering information without properly applying the scientific method. For those unfamiliar the scientific method says you take a hypothesis and thoroughly test it to see if it is true. What Mr Dean said demonstrates mixed metaphors while shuffling talking points and the absurdities that result. Issac Newton posited the scientific method with the assertion that an idea could not be trusted until it had been demonstrated to be supportable in testing. No matter how good an idea sounds I look for evidence to support it before getting behind it.
So let’s begin with our hypothesis. How does the economy work? We create a product. We use innovation and design, apply labor and transform raw materials. This is the “value added” proposition where we produce a higher quality catnip and then add further value putting it in a toy. The “value added” strategy is what made Japan the second largest economy in the world because they don’t have much in the way of raw materials so everything must have value added before reselling. By marketing our product we create wealth… Okay, not so much in our small case, but as a model when this is done on a large scale it does create wealth by adding value into society. Think of houses, cars, gadgets and our infrastructure and businesses. This is the private sector creating wealth we can buy and sell.
Now let’s look at the public sector. Again, let’s not get sucked into constitutional or morality arguments. Let’s take a centrist perspective that there are a number of worthwhile essential things done by our government. Government funds what it does through taxes on the private sector. Again, not to say all taxes are good or bad, the fundamental truth here is that the public sector must balance against the private sector. (This is where economist Art Laffer proved brilliant with his “Laffer Curve”.) If the government is unable to fund vital services all the wealth of the private sector is risked as plunder to those who might wish us harm. Such enemies can be internal. For instance it is estimated that because so little is spent to police Medicare that $70B-$120B a year is lost to fraud. However if too much is extracted from the private sector it affects the supply of money to loan to businesses and individuals and tax burdens could be so oppressive as to stifle growth.
Now without getting political let’s just consider a simple illustration. Let’s say the private sector economy grows at 2% per year and the government grows at say 9%, which is where some programs have been set. If we were to start in 2008 with a $13T private sector and a $3T public sector and put it on a spreadsheet we would add 9% every year to the public sector. To the private we add 2% and then we subtract out the difference in the current public year from the last. In 2015 the private sector is $12.3T and the public is $5.5T. In 2030 private drops to an alarming $378B and public skyrockets to $19.9T. In 2031 the private sector goes negative. Let me be clear, this illustration is a gross oversimplification and there is no possible way for these numbers to follow linear progressions. They are merely an illustration of a principle.
On to reality. If you look at spending under George Bush you will see huge increases. Before you argue they were defense related and expected consider that non defense spending moved at an alarming rate. Okay, now consider that George Bush is not in office so there isn’t much we can do about it. But his last year deficit was $455B and we’re projecting $1.6T this year. Actual spending for the federal government is closer to 33% than it is to 9%. We also shrank our economy by about $1T in the last year. While we list unemployment currently at 9.7% total underemployment (including those who gave up, ran out of benefits or took part time work) is probably approaching 17%. One in six Americans. That has lead to a 17% decrease in tax revenue. In fact our economy has been shrinking, not growing at 2%. On top of that social programs like social security are headed for insolvency in a matter of years. A more sunny and detailed explanation can be found on Wikipedia. Keep in mind many elements of projections rapidly devolve into the unknown in a matter of a few years.
I thought that the arguments on public sector spending creating wealth were so totally disproved they would not be tried again. What does the government plan to do? Many are saying there is no choice but to raise taxes. Meanwhile it is estimated that only 1% of the so called stimulus has gone to “shovel ready” jobs. What has it done? It has helped shore up state governments that are also short of tax money. In short it is making government bigger and more expensive for the most part. With the top 1% income earners paying 95% of all taxes in this country every new spending idea is met with the suggestion they need to pay more of their fair share. Unfortunately the vast majority of these so called rich are small business owners employing most of the population… which explains why there are no new jobs and won’t be for years. Do you think truly wealthy people even pay income taxes? No, they have trust funds and private jets, which you can’t afford on a mere $250K a year.
What the government needs to do is cut their spending to reflect current tax revenues. It’s called living within your means. It’s what people like us have to do. It’s all the more important when you consider that the US is hardly the only fiscally irresponsible government in the world. There just isn’t anyone with a few trillion dollars extra laying around every year and I haven’t even gotten into what happens when governments print that kind of money. Let’s just say Warren Buffet was late to the party warning we could become a banana republic. I believe it’s because the truly rich can make lots of money in economic crisis… but it’s hard to spend if your country goes under. Thanks Warren for warning us we may go too far and wreck it for you!
Don’t trust the pundits! Do your own due diligence. Most importantly we should demand our government use the same fiscal responsibility that each and every American has to. It’s only reasonable in a government of the people, for the people and by the people.
This entry was posted
on Sunday, September 6th, 2009 at 5:25 PM and is filed under social commentary.
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Both comments and pings are currently closed.
Rational Views on Govt Spending
One of the most amazing things to me recently has been the level of outrage over government spending. However some people think it is just nuts. Rather than take a political approach let’s try to look pragmatically at rational fact. First a look at the two sides in opposition. On the one hand those on the left support the Keynesian arguments regarding spending that the government can spend it’s way to prosperity. I saw a youtube video of the president’s head economic adviser, Christina Romer, arguing that FDR failed to keep spending enough to prove it. (It may have been removed) Look up New Deal spending and see if you agree. On the flip side would be the total libertarian view of small government. FYI you might consider founding father Thomas Jefferson, the lead author of the Declaration of Independence, a bit libertarian as he said “Government governs best that governs least”.
Now let’s consider a rational evaluation. I saw former head of the DNC, Howard Dean, say on the news today that the president inherited deficit problems and has been working on it with the stimulus. Ummm… Wasn’t the stimulus $787B in deficit spending? I have learned to develop the skill of active listening. My reason is simple. The easiest person in the world to lie to is yourself. I believe the most natural thing in the world is to repeat those lies to others when the subject of the conversation comes up. That’s how I learned to market our products, by addressing the misconceptions we all have. We have those misconceptions by registering information without properly applying the scientific method. For those unfamiliar the scientific method says you take a hypothesis and thoroughly test it to see if it is true. What Mr Dean said demonstrates mixed metaphors while shuffling talking points and the absurdities that result. Issac Newton posited the scientific method with the assertion that an idea could not be trusted until it had been demonstrated to be supportable in testing. No matter how good an idea sounds I look for evidence to support it before getting behind it.
So let’s begin with our hypothesis. How does the economy work? We create a product. We use innovation and design, apply labor and transform raw materials. This is the “value added” proposition where we produce a higher quality catnip and then add further value putting it in a toy. The “value added” strategy is what made Japan the second largest economy in the world because they don’t have much in the way of raw materials so everything must have value added before reselling. By marketing our product we create wealth… Okay, not so much in our small case, but as a model when this is done on a large scale it does create wealth by adding value into society. Think of houses, cars, gadgets and our infrastructure and businesses. This is the private sector creating wealth we can buy and sell.
Now let’s look at the public sector. Again, let’s not get sucked into constitutional or morality arguments. Let’s take a centrist perspective that there are a number of worthwhile essential things done by our government. Government funds what it does through taxes on the private sector. Again, not to say all taxes are good or bad, the fundamental truth here is that the public sector must balance against the private sector. (This is where economist Art Laffer proved brilliant with his “Laffer Curve”.) If the government is unable to fund vital services all the wealth of the private sector is risked as plunder to those who might wish us harm. Such enemies can be internal. For instance it is estimated that because so little is spent to police Medicare that $70B-$120B a year is lost to fraud. However if too much is extracted from the private sector it affects the supply of money to loan to businesses and individuals and tax burdens could be so oppressive as to stifle growth.
Now without getting political let’s just consider a simple illustration. Let’s say the private sector economy grows at 2% per year and the government grows at say 9%, which is where some programs have been set. If we were to start in 2008 with a $13T private sector and a $3T public sector and put it on a spreadsheet we would add 9% every year to the public sector. To the private we add 2% and then we subtract out the difference in the current public year from the last. In 2015 the private sector is $12.3T and the public is $5.5T. In 2030 private drops to an alarming $378B and public skyrockets to $19.9T. In 2031 the private sector goes negative. Let me be clear, this illustration is a gross oversimplification and there is no possible way for these numbers to follow linear progressions. They are merely an illustration of a principle.
On to reality. If you look at spending under George Bush you will see huge increases. Before you argue they were defense related and expected consider that non defense spending moved at an alarming rate. Okay, now consider that George Bush is not in office so there isn’t much we can do about it. But his last year deficit was $455B and we’re projecting $1.6T this year. Actual spending for the federal government is closer to 33% than it is to 9%. We also shrank our economy by about $1T in the last year. While we list unemployment currently at 9.7% total underemployment (including those who gave up, ran out of benefits or took part time work) is probably approaching 17%. One in six Americans. That has lead to a 17% decrease in tax revenue. In fact our economy has been shrinking, not growing at 2%. On top of that social programs like social security are headed for insolvency in a matter of years. A more sunny and detailed explanation can be found on Wikipedia. Keep in mind many elements of projections rapidly devolve into the unknown in a matter of a few years.
I thought that the arguments on public sector spending creating wealth were so totally disproved they would not be tried again. What does the government plan to do? Many are saying there is no choice but to raise taxes. Meanwhile it is estimated that only 1% of the so called stimulus has gone to “shovel ready” jobs. What has it done? It has helped shore up state governments that are also short of tax money. In short it is making government bigger and more expensive for the most part. With the top 1% income earners paying 95% of all taxes in this country every new spending idea is met with the suggestion they need to pay more of their fair share. Unfortunately the vast majority of these so called rich are small business owners employing most of the population… which explains why there are no new jobs and won’t be for years. Do you think truly wealthy people even pay income taxes? No, they have trust funds and private jets, which you can’t afford on a mere $250K a year.
What the government needs to do is cut their spending to reflect current tax revenues. It’s called living within your means. It’s what people like us have to do. It’s all the more important when you consider that the US is hardly the only fiscally irresponsible government in the world. There just isn’t anyone with a few trillion dollars extra laying around every year and I haven’t even gotten into what happens when governments print that kind of money. Let’s just say Warren Buffet was late to the party warning we could become a banana republic. I believe it’s because the truly rich can make lots of money in economic crisis… but it’s hard to spend if your country goes under. Thanks Warren for warning us we may go too far and wreck it for you!
Don’t trust the pundits! Do your own due diligence. Most importantly we should demand our government use the same fiscal responsibility that each and every American has to. It’s only reasonable in a government of the people, for the people and by the people.
This entry was posted on Sunday, September 6th, 2009 at 5:25 PM and is filed under social commentary. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.