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Source link: http://archive.mises.org/16437/the-budget-battle/

The Budget Battle

April 11, 2011 by

The only reason this nonsense is sustainable is due to the promise of the Federal Reserve to back all this spending with money creation. FULL ARTICLE by Llewellyn H. Rockwell Jr.

{ 21 comments }

Dick Fox April 11, 2011 at 7:58 am

Lew actually skirts the issue. Yes, the FED is too accommodative and yes, the Democrats think spending is the answer, and yes, the Republicans want draconian tax cuts, but…

The Republican has included military cuts in their plan both short term and the longer term Ryan Roadmap. So here Lew is fighting a battle from the past.

But the worst mistake Lew makes is ignoring the only thing that will cure our economic problems and that is economic growth. Before anything else we must place the economic environment in a position to allow producers the freedom to produce. This means reducing the top tax rate for both personal and corporate taxes to 25%.

Lew implies that the government can only spend beyond its means if this is accommodated by the FED and that is simply not true. As we can see from the current debate on raising the debt ceiling the government can also borrow and the government can tax, but all of this is forced after the funds are already spend. The federal government spends the money creating a huge deficit and them passes laws to cover this spending. This can be done whether the FED accommodates or not.

So first we must deal with our growth problem. Once that is done then we can attack other important issues such as a stable currency, excessive spending, and huge government debt.

BioTube April 11, 2011 at 9:07 am

The Fed owns a good chunk of that debt, with another chunk resting in the SS “trust fund”. Without the Fed monetizing a portion of it, the interest rates would be much higher than they are today.

J. Murray April 11, 2011 at 12:33 pm

Not just a good chunk, they’re the second largest holder outside the Social Security system.

Alan Burton April 11, 2011 at 3:44 pm

I conclude you missed the point.

RTB April 11, 2011 at 9:36 pm

“This means reducing the top tax rate for both personal and corporate taxes to 25%.”

Nice plan, you should be in charge.

Sorry for the sarcasm, but what’s the point, really. You’re playing their game. I propose 23.43257 percent. I think it’s just the right rate to promote growth, reduce the deficit, give everybody just enough freedom and make everything hunky-dory.

Walt D. April 11, 2011 at 12:39 pm

Dick:
“the only thing that will cure our economic problems and that is economic growth. ”
Spot on. I assume you mean actual economic growth in the private sector as opposed to rigged GDP numbers that include growth due to government borrowing and spending.

Walt D. April 11, 2011 at 12:53 pm

” If the goal in this crisis is to balance the budget without raising taxes, everything has to be cut regardless of political ideology.”
You need to collect taxes. Raising tax rates does not usually result in a rise in tax collection. As Dick Fox said – you need economic growth. Taxes collected are approximately 19% of GDP regardless of what the tax rates are.
Military spending is the ultimate “broken window fallacy” if applied domestically. However, US companies sell military technology to other countries. In a sense, the US companies are making a profit out of first breaking, then fixing other countries broken windows. Incidentally, having read John Flynn’s blog, the Military Industrial and Government alliance is an example of fascism.

Robert P. Churchill April 11, 2011 at 1:07 pm

High tax rates are not the only impediments to growth–anything that creates malinvestment hinders growth. Printing money creates it in a huge way, on which point Lew is completely correct. Our absurd burden of regulations creates more. Our general incentivization away from work and saving and towards consumption and government spending is a disaster. And fighting three or four wars with more to come is economic suicide.

Not that I don’t want taxes cut (down to, say, zero!) but if I had to pick an order of things to correct then current tax rates would be pretty far down the list (and corporate taxes would come before personal). Stop the wars first and money printing second, followed by getting real with Social Security and Medicare, then take an axe to green subsidies and corporate subsidies in general. Follow that up with getting out of education, liquidating Fannie/Freddie and getting out of trying to incentivize home ownership. Oh yeah, and stop the insane war on drugs, the fascist Homeland Security state, and the massive growth of police forces, surveillance, and data collection.

Then we can talk about cutting tax rates.

Show me a Republican who is serious about any of it not named Ron Paul.

Alan Burton April 11, 2011 at 3:45 pm

Rand did fairly well with a 500 Billion proposal cut in spending.

Eric April 11, 2011 at 9:23 pm

And just how much of that is he really going to get? Besides, it’s only 1/3 the shortfall.

Now his Dad’s proposal to end the empire would likely cut double that. Even then, we’d still be 1/2 trillion short.

When you find someone who can’t stop spending, you don’t give them a credit card. If anyone was really serious, let’s see them refuse to increase the debt limit next month. Now that would be like cutting up the credit card. But I’m sure they’d still find a way to weasel out of it.

Shay April 11, 2011 at 1:07 pm

After the talk of all the effects a government shutdown would have, I got to wondering why the hell the government is involved in all those things to begin with (and this is the federal government along, not the states). But most commentary focused on how spoiled the politicians were, rather than questioning their very involvement.

Sione April 11, 2011 at 2:19 pm

Dick

Lew did not ignore the issue of economic growth. That topic was not the subject of the article. What he is directing our attention towards are the fundamentals underlying the budget debate and the nature of that debate as compared with reality.

As far as economic growth is concerned, there aint going to be any. Forget about encountering real growth anytime soon. The US is on the path of economic unravelling. Unfortunately many people are going to get badly hurt by this process. Nevetheless they’ll continue to believe in govt. They’ll place their full faith in that institution and hope it’ll do something to alleviate their suffering. It won’t though. It’ll merely exploit their stupidity and cause them even more pain.

Meanwhile these “debates” will continue to crop up from time to time. Call them an expensive soap opera. You can keep up to date with the latest episode on your TV!

Sione

Sprachethiklich April 11, 2011 at 2:41 pm

Perfectly true.

Walt D. April 11, 2011 at 3:02 pm

The bus is heading downhill off the cliff at 100 mph. The choices – slow the bus down to 90 mph -
too extreme – slow it to 95 mph still too much. The final compromise – slow down to 97 mph. The bus needs to stop. … they want to stop the bus! We can’t do that , or else … some drivel. Neither side seems to realize that if the bus does not come to a stop it will go off the cliff. Each is claiming victory.

Sione April 11, 2011 at 4:13 pm

Long while back I was consulting to an R&D company. There was a senior designer who was forever being frustrated by managment in his efforts to produce workable solutions to design problems. He never got annoyed. Just started again and worked on each time. I asked him why he didn’t pack it in and leave. He responded by explaining that the place was a fascinating giant soap opera and he couldn’t stop observing it. He simply had to come in each day to see what happened next. Until the day I finished up my work, he’d greet me each morning and nod, “What will happen next?” Perhaps it was like watching a real vehicle crash happen. You can’t stop watching…

The bus analogy is good. I reckon that bus is going to zoom right off that cliff at full power and tumble into the valley below, where it will explode in pyrotechnic glory (just like they always do on the TV). Awesome! It’ll be amazing to watch, so long as you are not one of the unfortunate souls on the bus.

Sione

Walt D. April 11, 2011 at 8:54 pm

Ran Paul has a plan to slow the bus down to 55 mph. Reminds me of a Sandra Bullock movie!
Perhaps everyone is going to step off the bus onto a moving platform before it explodes.

Charlie Virgo April 11, 2011 at 2:31 pm

Sometimes I come to Mises just to be reminded that not all people online are idiots. Thanks to both the authors of Mises Dailies and those commenting on them. It’s nice to know that I’m not the only one who understands basic economics principles.

Allen Weingarten April 11, 2011 at 2:50 pm

I appreciated Llew Rockwell’s model of the political battle about finances as two children fighting over toys that belong to someone else. Here the two children are the Democrats and the Republicans, where the toys belong to the taxpayers.

In our partisan environment, taxpayers focus upon whether spending is done by the Democrats or by the Republicans, overlooking that both are motivated to spend what is not theirs. Consequently, the taxpayers disregard their interest in not being excessively taxed. Their advantage would be to demand that *the government spend no more in a given year than the revenue it has already obtained*. Since ordinary citizens are limited to spend no more than they have earned, they can understand that the same should hold for government. Such a policy would not require Paul Ryan’s plan, or Rand Paul’s, since when the government’s spending is limited in this way, we don’t need to keep the debt ceiling, or to get promises about future spending.

The obstacle that remains is the 60% of the public who do not pay federal taxes, or pay a negligible amount compared to what they receive in return. From a short-range economic measure, it is to their advantage for the government to go increasingly into debt. Here however, I agree with Samuel Adams “It does not require a majority to prevail, but rather an irate, tireless minority keen to set brush fires in people’s minds.”

Sione April 11, 2011 at 4:17 pm

I reckon the brushfires will be ignited by the explosion of that runaway bus when it hits the valley floor.

Sione

Yukon Gold April 12, 2011 at 12:42 am

I was somewhat disappointed that the US reached a deal with their budget. If the government was shut down, life would still bump along just fine, and people would start to question why they need a gigantic army of bureaucrats to look after them. The greatest threat to freedom and fiscal sanity in the western world is the evil, power hungry cabal of public ‘servants’, who leech off the industrious people, while staunchly opposing any measures to limit their cushy saleries. Until these dependent parasites are cut loose, and the size and power of the government is drastically reduced, we’ll live in a world of spiraling deficits, sky high taxes, and a stagnent economy.

Robert P. Churchill April 12, 2011 at 9:14 pm

One more thing to add: If inflation is hidden taxation then massive inflation is massive hidden taxation. Massively cutting spending, thus removing the need to inflate, would therefore be equivalent to a massive tax cut.

Stop spending first.

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