Letter to the editor:

Incurring deficits no way to spur growth

Richard McCord, Henderson

Thursday, Oct. 29, 2009 | 2:04 a.m.

When the federal deficit under President George W. Bush topped $400 billion, Democrats shouted in horror. Caused by “tax cuts for the rich” and a “war of choice,” his deficits were rooted in bad intentions. Now, however, under President Barack Obama, Democrats are unfazed by a deficit of more than $2 trillion this year, and more of similar magnitude planned over the next 10 years. Called necessary, to undo the damage caused by the Bush policies and to help the needy, they are rooted in good intentions.

The trouble with deficits, though, is that intentions don’t alter their consequences. Increasing federal borrowing, from 3 percent of the gross domestic product under Bush to 10 percent of GDP under Obama, will require substantially higher taxes to pay interest on the new debt and fund new programs, draining the growth potential of the economy. Slower growth will generate less in taxes than projected, necessitating still higher taxes to cover the shortfall, further burdening the economy.

To combat sagging demand, the Federal Reserve will have to accelerate money-supply growth. But against the headwinds of high taxes and diminished returns on investment, production won’t keep up with the stimulated demand. Soaring inflation and a crashing dollar will result. Americans’ standard of living will decline.

The only way to solve these problems is to not create them in the first place. Government must lower taxes now and postpone, or forgo, its well-intentioned spending plans. The private sector must be unleashed to do what only it can do — create jobs and wealth.

Discussion: 9 comments so far…

By Future

10/29/09 at 2:31 a.m.

Suggest removal

The facts continue to come in that the Bush era financial system intervention rather than the Obama era jobless stimulus bill has brought us out of the recession.

We need an honest assessment of what worked per Nancy Pelosi's test that the stimulus bill be timely, targeted and temporary.

Why -- because Obama wants to spend another $200 billion doing what has already failed to produce jobs.

If Obama wants to increase jobs he just has to reduce the 35% business tax.

What is known is the trajectory of the rate of job losses had already changed from a peak in December 2008 -January 2009 -- before Obama took office and passed the stimulus. Every month since January 2009 the job losses have been less and the economy GDP went positive in May of 2009. The only appropriate part about the stimulus was money to ameliorate the pain of unemployment like extended benefits as is done for every recession.

Vice President Joe Biden said that "everyone guessed wrong" then said they "misread how bad the economy was." That includes "spend and inflation as a cure" proponent Paul Krugman. To sell the Stimulus in January Obama said the FY-2009 deficit would be $1.9 trillion -- but it ended up at just $1.42 trillion so the economy did $400 billion better than Obama misread. In October 2009, Christine Romer say the jolting impact of the Stimulus has already happened with 14% spent.

http://www.washingtonpost.com/wp-dyn/con...

As the financial system intervention is unwound the stimulus must also be unwound to lessen the impact on the deficit, prevent runaway inflation, and avert a double dip recession.
Paul Krugman has come to tell us to not worry about our looming $9 trillion deficit. It only impact is political. Krugman is arguing that the debt to GDP ratio going from 30% to 70% is okay.

Krugman says "We're looking at a rise in the debt/G.D.P. ratio of about 40 percentage points. The real interest on that additional debt (you want to subtract off inflation) will probably be around 1 percent of G.D.P., or 5 percent of federal revenue. That doesn't sound like an overwhelming burden."

The slippery slope here is Obama depends on raging high inflation to diminish the original borrowed value and rely on the faith of the lenders like China that they have made a good investment.
By Future

10/29/09 at 2:34 a.m.

Suggest removal

Under Bill Clinton the January 1999 CBO forecast for FY-2008 was revenue of $2.611 trillion and spending of $2.255 trillion.

Under George Bush revenue went up 3.4% per year, and the actual FY-2008 revenue was $2.523 trillion or within 3% of the 1999 CBO estimate despite the Clinton dot.com recession and 9/11.

Clearly the Bush tax "rate" cut to recover from the Clinton dot.com recession and 9/11 - did not decrease revenue. The Bush tax "rate" cuts also shifted the revenue stream further to the rich so the lowest 45% pay no taxes.

Under George Bush outlays went up 7.5% per year, and the actual FY-2008 outlay was $2.978 trillion or 32% more than the Clinton forecast. Appropriation the last four year of Bush was controlled by Speaker Nancy Pelosi's House and supported the last two years by the Leader Harry Reid's Senate. Bush never vetoed the budget items passed by Nancy and Harry.

You can easily draw to conclusion that we wildly over spent our planned revenue. The 8 year Bush investment included a 59% increase in veterans' benefits, 58% increase in education, 55% increase in health research and regulations, 51% increase in Medicare, 22% increase in highways and mass transit, 17% increase in Social Security, $700 billion for Medicare prescription drugs, and $600 billion on the war on terror.
-----------

As bad as that is, now contrast a Bush $2 trillion deficit over 8 years to the Obama forecast of $8 trillion over 8 year. That is before healthcare and cap and trade is added in.
That is $250 billion (2% of GDP) per year under Bush versus $1.0 trillion (8% of GDP) per year under Obama.

http://www.washingtonpost.com/wp-dyn/con...
By mschaffer

10/29/09 at 6:31 a.m.

Suggest removal

For those looking to be educated rather than misled by Op Ed propaganda by David S. Broder spend a month or two with Dean Baker:
http://prospect.org/csnc/blogs/beat_the_...
By LV_Tom

10/29/09 at 9:03 a.m.

Suggest removal

Guys, Guys, Guys...You're trying to explain real world economics to a bunch of people here who think Obama has his own personal "Stash" of money and that if we need more then we'll just wait for the next rocketship arriving from the planet Xeno
By rusty57

10/29/09 at 9:41 a.m.

Suggest removal

American taxpayers doled out $24,000 per vehicle sold under the government's "Cash for Clunkers" auto program, according to a study released Wednesday.

The report, conducted by the automotive information firm Edmunds.com in Santa Monica, Calif., found that of the nearly 690,000 vehicles sold under the program, only 125,000 of the sales could be credited directly to the Cash-for-Clunkers program.

But hey, its only taxpayer money. It should be spent on various vote-buying schemes.
By Patrick_R_Gibbons

10/29/09 at 9:41 a.m.

Suggest removal

Obama did make Bush look like a fiscal conservative, which is an amazing feat in-and-of-itself.
By rusty57

10/29/09 at 9:50 a.m.

Suggest removal

Gee, I wonder why the Government can't err in favor of the taxpayer:

WASHINGTON -- An early progress report on President Obama's economic recovery plan overstates by thousands the number of jobs created or saved through the stimulus program, a mistake that White House officials promise will be corrected in future reports.
The government's first accounting of jobs tied to the $787 billion stimulus program claimed more than 30,000 positions paid for with recovery money. But that figure is overstated by least 5,000 jobs, according to an Associated Press review of a sample of stimulus contracts.

The AP review found some counts were more than 10 times as high as the actual number of jobs; some jobs credited to the stimulus program were counted two and sometimes more than four times; and other jobs were credited to stimulus spending when none was produced.

For example:

A company working with the Federal Communications Commission reported that stimulus money paid for 4,231 jobs, when about 1,000 were produced.

http://www.usatoday.com/news/nation/2009...
By LV_Tom

10/29/09 at 10:18 a.m.

Suggest removal

A excellent Observation .... Patrick_R_Gibbons
By teamster

10/29/09 at 11:35 p.m.

Suggest removal

Again, Republican spin at it's best.

Anybody still thinking Bush did a good job
should be bouncing around in a rubber room.