The GOP is Dunces When It Comes Deficits

December 2, 2014 at 6:24 am Leave a comment

I consider myself to be a fiscal moderate.  Unlike some progressives, I do believe in deficits and I do not like to have our country to be insolvent.  Insolvent means that the markets lose confidence in the ability in the country to remain solvent.

Like it or not, our financial system is based on psychological confidence between the markets and the government to ensure that government remains solvent.  In theory, the government could print all of the money that it wants but it the minds of the people and the markets, money does have a finite value.  That money is based on the faith that United States maintains a proper income statement.

Unlike a private company, the US government can have perpetual deficits as long the market considers the deficits to be sustainable. If the market collectively reacts that the government has runs massive losses, the market will assign a lower value of currency and therefore, rampant inflation will result from the printing of money.  Printing of the money will help decrease the deficit at the expense of the devaluation of the currency which makes goods and services more expensive.

This is basic macroeconomics 101.

I laud the GOP for its concern about the spending side of things.  However, at time of grave income inequality and an inequitable system of private charity that could not replace the public social welfare system, you cannot massive cuts to social welfare system in order to maintain economic confidence of the lower and middle class.

Also, the magical idea that massive tax cuts for the wealthy somehow is going to make income inequality go away or increase government wealth is creative farce developed by the GOP. This excerpt from Salon makes this point very clear

There are two basic truths about Republican devotees of supply-side economics: they love cutting taxes for rich people, and they’re also enthusiastic deficit scolds. There’s a seemingly irreconcilable tension in that worldview that arises from a straightforward assumption: cutting tax rates for the people who pay the largest share of taxes will result in the government taking in less revenue.

The way they get around this dilemma is through the magic of dynamic scoring. Basically, when they calculate the cost of a tax cut, they assume that cutting taxes will produce an explosion of economic growth that will actually result in higher tax revenues. Cutting taxes, therefore, won’t increase the deficit – it could actually lower it! This is, to put it mildly, a contentious idea. Dynamic scoring on its own isn’t a particularly controversial practice, but strong proponents of supply-side economics vigorously abuse it in order to make some ruinous economic proposals seem palatable.

One of the biggest adherents of dynamic scoring is Rep. Paul Ryan, the incoming chair of the House Ways and Means Committee. The most recent of his celebrated ultra-conservative budget proposals made enthusiastic use of dynamic scoring in order to achieve balance in 10 years while simultaneously slashing tax rates and boosting defense spending. When you just assume that lowering tax rates will supercharge economic growth, anything becomes possible.”

Well, this is “dynamic scoring” is brought to us by the same guys who supported the Commodity Futures Modernization Act in 2000.  These are same guys who want to have Wall Street the ability to trade exotic derivatives just so they can make a quick buck instead of asking questions and having professional skepticism towards credit default swaps and other things of their ilk. So who is kidding who?

These people are not conservative; they are gamblers who want to bet the full faith and credit of the US just so their friends get wealthy.  In the defense of Paul Ryan and his ilk, I am not versed in all of the economic theory that underlies supply-side economics, but I never saw an example where it worked.

And raising defense budgets is one of the precise reason why these guys are doomed to fail in the first place. Giving the military more goodies is guarantee to raise the deficits.  At least good old Ron Paul knew that supply-side economics only works when the defense budget is axed and the social safety next is axed at the same time, then it has a shot at working. I think that the Cato guys realizes this as well and any good libertarian will agree me on this premise.

So If I were Obama anything out of Paul Ryan’s office will be dead on arrival on two factors (i) lack of massive cuts on defense and (ii) the cuts to have the social safety net will have more damage on the economic confidence of the lower classes than any tax cuts to the rich will result in the wealthy in making investments in infrastructure and increasing wages/benefits of workers.

In conclusion, Paul Ryan is a dunce on this issue even though he is smart guy.

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