"A Round-Up Of Idiocy, Left vs Right"
by Karl Denninger
by Karl Denninger
"The silly season (that's called "campaigning") kicked off officially yesterday, the day after Labor Day. The claim being made is that we "must" provide even more tax cuts to "spur economic activity." The Right's claim is that lower taxes "always" lead to more economic activity, while the Left's claim is that "we can't afford" to extend the Bush Tax Cuts. Both claims are half-truths at best.
First, let's dispense with the Right. It is obvious that if you were to cut taxes to zero receipts would also go to zero. Therefore, the premise that "tax cuts always increase revenue" is a lie. The question is in point of fact what is the tax rate that produces the maximum economic efficiency - that is, at what point does increased taxation result in the modification of behavior such that the total amount of economic activity subject to that tax, and thus the revenue collected, decline?
Nobody has that answer available when asked and the idiots on the TV don't ask the question at all. But what we do know is that the Bush Tax Cuts resulted in roughly half ($300 billion) of the Bush-era deficits and that placing the government into deficit was an intentional act, as Greenspan was worried about surpluses! That is, he was worried about not being able to play Wizard of Oz behind the curtain, manipulating government borrowing rates and thus influencing them across the economy. Without the need for the Treasury to continually sell bonds into the market, The Fed has nothing to tamper with. Thus the dirty secret: The Fed wants chronic deficits at the Federal level, because without them there is no bond market activity they can manipulate in order to effect their "monetary policy", and they are forced to instead actually regulate the banks under their supervision.
Of course some people would argue that if a little of something is good a lot is better. Drunks and other drug addicts make this argument all the time, and most of them eventually die from it. Governments do it too, and wind up with their central bank effectively operating both monetary and political policy! This cycle fails when confidence is lost - that is, when the world in the general sense is no longer willing to believe that the man behind the curtain is a mighty wizard, but rather come to understand that he's a little mouse of a midget. That's when the walls (and markets) come tumbling down.
The Left, for its part, seems to think that we can increase taxes without economic impact. Of course that's false too. A dollar that the government taxes is a dollar that the private economy cannot allocate - oh it gets spent all right, but the government choose where, how and usually by who. The problem with the Left's position is that the underlying falsehood isn't that we "can't afford" the existing tax structure - it is that there is no tax structure that will produce enough revenue to close the deficit gap at the current level of spending! That is, in order to actually meet the spending numbers ($4 trillion more or less, or about 30% of GDP) taxes would have to rise well beyond the point where economic activity would be deterred, and that deterrence would cause the budget as a percentage of GDP to rise. This enters and in fact reinforces a vicious spiral that leads to national insolvency.
At a macro level we need to dramatically reduce federal spending to that level which can be sustained by taxation less about 3-5%. This will slowly pay down the deficit over the space of years. The Fed needs to be told to **** off on their concept of manipulating the bond market via Treasury sales. If we are going to have such manipulation it has to be done BY TREASURY under Congressional oversight. That is, either The Fed has to cut this crap out, or it has to be de-certified as an "independent" Central Bank and brought under Treasury as an arm thereof, where Congress and the CBO will have full access, and the people will have full transparency, into all of it's operations.
But this mathematically-provable correct set of actions is political anathema to both sides. The Left will not stop with the handouts and the Right will not stop trying to buy votes with "tax cuts." Both therefore, despite claiming that "deficits are bad", in point of fact are the creators of those same deficits. In other words both the Left and Right are lying through their teeth.
As a result we're going to play the drunk on the road. The drunk starts out driving straight, but soon hits a small imperfection in the pavement. This sets up an oscillation in the vehicle, and he over-corrects (since he's drunk) which moves the vehicle too far in the other direction. That in turn causes another overcorrection and this cycle continues until the drunk either reaches the limit of the vehicle's stability (and rolls it) or goes wildly off the road and strikes a tree.
Since we keep drinking more as an economy (debt and deficits) the violence and incidence of these "undesirable outcomes" is going to continue to increase. We had one nasty in 2000, and then again in 2007. From the so-called "recovery" (2003) to the onset of the last mess was about four years. We're now about two years in from the so-called "bottom" of this latest train wreck (Lehman), and if we keep on-path, and we are as the below chart shows, our fuse should go inside the box for this next mess somewhere between now and the end of 2011.
First, let's dispense with the Right. It is obvious that if you were to cut taxes to zero receipts would also go to zero. Therefore, the premise that "tax cuts always increase revenue" is a lie. The question is in point of fact what is the tax rate that produces the maximum economic efficiency - that is, at what point does increased taxation result in the modification of behavior such that the total amount of economic activity subject to that tax, and thus the revenue collected, decline?
Nobody has that answer available when asked and the idiots on the TV don't ask the question at all. But what we do know is that the Bush Tax Cuts resulted in roughly half ($300 billion) of the Bush-era deficits and that placing the government into deficit was an intentional act, as Greenspan was worried about surpluses! That is, he was worried about not being able to play Wizard of Oz behind the curtain, manipulating government borrowing rates and thus influencing them across the economy. Without the need for the Treasury to continually sell bonds into the market, The Fed has nothing to tamper with. Thus the dirty secret: The Fed wants chronic deficits at the Federal level, because without them there is no bond market activity they can manipulate in order to effect their "monetary policy", and they are forced to instead actually regulate the banks under their supervision.
Of course some people would argue that if a little of something is good a lot is better. Drunks and other drug addicts make this argument all the time, and most of them eventually die from it. Governments do it too, and wind up with their central bank effectively operating both monetary and political policy! This cycle fails when confidence is lost - that is, when the world in the general sense is no longer willing to believe that the man behind the curtain is a mighty wizard, but rather come to understand that he's a little mouse of a midget. That's when the walls (and markets) come tumbling down.
The Left, for its part, seems to think that we can increase taxes without economic impact. Of course that's false too. A dollar that the government taxes is a dollar that the private economy cannot allocate - oh it gets spent all right, but the government choose where, how and usually by who. The problem with the Left's position is that the underlying falsehood isn't that we "can't afford" the existing tax structure - it is that there is no tax structure that will produce enough revenue to close the deficit gap at the current level of spending! That is, in order to actually meet the spending numbers ($4 trillion more or less, or about 30% of GDP) taxes would have to rise well beyond the point where economic activity would be deterred, and that deterrence would cause the budget as a percentage of GDP to rise. This enters and in fact reinforces a vicious spiral that leads to national insolvency.
At a macro level we need to dramatically reduce federal spending to that level which can be sustained by taxation less about 3-5%. This will slowly pay down the deficit over the space of years. The Fed needs to be told to **** off on their concept of manipulating the bond market via Treasury sales. If we are going to have such manipulation it has to be done BY TREASURY under Congressional oversight. That is, either The Fed has to cut this crap out, or it has to be de-certified as an "independent" Central Bank and brought under Treasury as an arm thereof, where Congress and the CBO will have full access, and the people will have full transparency, into all of it's operations.
But this mathematically-provable correct set of actions is political anathema to both sides. The Left will not stop with the handouts and the Right will not stop trying to buy votes with "tax cuts." Both therefore, despite claiming that "deficits are bad", in point of fact are the creators of those same deficits. In other words both the Left and Right are lying through their teeth.
As a result we're going to play the drunk on the road. The drunk starts out driving straight, but soon hits a small imperfection in the pavement. This sets up an oscillation in the vehicle, and he over-corrects (since he's drunk) which moves the vehicle too far in the other direction. That in turn causes another overcorrection and this cycle continues until the drunk either reaches the limit of the vehicle's stability (and rolls it) or goes wildly off the road and strikes a tree.
Since we keep drinking more as an economy (debt and deficits) the violence and incidence of these "undesirable outcomes" is going to continue to increase. We had one nasty in 2000, and then again in 2007. From the so-called "recovery" (2003) to the onset of the last mess was about four years. We're now about two years in from the so-called "bottom" of this latest train wreck (Lehman), and if we keep on-path, and we are as the below chart shows, our fuse should go inside the box for this next mess somewhere between now and the end of 2011.
I hope you're ready, because this next one, coming with no real recovery having taken place in employment or private economic activity, may be the one that takes us well beyond the misery we suffered in the 1930s. And if it does, it will be our - that's right - our - fault, since we simply will not accept that there is no such thing as a free lunch."
- http://market-ticker.org/
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