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July 21, 2011
How fast can spending be cut?
I have been reading some of the comments on my article, "Can We Afford Not Borrowing?", and feel that there are several points of vitriol which need to be addressed, not as a comment, but as a published letter to the Editor.
First, there are many people who think the Federal government can quit borrowing cold-turkey, without any significant penalty. While we might be able to cut out a good 20% of the current spending (about $700 billion) cold-turkey, without causing too much disruption; to cut any more than that would cause significant upheaval for the mooches and not-mooches who are expecting checks. It is an issue of grace and purpose to reduce government over a period of years: it is so large, that Congress could not possibly do the job (well) in any less.
Second, as we are only paying interest on the debt (re-borrowing the principal), we can carry a little more debt without any significant problem. The issue is that the market cannot absorb government debt at the rate it has been created. Even the $2 trillion or so that has been monetized is still sitting in bank vaults, waiting for government to buy it back, or for the Fed to OK its distribution (which would then cause inflation). At some point, we will need to pay back the principal, so we should not borrow much more than the GDP, but there is some wiggle room.
Third, increasing taxes to fix the deficit is unthinkable.
As should have been clear in the article, there is just no way to suck that much money out of the economy. While there has been some argument as to how much of a GDP government should consume, a general agreement is around 10% to 15%; we are well beyond that number, at about 23%.
It is not just the taxes which burden the economy, but government bureaucracy itself. Taxes create bureaucracy, so reducing bureaucracy means that taxes could be increased, without affecting the economy. But only 1 in 20 tax dollars goes to creating regulatory bureaucracy, and not all of that is harmful. If we had a ratio of spending cuts to tax increases, it would need to be something like 40:1. Raising taxes just isn't an option.
Fourth, some people seem to have misunderstood what I wrote in the article, because of a difference in usage of the term "loophole". For some reason, well beyond me, the President and Democrats think that business expenses constitute "loopholes". When conservatives talk about "loopholes", they are referring to a set of "benefits", which allow businesses and persons to reduce their taxes, by engaging in activities which social engineers consider favorable to their view of society. It is probably best to just reform the tax code by remove the social engineering, while maintaining current revenues (for the time being) by lowering the base rates.
Again, this takes some time.
Lastly, there are NOT 537 traitors in Washington. There are not even 537 "politicians" in Washington. The only reason we are having this argument over the budget and debt ceiling is because about half of the 537 have recognized that our spending is ludicrous and our debt is too high, and approaching unsustainably high. About 70 of the 537 weren't even in Washington to make this debt, and about 130 of them have been complaining about it for years, so about 200 of the 537 are "patriots" rather than "traitors".
Of the remaining 330, they have been victims of their own political rhetoric. On the Democratic side, they are solidly organized around their party leaders, and their party leaders do what they think is necessary to advance the Party, rather than what might be right and proper. On the Republican side, there are those who have been brainwashed by the doctrine of compromise, and have lent their hand to what were poorly considered plans to advance the Democratic Party, rather than argue them back to sense. The greatest problem is that the Democratic Party has been fomenting some extremely partisan rhetoric, for a number of decades. Initially, it was just for the voters to get hooked on, but slowly the Party leaders themselves began to believe it; this is the danger of rhetoric.
Why are there so many articles published concerning Obama's intelligence? Because he utters rhetoric and acts as if it were truth. Why did Pelosi shut out Republicans? Because she lived the rhetoric.
But using Illinois as a mini-Washington, there is hope. Reality is a hard place, and Democrats will be dragged back to it, just as long as Republicans and voters keep pulling at them, rather than caving in. Harry Reid is against "Cut, Cap, and Balance", because he believes passing it would harm the Party, but he will soon realize that the Democratic party needs proper and necessary action, rather than hype and grandstanding. The real question is, will rhetoric or sense win out in Obama's head?
PS: Don't think that raising the debt ceiling will be the end of this. For the first time in three years, Congress will be making and passing a budget. For the next two years at least, expect the cuts to happen.
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