On Tax Cuts, Dear Establishment, We Don't Care

I was going to write about Steve Bannon today. Or maybe Harvey Weinstein. But I see that the usual suspects are writing about the fact that tax cuts won’t pay for themselves and won’t cut the deficit. So here goes.

First, My Man Kevin D. Williamson. He’s all wigged out because the House Budget Committee Chair Diane Black (R-TN) is proposing sensible spending cuts while the Senate is proposing $1.5 trillion in tax cuts and $1 billion (with a B) in spending cuts.

Back in the day, Kevin told ’em at the House Budget Committee:

I told them as plainly as I could that the decisions made by their panel and its Senate counterpart over the next several years would very likely mean the difference between a relatively manageable national fiscal crisis at some point in the future and an uncontrollable national fiscal catastrophe with worldwide consequences.

But actually, Kevin McScrooge, the chaps on the Budget Committees aren’t going to make a difference one way or another. That’s because of the basic fact of democratic politics, that you get elected by offering free stuff to the voters. Whether you pitch the free stuff as free health care, free college, free tax cuts, or great trade deals, it’s all the same. The game will continue until the music stops.

Then teacher Debra Saunders tells us to do the math on tax cuts, and wheels out all the usual suspects to tell us that tax cuts aren’t going to cut the deficit, despite the magical thinking of President Trump that his tax-cut package will be “rocket fuel” for the economy.

Yes, I get it. If we don’t do something about the deficit then “at some point in the future” there will be an “uncontrollable national fiscal catastrophe,” etc.

Oh great. And that will “cost millions of lives,” according to Rep. Mo Brooks (R-AL).

I’m sorry, but this stuff misses the point. Of course we are going to run out of other people’s money. Of course there is going to be an uncontrollable national fiscal catastrophe, And then old guys like me will be, as they said in Eastern Europe, “eating the paint off the walls.”

But the amount of uncontrollablility in the fiscal catastrophe that is to come depends a lot on the amount of stupidity in the leaders of the time.

For instance, there is Venezuela, where the government looted the national oil company to pay entitlements to The Poor, and right now the national oil company is a mess and The Poor are starving. The trouble is that all The Rich have left for Miami, and The Workers in the national oil company have all gone to work for the oil industry in Colombia, and there is no relief in sight.

On the other hand, the Germans were completely wiped out by World War II, and educated German women were reduced to servicing Red Army officers -- if they were lucky. But along came Ludwig Erhard in 1948 with his Wirtschaftwunder and the Germans soon became top dogs in Europe.

In the U.S., the last uncontrollable fiscal catastrophe, the Crash of 2008, was not caused by “the deficit” or entitlements but by a huge accumulation of bad mortgage debt that was created by deliberate government policy. See here. According to Walter Bagehot in Lombard Street, published in 1873, the credit system needs two things: properly collateralized debt and borrowers that can pay their bills. When one or the other is in question you are set up for a financial panic, as in 2008. So then you need a lender of last resort to use the “collateral” of the whole nation to stop the panic. In 2008 the collateral amounted to about $20 trillion. You could look it up.

Notice that in the two great crashes of our time, 1929 and 2008, the lords of creation at the Federal Reserve System failed to execute properly on the “lender of last resort” principle. In 1929 they let the little Jewish banks go bust first, because who cared about the Jews, and in 2008 little Ben Bernanke decided that he didn’t have the legal authority in September 2008 to bail out Lehmann Brothers. You’d think that at least the usual idiots would know how to do the “lender of last resort” thing right.

My point is that it really doesn’t matter in 2017 whether we cut taxes too much, or cut spending too little. What matters is whether idiots are in charge, Ben, when the crash comes.

Who cares about deficits and debt? Just like the Democrats in 2010, we should whip the congressional waverers into line, enact our tax cuts, and screw ‘em, just like Harvey Weinstein.

Vox Day is right. The only response to establishment wailing and gnashing of teeth is to say: We. Don’t. Care.

Christopher Chantrill @chrischantrill runs the go-to site on US government finances, usgovernmentspending.com. Also get his American Manifesto and his Road to the Middle Class.

I was going to write about Steve Bannon today. Or maybe Harvey Weinstein. But I see that the usual suspects are writing about the fact that tax cuts won’t pay for themselves and won’t cut the deficit. So here goes.

First, My Man Kevin D. Williamson. He’s all wigged out because the House Budget Committee Chair Diane Black (R-TN) is proposing sensible spending cuts while the Senate is proposing $1.5 trillion in tax cuts and $1 billion (with a B) in spending cuts.

Back in the day, Kevin told ’em at the House Budget Committee:

I told them as plainly as I could that the decisions made by their panel and its Senate counterpart over the next several years would very likely mean the difference between a relatively manageable national fiscal crisis at some point in the future and an uncontrollable national fiscal catastrophe with worldwide consequences.

But actually, Kevin McScrooge, the chaps on the Budget Committees aren’t going to make a difference one way or another. That’s because of the basic fact of democratic politics, that you get elected by offering free stuff to the voters. Whether you pitch the free stuff as free health care, free college, free tax cuts, or great trade deals, it’s all the same. The game will continue until the music stops.

Then teacher Debra Saunders tells us to do the math on tax cuts, and wheels out all the usual suspects to tell us that tax cuts aren’t going to cut the deficit, despite the magical thinking of President Trump that his tax-cut package will be “rocket fuel” for the economy.

Yes, I get it. If we don’t do something about the deficit then “at some point in the future” there will be an “uncontrollable national fiscal catastrophe,” etc.

Oh great. And that will “cost millions of lives,” according to Rep. Mo Brooks (R-AL).

I’m sorry, but this stuff misses the point. Of course we are going to run out of other people’s money. Of course there is going to be an uncontrollable national fiscal catastrophe, And then old guys like me will be, as they said in Eastern Europe, “eating the paint off the walls.”

But the amount of uncontrollablility in the fiscal catastrophe that is to come depends a lot on the amount of stupidity in the leaders of the time.

For instance, there is Venezuela, where the government looted the national oil company to pay entitlements to The Poor, and right now the national oil company is a mess and The Poor are starving. The trouble is that all The Rich have left for Miami, and The Workers in the national oil company have all gone to work for the oil industry in Colombia, and there is no relief in sight.

On the other hand, the Germans were completely wiped out by World War II, and educated German women were reduced to servicing Red Army officers -- if they were lucky. But along came Ludwig Erhard in 1948 with his Wirtschaftwunder and the Germans soon became top dogs in Europe.

In the U.S., the last uncontrollable fiscal catastrophe, the Crash of 2008, was not caused by “the deficit” or entitlements but by a huge accumulation of bad mortgage debt that was created by deliberate government policy. See here. According to Walter Bagehot in Lombard Street, published in 1873, the credit system needs two things: properly collateralized debt and borrowers that can pay their bills. When one or the other is in question you are set up for a financial panic, as in 2008. So then you need a lender of last resort to use the “collateral” of the whole nation to stop the panic. In 2008 the collateral amounted to about $20 trillion. You could look it up.

Notice that in the two great crashes of our time, 1929 and 2008, the lords of creation at the Federal Reserve System failed to execute properly on the “lender of last resort” principle. In 1929 they let the little Jewish banks go bust first, because who cared about the Jews, and in 2008 little Ben Bernanke decided that he didn’t have the legal authority in September 2008 to bail out Lehmann Brothers. You’d think that at least the usual idiots would know how to do the “lender of last resort” thing right.

My point is that it really doesn’t matter in 2017 whether we cut taxes too much, or cut spending too little. What matters is whether idiots are in charge, Ben, when the crash comes.

Who cares about deficits and debt? Just like the Democrats in 2010, we should whip the congressional waverers into line, enact our tax cuts, and screw ‘em, just like Harvey Weinstein.

Vox Day is right. The only response to establishment wailing and gnashing of teeth is to say: We. Don’t. Care.

Christopher Chantrill @chrischantrill runs the go-to site on US government finances, usgovernmentspending.com. Also get his American Manifesto and his Road to the Middle Class.