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Monthly Archives: December 2011

Red Ink Rising, December 14, 2009

Below is a summary of The Peterson-Pew Commission on Budget Reform report titled “Red Ink Rising:  A Call to Action to Stem the Mounting Federal Debt” released in December 2009.  The debt is now close to 100% of GDP and the debt continues to worsen.  I have posted this two year old material to illustrate that the situation is very serious and politicians in Washington are not serious about solving the debt problem. 

According to the Executive Summary, the public debt of the United States rose from 41% to 53% of Gross Domestic Product (GDP) in 2009.  Considering the current spending and revenue projections, the Peterson-Pew Commission expects this debt to continue to grow faster than the economy, eventually leaving a debt greater than the GDP.  The Commission calls on Congress and the Whitehouse to make serious changes to fiscal and monetary policy that will include specific policies to stabilize debt and set annual debt targets.  Without major changes in US fiscal policy, the debt will continue to grow to unprecedented levels and this will lead to a debt crisis that will have serious effects for all Americans.  In order to stabilize the debt, the Commission recommends six steps.  First, commit to stabilize the debt at 60% of GDP by 2018.  Second, develop a specific and credible debt stabilization package in 2010.  Third, begin to phase in policy changes in 2012.  Fourth, review annual progress and implement an enforcement plan.  Fifth, stabilize the debt by 2018 and lastly, continue to reduce the debt as a share of the economy over the long run.

A major contributor to the debt problem was the government’s response to the economic downturn and the decreased revenue from a shrinking GDP.  The economy will recover, but the effects on the budget may continue to be felt for the next 30 years or longer.  The government’s current high borrowing habits are not sustainable and will create a number of problems.  The interest alone from such high borrowing will continue to grow and become a larger portion of our over all debt which will lead to the crowding out of other important spending.  “An ever growing debt would likely hurt the American standard of living by fueling inflation, forcing up interest rates, dampening wages, slowing economic growth and job creation…” (p7) The greatest contributor to the ever widening gap between spending and revenue is the ever increasing government spending.  Much of this spending is due to the demographic shift toward an older population, which will call for increases in Medicare, Medicaid, and Social Security.  According to the Commission, these areas of spending will be where government can have the best chance for savings and provide opportunities to stabilize the debt.

Something must be done now because the risks of inaction are too great.  Without action, living standards could fall, interest payments will continue to grow, future investment in America will decline, the dollar could lose value, and future generations will pay for today’s spending.  The future viability of the United States and future generations of Americans depend on debt stabilization and it is the federal government’s responsibility to begin solving this problem now.

 
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Posted by on December 30, 2011 in Uncategorized

 

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“To the Size of States There is a Limit”

What is a Republic and does it contain an element of representation?  In the US Constitutional context, James Madison defined republic as “…a government in which the scheme of representation takes place…” and “…the delegation of the government, in the latter [republic], to a small number of citizens elected by the rest…” –Federalist #10.  John Adams defined republic as “…a government, in which all men, rich and poor, magistrates and subjects, officers and people, masters and servants, the first citizen and the last, are equally subject to the laws.”  Also, the word republic was used specifically to describe a non-monarchical constitution during the writing and ratifying of the US Constitution. 

According to Donald Livingston, in his lecture Size, Scale, and American Republicanism, in the Greek traditions of republican governments, a republic requires three things:

1)      The citizens make the laws in which they live under;

2)      Legislation must be in accord with inherited tradition or common law, which they do not make – The Rule of Law;

3)      Human Scale – that is they must be small.

In a classical sense of the term representation does not appear to be a requisite for a republican form of government.  It might be inferred that because the citizens make the laws that representation is required, however it is not required that citizens be represented in order for them to participate in the lawmaking.  In the United States under the Constitution, a republican form of government was defined to include representation as a mode of citizen participation in the lawmaking process. 

So what does Donald Livingston mean when he refers to laws being made in accord with inherited tradition?  Read the rest of this entry »

 
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Posted by on December 22, 2011 in Uncategorized

 

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Consumption, Production, Capital, and Wealth Redistribution

This article developed during a discussion with Rainbow Camouflage and his post.  It was his post and the ensuing discussion that spurred my research and inspired the below post. I hope it is cogent and that my many references are integrated in an understandable fashion considering this post was by no means a linear creation.  Thank you.

I recently read an article titled “Raise Taxes on Rich to Reward True Job Creators”, by Nick Hanauer.  In his piece he makes the argument that rich people do not create jobs but it is the middle class that creates jobs.  What he is claiming is that the demand the middle class has for consumer goods is what creates jobs and that the top 1% of income earners should pay more in taxes in order to help the middle class spend more on pants, shirts, shoes, TVs, and all manner of disposable consumer goods.  While I agree that in a free market the consumer is boss I think it is short-sighted to focus only on the middle class consumers when in it comes to the overall economy.  If you want jobs and the middle class to have more disposable income, the only long-term solution is to grow the economy. 

I think the author has missed a key ingredient that has got our economy to where it is today – Capital accumulation.  There is no doubt that in a free market economy, the consumer is boss. That is a great thing and something we should all be protecting.  That is also what is plainly obvious.  There’s more to the story. Read the rest of this entry »

 
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Posted by on December 20, 2011 in Uncategorized

 

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The Corporate Cash Myth

Normally, I do not just repost other’s articles, but this speaks for itself.

In this article titled “The Corporate Cash Myth“, Neerah Chaudhary makes a good point about the “mainstream” narrative that corporations are sitting on huge piles of cash and that government needs to be used to go in and take the money away in order to put it to use in our stagnant economy. 

In short, despite huge amounts of cash on their balance sheets, America’s largest companies are as broke as the rest of the country, and not only are they in no position to hire workers, but higher interest rates could result in more layoffs at a time when the nation can least afford it. Given these factors, economists, journalists and politicians should be applauding corporate cash reserves not deriding them.

 
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Posted by on December 19, 2011 in Uncategorized

 

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A World with Only One Color

In a world where everything is red, it sure is hard to explain blue.  And so it is with liberty.  In our world today where government has assumed so many roles and responsibilities, it is sometimes very difficult to explain a world where true liberty, void of government intervention, could exist. 

Today’s political toy of the minute is the payroll tax cut.  The Democrats say that we must pass this tax cut and “pay” for it with a small increase in taxes on the wealthy.  The Republicans say that is fine as long as we get this oil pipeline passed so that we can “create jobs”.  The premise of both arguments is all red.  Red, red, red.  No concept of blue.  Perhaps they should not be arguing over these trivial matters of how much money they are going to take from people but should instead be arguing whether they should be taking our money at all.  Red and blue.  Read the rest of this entry »

 
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Posted by on December 15, 2011 in Uncategorized

 

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Clearing Up Some Misinformation, Part 2

In Part 1 of my commentary, called Clearing Up Some Misinformation, Part 1 ,I wrote about some of the incorrect characterization’s in President Obama’s speech about free markets and the policies of the 1920s as he addressed Osawatomie High School on December 6, 2011.  I focused on some general terms, such as ‘markets’ and ‘economy’ and I also focused heavily on the government policies of the 1920s and how they were not laissez –faire.  In part two, I will focus on the 1950s and 1960s and see how the President’s characterization stacks up to historical accuracy.  The President said in his speech: 

Now, it’s a simple theory [free market economics]. And we have to admit, it’s one that speaks to our rugged individualism and our healthy skepticism of too much government. That’s in America’s DNA. And that theory fits well on a bumper sticker.  But here’s the problem: It doesn’t work. It has never worked.  It didn’t work when it was tried in the decade before the Great Depression. It’s not what led to the incredible postwar booms of the ‘50s and ‘60s. And it didn’t work when we tried it during the last decade.  I mean, understand, it’s not as if we haven’t tried this theory. Read the rest of this entry »

 
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Posted by on December 13, 2011 in Uncategorized

 

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Clearing Up Some Misinformation, Part 1

President Obama gave a speech at Osawatomie High School on December 6th, 2011 where he declared freedom and free markets a dead idea and that they have never worked before and will not work in the future.  He claims this “theory” of free markets has been tried before and that it has failed.  The President claims that free people making decisions about how to allocate their labor and resources (the free market) is a simple theory that appeals to our rugged individualism, but that it does not work and has never worked. 

… there is a certain crowd in Washington who, for the last few decades, have said, let’s respond to this economic challenge with the same old tune. “The market will take care of everything,” they tell us. If we just cut more regulations and cut more taxes — especially for the wealthy — our economy will grow stronger. Sure, they say, there will be winners and losers. But if the winners do really well, then jobs and prosperity will eventually trickle down to everybody else. And, they argue, even if prosperity doesn’t trickle down, well, that’s the price of liberty. Read the rest of this entry »

 
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Posted by on December 8, 2011 in Uncategorized

 

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