Austerity Plan

The inner need to look at an issue from another angle (and my friend Jeff's comments) has brought me to another post where I critique myself - as there were a few inconsistencies that need to be clarified.

1. When you increase taxes you are then taking money out of peoples pockets and therefore they have less to spend. They are then not able to buy that flat-screen TV (or at least need to delay it) - then that TV salesman is unable to get a new laptop… As I said in my original post: "GDP will go down."

2. When you decrease spending you are then taking money out of government employees pockets, and, following the same argument as above, taking money out of the system. Once again "GDP will go down."

"GDP will go down." The austerity plan of increasing taxes and decreasing spending will both make GDP decrease. The potential problem would then be as follows: now since everyone earns and spends less money the government collects less taxes (from incomes, goods purchased, etc.) despite the higher tax percentage (no longer assuming that GDP is constant). How much less is debatable - they could actually collect less, or more, or the exact same amount depending on the types of changes made.

I left out the specifics. I didn’t specify how much to increase taxes or who, in our variable tax system, to increase it to (Big or small businesses? Rich or poor people?). I also didn't specify which public services to decrease or how much. I suppose I would leave that to the bickering politics.

Are we at the happy medium in tax rates and public spending? To suppose that we are at the most optimal level of taxes is preposterous. These rates are determined by bickering lawyers turned politicians, NOT economists (to quote Jeff: "I think Democrats will eternally believe we are below that happy medium and Republicans will believe that we are above it."). Because of this, my proposed austerity plan would be whittled down to its bare bones. Perhaps those bones would have enough impact to make a significant impact on the national debt (but still unlikely).

NPR did a follow-up (think rebuttal) story. In it a Mark Blyth, of Brown University, argues that increasing taxes is too hard - so the more likely route for the austerity plan is to decrease public spending. By his logic, this will affect the lower income citizens more (as they use a proportionally larger amount of public services). I do agree with his logic. See the article here.

Deficit: Which way out?

Definitions:

- Public programs: health care, social security, police departments, national security, border patrol, national parks, etc. More spending on public programs the more in debt we get. Money out.

- Taxes: Income, sales, state, property, etc. In business speak, this is actually the governments "revenue." Taxes pays for the spending (see above). Money in.

Republicans (Center Right): Decrease public programs (decrease money out), decrease taxes (decrease money in). This policy basically comes up as a wash.
[That’s not even including the propensity to increase the National "Defense" budget (increase money out).]

Democrats (Center Left): Increase public programs (increase money out), increase taxes (increase money in). Another mainstream policy, another wash.
[Now no Democrat will openly admit to increasing YOUR taxes, but they are willing to let Bush's tax cuts expire, thus allowing the tax rate to increase.]

In our political space no one is stepping up to offer a viable solution that will actually have a meaningful effect on our deficit.

Enter the United Kingdom. Thanks NPR for reporting on this.

The Austerity Plan: Decrease public programs (decrease money out), increase taxes (increase money in). This plan is the "tighten their belts and deal with the negative consequences" in my I'm Good For The Money post.

It will not be popular. It will not be easy. It will suck for a few years. GDP will go down. This is the tried and true way of paying off debt - increasing your revenue, and decreasing your spending.
[It is also the method the International Monetary Fund (IMF) uses when they help a country on the brink of bankruptcy.]

I'm sure some of you will say "Why not just decrease spending?" That is an option, the only issue is that its not fast enough - debt this size is not going to be fixed overnight. And yes, it MUST hurt!

Limited Budgets

I am in the business of selling advertising space. I approach businesses and say "Hey, place your ad in our product." (my exact words...perhaps I could change my wording...)

Seth Godin made an amazing point (albeit 19 months ago) in his post Do Ads Work?

How Will You Measure Your Life? by Clayton M. Christensen

Great inspirational talk by Clayton M. Christensen from the Harvard Business Review.

Great quote: "Think about the metric by which your life will be judged, and make a resolution to live every day so that in the end, your life will be judged a success."

I also like the bit about staying out of jail.

YOU Benefit from Govt. Spending

Minions, my last post painted me in a way I refuse to be viewed. The devils advocate in me compels me to see and give an alternative view - as there are merits on either side.

The problem with cutting spending is that we all benefit from it.

I challenge you to tell me that you don't enjoy:

• these nice paved roads. Then you complain when there is a pot-hole: "That’s what you get with government spending!"
• public education system. Someone has to get those brats out of your hair.
• firefighters. They weren't originally government jobs, they were paid by the insurer of the burning house. No fire insurance? They would just pass on by your burning house.
• police. Despite those dang speeding tickets.
• public detention centers (prisons). You have to do something with those who wish to take away your unalienable rights (looks funny spelled out).
• public libraries. The wife My beautiful and amazing wife and I have recently taken advantage of this resource.
• public parks. I hear Central Park is nice...
• the natural beauty of national & state parks. We should all thank John Muir for his activism toward the "nationalization" of America's beauty.
• museums. I hear things get interesting at night...

A few of my favorite touchy ones:

• national security. At least I don't fear a missile attack leaving my house.
• Medicare. Old people pop some expensive pills.
• Medicaid. Say what you will, but if you are down on your luck you would be thankful.
• Social Security. Well I certainly wouldn't want them breaking a hip while mowing my lawn.

I'm sure there are plenty more.

Yahoo News spells out the real problem: Everyone hates the deficit - but likes the spending. My favorite quote: "Cut spending, but not if it takes money from what's nearest and dearest to me."

I'm Good for the Money

Fictitious Case Study. Facts:
1. My name is James Smith.
2. My yearly income is about $14,600 a year.
3. I owe $13,500 in debt.
4. This basically means that I owe about 92% of every paycheck.
5. I use new credit sources to pay down old debt.
6. I have no reason to expect a strong increase in my income anytime soon.
7. Thinking the market had bottomed out, I invested heavily in real estate, and risky stocks.
8. A few of these risky stocks are going down in flames - so I invested more borrowed money to prop them up.
9. I expect my kids to tighten their belts and deal with the negative consequences of my reckless spending habits.
10. I expect this, despite knowing that the outlook is bleaker than 40 years prior.
11. I don't know why, but I still get about 5 credit card offers sent to me in the mail everyday - I just keep filling them out.

Factual case study. Facts:
1. My name is the United States of America.
2. My national "income" (Gross Domestic Product or GDP) is about $14.6 trillion a year.
3. I owe $13.5 TRILLION in debt (let me say that differently: I owe $13,500,000,000,000.00).
4. This basically means that I owe 92% of ALL transactions made in the US in a year (GDP).
5. I use new credit sources to pay down old debt.
6. I have no reason to expect receiving a strong increase in my GDP anytime soon.
7. To stem another potential depression, I invested in real estate (Freddie Mac, Fannie Mae), and risky stocks (GM, Chrysler, AIG, Citigroup, etc.).
8. A few of these risky stocks are going down in flames (AIG) - so I invested more borrowed money to prop them up.
9. I expect future generations to tighten their belts and deal with the negative consequences of my reckless spending habits.
10. I expect this, despite knowing that the outlook is bleaker than 40 years prior.
11. I don't know why, but when people get scared of losing money in bad investments - they always invest in treasury bonds (basically extending my credit limit).

Sounds like a safe bet to me...

US Debt Clock