Sunday, November 14, 2010

Election Fallout - Part the Second

I have solved the deficit problem.

Today’s New York Times online has a nice little interactive feature on its website that allows you – yes, you personally – to solve the financial problems facing the federal government these days. Because for all the talk about such problems that got floated around in the recent unpleasantness billed as an election, there were precious few actual solutions proposed. There’s an awful lot of rhetoric in politics these days, but not much substance.

Not that this is new, really – I quite literally earned a PhD studying the political rhetoric of the Founding Fathers, whose passions often took them somewhat wider around the curve than the reality track could contain – but it does get discouraging to see how little has changed other than a steady decrease in the literacy of such rhetoric. Eighteenth-century invective was just so much more elegant than the semi-human gibberish that passes for hard-hitting these days. If Glenn Beck were to find himself magically transported back to the 1790s to try out his schtick, I doubt the Revolutionary Generation would have been able to stop laughing at him long enough to eat him alive, which for him at least would be to the good.

Be that as it may, the Times has given us a chance to put our money where our mouth is. And how could I pass this up?

It turns out that solving the deficit is remarkably easy to do. Who knew? And why isn’t it getting done in Washington?

All it takes is a clear sense of priorities, a general willingness to make sacrifices for the public good, and a recognition that taxes are not evil and spending is not sacred.

See how I answered my own question there? That’s called rhetorical strategy. Benjamin Franklin Bache and William Cobbett taught me that.

The goal of this exercise is to resolve the projected federal shortfalls for 2015 ($418,000,000,000.00) and 2030 ($1,355,000,000,000.00), on the theory that if you can stick those points the rest will fall into place. You get a series of options to check, and each time you do the site automatically calculates how much you’ve done for both years.

Please note how I used all of the zeros in those dollar amounts. Words don’t convey just how big those numbers really are, otherwise.

My solution required 45% of its actions come in the form of tax increases, and 55% - the majority, for those of you bad at math – in the form of spending cuts. So I’m not sure where this places me on the current spectrum of American politics, other than possibly outside of it.  This is not a point of pride.

On the spending cut side, I cut 250,000 federal contractors from the payroll, on the theory that we’ve already got enough of those and frankly if the federal government wants something done it should just hire someone and train them properly. Contractors haven’t worked to well in Iraq, for example, and they’re just sucking up space and money here.

I also reduced the size of the military in some ways, though not in others.

I think we can get along fine with a mere 1050 nuclear warheads, for example – there isn’t a country on earth we couldn’t vaporize with that and still have enough left over for whomever’s next – and I’m not convinced that having as many troops as we have in Europe, Iraq or Afghanistan is materially contributing to our security. It’s not 1946 – Europeans are well able to take care of themselves. Neither is it 1980, and the Soviet Union is gone. And to be blunt, for all the everyday heroism of our troops in Iraq and Afghanistan I remain unconvinced that the larger mission is worthy of their sacrifices.

On the other hand, reducing military pay and benefits strikes me as short-sighted at best and ungrateful at worst, and I tend to support the Navy’s mission of force projection.

I also think that Medicare and Social Security can wait until I’m 68 – the original logic behind picking 65 as the starting point was that not many people lived that long, and therefore the system could remain solvent. I also think that if I should somehow strike it rich by the time I’m 68, my benefits would probably do more good going to someone who hadn’t done so.

Much of the tax side of this equation follows along from that last point. The wealthy don’t need tax breaks. Supply-side economics doesn’t work in a demand-side economy – that was the lesson of the Great Depression, and no matter how often claims are made to the contrary it is still true today. If we ever switch from the modern consumer economy and return to a producer economy like we had in the 1880s, maybe we’ll talk. Otherwise, no.

So estate taxes on millionaires? Capital gains taxes on the wealthy? Eliminating tax cuts for the top 2% of household incomes? It all sounds good to me.

On the other hand, the tax system we have now is bizarrely complex and if you could eliminate most of the loopholes, you could probably reduce overall tax rates, even on the wealthy, and still increase income. I’m for that. I’m sure that’s a lot harder than the Times made it sound, but it does serve as a useful goal.

And a carbon tax. We should have one of those. This would likely be self-reducing, as businesses sought technological improvements to cut down their emissions and thus their taxes. And if both go to zero, well, then everyone wins.

When you add all this up, I’ve saved $532,000,000,000.00 for 2015 and $1,700,000,000,000.00 for 2030, giving us a tidy little surplus that we might be able to put toward paying off all the debts accumulated by less forward-thinking leaders.

Now, on to a well-deserved vacation.


Unknown said...

But that's oh, so responsible! A little deficit spending never hurt anybody ;-)

David said...

No, a little deficit spending never did - Hamilton was right about that in the 1790s. But we moved on from "a little" quite some time ago, and a LOT of deficit spending is not a good thing.

Unknown said...

I'm playing Devil's advocate here...
A lot of deficit spending is not a good thing..
why not? We've been doing it for ages? We (the USA) is the only country that can get away with it (we have the dollar) so why not?

David said...

We can get away with it because so far people have let us get away with it.

Deficits aren't magical things - that money has to come from somewhere, even if it doesn't come from current revenues.

One solution is just to print enough money to cover that shortfall. Experience has shown this to be suboptimal (i.e. Germany, 1923).

The other solution is to sell bonds to cover the shortfall. This is essentially mortgaging future revenue to pay for current expenses. In small amounts (i.e. amounts easily covered by revenues going forward) this allows you to expand your activities and also allows you to buy the loyalty of those who buy the bonds, particularly if those buyers are domestic. That was Hamilton's plan in 1791, and it worked.

But in large amounts - amounts that cannot easily (or ever) be covered - you are signing over your future to outside control. And as most of American debt is now owned by potentially hostile foreign powers (such as China), this means they control our policies, not us.

Further, servicing that level of debt puts a great strain on a currency, and causes it to lose value. At some point other countries will stop using the dollar and shift to other more stable currencies, in which case that debt will likely have to be funded domestically. This is possible, but economically traumatic. If you ever hear that oil is being priced in euros, watch out.