Righties — lighten up

First let me say that I think most people who didn’t vote for Obama are being gracious and hopeful that we will live in good times in the coming years.

It’s funny to me, though, that the general sentiment I’m sensing from the disappointed Right is that they need to hold on to their checkbook. They think that they will be paying for new spending in higher taxes.

First — the debt is $10 trillion. Our GDP is about $15 trillion. So our debt load is 2/3 of our GDP. That is getting out of hand. Our budget is about $3 trillion, so our income should be $3 trillion and thus our debt is more than 3 times our nominal income. We gotta get this house in order. We need to do it by growing the economy, running a surplus budget and paying down the debt. If, at my company, we had 3x our gross income in debt, I’d be shocked and worried.

We need to run a surplus budget. We have to do it. Some balance of less spending, higher taxes and growth of the overall economy is the solution. We can’t raise taxes so high that we curtain economic growth. We can’t cut spending so much that programs and services are starved to inefficiency. The liberal solution to growing the economy is investment in shifting the entire bell curve of the standard of living, thereby giving a return on that investment in the form of a more robust economy. The Right still seem to believe in trickle down economics.

Second — the Right doesn’t necessarily do better under Republican administrations! They think they do, because capital gains taxes do tend to be higher under Democrats, but one needs look no further than 8 years of George W. Bush to see that alone is not a good measure. Would you rather pay a little more on capital gains and have your economy not tank? I think you would.

I think the unwillingness of affluent Americans to pay taxes is one of the least patriotic things I can think of. They want to have the world’s most powerful army and they do have the world’s most powerful economy and they still can’t do the math the reveals how crucial progressive taxation is to our success in these areas. It’s vital, it’s working and rather than be grateful for the privileged lives that they lead, they whine about taxes. It’s sad, really.

So lighten up, Righties. You’re going to be fine.

Righties — lighten up

2 thoughts on “Righties — lighten up

  1. rjowen says:

    Ron Paul, anyone? The whole right isn’t made up of crazy neo-con evangelicals who want an army that can take over the world. I want lower taxes because I don’t want to pay for any of that crap – I want a small government that manages a few things and largely leaves people alone.

    And even if we were….

    The Right’s argument against taxes is based on the idea that putting money into the economy makes it stronger, and taking it out makes it weaker. Money spent in the government isn’t as competitive as money in the private sector and doesn’t move nearly as fast, and these things fundamentally make higher taxes bad for economic growth.

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  2. Time for some basic economics. I’m not even going to get into politics here, as the points I’m going to discuss below aren’t political no matter how much it may look like it.

    My first response when I saw “So our debt load is 2/3 of our GDP” was “Oh, I thought there was supposed to be a problem here.”

    The debt load is really a non-issue in the global economic system; it’s the deficit you have to watch out for. The way banks work is by leveraging their assets, that is to say they lend money based on the perceived value of other assets they’re holding. When the bank gives you $200,000 to buy your house, they’re using a combination of available cash, and the value of their assets (such as other homes) to make you a loan. Then, in turn, they’ll use the value of the portion of your home they own to make loans to other home buyers. Since the majority of the bank’s holdings are in the form of illiquid assets, when they need real cash they borrow from other banks.

    A country is little more than a super-bank in these economic terms, but because each country’s currency is little more than fiat, when they need cash, they print it. Enter inter-country loans. In order to maintain the value of your currency in the global marketplace, you have to offset whatever currency you create with foreign debt in order to maintain balance.

    So for the country to only be leveraged around 2:3 is pretty low by global economic standards. Your bank is likely leveraged 1000% or more if it’s a small, local bank; think 3000%+ if it’s one of the big multinationals. Part of the reason America is a superpower is our ability to leverage national assets the same way as a bank – just on different scales.

    The problem we have right now is the deficit – the rate at which we are accruing new debt as opposed to the rate at which we are growing our economy. Given that the economy is shrinking, well…you do the math.

    Did you know that in 2000 when Bush took office, we had such a large national surplus that Henry Paulson actually warned that we were at risk of paying off the national debt too fast? For the reasons stated above, this would have been detrimental to the value of the US Dollar and our global economic position.

    Let’s step back and take a look at your business. You claim that you’d be shocked and worried if your business had a 3:1 debt/income ratio? I’d have to ask what investments, if any, your business holds. If there are no holdings, your equation is mostly correct, but your business is also not achieving it’s full potential.

    When a client pays you, there are several options available – you can put the money into a savings account where you can quickly capitalize it, and earn some modicum of interest (say, optimistically, 2%). Or you can put it in a checking account, where it’s instantly available, but likely earning 1/2 of 1%, or less. Or you can invest it and really put it to work. By investing in commodities, equities, real estate, etc., you can take that same money and start earning 10% or more. When you need to capitalize something, you can take a loan against these assets. Since these assets are still earning interest, paying dividends, etc., they’re still working for you, and offsetting the cost of the loans drawn against them, as well as reducing impact to your gross income. Now your business starts taking on debt load, this is a normal thing, and it may exceed it’s own gross income, but this is also normal.

    And this is just the tip of the iceberg. Economic complexity is logarithmic in relation to the scale of the economy itself. A small business’ economy is accordingly more complex than an individual consumer’s finances; big business more complex than small business; a small country vs. a big business; a big country vs. a small country…

    Now, I will get a little political… 🙂

    At the end of the day, what I kept trying to tell the righties here is that taxes were going to go up regardless of who wins the election, the only difference will be what it’s called and how it’s spent — but you’ll pay either way. And the other thing I still stick to is that the increase to your taxes won’t change the way the global economy works or how we interact with it, and that is the fundamental problem. Until everyone steps back and realizes that we crossed the line from growing our economy aggressively into growing our economy in an unsustainable fashion, we can’t solve the problem. And until we accept that the solution is going to involve economic contraction, which coincidentally means we’re all going to feel the pinch, we won’t make any progress. We’ll just delay the inevitable crunch another generation. But it’s coming. Oh yes, it will come, and it will be bad…

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