Krugman, Obama and other Keynesians suffer from a misguided principal toward dividing the existing economic pie rather than growing the pie for everyone.
Too many people equate tax cuts with loss of federal revenue when history has always shown the opposite to be true. The current administration could provide an immediate boost to the economy simply by saying they would support another year of the tax cuts that are set to expire, but instead they are focusing on some Utopian fallacy of ending homelessness, paying people not to work and taxing financial institutions. Dividend taxes are set to quadruple, the death tax is going to go up to 53% and include assets that it has never before (homes and life insurance benefits), and income taxes on those that can afford to invest. Corporations are in a stand still with the looming tax increases and a fear of the not knowing what industry this current administration is going to target next.
The Fed never “prints” money, the US government sells bonds and that is only cheap in the context of the present. It is borrowing against our future and if it is always an economically beneficial policy, than why shouldn’t we do it all the time? We have never spent our way out of a recession.
We don’t need a collapse to bring back us back to prosperity, but we don’t need a quadrupling of our deficit as a percentage of GDP (the measurement that counts) to avoid a collapse. Both can be true as the historical data show Keynesian spending policies delay recovery, not initiate it. We have a 13 trillion dollar GDP and, while our federal spending has increased to a staggering 13% of it, what have we shown for it? The latest estimation of the upcoming bailout cost for Fannie and Freddie? 1 Trillion! It’s not enough for you to save 20% for your house, make your payments…now you have to produce enough goods and services and wealth to effectively subsidize the cost of a house for someone else and as far as anyone can tell, this is the “new reality” that this administration wants.
Federal spending (with borrowed money or not) can only serve to divert resources and capital in an economy, it does not add to them. Europe and the other economies of this world have begun to learn this and I’d never thought I’d actually be wanting our country to follow their lead.
