Eight causes of the deficit “fiscal cliff.” Which party is most responsible?

To many U.S. voters, one issue towers foremost — the Fiscal Cliff of rising public debt. We appear to have come a long way since Vice President Dick Cheney famously said “deficits don’t matter.” Today, frightened by much-worse debt crises in Greece, Spain etc, Americans fret about floods of red ink that reached more than a trillion dollars a year under George W. Bush, and that have gone down only slightly under Barack Obama.

Wasn’t it just a little while ago that we were paying down the debt, under Bill Clinton?  So rapidly that Alan Greenspan even worried that the U.S. treasury might cease issuing bonds, forcing down interest rates to dangerous levels? Even now, with interest rates at an all-time low, the actual cost of borrowing money is very small. For the U.S. that is. Our fundamentals are far better than Europe’s, for the time being.  Nevertheless, everyone — democrats and republicans alike — admits that fixing the deficit has become urgent.

And something will be done soon! If republicans and democrats cannot end gridlock with a compromise this December, the Bush Tax Cuts will automatically expire, triggering a sudden return to rates we saw during the Clinton era.

Is that prospect so bad?  Weren’t those good times? The resulting take — calculated at 600 billion dollars – would more than cut the current deficit in half.  And all we have to do is — nothing.  Just let the Bush cuts expire.

Alas, having barely veered out of a genuine Depression and into deep recession, this is no time to reduce the velocity of money by hitting the spending power of the Middle Class. Some up-ratchets are needed. But not hammering the middle class.

== Getting better at last? ==

Worth noting: according to statistics released this week, the average American has finally paid down most of the excess private debt that he or she built up during the Bush years. This de-leveraging process has been hard and painful, especially during a depression-recession.  But Personal debt levels are now down to Clinton Era ratios.

Combine that with rapidly rising consumer confidence, plus gradually improving employment, plus very fat company cash reserves, and you have a recipe for good things in 2013.  Whoever wins this election will claim credit.  But in truth, we all participated in digging ourselves out of this mess.

So, if citizens and the private sector can climb out of their deep debt hole, what will it take to de-leverage the biggest debtor of all?  The U.S. Federal government?

== Eight Major Causes of the U.S. National Deficit ==

First, we must (at last) calmly list the reasons why the U.S. went from Clintonian  surpluses to devastating hemorrhages in just a few years.

Second, where possible, we must assign blame for the things that got us in this mess.  And if our list proves that one party was more responsible? Then it’s our duty to give that party less credibility. Less opportunity to repeat the damage.

So let’s go after the reasons for the deficit, in approximate order of importance.

Surplus-deficit1) Number one on our list is the tanked economy.  That plummet both steeply reduced tax revenues and sharply increased the number of Americans needing help to get across lean times.  There’s a lot of blame hurled around.  But a few top culprits for the collapse stand out. And the first of these was bipartisan:

 An asset bubble popped, tipping the already wavering economy into a ditch. That asset bubble was largely tied to an overheated housing market, the mortgage industry, and Wall Street speculators who overheated both while creating a swamp of toxic derivatives to poison capital markets. We’ll set aside the crimes of Wall Street and the CEO caste for #2.  But the housing/mortgage bubble was the work of both parties.

Over-building and lax rules allowed millions of unqualified buyers to leverage themselves beyond their ability to pay. (It is the same thing that shredded the otherwise healthy Spanish economy.) Democrats were fully culpable in this topmost sin, because they saw it as a social program to get poor people into homes. And Republicans claimed to have the same generous motive! The core moment was George W. Bush’s “Ownership Society” speech that then led to passage in the Republican-controlled House and Senate — but with plenty of Democratic votes — of bills loosening mortgage rules, for example letting FanniMae and Feddie Mac and Countrywide run wild.

The good news?  That failure mode is over. The bubble burst.  Citizens — even many who had sunk beneath underwater mortgages — have by now largely dug their way out and housing is recovering toward its approximate real value.

The bad news? This was a harsh blow and both parties took part. What made the bursting of the housing bubble especially gruesome, however, was the second whammy.

stock-fraud2) Criminal fraud and culpable failure of regulatory supervision over banking, Wall Street and wealth funds, allowing them to use other peoples’ money in a casino of fevered gambling that became un-tethered from reality. The central example was conversion of dubious mortgages and other questionable bets into “securities” that became grotesquely toxic, amounting to trillions in losses. It was enough to transform a bad asset bubble into what could fairly be called the Second Depression.

Top culprit: the removal of restraint from Wall Street and Banking gambling with depositors’ funds by allowing merger of deposit and investment banking. Plus the crippling of regulatory agencies charged with checking fraud, plus the scandalous conflict of interest built into the bond rating agencies. And the redefining of securities to include phantoms made of hot air.

As for blame? This was almost wholly a Republican endeavor, resisted by the bulk of democrats, tooth and nail.  Even now, the GOP’s top agenda item (other than “making sure Obama fails”) is to prevent the Consumer Financial Protection Bureau from becoming fully functional.

Together, items #1 and #2 (assisted by #3 below) dumped us into the Second Depression. That depression (since moderated into a deep-long Recession) devastated the economy and the resulting plummet in tax revenues became the biggest contributor to the deficit.

NoLosersTAx3) Tax “largesse” gifts to the aristocracy.  With tax rates  – especially on the rich – already near a 70 year low, the GOP took advantage of Bill Clinton’s departure (he had been paying down the debt) to pass the then even more generous Bush tax cuts.  These doubled down on the voodoo called “supply side” economics, a mythology proclaiming that — (take a deep breath and hold on) — money flowing into the pockets of the rich will immediately be invested in entrepreneurial new enterprises and the capital equipment needed by old businesses to deliver new products and services, resulting in skyrocketing business activity and a burst of prosperity that will then be taxable at the lower rates, erasing the loss to the treasury. (Okay, you can inhale now.)

Like most voodoo-cult incantations, there is barely a grain of truth. For one thing, the high marginal tax rates under FDR and Ike blatantly did not repress economic growth.  Indeed, the 1940s and 1950s and 1960s featured the most rapid rise of the middle class and new business startups in the history of our species, alongside the lowest disparities between owners and workers in U.S. memory, all at very high marginal tax rates. In other words there was no tradeoff, there was synergy!

JFK did reduce top rates from 90% to 70% and that was probably called for.  Reagan’s initial supply side experiment, though, plunged us into red ink.  Whereupon Reagan did something responsible. Something that would get him drummed out of today’s GOP. He raised taxes six times!  In order to adjust and bracket and fine-tune his tax policy, as any pragmatic person would do, when predictions don’t jibe with reality.

supply-side-cutsIn fact, there has never been proof that supply side cuts ever correlated causally with bursts in economic activity!  This is because most rich people do not take sudden cash infusions and invest them significantly in entrepreneurial new enterprises and the capital equipment needed by old businesses to deliver new products and services. Nor do they rush out to spend the money on purchases, thus adding high velocity transactions to the economy. Not at the spending ratios of a middle class family. Ever since Adam Smith’s time, we have known what most members of any aristocracy do with such largesse. They spend it in low velocity ways, on passive securities and land (feeding asset bubbles), on what Smith called “rent-seeking,” on gambling speculations, and on being richer.

All of which explains why #3 — the giant Bush tax cuts for the wealthy, enacted as soon as Bill Clinton was out of the way, did not erase their own cost to the treasury, as predicted. Instead, they opened up a huge deficit hole and contributed to the asset bubble collapse.

The astonishing thing is that now, amid a near depression, the GOP is doubling and tripling down upon their mantra.  The Bush tax cuts did not improve things from the Clinton Era?  Then do more tax cuts. For the rich. It’ll work this time fer sure.

nation-building4)  Two multi-Trillion dollar quagmire wars of “nation building.” Pouring hundreds and hundreds of billions into far-off deserts where we were hated, are hated and will be hated for the foreseeable future. Republicans have long admitted that our reasons for going to Iraq were at best mistaken, at worst concocted lies. So the reasons got replaced with idealistic ones. Nation building and spreading democracy — in the rockiest, worst soil that anyone ever tried to plant democratic seeds.

In retrospect, we have to ask, “why didn’t anybody warn us that this was repeating the calamity of Vietnam?”  Well, in fact, the generals and admirals did exactly that. They complained like hell! Many were fired by Bush and Rumsfeld for daring to foresee us getting stuck in asian quagmires.

Who benefited? Well, for starters, Halliburton, of course.  Funny, that. Who else benefited?  Guess who.

Iran.  All of Iraq and half of Afghanistan were doomed from the start to become satrapies of Iran. No other outcome was ever possible. Was that worth the loss of lives and treasure in both of America’s longest wars?

Oh, and the war cost was never put on the books. It was armwaved away.  Till honest accountants took over. And now we must pay the piper.

== The scorecard so far ==

Those are the four biggies. So can we assign blame yet?

ASSET-BUBBLEThe number one cause of the deficit — an asset (housing) bubble that plopped us into recession — was bipartisan, though the biggest steps took place when the GOP held all the reins of power in all three branches of government.

Cause number 2, which turned a recession into a borderline depression, was entirely Republican in origin. As were causes 3 and 4.  GOP-instigated, stage-managed and caused, top to bottom.

But our list is not finished.  So far, we’ve covered only the worst budget-busting calamities.  But not all of them, by a long shot.

5) Medicare Part D, a wholly GOP-devised program, was never funded through hard choices, but simply slapped into general obligation as an new and unfinanced entitlement. (By contrast, Obamacare is funded by hard-nailed tradeoffs. We’ll see if they work, but the CBO says they at least look sincere.)

What’s Medicare Part D? A vast expansion of the government’s obligation to pay for prescription drugs, which was heavily backed by (surprise) the Pharmaceuticals industry. Abandoning any pretense of negotiating over prices (Obamacare will reinstate some bargaining) Medicare Part D was denounced by the libertarian wing of the GOP as both socialism and a blatantly pandering voter bribe.  In fact, this part of Medicare could be considered a “Tytler largesse.” It was a budget buster because no attempt was ever made to shift funds or otherwise pay for it.  Not even a fig leaf!

It passed when all three branches of government were completely controlled by the Republican Party.

6) Failure of creative breakthroughs.  This is my own candidate for a major budget buster — perhaps the most significant, from my admittedly skewed perspective as a Big Picture Futurist.  But any economist will at least admit it belongs on the list.

Can we pause while I explain? Across the last 70 years, of Pax Americana, the world has seen a boom in prosperity unlike any other, with 70%+ of the planet’s population arguably in some kind of middle class, moving into homes that have electricity and hot water and kids in school.  The biggest driver of economic development has been the American consumer, buying trillions of dollars worth of crap we never needed.  Elsewhere I argue that this trade pattern was established deliberately by George Marshall, by Acheson, Truman and Eisenhower.  It has been the world’s hope… though ecologically dangerous, unless we innovate ways for seven billion middle class lives to impact the world far less. Remember that word, innovation.

SCIENCE-TECHNOLOGYCloser to the point, how have we Americans been able to afford the endless trade deficits that propel world development? Simple. Science and technology.  Each decade since the 1940s saw new, U.S.-led advances that engendered enough wealth to let us pay for all the stuff pouring out of Asian factories, giving poor workers jobs.  Jet planes, rockets, satellites, electronics & transistors & lasers, telecom, pharmaceuticals… and the Internet. How I’d love to see a second “National Debt Clock” showing where we’d be now, if we (the citizens) had charged just a 5% royalty on the fruits of U.S. federal research. We’d be in the black!

The first decade of the 21st Century — the Naughty Oughts — was the first (since the 1940s) that saw no such technological tsunami, making America rich enough to buy from the world.  As the internet boom petered out, we could have made sustainable energy our Next Big Thing. It was proposed, and the rate that China and Germany are getting rich off solar and wind is most impressive!

By coincidence, that was also the decade when the Fox War on Science hit full stride. When science became the right’s enemy number one.

If not for that, and Bush cuts on R&D and all the rest, would we have had another renaissance and tech-driven boom by now? I cannot prove might-have-beens.  But it is no accident that this failure of the expected decadal innovation wave happened in the wake of an epochal and telling event. When the GOP banished from Capitol Hill all of the advisory panels on sci and tech that had helped Congresses to legislate wisely for 60 years.

I will never forgive Nancy Pelosi for failing to reverse that scandalous treason, so yes, I can name some democrats who share blame. Still, American scientists are voting with their feet. Only 5% of still call themselves Republican (it used to be about 50%).

The verdict is clear. We know who has torpedoed the one thing that kept us rich.

entitlements7) Entitlements and Obamacare.  Everyone knows that entitlements need to be restructured.  In fact, compared to Europe, the U.S. is in pretty good shape.  Social Security is estimated to be almost able to handle the baby boomers. Why? Because past Congresses bit the bullet and passed – in a bipartisan way – graduated increases in the retirement age. And we never meddled in the labor market with stifling paternalism, the way European countries have. In this area, the Europeans are in crazy denial and badly need to emulate us.

On the other hand, we have been in denial re Health Care, which is inherently not a fungible commodity subject to market forces.  When we spend three to four times as much per patient and still leave tens of millions of terrified citizens not covered, only truly delusional people can call the US system the “best in the world.” And only a lunatic would call the Emergency Room a “health care system.”

Something different from European-style rationing could have been negotiated… indeed, negotiate was what Obama tried to do!  By abandoning all of the former democratic proposals and plopping onto the table the Republicans’ own plan.  At which point the GOP instantly disavowed its own plan and denounced it as socialism. (Do not cavil over the slight differences. Those were on the table too. They could have been negotiated, had anybody tried.)

In any event, the range of predictions about the effects of Obamacare on the deficit is so wide, there is only one reasonable option, since going back to the insane former system is a non-starter.  Let’s try it and see what happens… then pragmatically tweak the result.  Especially since those who foresee the worst outcomes have no credibility.  They happen also to believe in never-ever-right supply side economics.

The crux on entitlements? The method that was used to extend Social Security could be applied to other entitlement.  If Americans are living much longer, in better health, they should be asked to delay retirement a bit longer.  Big deal.  Make a bipartisan deal and most of us will shrug and accept it. It has already happened! The Clinton-Gingrich deal on Welfare Reform is another example that proved democrats and republicans can demand much from their constituencies, if common sense and bipartisan negotiation favor reasonable adjustments.

Simpson-Bowles and other cross-party commissions have offered the political protection needed, if we ended Culture War and both sides wanted to negotiate a way to fix entitlements.  I believe the collapse of negotiation is rooted primarily in one party and its cosmically-frenzied polemical center (Fox). But in bending over backwards to be fair, I will allow this one to be blamed on both.

8) The discretionary budget.  Okay, Slay Big Bird in exchange for zeroing out all the generous tax and subsidy bennies given to coal and oil and GOP donors?  Sure, I’ll go with that.

But first add them up.  Note how small the benefit to the bottom line.  For the most part, screaming about the discretionary budget is an effort to distract from the long list of GOP -created disasters in other areas.

Remember, we paid for Big Bird and the other stuff just fine, under Bill Clinton.  If you’re serious about looking for the reasons we’re in a mess… look at what changed.

== So what’s the indictment? ==

Deficit-multipleEight causes for the deficit.  Can you think of others?  I’ll add them to the list, if they approach the same scale.

As for blame?  Of the top five contributing causes, one was bipartisan (though GOP-led).  The other four were entirely Republican in origin and execution and (especially) in obstinate refusal to learn from the mistakes.

Number 6, I will argue, though not insist, is a huge calamity that I deem to also be largely GOP made.

Then we get to the parts that get the biggest noise, but in fact have the least impact on our plummet from Clintonian pay-down to skyrocketing Bushite debt (that has continued under Obama.)  Numbers 7&8 can and should be argued, openly, calmly and sanely by decent, intelligent men and women, compromising and negotiating plans to deliver the functions of government in lean and effective ways.

How I would love to see that conversation!  To assist Goldwater-style Republicans and Tsongas-style Democrats working their (and our) way to fiscal solvency.

But let’s not fool ourselves.  So long as we pay no heed to problems # 1-6, we are slapping on band aids.  And numbers one through six happened because of sickness.  Incompetence. Insanity.  Or something much, much worse.

The lesson from all of this?

The good news? Several of these failure modes are fading away.  Too slowly.  But soon we’ll be out of the wars. Personal debt has been de-leveraged and consumer confidence is up. The Consumer Finance Bureau and other professionals are at least starting to watch out for us. Housing is recovering, In order to survive, the GOP will have to tell Grover Norquist to chase himself and reach a compromise over the expiring Bush Tax cuts.  And even science is starting to recover.  Indeed, if trounced, the GOP may take a veer away from Murdochian cliffs of insanity, back toward the traditions of Buckley and Goldwater and the fine art of sane negotiation.

ECONOMY-ARTICLESThe bad news? Unbelievably, in the present election, the citizenry might actually re-hire the gang that did all this to us. Proving that hypnotism and incantations can trump facts — fooling some of the people, all of the time. Enough of the people.

The lesson is simple: do not re-hire the dopes who made the mess.  Who committed the first half dozen travesties.  If you do, future generations will have you to blame.

2 Comments

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2 responses to “Eight causes of the deficit “fiscal cliff.” Which party is most responsible?

  1. David, I have to take exception to quite a few things in here. I am not defending the Republicans – I just want the Democrats to get their fair share of the blame.

    As always, I have to say that my bias is towards personal liberty and it colours my views… a persona can try to eliminate confirmation bias but it will still seep in. Hey, at least I am an honest ideologue.

    One, your statement that “red ink that reached more than a trillion dollars a year under George W. Bush, and that have gone down only slightly under Barack Obama” was a little disingenuous. The 2009 budget that Bush put forward asked for $3.107 trillion, which was a painful 7% above his 2008 budget, but a Democrat controlled Congress porked that out to $3.52 trillion. Most of that increase was supposed to be one time stimulus spending but Obama used it as an inflated baseline on which to maintain the deficit at over a trillion dollars a year while giving apologists a superficially legitimate deflection argument. Traditionally, Republicans have been the worst spenders but not this time.

    The reason the Clinton era was so great was that he allowed economic growth to exceed tax and spending growth, one could call it an example of de facto supply side economics. The problem with Republicans is not that supply side economics didn’t increase the total dollars in taxes they collected, but that the irresponsible bastards increased spending even faster. Besides, the whole argument of using supply side economics to increase taxation is not one I hold truck with; the reduction of forced expropriation is a moral good in and of itself while the economic increase is a pragmatic side effect.

    Now to the “eight major causes”:

    1) The tanked economy was a bipartisan construction and overall I agree with your assessment of the blame in the housing bubble.

    2) The failure of financial institutions was due to morbidly high regulation, most of it badly thought out and designed with the “participation” of financial lobbyists. The repeal of Glass-Steagall was not part of the problem though, it was actually that most rare of beasts, a bipartisan positive action. Here in Canada, ALL our big banks are both deposit and investment banks- this diversifies capital and allowed our banking system to weather the economic crisis arguably better than any other on the planet.

    By far the biggest financial debacles were Goldman Sachs, Morgan Stanley, Merrill Lynch and Lehman Brothers- all of them investment only banks and completely legal under Glass-Steagall. No, the actual culprit was the surrounding regulations that tacitly set up the taxpayer to cover losses so long as you lost massively and were “too big to fail”. It was a regulatory removal of moral hazard and an assurance that the government would not allow the creative destruction of the market to happen. The regulations created a mathematically certain formula for financial “wizards” to throw their client’s money into the most reckless and riskiest transactions imaginable and when things inevitably collapsed, they could sail away on their yacht to enjoy their millions in bonuses… all under the protection of having followed those regulations to the letter.

    3) “Tax “largesse” gifts to the aristocracy”? I fail to see how not taking more of someone’s own property is “largesse”? Is that working under the assumption that all property belongs to the state and it is only through the generosity of the ruling class that you may possess of any of it?

    I would contend that it is demand side economics that is the less defensible policy. Supply side economics at its core supposes that leaving money with those who have shown the greatest ability to create wealth will have a positive effect on the economy. Keynesian demand side economics insist that taking money from those who have shown the greatest ability to create wealth and giving it to those who have shown the least ability to create wealth will have a positive effect on the economy. You can try to make a moral argument for stealing from the rich to give to the poor but an economic argument rests on the assumption that Bill Gates’ money in Joe Sixpack’s wallet is somehow more productive than it is in Bill Gates’ wallet. Even worse is any politically self-serving argument that Bill Gates’ money is more productive in Uncle Sam’s wallet.

    It was only after FDR’s daft economic policies came to an end that the economy recovered from a recession he turned into The Depression and the massive detrimental impact of the war. The boom of the late 40s through the 60s came about from the supply side increase that came from the military drawdown (that Keynes argued strongly against) filling the pent up demand created by the privation of the Depression and WW II. If Keynesian demand-side economics actually worked, the massive destruction of the War in Europe and the ensuing “stimulus” should have propelled them far past America.

    Also, you have to take into account that the mobility of money distorts the Laffer Curve’s economic impact. Somewhere below 20%, money accelerates out of the economy; so while the nominal tax rate may be 90%, the actual amount pulled out of the economy doesn’t rise much above 20%. It certainly isn’t just that the businesses are forced to reinvest profits into the economy; tens of trillions of dollars have been chased out of the economy and won’t return so long as politicians keep threatening to take it. Letting the tax rate climb back up won’t so much increase the government’s take as it will chase money away.

    I also consider the “velocity” of money to be more a sign of an overheated economy heading for a bubble bursting- didn’t you just finished congratulating people for slowing money down and paying off debt? Worse yet is pretending that government rapidly shuffling money from one person’s wallet to another’s is a rational metric for economic improvement.

    4) Hey, we agree almost completely on this one! The only caveat I hold is that from a military perspective, Obama’s first term looks exactly like a third term for George Bush.

    5) The whole Medicare/Obamacare and Social Security mess is a bipartisan Ponzi scheme eight decades in the making that is rapidly becoming mathematically un-fundable through any number juggling and hand waving. Demographics and technology assure that the demands for medical care are a multiple of the total economy and that Social Security needs to be pushed out ten years and the benefits cut if it is to survive in any form. Seriously, if you were charged with caring for the most vulnerable in their health needs and old age… would you insist on paying for everything for everyone?

    6) Hey, creative breakthroughs to the rescue! Seriously, I believe that these have been the only thing pulling government’s interventionist ass out of the fire for the last century. I am holding out hope that the next big one will be the opening up of space to private industry and that it will dwarf all others before it. One thing that it will not be is the forced implementation of “sustainable energy”. The Chinese and German government are in the process of scaling back the huge losses that they take in subsidizing solar and wind. I would love for solar power satellite systems to be the saviour of the economy and I am actually writing them into the business plan of the protagonists in my current novel… but the costs are not close to being competitive with coal, oil, natural gas or nuclear energy and they won’t be for a long while. I don’t think earth bound solar or wind will ever be economically competitive; their energy density and reliability just don’t work out without massive and continuous subsidy or artificial inflation of carbon and nuclear based energy.

    I think that two of the worst aspects of an interventionist government are the usurpation of charity and research. The government isn’t being charitable by giving away someone else’s money and it ends up building the expectation that it is not you and I who should be helping those in need but the role of the state. This leads to a systemic bureaucratic morass of budget busting entitlements that drive more people being classified into needing government “help” every year. The same thing happens with R&D as NASA spends $10 billion drawing blueprints and modeling shuttle replacements on the computer while Elon Musk spends less than 5% of that to build rockets that are delivering supplies to the ISS.

    What advances have we forgone through the order of magnitude difference between private R&D versus government R&D?

    7) I’m not sure what numbers you are using to say that Social Security is “almost able to handle the baby boomers” when I can’t find anything saying that there is less than a $20 trillion unfunded liability looming ahead?

    Of course health care is a fungible commodity that is every bit as subject to the market as is the far more vital food supply. The problem is that the AMA has a monopoly and the insurance may well be the industry that is most infested with crony capitalists and lobbyist. It isn’t that the customer couldn’t have any choices in health care options, it is that they are not allowed to have options. For some reason, people who see imminent danger in a company gaining a large market share through voluntary transactions in a field where anyone can freely compete… suddenly feel relief when a monopoly is forced on them through the barrel of a gun? The US system is not the best in the world but it is dangerous to follow the rest of the world down into the nationalized systems that are proving to be unsustainable and that every government is struggling to find a way to fix.

    With Obamacare, the idea to “try it and see what happens… then pragmatically tweak the results” is a losing bet. It becomes an embedded entitlement that can only ever be expanded. Just look at the wailing and rending of cloth that surrounds any attempt to do more than symbolic gestures with any of the big picture entitlements already entrenched? Social Security wasn’t fixed in any sense of the word, politicians simply made minor shuffles that were politically expedient and pushed the consequences a little further down the road.

    8) The discretionary budget is a relatively small portion of the budget deficit but it is telling. If you cannot trim even the most insignificant of expenses, what hope is there that any of the big entitlement or the military will ever be seriously looked at? Besides, Big Bird and his pals on Sesame Street could probably find some profit on the couple hundred million dollars in revenue they draw in.

    My takeaway is that the two parties are pretty much neck in neck in culpability and there is no real choice between the two. The only real hope is that there will be some creative innovation that the market can leverage to grow the economy faster than the ever worse governance that the US is saddled with.

    Go space!

  2. Clint hello –
    Thanks for your thoughtful and interesting message.Many of your comments were insightful, especially when you discussed close-in specifics, like the fact that the worst financial failures were purely investment banks. A very cogent observation and input! Though of course they still were encouraged to run wild by flagrant removal of oversight and my overall point still stands. In fact, what you say takes Clinton off the hook!

    But sorry, there are many places where you fall back upon airy-fairy incantations like “it’s their money” which were used by the largesse seekers to end the prudent pay-down — which the middle class wanted(!) and instead yank taxes back into rich pockets.

    You need to see this. http://davidbrin.blogspot.com/2012/10/the-tytler-insult-is-democracy-hopeless.html

    I have no patience for incantations. They can excuse anything. What matters to me and mattered to Adam Smith and to Hayek is pragmatic results. Maximizing the number of skilled, savvy, healthy, confident and eager competitors in society’s mostly-level playing field. That is not socialism! Though clearly some socialist methods and tools (mass education, mass health care) can help us get there.

    One utter blindness (out of a million) that is common on the post-goldwater insanity that is today’s right is to conflate competition with vast accumulations of private personal wealth. This is stark jibbering loony. Across 6000 years, the one thing that guaranteed an END to competition was the accumulation of all wealth into an owner oligarchy. Adam Smith did not denounce socialism. He denounced owner oligarchy! It is how freedom and markets failed in 99% of human cultures.

    Think. All good things (oxygen, food, water) can be toxic when accumulated in overdose in one place. But rightists who decry 100,000 open/accountable civil servants “picking winners and losers” because it is too narrow a clade, with too little knowledge and reciprocal criticism (Hayek)… then go on to be perfectly fine with a narrow, greedy, colluding clade of 3,000 golf buddies in the CEO caste doing the same thing! It is blindness.

    Our founders knew this when they seized and redistributed every estate larger than George Washingtons and they banned primogeniture so that estates would break up among heirs.

    Your denunciation of FDR is sooooo convenient. But it ignores that the New Deal tax structure continued into the 1960s, across the most vibrantly capitalist and entrepreneurial time in our species’s history.

    “You can try to make a moral argument for stealing from the rich to give to the poor but an economic argument rests on the assumption that Bill Gates’ money in Joe Sixpack’s wallet is somehow more productive than it is in Bill Gates’ wallet.”

    That is exactly what I am saying! In slow economic times, we want high velocity money that will be spent and then spent and then spent. That is precisely where Keynsians are most right. We should have DOUBLED the stimulus in 2009 and started the Big Infrastructure Fix. Borrowing costs are almost nil right now and a million employed folks being taxed would have been a huge boost. And the infrastructure needs fixing.

    Keynsianism has flaws, but Supply side is 100% wrong about what (most) rich folks do with money. Supply siders have never read Adam Smith!!!

    The one time you want to pull money out of circulation is during hyper-inflation. That is when giving it to the rich to invest can offer real benefits.

    The “chase money away” thing is an incantation that I have seen over and over and almost no economist doesn’t laugh at it. The solution to money flight is universal financial transparency.

    Re the wars, Obama had to get us out slowly! The military reputation of the United States is the one thing that keeps the Pax Peace that has allowed the world to prosper. You don’t think he WANTED to get out??? This diff is that Dems listen to the Generals and they said leut us ease out at our pace.
    The situation now in Iraq is wretched and was not worth the insane expenditures. But we got out with our reputation for capable ferocity intact. Same with killing Osama.

    Your “ponzi scheme” re SSI is glib. Increase the retirement age and mostly eliminate the upper FICA cut-off. Re medical, there will always be one form or another of rationing. The euros did it better.

    Embedded entitlement my ass. Obamacare is the least socialist system in the industrail world, by far. It helps a few poor people buy competitive insurance BFD.

    To deny that federal R&D has been a powerful force is simply delusional, sorry. It is dogma controlling perception

    All told, I enjoyed your missive. Come by http://davidbrin.blogspot.com/ if you want to argue more. There’s a smart community there.

    With best wishes, for a confident and ambitious 21st Century,

    David Brin
    http://www.davidbrin.com
    blog: http://davidbrin.blogspot.com/
    twitter: http://twitter.com/DavidBrin1

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