Thursday, May 1, 2008

The Economy: Not a Tax Cut problem but a Spending problem

{[ Warning: This is an economic rant, beware. ]}

Sometimes I can't help myself and get into intense debates with coffee shop liberals who think they've got all the answers. In one such discussion recently I found myself in the topic was the reason for the slumping economy. There were two major topics debated: the Bush Tax cuts and the role of the Federal Reserve.

The Bush Tax Cuts

More money in an economy will stimulate it. That's just a simple truth.

To argue that the Bush Tax Cuts are the reason for the enormous deficits is just ridiculous. Now whether the richest 10% should have been the largest target of the tax cuts is debatable but a tax cut is never a cause for deficits. (over)SPENDING your resources IS the cause of deficits. Let's reduce this to a more simple model for a moment. You've got a great job at Company XYZ that pays 100,000 dollars and every year you spend 75,00 dollars - everything is just fine and dandy. Then your company comes around and lets you know that you've been fired and you land yourself a job at Company ABC where you make 60,000 dollars, you would like any rational human being change your spending habits not continue spending much more than you make and blame the company XYZ for your losses and you sure as heck wouldn't start spending MORE! That is what the Bush Administration has done to us, first the economic forecasts for 2000 on were pretty good, so "we" got a tax cut, hooray! Then when things started turning for the worst we found ourselves in a quandary because we are spending millions of dollars on unwanted, unneeded projects and military adventures.

If you want to pay for a BMW then you either go work overtime or you reduce spending everywhere else so you can afford one, right? If the Bush Administration was handling your finances they would be buying it all on credit then passing the debt on to your kids when you die. That is wrong. What happened to Fiscal Responsibility and Fiscal Conservatism? I thought we elected Republicans to control the White House and Congress between 2000 and 2006, shouldn't we be running high on surpluses and tax cuts and low on wasteful spending, social programs and unsustainable programs? It seems as though just the opposite is happening but the blame should go on the way the Bush Administration is spending! No tax increase alone is going to cover the enormous deficits that we are running, if you blame the Tax Cuts then you stipulate that undoing them would undo the situation, which is patently false.

So Liberals, remember this: Over-Spending = Bad, Tax Cut = Good, Bush Administration = a stab in the back for Fiscal Conservatives (and common sense folks)

Next, the Federal Reserve

[If you believe the Federal Reserve is in fact a part of a banking elite conspiracy - GO AWAY NOW!]

The number one priority of the Federal Reserve is to ensure the Dollar stays strong and that the American economy stays relatively stable. It is not the Federal Reserve's responsibility to ensure economic growth, combat housing bubbles bursting, regulate the economy outside the interest rates, or bailing out private securities companies. The Federal Reserve is made up of one chief appointed by the President along with the heads of huge banking entities allover the country, these people are not elected with the best interests of citizens at heart - they care about the interests of the banking community not you or me, directly. In fact, take a moment - name at least one of the twelve federal reserve chiefs... nope, didn't think you could.

So, don't go around blaming the Fed for the current economic problems folks. I know it is easy, the Federal Reserve is a secretive group of very rich people... but their mission is just to keep the American economy stable - not in growth so this isn't their fault. It is the role of Congress and the President to try to foster an environment that is conducive to a growing economy. Our economy like any other has its phases in the cycles of growth and decline, it is the role of the Fed to make sure declines don't turn into bank panics and growth doesn't turn into wild inflation. Also, they are NOT perfect - they do make mistakes... so sometimes they get it wrong or work too slow to fully blunt the effects of a decline (this happens a lot when they are under heavy political pressure).

The Federal Reserve should also NOT be given any more power as Secretary of the Treasury Paulson would like. The Federal Reserve is an organ of the government that is run by outsiders, private citizens, and Banking Holding companies and is NOT a part of our Department of the Treasury. So giving it more power is not going to help ordinary citizens like me or you, they have relatively no oversight and report to Congress only if they oblige a request. (If you haven't realized yet, I love using metaphors.. but there is no easy metaphor with which I can simplify this situation.)

A Few Conclusions..

In conclusion, who are we going to blame for the economy which is in recession? (Yup, I used the r-word!) We should be blaming 1)The Bush Administration ,for overspending and not being Fiscally responsible, 2)the Bush Administration, again, for putting too much political pressure on the Federal Reserve hence impeding a rate cut earlier which could have lessened the blow, 3)Congress, for advocating bio-fuels and driving up food costs (this will be discussed soon in another post), 4) Simple Economics, for having up and down cycles, 5) both Subprime loan companies and the people who took those loans, don't be sneaky and don't be stupid, respectively.

Anyone I forgot to add? Comment Below!

No comments: