Saturday, June 4, 2011

The story behind the debt eight-ball

The economic data have been weaker in recent weeks than their counterparts for the year to date. This past week the degree of weakness became exaggerated. It does not point to declines in output (yet?) but it is very weak and disturbing. If you are not wary or confused about the outlook you are not paying attention.

With actual negative events in the mix we have reason to think that this week’s data reflect more than simply volatility-the economy is being pushed by something. The degree of weakness is extreme with the two ISMs each making falls of historic proportion over the past two months. The drop off in job growth is large. The unemployment rate trend which was moving lower has been stopped and set in motion in reverse. Consumer attitude surveys are not uniform on the month but all are clearly very weak – they agree on the big picture if not on the details.

Events in Washington really are worrisome.

Let me repeat something here that I think is important and worth saying AGAIN. The deficit and debt problems are not economic problems as much as they have solutions that have become political issues. We could put in place a VAT tax (think national sales tax) to raise money to narrow the budget gap. Easy as 1% 2% 3%. Even Alan Greenspan is calling for higher taxes. The Tea Party types continue to stone-wall as if any tax hike is like the Ebola virus… Painful? Yes. Deadly? No. There are simple solutions out there but none without some pain or repercussions.

I continue to wonder why, in a nation with such varied costs of living and varied housing costs/prices the income tax continues to be the centerpiece of tax policy and the rhetoric of ‘tax the rich’ is used in conjunction with income flows that have such differing purchasing power from state to state. Will we ever learn or wake up? Or is this sort of class warfare based on a fundamental falsity just part of the American way? Way? No Way! In America $100K ≠$100K. It depends in what state you live when you earn it how well you would live on such an income. So what base tax policy on such an uneven benchmark?

We know that with longer life expectancy we must push back the retirement age for Social Security. A fifth grade math class could demonstrate that to you. A fixed date for retirement makes no sense when every successive generation is living longer. Yet we can’t do this…

Finally, medical care simply cannot be offered for free any more than can any other service or good without demand for it being abused. Is medical care something different or special? To some extent, yes, still you can’t make it free without real financial consequences. AARP be damned.

Moreover if the government is going to subsidize or provide medical care it must use its clout to get reduced costs. Medical lobby be damned.

The economic logic here is clear. But the political will is splintered because each party has a different idea of how to make change and each wants to use this time of conflict as a springboard to more political gains.

So no one wants to alienate old people (AARP). No one wants to alienate the drug companies (use government buying clout) or the medical lobby or the insurance lobby- so nothing gets done. We kick the can down the road until it kicks our cans back and we are getting closer to that. At some point, it’s THEM OR US. WHO WILL IT BE?

You can see this at work with the financial crisis having come and gone-well maybe not yet gone-and the power of the financial lobby whereby real reform just can’t be had.

Oh, by the way…I have invented a new glue much stronger than ‘Super Glue.’ I am going to call it ‘Financial Lobby’ because nothing in the world is stronger than that…

As far as I can see much of the hoo-ha about the debt/deficit is largely being done by the two political parties that run things here in America. We voters are just the baubles they redecorate with every two or four years. They call it ‘democracy’ but after the election is over and we see the actual ‘pig’ we bought in that poke it feels much more like ‘hypocrisy’.

Right now the two parties are wrecking the economy with their various threats instead of fixing it. The cynic in me wonders if Republicans would push so hard to cut spending if they were in the White House and running for re-election this time around. Would the need to cut spending so much so soon, seem as compelling if their administration were on the line?

I don’t know if any of that makes you feel any better about what is happening. Having politicians who claim they are willing to let the US default on its debt when it could well afford to pay it may be worse than finding that you do not have the means to pay it at all. A politician unwilling to pay a bill to achieve his political end is a danger 100% of the time not just when times get tough.

This is not an argument for not doing debt and deficit and spending reform, just to put the tactic and need in context. Doctors too can stop the spread of disease and ‘cure’ patients by letting them die. It’s a simple solution and not really very effective when you think about the end result Vs the goal. Similarly, how does wrecking the US economy fix it? Riddle me that Bat man…

4 comments:

LaBree said...

*Applause* Thank you for getting to the real heart of this matter. I stumbled upon your blog after reading a survey on CNN about forecasts on the economy. Your appraisal of the situation was the most optimistic of all your counterparts, reducing unemployment to 8% by December. I wondered what you were "drinking", but after reading your statement i realized you hit the nail on the head. Politicians and their endless greed for re-election has turned our country astray. It has become more about maneuvering than anything else. Picture America as a broken down car on the side of the road. Across the street at the diner, politicians argue over whether to call a tow truck or mechanic. When the vote comes in it's a 100-0 in favor of the moving the car down the street so they don't have to look at it! Keep it up Brusca!

falcon said...

good writing man.
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Anonymous said...

"You take Romney to task for not assesses the facts..."; I find your arguments interesting but your inattention to grammar disconcerting.

QUALITY STOCKS UNDER 5 DOLLARS said...

The borrowing goes on and on.