….as the nation struggles to emerge from the most severe downturn since the Great Depression, such cuts are the last thing we need. There is no conflict ”” absolutely none ”” between our twin goals of putting the economy back on its feet and reducing long-term deficits. On the contrary, government could take many steps that would serve both goals simultaneously.
For example, it could create a program to restructure consumer debt. Although rates on 10-year Treasury bonds are only about 3 percent, many consumers still carry tens of thousands of dollars of credit card debt at 20 percent or more. This burden has been a continuing drag on spending. The federal government could reduce it by borrowing at 3 percent and lending to consumers at 8 percent under a one-time debt-restructuring plan….
Another useful measure would be a carbon tax ”” or its approximate equivalent, a cap-and-trade system ”” scheduled for a gradual phase-in after the economy has again reached full employment. This would stimulate an immediate, huge jump in private investment without the government having to spend a penny.
Don’t look for any of Mr. Frank’s well thought out steps to be even considered by the Obama administration. The orientation to spend even in the absence of capital is so deeply ingrained in those in power that to do otherwise would be akin to having the sun not shine.
Sort of have to disagree with comment #1 that the choices enumerated in the article are well thought-out. As matters for discussion, I have no problem with them. As matters for implementation, they are just the same spend, spend, spend money that we don’t have (except by printing or borrowing) types of programs pushed by the current administration and the majority in the Congress.
Take the first suggestion and examine it. Where does the money come from to run the program. From additional borrowing, adding to the deficit. The idea that the federal government can somehow run a program more efficiently than the private banks is ludicrous. This would be trusting the same individuals that got us into the housing mess, that have guaranteed that Freddie and Fannie can continue squandering tax payer dollars without accountability, etc. And now the author suggests that somehow they will get it right this time and perhaps even (maybe, possibly) break even. The idea that monies paid to private firms to pay off or reduce consumer debt is somehow lost to the economy is equally inane. When a publically traded firm makes a profit, the profit is in part distributed to the stock holders who, in turn, reinvest, save or spend. Assuming that reducing the amount one part of the population pays to another will somehow result in a meaningful jump in purchasing just doesn’t hold water. And, yes, I understand that part of Econ I or 2 (depends upon where you take the courses) that talks about the marginal propensity to consume. By including the statement, “Banks might complain … because they insist that their high interest rates barely cover costs … ” the author indicates his sympathy with the anti-free enterprise mood of the current administration and majority party in the Congress.
The idea that the threat of a cap-and trade carbon tax in the future will stimulate an immediate huge jump in private investment is about as lame as one can have. We are already threatened with the passage of some sort of cap-and-trade carbon tax, and have been for a couple of years. If the threat was going to have some sort of an effect on private investment in research for alternative fuels and more efficient delivery systems, it would have already occurred. I have to assume that there is existing research and investment in alternative fuels and more efficient delivery systems to the extent that it is economically feasible. After all, that is how the free market system and entrepreneurial investment work. Taxing or threatening to tax will not change the facts that, right now, there are no alternatives to fossil fuels for a large part of our energy uses, and there will not be in the short term. Generating electricity from wind mills only works if there is wind and a distribution grid … and powering an aircraft with wind produced electricity is a non-starter unless you have a very long extension cord. Stating that “Taxing carbon could eliminate the catastrophic risk of vastly rising global temperatures by the end of this century …” is sort of an overkill, tying the author’s reasoning to another pretty well discredited bunch of assumptions that are more fanciful than thoughtful.
I sort of like the idea espoused by the author of increasing investment in infrastructure. However I really don’t like the idea of borrowing … increasing the deficit … to do so. There are appropriate times and causes for governmental borrowing, issuing bonds for construction, and so on. However, as a matter of policy to go and borrow more money to fix pot holes when we continue to spend on relatively useless projects is not something that I can countenance. I have just driven along I-95 from NC to southern Florida, and some states are still planting flowers (they are pretty) along the rights-of -way. Change spending habits, fix pot holes, plant flowers after fixing pot holes and reducing taxes. Quit using brick pavers (they are prettier than asphalt, and require several times the maintenance costs) to mark cross-walks. And so on. Again, change spending habits on the governmental level just like consumers do when they get a pay cut or unexpected expense. Much better idea than additional borrowing.
It is at the end of the article that the author reveals his true philosophy: redistribution of wealth, not based on need but greed. A consumption surtax is nothing else other than a scheme for redistribution of wealth based upon someone’s idea that it is unfair for a member of society to have more of something than another member. We already have a “progressive” income tax system based more or less on the same philosophy. Apparently it is not “progressive” enough, and now we should add a surtax to satisfy the author’s greed for others’ properties and tax them into complying with his idea of what is fair and what is not. This is just another twist on the path undertaken by the current administration and the majority in the Congress.
I cannot pretend to have read all of Dr. Frank’s other NYT (and elsewhere) columns or books However, based on those that I have read I think that it is pretty safe to say that (1) there was never a new tax or tax increase that he didn’t like, (2) he pretty well agrees with the economic policies of the current administration and the majority in the Congress , (3) he has never faced making payroll and or tried to be an entrepreneur and, (4) he doesn’t think much of the free enterprise system, preferring to substitute his values for those of others.
#2. I am with you on your analysis. When I read it, I thought: More of the same! I gather that he is trying to cross-dress current policies to look like they will fix the deficit. In the end, the only way to deal with the current deficit is to quit spending, which will take a sea-change in thinking among the voting public. I am not optimistic. Among its many problems, Keynesian supposes that in times of boom, excess tax revenues will be spent to pay for the deficit spending in times of bust. That is “alternative universe” thinking; not the world in which we live.
re 2: Of course the government could use the banks to implement the one-time re-fi deal, so efficiency isn’t really the problem: it’s that transfer of debt/risk out of the banks and into the government that offends various people’s economic dogmas.
And if you want to get past that, why not issue war, er, occupation bonds to fund the Iraqi/Afghan occupations directly? That makes them sellable to neocon patriots while at the same time getting them effectively out of the rest of the deficit (and the occupations account for about half of that deficit). And if we leave those places reasonably soon, it shouldn’t be that hard to pay them back.
For #4. Don’t think that there is much of a chance that we will reach an accommodation for each other’s economic views. Using the word neocon sort of tells me that me (more or less, mainly more) a Libertarian and you (more inclined towards the Democrat agenda than me) probably won’t agree. But I do need to question some of your thoughts.
How, pray tell, would the government induce the banks to run the (your words) “one time re-fi deal” without just guaranteeing them a profit? They are not non-profit institutions. They owe their share holders a reasonable return on their investment. If the program you envision guarantees the banks a profit, do you really think there is any chance of getting it through this Congress and administration? And yes, I do have problem with the “transfer of debt/risk out of the banks and into the government …” I didn’t think much of the bank bailout, the takeover of Government Motors, and Tarp or Stimulus. But those are probably some of the reasons that I tend towards being a Libertarian and, politically and economically, you apparently are not.
As far as war expenses are concerned, I would like to know the source of your data that leads you to believe that the costs of the Iraq and Afghanistan campaigns account for half of the current or future federal deficits. I am more than casually aware of the DoD budgeting process having worked several years in preparing parts of the federal budget. The only additional monetary costs to the military for such campaigns are incremental costs in fuel, ammunitions, training, some travel and construction, and replacement for materiel that is used up more rapidly than in a peace-time posture. Please note that I am only talking about monetary costs, not human costs. Unless you somehow think that pulling out of both places would automatically reduce the size of the military, the savings isn’t much. Of course, any reduction in costs would be welcome and smaller than envisioned savings are still savings.
re 5: We are still at the point where banks are as concerned about losses as about profits, so cutting them a deal which will get the risky loans away from them is still in their interests.
I will admit that my source for the cost of the deployment is hardly safe, so for the moment I will admit that 50% is probably an exaggeration. Considering that the occupation is in large part being funded through supplemental appropriations, one need not try to puzzle it out of the budget to such a degree. OTOH I don’t for a second accept your claims about tax rates between the US and other countries. A quick look at the Socialist Paradise, Sweden, for instance, shows considerably higher rates.
I think more to the point considering our differences in political position is that you are committed to an ideology, and I am not.
CWingate, how are you using the term “ideology”? It has a technical, post-modern/Marxist meaning and also a common-usage meaning, which is very different. I take it that you are using it in the common usage, suggesting that someone “committed to an ideology” takes his beliefs as true and is also unwilling to listen to any counterargument. When you say that you are not committed to an ideology, what exactly do you mean?
#4&6. Don’t think I mentioned tax rates.