Nouriel Roubini, a professor at New York University”™s Stern School of Business, has jarred up squadrons of economists and policymakers with his doom and gloom predictions. But when the housing market and subprime market scandals erupted many skeptics became followers.
Roubini describes the main government action to solve the mounting crises emerging nearly every day as “a totally piecemeal approach of reacting. Every time something blows up, they try to plug one hole, then two other holes open up, and they don”™t have any logic or strategy to what they”™ve been doing. This has been a total disaster. Both (Fed Chairman Ben) Bernanke and (Treasury Secretary) Henry Paulson have done a pretty lousy job.” (Investment News, Aug. 4)
Avoiding pain appears to be the main driver in the effort to sort out our chaotic economy. Bailing out sinking financial institutions that made stunningly unwise decisions, avoiding pain to either banks or members of the public sucked into unaffordable homes, is the current strategy. Detroit is said to be the next in line for a federal handout, their problems being totally self-inflicted.
Entitlement monster
Nothing in our economic history suggests that government handouts to industry constitute a winning strategy. Almost any physical fitness guru will attest ”“ no pain no gain. Avoiding the pain of bad decisions means the depth of the crisis will not be acknowledged and a real solution to the current mess will not be reached in a timely nor painless fashion.
Every bailout requires money we don”™t have and hence the need to borrow, a fact the government is not talking about and the reality of which is lost on the general public. Reducing government obligations and increasing revenue, a basic accounting strategy, is the only solution to the growing imbalance in the federal accounting. All solutions will require a sense of national effort and sacrifice. However, the roadblock to real corrections in the system is “entitlement,” meaning the massive entitlement apparatus that now dominates the government resources and the entitlement mentality of American citizens. It must be confronted if we are to stop digging the hole we are in. Not to confront the entitlement monster is to continue to sell our country to ChinaRussia, hardly our allies but our competitors. That assumes they will even want to buy any parts of our country if the dollar continues to sink. and
Albany”™s struggle to cut expenses shows the difficulty of cutting programs the public has come to expect. Even those trying to cap property taxes at 4 percent per year, hardly a tight projected budget, ran into the buzz-saw of the teachers union.
A taxing issue
Warren Buffett, in a recent CNBC interview, said that for the last 20 years politicians have been terrified of citing the need to raise taxes, the “neocons” having made lowering taxes the only reasonable concept. The goal of this strategy was to shrink the government ”“ “the beast.” But the beast continued to grow, mostly under Republican presidents, while revenue continued to plummet. Hence, an unsustainable debt-building trend is now going to be extremely difficult to control. Buffett, the “Oracle of Omaha” clearly sees the need to raise taxes. The real question is then which ones.
Meanwhile, three policy research groups, Brookings Institution, Heritage Foundation and Concord Coalition, held a day-long exercise in Philadelphia for the purpose of finding out if a diverse cross-section of American voters could come to consensus on how to make the hard choices needed to right the national economy. There were some real surprises.
In spite of representatives from several age groups and both political parties the participants did not hate taxes nearly as much as many Republicans would have you believe, even going so far as to support the repeal of Bush”™s tax cuts. Further, people appeared less polarized and open to sharing burdens than their elected leaders in Washington.
The group treasured Social Security and Medicare in their current forms but were more open to change than many Democrats would have you believe. The real discovery at the event was that the participants agreed on the need for higher taxes.
National deficits are not consistent with the views of the majority of the public, which has consistently supported fiscal conservatism for the last 100 years. However, in recent years this support has begun to waver. The result ”“ the United States can now claim another first ”“ the most indebted country in the world.
The Wall Street Journal (Aug. 22) quoted economist Milton Friedman, who taught us long ago that “government spending is the ultimate tax on the economy: it extracts resources from productive, private use and puts them to unproductive, public use. And there is the rub.”
In other words, Main Street is being taxed to fund Wall Street excess. Quoting Gerald P. O”™Driscoll of the Cato Institute in the same article ”“ “If the Fed maintained its independence of action and said no to the inflationary finance of Congress”™s profligacy we wouldn”™t have reached this point.”
Rising inflation is the ultimate tax on the public.
Surviving the Future explores a wide range of subjects to assist businesses in adapting to a new energy age. Maureen Morgan, a transit advocate, is on the board of Federated Conservationists of Westchester. Reach her at mmmorgan10@optonline.net.
