An Unserious Man — MY COMMENT

by John Brian Shannon

Read Paul Krugman’s An Unserious Man.

My comment on Professor Krugman’s article begins.

When 5 Minus 4 Equals 10: Republican deficit cutting

First off, let me say that I like Paul Ryan. Hey, I like Mitt Romney too.

I liked his dad, the great George Romney even more – a true and honourable captain of industry who represented American corporations with class and charisma. Now there was a man who should have been a two-term President.

What is before us this day, is the Paul Ryan plan for deficit cutting, tax cuts and cuts to Medicaid.

The proof is in the pudding as they say and independent groups like the non-partisan Tax Policy Center have declared that the Paul Ryan spending cut and tax cut budget will result in a budget deficit $2.5 trillion dollars higher than the one President Obama’s team is promoting.

And that is after essentially dumping Medicaid onto the states (many of which can’t afford their current spending programs, let alone additional spending) and dramatic cuts to the food stamp program (meaning fewer American’s will be able to eat) and cuts to education funding (meaning fewer American’s will be able to attend college).

Not only spending cuts, but tax cuts for America’s highest income-earners and their sponsor corporations. All of whom, are just doing fine, thank you very much, even without the proposed Ryan cuts!

The Paul Ryan budget plan is to cut, cut, cut — but spend even more, with a total of $4.3 trillion dollars of cuts over the next decade — and still the budget deficit will zoom $2.5 trillion deeper into the red than the Obama budget.

How can $4.3 trillion dollars of spending cuts and tax cuts phased in over the next ten years, result in an unsustainable budget deficit of $2.5 trillion dollars? How can offloading Medicaid onto nearly insolvent states help those Americans who depend on it? How can dramatic cuts to the food stamp program not correspondingly increase the property theft crime rate? And how do tax cuts to wealthy Americans and American corporations help the middle class, not to mention removing grants for more kids to attend college?

We only need to look at the utterly predictable results of this economic plan, to accurately judge it’s merits.

1) Dumping Medicaid onto the states, many of which are near-insolvent already, would have the effect of making some of them fully insolvent. It would push other states which are just managing to hang on, to near-insolvency. Strong states would become weaker. How does this benefit the United States of America?

2) Dramatic cuts to the federal food stamp program in an effort to cut spending, will simply result in greater federal law enforcement spending as many thousands of hungry Americans turn to theft, to be able to eat every day of the year. I’ll just bet that the FBI and city and state police forces don’t love this Paul Ryan plan.

3)  When fewer Americans can attend college, correspondingly more people will be entering the workforce with a lower level of education. How will the ‘dumbing down’ of America help the nation?

4) For those Americans in the top tax brackets and for many American corporations, tax cuts for them means a further concentration of wealth for 1% of U.S. citizens, a lower percentage of wealth for the middle class to share and even less for the lowest income Americans. What egalitarian society?

5) A substantially larger budget deficit allows more control over American policy by those financing American federal debt. For the foreseeable future, China (you know, that big, booming country that Republicans like to poke with a sharp stick at every opportunity) will be financing U.S. federal deficits and accumulated debt. As budget deficits and debt soar in America, the number of nations which can step-up to service that debt drops exponentially. The day is coming when China will be the only nation with the wherewithal to float the U.S. economy — IF they choose to do so.

Paul Ryan’s economic platform would weaken individual U.S. states, increase societal class friction, increase disparity in income and education, increase the national crime rate and allow more Chinese government say in U.S. policy.

If U.S. Republicans are America’s friends, who needs enemies?

John Brian Shannon

ABOUT JOHN BRIAN SHANNON

I write about green energy, sustainable development and economics. My blogs appear in the Arabian Gazette, EcoPoint, EnergyBoom, Huffington Post, United Nations Development Programme, WACSI — and other quality publications.

“It is important to assist all levels of government and the business community to find sustainable ways forward for industry and consumers.”

Green Energy blog: http://johnbrianshannon.com
Economics blog: https://jbsnews.wordpress.com
Twitter: @JBSCanada

The Prescription for America’s Economy

by John Brian Shannon

As much as I’d like to simply jot down the prescription to cure what ails the American economy, I won’t.  Not before discussing it with you first.

Any doctor will tell you it is better to question, test, diagnose — and then prescribe. So, on that doctorly note let us commit to what ails the U.S. economy before I go off writing prescriptions.

It seems that America is not feeling too well, although she is still plenty powerful. Just sort of an uneasy feeling, a lack of confidence and somewhat limited flexibility. Underneath it all, she is sitting on top of a mountain of debt which just feels wrong.

Ed Hall’s excellent website has numerous links for visitors who may be interested in America’s debt and deficit information.

Here is a snapshot of what it said today:

The Outstanding Public Debt as of 28 Jul 2012 is:
$ 1 5 , 8 8 3 , 9 7 2 , 7 6 5 , 4 7 2 . 1 6

The estimated population of the United States is 313,211,460 so each citizen’s share of this debt is $50,713.26.

The National Debt has continued to increase an average of $3.90 billion per day since September 28, 2007!

If we add to that debt, the total unfunded liabilities and expenses of the United States, the total  liability of the U.S. federal government rises to an estimated 130-140 trillion dollars when all entitlement spending obligations are factored in. Ouch.

Not quite a ‘Code Blue’ condition, but a little too close for comfort. Time to call a doctor – and a good one!

Economist and former senior federal economic policymaker, J. Antonio “Tony” Villamil, the dean of the business school at St. Thomas University, who served as U.S. undersecretary of Commerce for economic affairs during the George H.W. Bush administration, commented in the Miami Herald on America’s debt situation.

The federal debt/GDP ratio is on an unsustainable path, with the federal debt held by the public surpassing 100 percent of GDP in a few short years, according to the non-partisan Congressional Budget Office (CBO). If we desire stronger economic and employment growth, we need a market-credible, long-term fiscal plan that places the federal debt/GDP ratio on a declining scale. Read the entire article here…

Dean Villamil has labeled the present era as “The New Normal” with cyclical (short-term) and fundamental (long-term) factors at play “that suggest a continued period of sluggish economic activity and slow employment growth…”

He expects the cyclical problems — such as the burst real estate bubble and a huge build-up of private debt, both of which conspired to create the largest economic contraction since the Great Depression — will diminish over the next 12 months leaving America with (only!) some fundamental economic challenges to solve.

[Fundamentally]… at this stage of an economic cycle, the economy should be expanding at a 3-percent to 4-percent annual rate, not at the tepid 2 percent or less, as is the case today. – Prof. Tony Villamil

Professor Villamil believes as I do, that growth-based policy is the better way to solve the economic juggernaut squarely ahead of us. When GDP grows faster than the federal debt, the debt-to-GDP level falls correspondingly, which is a happy side-effect of more and better-paying jobs for citizens, higher revenues for governments and a better educated workforce on account of all those parents who can now afford to send junior to university.

Canada took the ultimate shortcut towards these goals some time ago and it was hailed as a spectacular success. The Canadian government instituted a 7% Goods and Services tax on practically everything sold in Canada, from bubble-gum to skyscrapers and everything in between. This raked in uncountable billions of dollars for the government which allowed it to eliminate the huge deficit, make significant paydowns on the accumulated debt, finance massive job creation programs and restructure it’s financial obligations. It’s an outstanding and well-documented success by any measure.

This success story illustrates a major economic leap for Canada and one easily tailored to the U.S. situation. It should be carefully considered by U.S. policy-makers.

One problem Canada wasn’t required to face, was an economy awash in trillions of dollars of ‘easy money’  which led millions of American consumers towards insolvency when the economy began changing in response to economic events occurring outside the U.S.A. in 2008.

For example, the monetary base, due to Fed action, has exploded to $2.6 trillion as of May 2012. This could create an inflationary spiral in the longer term, causing another great recession. Read Dean Villamil here…

For those who support a massive injection of cash into the economy by the government, this is a fine short-term way to stimulate the economy, provide employment, increase taxation revenue for governments and to temporarily stabilize the economy. It is a fine idea and worthy of serious consideration by American policy-makers.

But while stimulus spending would help the economy short-term, it does not address the core issue of the non-growth government policies which caused America’s economic woes in the first place.

I promised you a prescription America, and here it is;

  • A federal 7% Goods and Services Tax on everything sold inside the country beginning in 2013. Some amount of revenue-sharing should occur. If 50 billion dollars of GST are collected in the state of California by the federal government by Jan 1, 2014, for example, California should receive half that amount back from the feds — which the state can then use to spend on it’s own infrastructure and debt-reduction program.
  • Of the federal government’s portion of the GST — half of it should go to paydown the federal deficit until there is no deficit.
  • The other half of the federal government’s portion of the GST should be used for ‘shovel-ready’ infrastructure projects designed to cut unemployment levels in every state.
  • The planned budget cuts to U.S. military spending and other federal spending cuts should still occur as they are necessary and overdue, but could benefit from a relaxed implementation schedule.
  • A comprehensive, results-oriented, duplication of services and waste reduction study by all federal departments with the emphasis on cost-reduction and streamlining of services.
  • Which easily-treatable illnesses could increase American productivity if that cost was covered by government? We need a list! Spending mere pennies per worker here, can save the country many billions of dollars of lost productivity.

Short-term stimulus, combined with a national sales tax – the proceeds of which to be evenly split with the states, eventual elimination of the federal deficit, massive spending on national infrastructure projects, continued cuts to military spending on a slightly-relaxed schedule, national waste/duplication elimination, along with increases to productivity courtesy of free (minor disease) health care – will have America feeling back to her old-self within ten years — and after that, feeling ever better!

In fact you’re looking better now America — just reading your prescription!

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About John Brian Shannon

I write about green energy, sustainable development and economics. My blogs appear in the Arabian Gazette, EcoPoint, EnergyBoom, Huffington Post, United Nations Development Programme, WACSI — and other quality publications.

It is important to assist all levels of government and the business community to find sustainable ways forward for industry and consumers.

Green Energy blog: http://johnbrianshannon.com
Economics blog: https://jbsnews.wordpress.com
Twitter: https://www.twitter.com/#!/JBSCanada