[A-List] "Deficit attention disorder" (Change You Can Suspend Disbelief In -Club Orlov)

[Leigh Meyers <the.buffalo.in.the.midst@xxxxxxxxx>]

Whatta kidder!

Might work though, if "...You Can Suspend Disbelief..."

Wednesday, April 22, 2009

Change You Can Suspend Disbelief In

This is a guest post by Publius III. I am happy to see that guest
posts are becoming a venerable institution here at ClubOrlov. Long
live Samizdat!

Comprehensive tax relief is America's surest route to effective
economic stimulus and genuine recovery. Elimination of all US income
taxes would offer irresistible incentives to every American to go out
and shop, swiftly restoring hope, confidence, and economic stability.
For the US government, this policy shift would produce greater
benefits at lower cost than any rescue package that has been tried or
even considered.

How I learned to stop worrying and love the deficit

Over the last thirty years, the world has learned that deficits are a
boon to any economy that is wise enough to use them appropriately.
Indeed, perennial deficits have become a useful predictor of a
nation's economic health and growth. It is government deficit spending
that has created the jobs that have kept our little home planet
glowing so brightly in the darkness of interstellar vacuum. The value
of economic growth stimulated by each year's deficit invariably
exceeds the nominal cost of the deficit itself. Budget deficits are
also desirable on their own merits, because government borrowing
provides a risk-free financial safe haven where the world's economic
winners can place their winnings. These facts compel us to recognize
that a perpetually growing total debt is highly desirable. The Obama
administration certainly recognizes this key fact, and has been doing
all it can to push public finances into the red as far and as fast as
possible. It has also been working hard to "get the banks lending
again," in order to promote rapid debt expansion in the private sector
as well. Although most of this new debt would never be repaid, the
massive wave of defaults will present a perfect opportunity for more
government bailouts of insolvent financial institutions, further
enhancing the deficit.

American redux

In 1835, the debt of the adolescent American republic was an
unimpressive $34,000. But decade after decade the federal debt
continued to expand, along with American power and influence. By the
middle of April 2009, America's federal debt stood at $11.2 trillion.
Current projections suggest that the total is on track to make $13
trillion before the end of the 2009 fiscal year.

Coincidentally, this figure is close to the one Bloomberg gave toward
the end of March for the costs of the US government's various rescues,
backstops, and guarantees in the current crisis. Bloomberg's tally so
far shows the American public with $12.8 trillion in such spending and
promises. Realistically, the odd war here and there will add another
$3 trillion to America's deficit spending in the relatively short
term. Neil Barofsky, the Treasury Department's Special Inspector for
oversight of the first $700 billion allocated by Congress to help ease
the pain on Wall Street, asserts that an additional $2.3 trillion will
be needed for that purpose, taking the visible banking tranche to
about $3 trillion, for now.

Meanwhile, a different branch of the US Treasury -- the Office of the
Comptroller of the Currency -- catalogs $170 trillion in derivative
exposure among five large US banks. A commonly accepted estimate of
the failure rate of these derivative instruments is 20%. If the
government is to continue to bail out the country's major financial
institutions, the American public should expect this exposure to yield
least $34 trillion in new obligations. America's federal housing
lenders Fannie Mae and Freddie Mac will no doubt want to pitch in as
well, contributing another $5 trillion of their own exposure.

Finally, estimates of the present value of the unfunded entitlements
of Social Security, Medicare, and Medicaid involve much guesswork but
generally tend to fall in the range of $50 trillion to $150 trillion.
For the sake of this analysis, let us accept the mean value of $100
trillion as gospel.

And so, in round numbers, we are looking at somewhere around $180
trillion in total American public debt. No other single parameter
could better indicate America's full spectrum dominance in world
affairs. Now, contrast this majestic sum with America's net income-tax
receipts in 2008: a mere $1 trillion. The idea that such a paltry sum
can defray the nation's public debt is simply laughable, and yet the
economic damage it inflicts is no laughing matter at all. Its
continued existence is nothing less than an insult to America's
hard-working men and women.

Although the notion that income taxes could be eliminated altogether
might seem shocking at first glance, the logic for doing so is deeply
reassuring. Our $1 trillion in tax receipts is trivial. It would never
be missed by the American government. Yet it remains a drag on
consumer behavior. While the tax represents less than 0.6% of
America's debt being amassed as you read these words, it represents
217 times America's disposable income. That is, the abolition of the
federal income tax has a benefit-to-cost ratio of more than 36,000 to
1. A negligible increase of existing debt would translate promptly
into a massive and continuing stimulus as taxable earnings are
transformed into disposable income.

Deficit attention disorder

In an environment where $12.8 trillion can be conjured and deployed in
a matter of weeks, and where expressions of dollar-denominated public
obligations require fifteen digits, America's income-tax revenue is a
mere rounding error in terms of government finance. Furthermore, as
Federal Reserve chairman Ben Bernanke revealed in his recent 60
Minutes interview on CBS television, the money being spent to rescue
the American economy costs taxpayers nothing, because it's much more
akin to printing money than it is to borrowing. And so Bernanke should
find no problem with printing an extra trillion each year to make up
for the loss of federal income tax receipts. Although it may
superficially seem like an increase in government obligations, rest
assured that it will not cost taxpayers a thing. Banish the thought of
eventual repayment! We know full well that deficits just make America
stronger! History now demands bold, decisive action from all of us!

Don't take it to the bank

No other program could produce an equivalent psychological or economic
impact. For every individual US taxpayer, the abrupt and overwhelming
relief of tax absolution would trigger an avalanche of consumer
spending dwarfing all previous exuberances, irrational and otherwise.
The benefits would extend to every wage earner and to all who are
self-employed. Even those who pay no taxes today would indirectly
benefit from the inevitable tsunami of prosperity. Stop thinking of it
as debt; think of it as free money. Repeat after Chairman Bernanke:
"it's much more akin to printing money." And if that money is printed
in sufficiently large denominations, then printing a lot of money at
once becomes very economical. Let's roll!

http://cluborlov.blogspot.com/2009/04/change-you-can-suspend-disbelief-in.html



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