Good morning. If you get some time today please read this short 2-page editorial. Every day it seems I come across an article that better and more fully explains just how bad of an idea this stimulus package is that Bush & Co. are about to hand out. In addition, it briefly explains in simple terms what recessions are, what causes them, how inflation is created, etc. Understanding these terms is crucial to understanding why stimuluses never work and why they usually prolong and worsen downturns instead of ending them. Finally, the article lays out what Bush can and should be doing instead of throwing dollars around.
I'm sure you all are really sick of me beating a dead horse on this issue but let's face it: we're all 25 now and nothing funny happens on this blog anymore. Might as well bore everyone with something about economics for the 90th time.
2 comments:
You'll have to answer this for me Pat, but does not McCain have a good record when it comes to reeling in wasteful spending and pork legislation? I realize this type of legislation is tricky because it's the one thing legislators all agree on and help each other out with because hey, they all want to say in Washington.
I really like this article because I frequently get disgusted with people screaming about cutting taxes over and over and never thinking about where the money is coming from. Cutting taxes is great if you cut spending too. This is something we haven't done. The American people have not been asked to sacrifice anything, while China is subsidizing our way of life with 75% of their foreign investments in the US dollar. They are living way below their means while their government is pumping money into the US that could be improving Chinese infrastructure. Sooner or later, you have to figure this is going to come to an end...am I anywhere near correct on this Pat?
McCain has a so-so record on pork-barrel spending. It is pretty much par for the course. The part that disturbs most conservatives is his support for the Incumbency Protection Act of 2002 (also known as McCain-Feingold, the greatest assault on political free speech in modern history), McCain-Kennedy, his opposition to the Bush tax cuts, and his pondering of switching parties in 2001 and being John Kerry's running mate in 2004. McCain didn't oppose Bush's tax cuts because of a lack of spending restraint (which he is trying to claim now), but instead because part of it was "going to the wealthiest 1% of taxpayers." What John fails to realize is that that wealthiest 1% pays nearly half of the federal tax burden.
I am all for constantly reducing tax rates because I think the only way to get spending under control is to cut the federal government's diet. Reagan put it best by saying "we can lecture our children all day about extravagance until we run out of breath, or we can teach them a lesson by reducing their allowance." Milton Friedman once famously remarked that he'd "rather see a $2 trillion budget with a $100 billion deficit than a $4 trillion budget and a $100 surplus."
Friedman also believed that the best money spent during the Reagan years was on the interest paid on the national debt, because the deficit prevented the Dems from enacting any new social spending programs at the time. Governments aren't supposed to run surpluses anyway because it's our money they're playing with.
I agree with all of these above views. The deficit per se is not really what matters: the U.S. has always met its debt obligations since 1789 and will continue to do so, which is why so many creditors continue want to buy our debt because they know we'll continue to pay it off every year. What really matters is the size of the federal budget as a whole and crowding out effects it has on private enterprise, both domestic and foreign. Right now its almost at $3 trillion with a deficit of around $150 billion. A monstrosity of a budget no doubt, but a deficit that is pretty small potatoes, esp. when compared to a $10 trillion national economy.
As for China, its government, like countless other governments and individuals foreign and domestic, continue to buy our government's debt because they believe it is a good investment for them. Millions of Americans do the same thing here: we buy the same bonds the Chinese do. We/they know that our government will continue to make its interest payments every year and that our federal reserve won't devalue our currency by printing too many dollars, which makes it a sound investment. If for some reason they didn't think it was a sound investment, they'd sell it to another willing creditor.
I'm not sure of the percentage of China's budget that goes to purchasing U.S. bonds but I'm sure it's quite miniscule when compared to all that they spend each year on new power plants, sewage, and roads every year.
In short, I don't see China or any other creditors stopping their purchases of U.S. bonds any time soon. Unless Congress for some strange reason decided to stop making payments to these bondholders (which it hasn't done in our 250 year history) or unless the Federal Reserve starting printing dollars at an astounding rate without any regard to inflation (which is unlikely) creditors will continue to see them as a sound long-term buy.
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