It Seems So Simple

[Guest]

I was listening to Bloomberg Radio in the car this afternoon as I was running some errands. A Nobel laureate from the University of Chicago was being interviewed from a big conference that is being held at the Stanford Institute for Economic Study. The interview focused on the fiscal problems of the U.S.

The economist made a very simple and understandable remark."In order to avoid the impending financial crisis here in the U.S., citizens have to decide how much and what kinds of services they expect from the various levels of government who serve them. Then, they have to agree that the revenues (taxes) required to pay for those services are in line with the costs of the services they demand. It's no more complicated than that.", he said.

The interviewer asked how that could happen. "That's also simple.", he replied. "The Congress must decide and enact legislation to align government revenues with the costs of services provided. Another alternative might be for the Congress to await the recommendations of the newly-formed commission which is studying how to reduce the deficit and debt, and enact legislation x=consistent with commission recommendations. Unfortunately, I believe that either of these alternatives is very likely--more a dream than a possible reality."

The interviewer then asked the obvious question, "If Congress fails to act, then how will revenues and costs ultimately be balanced?"

The U of Chicago laureate gave the answer which has been discussed in all sorts of places, including here, in recent months. "It will most likely happen as the result of some external event, probably involving a severe and rapid decline in the capacity of the international bond market to absorb our soverign debt, or a rapid and calamitous decline in the value of the U.S. dollar, causing wild escalation of inflation and an inability of the U.S. to service and repay it's debt.", he went on.

He continued, "Ultimately, the required balance will certainly require both the dramatic cutting of government spending as well as probably several forms of broad-based tax increases. Broad increases in both individual and corporate income taxes will certainly be needed and in addition, I would guess that a value-added (VAT) tax would be enacted. The U.S. is the only one of all the industrialized nations that does not use a VAT tax to fund government, so that type of taxation is quite likely as an alternative to solve the deficit spending problem."

The interview went on to discuss the difference betweena sales tax and a VAT tax.

Oh, how simple it seems. No, I guess I should say, how simple it really is. The spending of all levels of government must be balanced to equal revenues (taxes). Spending must come down and taxes will have to be inceased. Neither one alone can solve the problem. The only real question is: will our elected representatives make the hard decisions? Or will they wait--continuing their partisan arguing--until external events force the resolution of the problem?

[Guest]

I was listening to Bloomberg Radio in the car this afternoon as I was running some errands. A Nobel laureate from the University of Chicago was being interviewed from a big conference that is being held at the Stanford Institute for Economic Study. The interview focused on the fiscal problems of the U.S.

The economist made a very simple and understandable remark."In order to avoid the impending financial crisis here in the U.S., citizens have to decide how much and what kinds of services they expect from the various levels of government who serve them. Then, they have to agree that the revenues (taxes) required to pay for those services are in line with the costs of the services they demand. It's no more complicated than that.", he said.

The interviewer asked how that could happen. "That's also simple.", he replied. "The Congress must decide and enact legislation to align government revenues with the costs of services provided. Another alternative might be for the Congress to await the recommendations of the newly-formed commission which is studying how to reduce the deficit and debt, and enact legislation x=consistent with commission recommendations. Unfortunately, I believe that either of these alternatives is very likely--more a dream than a possible reality."

The interviewer then asked the obvious question, "If Congress fails to act, then how will revenues and costs ultimately be balanced?"

The U of Chicago laureate gave the answer which has been discussed in all sorts of places, including here, in recent months. "It will most likely happen as the result of some external event, probably involving a severe and rapid decline in the capacity of the international bond market to absorb our soverign debt, or a rapid and calamitous decline in the value of the U.S. dollar, causing wild escalation of inflation and an inability of the U.S. to service and repay it's debt.", he went on.

He continued, "Ultimately, the required balance will certainly require both the dramatic cutting of government spending as well as probably several forms of broad-based tax increases. Broad increases in both individual and corporate income taxes will certainly be needed and in addition, I would guess that a value-added (VAT) tax would be enacted. The U.S. is the only one of all the industrialized nations that does not use a VAT tax to fund government, so that type of taxation is quite likely as an alternative to solve the deficit spending problem."

The interview went on to discuss the difference betweena sales tax and a VAT tax.

Oh, how simple it seems. No, I guess I should say, how simple it really is. The spending of all levels of government must be balanced to equal revenues (taxes). Spending must come down and taxes will have to be inceased. Neither one alone can solve the problem. The only real question is: will our elected representatives make the hard decisions? Or will they wait--continuing their partisan arguing--until external events force the resolution of the problem?



The facts are this. Your Chicago Laureate is approaching the problem as a any real Liberal would. Raise taxes. Why raise taxes? WHY not get rid of the pork spending.

Obama will never cut costs it is not a part of his ideology to do so.

If we are not going to be fiscally conservative we are doomed.

If you cannot accept this no Laureate with theoretical ideas will be of any help to us.

[Guest]

I was listening to Bloomberg Radio in the car this afternoon as I was running some errands. A Nobel laureate from the University of Chicago was being interviewed from a big conference that is being held at the Stanford Institute for Economic Study. The interview focused on the fiscal problems of the U.S.

The economist made a very simple and understandable remark."In order to avoid the impending financial crisis here in the U.S., citizens have to decide how much and what kinds of services they expect from the various levels of government who serve them. Then, they have to agree that the revenues (taxes) required to pay for those services are in line with the costs of the services they demand. It's no more complicated than that.", he said.

The interviewer asked how that could happen. "That's also simple.", he replied. "The Congress must decide and enact legislation to align government revenues with the costs of services provided. Another alternative might be for the Congress to await the recommendations of the newly-formed commission which is studying how to reduce the deficit and debt, and enact legislation x=consistent with commission recommendations. Unfortunately, I believe that either of these alternatives is very likely--more a dream than a possible reality."

The interviewer then asked the obvious question, "If Congress fails to act, then how will revenues and costs ultimately be balanced?"

The U of Chicago laureate gave the answer which has been discussed in all sorts of places, including here, in recent months. "It will most likely happen as the result of some external event, probably involving a severe and rapid decline in the capacity of the international bond market to absorb our soverign debt, or a rapid and calamitous decline in the value of the U.S. dollar, causing wild escalation of inflation and an inability of the U.S. to service and repay it's debt.", he went on.

He continued, "Ultimately, the required balance will certainly require both the dramatic cutting of government spending as well as probably several forms of broad-based tax increases. Broad increases in both individual and corporate income taxes will certainly be needed and in addition, I would guess that a value-added (VAT) tax would be enacted. The U.S. is the only one of all the industrialized nations that does not use a VAT tax to fund government, so that type of taxation is quite likely as an alternative to solve the deficit spending problem."

The interview went on to discuss the difference betweena sales tax and a VAT tax.

Oh, how simple it seems. No, I guess I should say, how simple it really is. The spending of all levels of government must be balanced to equal revenues (taxes). Spending must come down and taxes will have to be inceased. Neither one alone can solve the problem. The only real question is: will our elected representatives make the hard decisions? Or will they wait--continuing their partisan arguing--until external events force the resolution of the problem?


Isnt this quite close to PAYGO, which our congress passed and then ignored ?

[Guest]

...Your Chicago Laureate is approaching the problem as a any real Liberal would. Raise taxes. Why raise taxes? WHY not get rid of the pork spending.

Note that what was said was that both cutting spending and raising taxes would be necessary in order to balance the budget. I endorse that for one simple reason--we've reached a point that cutting those costs that can be cut will not be enough to achieve a budget without an annual deficit. I did the analysis of the federal budget here once before, so I won't repeat it. What it boils down to is that debt service and entitlements make up too great a proportion of the budget compared to even a decade ago.

Debt service certainly cannot be cut. And cutting entitlements, as much as they should be cut, is virtually a political impossibility. If only the remaining items in the budget were candidates for cutting, those budget items would have to be reduced by about 50% to produce a non deficit producing budget, And that would include a 50% reduction in the defense budget.

Check the federal budget yourself and see if you can come up with enough spending cuts to produce a balanced budget without raising taxes. If you can, tell the rest of us how it can be done.

Very simply, the Chicago laureate was correct--the federal budget cannot be balanced without tax increases. Ultimately, that will happen and it won't make any difference whether the party in power are liberals or conservatives. The only question is whether our elected representatives will make the necessary tough decisions before external forces do it for them--the buyers of U.S. debt and the markets in which those debt instruments are sold and the value of the U.S. dollar established.

[Guest]

Raising taxes will not solve anything.

My analogy: Take an ordinary family whose breadwinner likes to drink and do a little gambling. The are in the hole and need to cut expenses. Drinking and gambling are put on hold and they start to pay down the bills.
Breadwinner gets a great raise from work. He/she starts celebrating and gradually old habits are incorporated back into budget. New budget becomes old budget.
Ma and Pa Kettle thinking on grand scale.

[Guest]

Note that what was said was that both cutting spending and raising taxes would be necessary in order to balance the budget. I endorse that for one simple reason--we've reached a point that cutting those costs that can be cut will not be enough to achieve a budget without an annual deficit. I did the analysis of the federal budget here once before, so I won't repeat it. What it boils down to is that debt service and entitlements make up too great a proportion of the budget compared to even a decade ago.

Debt service certainly cannot be cut. And cutting entitlements, as much as they should be cut, is virtually a political impossibility. If only the remaining items in the budget were candidates for cutting, those budget items would have to be reduced by about 50% to produce a non deficit producing budget, And that would include a 50% reduction in the defense budget.

Check the federal budget yourself and see if you can come up with enough spending cuts to produce a balanced budget without raising taxes. If you can, tell the rest of us how it can be done.

Very simply, the Chicago laureate was correct--the federal budget cannot be balanced without tax increases. Ultimately, that will happen and it won't make any difference whether the party in power are liberals or conservatives. The only question is whether our elected representatives will make the necessary tough decisions before external forces do it for them--the buyers of U.S. debt and the markets in which those debt instruments are sold and the value of the U.S. dollar established.

You Liberal thinking people don't get it. Raising taxes reduces revenue in the long term; DUH.