I don't know, you think there's $750 billion in waste and inefficiency? There are Republicans on the deficit commission...why can't they find it? Not even Rand Paul had that much in his proposed budget. I hope there's that much because it should make deficit reduction easy. I'm just skeptical because we have all kinds of budget experts working on this problem and they don't seem to find that much waste and inefficiency. Maybe you're right. It sounds good and I hope you're right but I have my doubts. The federal government is wasteful but I'm not sure it wastes 20% of its tax receipts. Rob Portman is on the deficit commission and if there's that much he ought to be able to find it.gut;933237 wrote:While I mostly agree with what you wrote, I'd challenge the above assumption. Middle men (which the US govt is basically) always extract non-value added wealth. The sheer amount of waste and inefficiency could probably remove 100's of billions of govt spending with no adverse impacts on the economy. And only deficit spending is accretive to GDP, which itself is a bit misleading because, in fact, taxes are dilutive to GDP. Technically, deficit spending is not "stimulus" but just deferred future taxes. We need to be careful about a shock adjustment to the economy, but it is always better for the economy to leave $1B in the hands of consumers and business than for the govt to confiscate it to spend on pet projects.
Basically what I would argue is that while a meat-cleaver approach to cut $1T would negatively impact the economy, a calculated approach would offset a significant amount of the impact by cutting waste and inefficiency. I think there's easily more than 20% waste and inefficiency, which would be something like $750B. Getting the economy healthy and getting back to a historical 18.2% revenue as a % of GDP would easily close the remainder of the gap.
But, as to your assertions that it's always better for GDP to leave money in the hands of private citizens and that deficit spending is always offset by future taxes...
I disagree that it is Always better to leave $1B in the hands of consumers than for the government to spend it. MOST of the time this is true but in a situation like right now where interest rates are at the zero bound and monetary policy isn't working like it normally would because consumers and businesses just hoard the $1B, instead of spend it, the government can spend and will do so more effectively than private consumers. Money has to be spent for it to do any good, whether it's a corporation you taking the cash in exchange for stock and investing it, a bank lending money from your Savings Account to a new business or you spending it yourself in the Apple Store.
I don't think we should increase taxes on the wealthy, but decreasing them and leaving more money in their pockets (as in the 9-9-9 plan for example) will not likely boost private spending in our current slump. They already have everything at Apple, the banks they put their money in don't have customers to lend it to, and the corporations they buy stock in don't have customers to enter contracts with. If they purchase stock with it, there's still no new demand for that companies goods and services so there's really no reason to see why that will lead to capital investment or hiring it seems to me. Raising taxes on the wealthy and spending it, although the money will actually be spent instead of saved, won't be good though either because there's dead weight loss so it would make more sense for the government to borrow at the historically low rates if it wants to be the one demanding goods and services.
For instance, the AJA is projected increase growth by 1.25% in the short term and we can borrow at rates lower than that for two years. BHO wants to pay for it with a tax on millionaires but it'd be more prudent to borrow it so there's no dead weight loss.
In these rare instances like our current situation, the government can spend and be the one making contracts, filling orders, etc. without taxing individuals and it could pay off if we did it right. For instance, we got 651,000 miles of highway, 8,000 parks and a beautiful bridge during the New Deal. http://www.slate.com/articles/news_and_politics/history_lesson/2011/10/new_deal_accomplishments_do_conservatives_who_attack_the_new_dea.html
But of course, the New Deal was too small and thus the real deficit spending was WWII which increased GDP by 19% in 1941 and lowered the unemployment rate from 20% down to 2%.
Thus, if you can increase growth and productive employment like that, deficit spending also doesn't have to mean deferred taxes down the road. FDR's massive tax increases (which were a mistake) didn't pay down the WWII debt, it was economic growth. Even with increasing the debt to 120% of GDP, the debt was cut in half in 10 years despite bringing in around the historical average of tax receipts. And government doesn't have to stay big indefinitely and history says it won't. the WPA was disassembled afterward and non-defense discretionary federal spending dropped a lot.
Also, because we have our own currency (unlike Greece), there is always the possibility of inflation to mitigate debt which would also mean that deficits now don't mean higher taxes down the road. Ronald Reagan ran deficits in the 80's but was able to "prove deficits don't matter" and not raise taxes immensely because we had much higher inflation than we do now. (No CB, the Fed isn't hiding true inflation from you...Headline tracks Core as I've linked before).
More important than anything, taxation or deficit spending, is we could use a little inflation like we had in the 80's to eliminate the real burdens of the debt strapping our homeowners and our college graduates, that's preventing them from spending money on goods and services. I mean wages are steadly and slowly dropping still despite not being in a recession. That trend has to stop more than anything else.
This is what Romney's economic adviser advocates (at least he used to be before he had to lament inflation once he teamed up with Romney) http://www.bloomberg.com/apps/news?pid=newsarchive&sid=auyuQlA1lRV8
