Getting America out of Debt

Motivation: the First Step Toward Debt Reduction

“What’s another car loan?” “So I got yet another credit card, what of it?” These are the attitudes that lead to perpetual debt–for individuals. Similar attitudes apply to the nation. As below, so above.

Our leaders, and their promoters — the party bosses, media pundits, economics professors, etc. — have more sophisticated rationalizations. On the Left they speak of The Paradox of Thrift and Fiscal Stimulus. On the Right they speak of The Laffer Curve and Supply Side Economics. Pseudoscience and Voodoo Economics! Humbug! (Oh, The Laffer Curve is theoretically correct, all right, but we are well below the maximum for taxing the rich.)

Tax cuts and government largesse are indeed pleasant things. So are cocaine and whiskey. But when enjoyed to excess the results can be unpleasant indeed. When the partaker stays in denial, it’s time for some hard counseling. And so I call for debt counseling for America’s politicians (and voters). I leave it to you who found this site to ensure that they receive this counseling.

If you came here voluntarily, it likely means you agree that we need to do something about the debt. You are looking for a realistic plan of spending cuts and/or tax increases to do the job. These will be forthcoming. But until enough of our leadership is motivated to do something, the efforts will be for nought. Bill Clinton cared enough to balance the budget in large part because H. Ross Perot won so many votes by calling for debt reduction. Perot had to spend his own money to do it. The special interests want their government largesse and/or tax loopholes.

Without gigantic glops of money, I resort to persuasion and brain power instead. I act as a part time one man think tank. I do things such as grab government data and form graphs such as this:

Graph of inflation adjusted federal tax receipts and deficits

Next time you see a Republican calling for tax cuts show him this. Better yet, show him this debunking of Santa Claus economics. Tax cuts may have worked for Kennedy, but that bit of magic has been largely exhausted.

Convincing liberals that fiscal stimulus is the wrong way to get out of our current recession will be more challenging. They are working from lessons learned in college, from textbooks. Who am I to argue with a textbook?

Who am I to argue with astrology, phrenology or blood-letting? Authoritative wisdom has been wrong before. It is wrong again. But the burden of proof rightfully belongs on the shoulders of those who would challenge the texts. So, we need some rather extensive analyses to make the case, starting with a very simple economic scenario which clearly does not fall under the Circular Flow Model. More will be forthcoming.

3 Responses to Motivation: the First Step Toward Debt Reduction

  1. Merry Macke says:

    Don’t understand this graphic. Thanks for writing this note, and want to continue to learn about the debt crisis. Think our current politics prevent dialogue.

  2. Carl says:

    Follow the debunking of Santa Claus economics link for an explanation of the graphic.

  3. Michael Bindner says:

    The American Tax Relief Act of 2013 kept the Bush tax cuts for all but the top 2%, just as the President promised. I think he should have let the top 5% pay more taxes – but he would not go back on his promise.

    The newest figures show that it is not health care but net interest that is driving insolvency in the out years. That means even more revenue will be necessary – and likely from the middle class, the upper middle class and the rich will have to pay them. Why is that appropriate? Because we do not owe our debt based on a head tax – rather we incur it and pay it back with income taxes, so the amount any individual owes is based on the ratio between income taxes collected and the total national debt. During the height of the financial crisis it was 17. Historically, it is around 9 or 10. For convenience, assume it is 10 – so if you paid $4000 in taxes you owe $40,000 of the debt. If you paid $400,000 in taxes, you owe a cool $4 million. Interestingly enough, given the increasingly unbalanced distribution of wealth, those with more income are more and more likely to be able to write a check to clear their debt (although it does not work that way).

    The point is that the children of the rich are more likely to be wealthy than the children of the middle class – so they will have a greater burden of debt based on their incomes – especially if the debt to tax ratio goes up rather than back to historical averages. It is therefore in the interest of the rich to pay more now to reduce the debt. It is not in the interest of the poor at all.

Leave a reply