AMEND CORNER: Adjusting to a new reality

Posted 8/2/11

Not that anybody else knows how to solve it, either. A lot of us have ideas, based on our own experience with budgeting, or in a lot of cases, not budgeting, our own income and expenditures. But then, quite a few of us have gotten into our own …

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AMEND CORNER: Adjusting to a new reality

Posted

By the time you read this bit of “wisdom,” Congress will either have taken action to raise the nation’s debt limit or they will have failed to take action.

Either way, they won’t have solved the mess that is the nation’s budget, and, I’m guessing, they won’t — because, frankly, I don’t think anybody in Congress really knows how to solve it.

Not that anybody else knows how to solve it, either. A lot of us have ideas, based on our own experience with budgeting, or in a lot of cases, not budgeting, our own income and expenditures. But then, quite a few of us have gotten into our own budget messes, so I’m not sure our ideas are very sound.

There is an air of unreality when people talk about the federal budget. We argue that we don’t want too big a government, but we expect it to provide Medicare, keep air travel safe, ensure our oil supply, protect us from enemies, and on and on and on.

Here in Wyoming, for instance, where our semi-official attitude is we don’t want the feds around, we are happily taking flood relief money from that same government, and we are looking for more money from Washington to fix up Interstate 80.

Or take the so-called “Lone Star” state, whose governor — a possible Republican candidate for president — within a short period of time, proclaimed that his state didn’t need any thing from the feds, then whined that Washington wasn’t helping fight range fires in his state — even though Washington actually was providing funding.

Some conservatives want to go even further back. I’ve read that a few of them even want to return to the days of Calvin Coolidge, whom they credit with lowering taxes, an action they say brought about increased tax revenues and an economic boom. Well, there certainly was a boom back then, but the Coolidge crowd seems to forget that the boom was followed by a monstrous economic crash known as the Great Depression.

And maybe those guys didn’t notice that the Bush tax cuts did pretty much the same thing, create a boom followed by a crash. Maybe there’s a lesson there, guys.

Anyway, I’m betting the effort to go back in time won’t be successful. Attempts to turn back the clock are rarely successful, because the present and the future tend to spoil them.

What everybody seems to be missing is that the huge deficit is only partly a matter of increased spending. The Bush tax cuts did not generate the increased tax revenue that Coolidge saw, nor did they create a lot of jobs. The Republicans cut taxes but didn’t cut spending, so the boom they produced was based entirely on credit. When the inevitable crash came, employment fell, meaning tax revenue also fell, and the spending efforts of both Bush and Obama, which did play a role in stopping the slide, helped push the deficit upward.

Given that reality, regardless of what Congress does or doesn’t do this week, the deficit problem will not shrink until the economy recovers, and it’s hard to see how huge cuts in government spending will bring that about. Cuts in spending, as necessary as they might be, will mean layoffs of government workers, further reducing tax revenues. Lower tax rates will also reduce government revenue and higher tax rates will reduce the purchasing power of the people whose spending and investment will help the economy recover.

It is quite a conundrum, and I don’t have an answer for it. I do know that the economy always has fluctuated between good times and bad. Moreover, our economy is evolving, and a good deal of the present crisis is because we are having a bit of a problem adjusting to that evolution.

My hope is that, with a little luck and some effort by we the people — both individually and cooperatively — our businesses and our government will adjust to the new realities and the economy will recover, at least until the next recession.

In real life, that’s usually what happens.

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