Rant Counter Rant Part II
The conversation then took a few tangents around John Poindexter, the Mariners and Phillies (and a mutual invitation to watch the World Series together should our two teams collide), Duff’s upcoming stint as stay-home dad to his 6-month old daughter, and the application of the principles of household finance to government economic policy. On this last subject, Duffy asks:
DUFFY: If you were in debt, which of these two would you personally rather do? Would you cut back on your lifestyle or would you worker harder to increase your earnings?
ROB: I think it’s fair to say I would exhaust all possibilities of finding new work before I got completely draconian with the cuts, but honestly, I just don’t spend money when I don’t have it, or know that I’m not going to have it. Working for myself, I’ve gotten used to the idea that prosperity comes and goes. Right now, things are good, so I have nice stuff. A few years ago, I was eating chili out of the can and getting kicks as cheap as they came.
That said, I do not consider myself typical. I don’t have a family to support, I don’t have a steady paycheck, I pay for my own medical insurance, I live in an area with lots of entertainment options at all income levels, etc. Also, I have no credit card debt and cash in the bank, which puts me out of step with about 90% of my fellow Americans. This is what I meant when I wrote a few weeks back that I am a rugged individual. Temperamentally, I really have no choice – but seeing it close up, I can tell you it’s not a realistic lifestyle for most people. And if our current government is really interested in helping folks like me, then they ought to listen to what it is we really want and need.
DUFFY: Draconian would be cutting back on your caloric intake or shutting off the gas and electric. Come on...
The analogy with my query is the federal deficit. The government could force it's citizens to cut back on its lifestyle and spending by keeping more of what they earn-by raising taxes to pay down the debt. Or the government could provide incentive to work more by allowing its citizens to keep more of what they earn. This results in greater economic activity, both in labor output and spending stimulus, allowing the Treasury to take in more absolute dollars thus reducing the deficit in the long run. You can laff all you want, but Laffer's theories are now virtually gospel in most academic neighborhoods, even at your old stomping grounds in Manhatten.
Given your pedigree and chosen life as an entrepenuer, I am sure you'll appreciate the attached paper. It's one of many that can be found on Columbia website.
http://www-1.gsb.columbia.edu/faculty/ghubbard/Papers/gentryhubbardtaxpolicyandentryaug2000.pdf
ROB [in mega-rant mode]: I understand the theory, but it’s like a perpetual motion machine, or cold fusion. You can’t get something from nothing. Even using the supply-siders’ own models, the evidence indicates that you can’t grow your way out of deficits with tax cuts. It didn’t work in the 80s (as even Reagan eventually realized when he repealed some of the 1981 tax cut in 1986), it’s not what worked in the 90s, and it’s clearly not working now. Oh, it’s a nice idea, it meshes wonderfully with all this libertarian, market-based ideology, and it makes a lot of the right people really rich, but the numbers don’t agree. No responsible economist in the world thinks so, although there are plenty of hack PhDs out there willing to take Cato Foundation money to say otherwise.
Even if it was sound economics, which it’s not, public finance is a two-sided question. After a certain point, the deficit becomes a runaway train, because the debt service costs become a higher and higher percentage of government outflows, and those are structural rather than discretionary. Before long, you have to grow the economy at double the interest rate AND balance the budget in order to make any headway against the overall debt. That’s basically what happened in the 1990s because of a well-timed upturn in the business cycle, good policy from the Fed and some sensible fiscal policy, both on the tax and spending side, from both parties.
Bush, sr. made the commitment to restore fiscal discipline with the 1990 budget, Clinton continued it in 1994, and gridlock in Congress actually kept spending under control. Bravo. Declare victory and go home. I can’t believe that the current Republican party line is to disparage this golden age of prosperity, relatively low taxes (yes, really – look it up) and low spending as some kind of freakish fluke. Millions more people were working, people had money, people were buying stuff and improving their lives and investing in all kinds of new businesses. Geez, that’s what we’re here for, isn’t it? Take some of the credit, cooperate with the D’s, and maintain the policies that worked. But no – a few hard-core fanatics just can’t stand the idea that you can have responsible government that works as intended, and maybe even does a few things to help out the citizens once in a while. That’s all BAD, because it made a lot of young, smart urban liberals rich and it threatened to move the whole political debate back toward the center again.
Yeah, there were some problems with the 90s economy, but not nearly as bad as they’re being painted. The stock market bubble was a classic case of oversupply, which happens in the business cycle from time to time – a good case for vigilant and aggressive regulation, by the way. Boom times always hide a little bit of corruption under the high tide of prosperity. Again, this is systemic. I hardly think you can blame the criminal activities of a bunch of (mostly Republican, as it happens) businessmen on the personal problems of the president. That’s not really the “personal responsibility” message, is it? In any case, I think we agree that the market is strong enough to take care of those kind of things on its own, with the strong arm of the law to help the “hidden hand” curl into a fist when it needs to.
9/11 clearly caused some disruption to the economy, but the tax cuts are just throwing gasoline on the fire. You know what’s causing the current blip in the stock market? Same thing that did it in the late 60s – the war. Classic Keyesian government spending – defense is up 44% and the government is spending like a Long Island housewife at a red tag sale on all kinds of crazy pork barrel shit (can’t blame the D’s for that this time – your boys are running the show), PLUS we’ve got a tax cut. Of course the economy is stimulated! But it’s not sustainable, and it’s utterly irresponsible considering they know what’s coming, demographically, with the baby boomers retiring and all the other demographic stuff.
Back to our household finance analogy – when I know I have expenses due, I don’t go out and spend till I’m blue in the face. It makes no sense. First I pay my debts, then I put aside what I know I’ll need, plus a little extra in case things go sideways, then I think about spending or investing. I don’t assume that if I buy a $1000 suit with the credit card that then I’ll get a job to pay for it. That’s nuts. I think most people get this, but then, they also want the free suit. That’s not a dark view of things. It’s human nature to take what’s there in the short term and not worry about what’s coming next. Let the kids pay for it, right? But then again, you’re the one with the kid.
And that, friends, is where we left it.
8:51:59 AM 
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