StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

Note To NY Times: It May Be Fit To Print But This Is Not News

29 Jul 2009
Posted by Stan Collender

Here are the first two paragraphs from a CBS News/NYTimes poll published today in the Times:

Most Americans continue to want the federal government to focus on reducing the budget deficit rather than spending money to stimulate the national economy, a new New York Times/CBS News poll finds. Yet at the same time, most oppose some proposed solution for decreasing it.

Fifty-six percent of respondents said that they were not willing to pay more in taxes in order to reduce the deficit, and nearly as many said they were not willing for the government to provide fewer services in areas such as health care, education and defense spending.

What's really missing from this story is any indication of how this has changed, or stayed the same, over time.  As far as I can remember, this has always been pretty much the same: cut the deficit but don't reduce spending or increase taxes.  That's why we always get all the nonsense about "waste, fraud, and abuse," reducing administrative expenses, and eliminating earmarks.

When a small child is asked,

When a small child is asked, one option at a time, if he’d like to do X, and then if he'd like to do Y, on some occasions he’ll say “no” to every suggestion, even if X and Y seem to be the only possibilities, and that in such cases the solution is often to ask “Do you want to do X or Y?” (wish I could have posted that on EconomistMom) Obviously, a key question in a poll such as this (put crudely) would be: “Which way would you prefer to reduce the deficit – less spending, higher taxes or some combination of the two?”

And it seems clear that, in reality, the the “combination” approach is the only solution that is both politically and economically realistic.

So the American public needs to be presented (in public discourse and political campaigns, not just in polls) with a choice that is realistic politically and economically:
A. Combine tax increases and reductions in projected spending, skewed more toward the former.
B. Combine tax increases and reductions in projected spending, skewed more toward the latter.
C. Continue on our current fiscal course until we go over the cliff and have to endure even greater pain (much greater).

One way to make the above more likely would be a commission along the lines of the SAFE commission, or perhaps a commission that would present alternative plans reflecting different trade-offs, which I advocated a couple of years ago

The limited amount of detail on the poll* doesn’t reveal to what extent the respondents who objected to less spending (“fewer government services”) are the same respondents who objected to “paying more in taxes”, but in any case, there seem to be at least large minorities in each party affiliation segment (and roughly half overall) that do NOT oppose either measure (I’m assuming “No opinion” is a small percentage), which is actually somewhat encouraging (emphasis on “somewhat”) in terms of gaining acceptance of (1) the need for sacrifice, and (2) some compromise, “combination” solution.

It’s also worth noting that someone who objects to “paying more in taxes” himself might not object to making someone else – e.g., “the rich” -- pay more in taxes as a solution or part thereof, so there seems to be a false dichotomy presented here.

* Opposed to having fewer government services:
Democrats: 62%
Independents: 50%
Republicans: 45%

Opposed to paying more in taxes:
Republicans: 69%
Independents: 56%
Democrats: 48%

Paying for health care

In the discussion about universal health care affordability, one question seems never to be asked or answered: Which hurts worse, large federal deficits or millions of people suffering with inadequate health care?
Most people who don’t have health insurance can’t afford health insurance. So a law requiring people to buy health insurance is silly.
Requiring businesses to pay for health insurance is equally silly. To pay more for health care, businesses would have to lower salaries or reduce the profits needed to survive. Which poison do you prefer?
Any “savings” in the health care system will come from doctors, hospitals and/or pharmaceutical companies. Pay doctors less and you’ll have fewer doctors. Already, some doctors have opted out of Medicare because of insufficient payments.
We want hospitals to offer CT scans and PET scans, lots of well-trained nurses and emergency rooms that accept everyone who walks in. The machinery costs millions. The nurses, always in short supply, cost millions. Pay hospitals less, and you’ll have fewer and less equipped hospitals and fewer nurses.
The pharmaceutical companies we love to hate, spend billions developing drugs to ease our pain and save our lives. Getting a drug developed, tested and approved costs hundreds of millions. For every success, a thousand failures. Pay pharmaceutical companies less and your cancer may not be controlled, and “swine-flu” may kill a million souls.
Now consider those large federal deficits, we also love to hate. The media tell us deficits should be minimized. Except, no evidence exists that deficits have any negative effect on our economy.
No, deficits have not caused recessions, depressions, inflations, deflations or stagflations. Deficits actually have helped cure most of these problems.
No, deficits cannot force the U.S. into bankruptcy. In 1971, we went off the gold standard to give the government the unlimited ability to pay its bills.
No, deficits will not make foreign nations stop buying our debt (though we can pay our bills without borrowing.)
The simple fact the media never tell you: While federal surpluses have caused every depression in U.S. history, growing deficits have cured every recession and depression, and are necessary for economic growth.
So, which hurts worse, large federal deficits, which historically have had a positive effect on our economy, or millions of people suffering with inadequate health care?
The federal government can and should pay for universal health care via deficit spending.

Rodger Malcolm Mitchell

Rodger, You make some valid


You make some valid (if fairly obvious), supply & demand-related points (although I'm not sure what the relevance is to my comment to which you replied), but once you start talking about deficits you spew idiocy. Sure, counter-cyclical deficits can be a good thing (nothing new or very controversial about that, at least not since Hoover), but the projected long-term growth in our publicly-held debt-to-GDP is indeed an enormous problem and a literally unsustainable path. It sounds like your argument is that we face no such problem because we can just print as much money as we need to pay our bills, not matter how large deficits get. Yeah, good luck with that one. Ever hear of "hyperinflation" and "galloping inflation"? Think they might just have something to do with your "don't worry, be happy" panacea?

If you want to raise the question of the trade-off, in economic and moral terms, between the harmful effects on people's lives of some degree of higher deficits vs. the harmful effects of some people not having health insurance, that is certainly an appropriate and worthwhile question to raise, but I suggest you do raise it in a less clueless manner.

Not mutually exclusive

Good point. Maybe a column on the decrease in tax revenues during recessions and the positive effect of economic expansion on tax revenues would be in order? People (including Congressmen) don't get it.

The Federal Budget has a huge revenue shortfall for 2009 ($350 Billion for the year (CBO)) due to the bad economy. Economic expansion automatically increases tax revenue. Economic contraction lowers tax revenue. The budget can NOT be balanced unless the economy recovers.

If Federal spending can reverse the downward spiral then spending more can actually reduce the budget deficit if unemployment goes down and profits go up.

Cutting Federal spending can reduce demand and therefore increase unemployment, decrease profits and further decrease tax revenue.

Fixing the budget deficit REQUIRES economic recovery. The experience of the late 1990s under Clinton was that setting taxes at the proper rate and an expanding economy increases tax revenues to bring the budget into balance.

Unanswered questions

Disagreeing with popular wisdom -- and especially with Mr. Brooks -- invites invective. I'm used to it. Many people have strong opinions about our economy, which they express politely, though often they rely on intuition rather than facts to back those opinions.

The cure for intuition is data: Here are some questions that never seem to be answered.

1. What is the historical result of federal surpluses?

2. What is the historical relationship between deficit growth and recessions?

3. What is the historical relationship between deficit growth and inflation?

4. What is the historical relationship between deficits and tax rates?

If you have the data to support your beliefs, please feel free to contact me.

Rodger Malcolm Mitchell

Rodger, First, you might want


First, you might want to learn to use the "Reply" button if replying is your intent.

Re: "Disagreeing with popular wisdom -- and especially with Mr. Brooks -- invites invective."

No, saying really, really, really stupid things (here and on Beat the Press) often gets one's comments labeled as such. Again, if you think (let alone feel supremely confident) that we can continue on our current course and run up deficits as projected for the next several decades and that that will be wonderful, and that we can just print all the money we need to fund our deficits and service whatever debt level we have without severe inflation and adverse economic impact, you are simply out to lunch. The reason you won't be taken seriously is not because, as you seem to think as part of some sort of delusion of grandeur, others are stuck in conventional wisdom and you are some free thinker with superior insight and related profound revalations, but rather because your core assumptions are cuckoo, cuckoo, cuckoo. Sorry, no automatic points for being contrarian.

Oh, and my reference to Beat

Oh, and my reference to Beat the Press was somewhat ambiguous. I was just pointing out that Rogder made similar, stupid comments there, too and I labeled them as such there, too. But I don't mean to give the impression that a comment on Beat the Press need be stupid to be called stupid (in fact there is an inverse relationship between the actual validity of a comment there and positive labeling of the comment by others); On BTP, as on most hyperpartisan echo chamber blogs (of left or right), just saying something that challenges the crowd's partisan talking points is often enough to draw such criticism, regardless of validity of the point.

re: Unanswered questions

Rodger, if you want to refer to data, the data make overwhelmingly clear that national economies get crushed as the result of running up deficits and/or money-printing to sufficiently high levels of GDP.

See: Argentina (multiple times), Hungary post-war, Weimar, Yugoslavia, Zimbabwe, the list goes on.

I'm sure you'll agree to that.

Now in the US we have no experience doing any such thing on any such scale, so we've felt no such consequences.

However, I'm sure you'll agree that if we did start running deficits and printing money on the same scale as those other nations, we'd experience the same results.

So, to end all the bickering, why don't you tell us the level at which US deficits and debt would have to reach in GDP terms to start causing the same damaging effects here that they've caused in other countries, in your opinion.

Then we can look at CBO's long-term budget projections and tell you the year in which they'll reach that level on current policy.

If you have no evidence, you have no case.

The writers claim we cannot "continue on our current course and run up deficits as projected for the next several decades." Yet as always, they provide no evidence, just opinions.

It's easy to sit back and sneer, but much more difficult to do the research that is necessary to back up any claim. I have found evidence, and will be glad to provide it to all who are interested, indicating that:

1. Surpluses have caused every depression in U.S. history.
2. Reduced deficit growth has caused every one of the nine recessions in the past 50 years.
3. Large deficits have not caused inflation
4. Low interest rates have not stimulated economic growth.
Just send me your Email address and I'll send you the necessary graphs.

For those who wish to label these thoughts as "stupid," "clueless," "cuckoo," etc., all you need do is provide evidence supporting your opinions. That should be easy, shouldn't it?

If you have no evidence, you have no claim.

Rodger Malcolm Mitchell


Sorry, but I neglected to respond to the list: "Argentina (multiple times), Hungary post-war, Weimar, Yugoslavia, Zimbabwe" to which you could have added China, Brazil, Italy and dozens of others. Of course, merely listing nations that suffered economic traumas, including hyperinflation, does not constitute evidence of anything.

Your claim is these problems were the "result of running up deficits and/or money-printing to sufficiently high levels of GDP." But you provide no evidence to support your belief.

Each country had unique problems. Printing money may have been their governments' response to inflation, rather than the cause. When a nation suffers inflation, printing more money, rather than raising interest rates, might turn that inflation into hyperinflation. That is what people have told me they feel happened in Germany and Italy, though I can't vouch for that belief.

In any event, we have had massive deficit spending right here in America, during only the past 50 years. Reagan began what became the jaw-dropping, six-fold debt increase in only 15 years. It did not cause inflation. What evidence do you have that another six-fold increase in the next 15 years would have a different result?

Again, I will be glad to Email evidence supporting my beliefs, to all who are interested. I assume you make the same offer.

If you have no evidence, you have no claim.

Rodger Malcolm Mitchell

Rodger you goofball, First,

Rodger you goofball,

First, you didn't answer Jim Glass' (very appropriate) questions or respond to his very reasonable request.

Second, based on your commentary here and elsewhere regarding a "six-fold debt increase", I know this is gonna blow your highly sophisticated, well informed, powerfully analytical mind, but you might just wanna start looking at debt and debt growth in proportion to GDP, as in debt-to-GDP (specifically debt held by the public, not gross debt, but that was a previous basic lesson in Fiscal Imbalance 101 that I had to give you).

Now go ahead and respond directly and substantively to Jim, you court jester, you.

Still no evidence

Do you feel continual, juvenile name calling and an inability to provide evidence supports your beliefs? How old are you, anyway?

The question was, ". . . why don't you tell us the level at which US deficits and debt would have to reach in GDP terms to start causing the same damaging effects here that they've caused in other countries, in your opinion."

Aside from the vague "damaging effects" (what effects?) and equally vague "in other countries" (in which countries?), in my opinion, the percentage of deficits to GDP is not a relevant measure of anything. The U.S. ratio is about 65%. Japan's debt is about 170% of GDP. Italy's is over 100%, while "wealthy" Russia's is only about 7%. So??

GDP has no relationship to whether the debt is "sustainable." Sustainability relates the the federal government's ability to print enough money to service debt, which is not in any way limited by GDP.

The debt/GDP ratio also does not relate to inflation. Inflation is a consumption measure and GDP measures production -- two wildly different measures.

And, we already have seen that increased debt stimulates the economy, so what does debt/GDP tell us? Essentially, nothing.

Once again the conventional wisdom lacks evidence. The commonly used debt/GDP measure is meaningless. Perhaps debt/population might have more relevance to something. What do you think?

Anyway, a six-fold debt increase in only 15 years cured inflation and brought prosperity. Based just on that bit of evidence, I'll say another six-fold increase would do the same -- unless you have evidence indicating otherwise.

If you have no evidence, you have no case.

Rodger Malcolm Mitchell

Rodger writes: "GDP has no

Rodger writes: "GDP has no relationship to whether the debt is "sustainable." Sustainability relates the the federal government's ability to print enough money to service debt, which is not in any way limited by GDP."

I rest my case (that Rodger is an obliviously clueless idiot, albeit mildly amusing).

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