Sorry for the long post guys.
So you are going cover the interest by distorting the markets and taking money from successful parts of the market by taxing them? That only stunts growth. Why not just leave the market alone and maintain more modest budgets?
As for the statement about borrowing being a thing that healthy governments do- that is a statement of opinion, not fact and it depends on what economic theory you believe in. Looking at the current crisis and what is to come, I really beg to differ. The only time I would justify debts is in moments of national security emergency or something else that is of physical harm to the people.
I'm not sure where you are coming from with market distortion. Not cutting spending or raising taxes would ensure that the market stayed the exact same. This would mean higher tax revenue in the next year than if you cut something or raised taxes.
Borrowing doesn't really hurt anyone too much (as it stands now). The only real danger would be a growing interest rate or if crowding out occurred. Neither has really happened. We have plenty of foreign banks that just love to lend us money (risk-free investment for them). We shouldn't count on that forever, but as long as our deficit stays lower than the GDP, we'll be fine in the long run.
As far as healthy governments doing it, I have never heard of a philosophy that was actually against them borrowing from time to time. It's just logic. If they are going to have a deficit one year, they have two choices. They can cut the fat on the budget or raise taxes. The problem is that there isn't a whole lot of fat on the budget in most real examples, so they usually have to cut into the muscle and bones of a number of programs. This would hurt the economy and lower revenues further. Tax increases obviously hurt the economy and can even cancel themselves out.
The smart choice would then be to run a deficit for the year to maintain the economy. It would obviously be foolish to partake in hardcore deficit financing, like we did, but that's another argument entirely. We're playing with fire, but we are far from burning ourselves.
It also has very little to do with our current predicament. Really...if crowding out had occurred, then we'd be in better shape. More money would have gone to government debt instead of mortgage backed securities
. Bad for other reasons obviously, but kinda cool.
And what if the economy contracts as it is doing now? Where are you going to get the money from then? This sort of thinking calls for unlimited exponential growth, which is not sustainable.
Again, the money comes from the idea that the economy will be hurt by not borrowing (which follows pretty logically). You are getting more taxes than you would have otherwise.
If there is a contraction, then you'll get it sometime in the future
. That's the beauty of being a government. You can carry debt for a very long time. We've been carrying debt for periods of 30 years or so since the Revolutionary War.
If it's an awful contraction, then you'll will eventually be forced to suck it up and make the unpopular decision to cut a whole bunch of programs and gut the government to drastically cut federal spending.
This would actually require 30 or 40 years of a stagnant or receding economy. It just takes a short boom to pay back substantial amounts. I know that we were looking at a $1 trillion dollar surplus during the Bush presidency before the Iraq War and the pointless tax cuts (and if I remember the CBO reports correctly, we would have had it). If we really have that bad of a contraction, then we have bigger things to worry about than some government debt.
You don't see a problem with inflation? You realize that when the 2% inflation rate "erases" the debt, all it is really doing is taxing the people by reducing the buying power of the currency?
???? Inflation occurs. It is a fact of life. It often occurs on the micro level. The only thing to stop it would be wage caps and a freeze on raises. Deflation is much worse.
Inflation isn't bad either. Unexpected inflation is. Inflation is always accounted for in investments, so all it really does is convince people to keep putting their money to work. Money under the mattress hurts us all though.
Obviously the government shouldn't induce inflation to pay off the deficit. We see how that worked for the Weimar Republic back in the 1920s and 30s. If they are going to do that, then we'd actually be better of having Obama come and say that we just aren't paying. It would hurt our credit rating and have terrible political fallout, but it is always an option.
It is basic economic fact that cutting taxes means more money in the markets and in people's pockets, which means a healthier economy. I don't know where you are getting this tipping point idea for tax cuts from...
I'm getting it by looking at the actual reports from the CBO (I did a full report on this a year ago, so I still remember a lot of random deficit figures).
I'm referring to the Keynesian idea that cutting taxes solves all our problems and causes a greater benefit to the country as a whole (Reagan's principle). I don't believe you hold it, so it's sorta pointless to say much more. Just the simple fact that income growth did not match tax revenue lost for any tax cut after the Reagan period. This would mean some level of inefficiency, since the market growth should ideally offset most of the tax losses.
You are also forgetting that taxes don't magically disappear in the government. They are paid to government workers. Paid out as social security. Paid to defense contractors. Paid to a whole bunch of Americans. At the point we are at now, a tax cut would probably find its way out of the country through the purchase of export goods or foreign workers (if it's a corporate tax cut). There's an argument to be made at least (don't have the figures or the desire to find them though).
Actually there are plenty of places to cut spending- namely in pork, welfare programs, the Federal Reserve, the Iraq war, military bases in places where we don't need the army, and hundreds of inefficient government programs.
Pork - Pork is sadly not that much of a boon for cuts. It should be cut by principle alone...but good luck with that. It doesn't actually amount to much.
Welfare programs - That's your opinion (one I generally support, but still). Cutting welfare would give a terrible hit to the lower class which would be a social nightmare. It would also remove a lot of lower level spending to grocery stores and fast food places. That does have economic fallout, possibly greater than the relatively small return.
Fed Reserve - What exactly would we cut? We need a way to manage the banks to prevent the wildcat fiasco we had 150 years ago. We tried letting them not have a central bank...it cause a terrible 2 year crash and ruined Van Buren's presidency (if I'm remembering my historical timeline correctly).
The Fed isn't exactly expensive to maintain either. I believe that it often returns a small profit thanks to its loans to member banks. I know that there is an existing protocol for handling the profit (it goes to the treasury department and is filtered in as extra profit...its mixed in with the money we effectively make from printing money and releasing collector stamp packages)
Iraq War - The war itself is only $100 billion a year and we are already winding down...so it's actually a drop in the bucket in the long run. There probably some argument to be made that its an investment for future oil revenue...but regardless.
Military Bases - I'd have to dig up figures for this, but I don't know how much the bases themselves cost. I actually think that the general maintanence for the real army isn't too bad. Most of the cost comes from R&D, manufacturing, etc.. We also have some NATO commitments, I'm sure. They are also a good way to protect American interests in foreign places. Overall, we get pretty good bang for our buck. Remember, military pay goes to soldiers, who often send it home to be spent on food and furniture, so it's not a total waste either way.
Inefficent Programs - Yeah. Good luck finding them. A total audit wouldn't necessarily turn up much at any individual agency or program. It would probably even be counter-productive and might cost more than the temporary savings. A general restriction would also just nail the efficient programs while barely cutting the fat.
