Tuesday, November 27, 2012

A Haunting from John Maynard Keynes

The Richmond Times-Dispatch had an editorial today about the dreaded fiscal cliff that's coming up in January unless the dunderheads in Congress and President Obama can get the lead out and agree on something to prevent the tax increases and the slash in Federal spending.
Several writers offer differing views on the best way to tackle this problem, but five of them stood out to me.
One writer says that it's not necessarily the deficit that's the issue; it's far better to have low unemployment and high growth. That certainly echoes Keynes's argument for Great Britain in the 20's and early 30's when labor unions where striking for higher wages and the government was attempting to return the pound sterling to prewar levels. The result was very high unemployment in industrial areas which resulted in the government giving them unemployment pensions. Having a decent growth and low unemployment would allow for more taxes to be raised while reducing expenditures on unemployment insurance and other subsidized benefits.
A second says that increased military spending will create jobs but up to a point. After that point it will lead to decreasing marginal returns due to crowding out of private sector investments. I guess that makes sense; why would you try to compete with the government on research when they've already awarded out contracts to defense contracting companies?
A third writer sort of states the untold truth: the debt ceiling is just a limit. I don't know how it's decided, but apparently it's been moved up and up for years. And the fact that the government can refinance it's debt doesn't necessarily mean that there's a point of no return. However, I suppose that weighs heavily on the amount of our debt compared to other nations with similar GDP.
And the last writers hash out another argument in reference to taxation. One of them states that taxing the rich in order to redistribute it to the poor is really just a government sanctioned form of looting. And as long as the rich remain rich, there won't be a problem. That just smacks of Ayn Rand's "Atlas Shrugged" and it's kind of true from that viewpoint. If you're successful and created your own money because you were the best and the smartest at what you do, does it make sense for the government to continue to draw on your wealth by an income tax once you've paid your taxes like everybody else? Wouldn't that just be penalizing you for your success?
The other writer takes a differing stand point from a practical perspective. He addresses the higher tax rate for the rich as just a simple balance: having tax cuts for the middle class would create more jobs and more growth, but the only way to get to that is to have a higher tax rate for the rich.

So there you have it. Five different ideas on the fiscal cliff and five differing opinions. I think Keynes would take pleasure in trading barbs with the writers.
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