“Stuck on Usual Quarrel: Raising New Revenue” NY Times

Rothko 2[3]

"… even if the current talks soon resolve the immediate impasse, which did not look likely on Saturday, any renewal of negotiations for a long-term fiscal plan will run into the same underlying problem that has doomed efforts for the past three years.
Republicans refuse to raise additional tax revenue, and until they do, Mr. Obama will not support even his own tentative proposals for reducing spending on fast-growing social benefit programs, chiefly Medicare. During a White House meeting with Senate Republicans on Friday, he reiterated that the two go hand in hand, according to people who were there."  NY Times


The real contest in Washington and in fact across the country is between those who believe that the federal government is an engine of great good that should be given more and more functions and money and those who believe that the federal government is a necessary evil that restricts and blights private interests and lives and which should be greatly reduced in power and function.

Specific issues like the ACA or the tax on medical machines are mere excuses.  This battle has been fought and re-fought for all the years of the Republic.  It has its roots in the traditions of English government that lie at the heart of American political philosophy and discourse.  This struggle is essentially a renewal of the contest between the "King's Party," (Tories) and the Country Party (Whigs) that dominated English politics in the 17th and 18th Centuries.

In today's Washington we are now reduced to a prolonged contest of wills between these groups with the really professional "pols" running back and forth from one group to another like rats seeking escape.

The national media are largely adherents of the King's Party while still conscious of their corporate and special interest in seeking favor from groups like AIPAC.  In pursuit of these interests the media are busily engaged in portraying the dissident Republican populists as a doomed clique of illiterate rural buffoons.  What they seem to have succesfully ignored is the relative invulnerability of these "buffoons" in their home districts and the ability of the "buffoons" to tie the federal government in knots for a long, long time in this and future struggles.

Some say that POTUS is winning this fight.  How?  He has accepted the sequestration levels of spending as normal and the levels desired by the "buffoons" in next year's spending as a basis for discussion. 

What is my solution?  I have none.  pl



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69 Responses to “Stuck on Usual Quarrel: Raising New Revenue” NY Times

  1. Laura Wilson says:

    I don’t have any solutions either…but, from sitting in the Jiffy Lube today, I know that regular folks are very interested in the public health aspects of Obamacare (basic immunizations and regular check-ups. One woman was very up-to-date on how more insured people will help her employer—she works at a local hospital!
    Who knows, maybe a healthier population will be better able to vote sensibly.
    I do know that if more people knew US history and paid attention to the rest of the world, the “fight” would be a lot more helpful and a lot more instructive. The saddest thing is the “Know Nothing-ism” of the Tea Party.
    I value the discussions on this site because the commonsense, life experience, and “book larding” ratios are quite respectable!

  2. VietnamVet says:

    You are correct. As Mark Shields pointed out last night on NewsHour this is a battle between those who support government and those who don’t. Since the federal government deposits my pension in the bank on November 1st, I am on the government’s side. The other side is a third of the U.S. population. Their number is expanding. Since the corporate take over of the federal government, it doesn’t give a damn about about any of us and we know it. Yet, there has been no groundswell to take back government and make it work for us; “Medicare for all”.
    The other third are true believers. They absolutely know that government is evil and bankrupting the Treasury is good. Their world is flat. They elected radical Republicans who have left the corporate reservation and are torching everything. If the Federal government spins out of control so does Wall Street. The Elite’s portfolios will crash.
    The powers to be will force a compromise next week which will include entitlement cuts. If not, we will be steaming ahead at full speed into America’s third revolution.

  3. r whitman says:

    This is not really a philosophical argument. No one proposes that the USG shut down whole agencies, just give them less money. The conservatives have this myth of local control but if you ask them if they want to close down the FBI and make all crime local, they run the other way. Other current federal functions get similar answers.
    This whole argument is about bookkeeping. How many electrons go in which column on the federal spreadsheet.

  4. Respectfully I would cast the issue as to who benefits from general revenues? The public interest or private interests!

  5. turcopolier says:

    Incomprehensible. pl

  6. CTuttle says:

    Even the CFR warned the Chicago School fools/tools…!
    The Austerity Delusion – Why a Bad Idea Won Over the West

  7. Babak Makkinejad says:

    34 years ago, this fellow explained this all to me: “Americans want more government but they do not want to pay for it.”

  8. Walrus says:

    col. Lang, I’m not surprised that when you pose the question that way, you see no solution because there isn’t one.
    If on the other hand, you were to frame the problem as one of balancing the inherent inefficiencies of Government against the potential benefits of country wide solutions and the contrast that with the speed and flexibility of private sector action balanced against the temptation towards private profit, something might come of it.

  9. jr786 says:

    Watching this from afar, I can’t tell if it’s process defined by failure, or failure masquerading as process. In either case, maybe it’s about time that we the people had ourselves a Constitutional convention, where we could talk about how we want to live and then vote on it once and for all.

  10. turcopolier says:

    you are talking about some other country. pl

  11. turcopolier says:

    What will happen if there is a constitutional convention and some states do not ratify the new document? pl

  12. turcopolier says:

    “those who support government” What you and Shields mean is those who support the FEDERAL government. pl

  13. jr786 says:

    Well, I don’t know what would happen but if it were up to me I’d let them go their own way. It seems that there are irreconcilable difference between people/states. Personally, I have no problem with amicable divorce.

  14. Fred says:

    God help us if we did. Which billionaires would wind up buying the Republic? I sure don’t want the backers of OFA to ‘represent’ my interests any more than the tea party, AARP, the Koch brothers or 101 other groups.

  15. Margaret Steinfels says:

    It is always amazing to be reminded of the cognitive dissonance Americans have about what the feds should and should not do for them. Once again a Times story about flood insurance and the Congressional decision to cut the federal subsidy for those who live on the shoreline; the fund is deep in debt and flooding is likely to become more frequent. Yet home and business owners are up in arms about the increases, which will be phased in.
    Why should we highlanders be subventing through our taxes the citizens of Florida, Louisiana, Texas, Georgia, N and S Carolina (who keep electing TP representatives), lucky enough and/or rich enough to live on the ocean and in flood prone areas. (I’d include Jersey and New York except they elect representatives who believe in federal taxes.)

  16. Charles I says:

    There is no such thing given the debt, pork and nuclear weaponry to divvy up. I once had clients who wanted a trial over a vacuum cleaner:. What do you think the invulnerable 30% will agree about sharing the national debt.

  17. turcopolier says:

    Margaret Steinfels
    “Why should we highlanders be subventing through our taxes the citizens of Florida, Louisiana, Texas, Georgia, N and S Carolina (who keep electing TP representatives), lucky enough and/or rich enough to live on the ocean and in flood prone areas. (I’d include Jersey and New York except they elect representatives who believe in federal taxes.)”
    What do you propose? pl

  18. Will says:

    the laws that apply to household budgets don’t apply to a sovereign with an independent currency (unlike Spain or Greece that are tied to the Euro) and their own printing press.
    In a time of liquidity trap, low demand and high unemployment- increasing the money supply does not cause inflation.
    many things in this world are non-intuitive, say like quantum mechanics or special relativity, and have to be understood thru the math.
    this article helped me understand the nature of money

  19. elkern says:

    Well put – thank you!

  20. Richard Armstrong says:

    As there is no divorce court to mediate between nations and disgruntled regions that might wish to secede there would be little or no divvying up of community property. It’s more like one spouse walking out with the clothes on their back and the money in their pocket.
    Were the largely unsatisfied states to leave and attempt to impliment a Randian utopia we will see maquiladora move north and east to line the northern border of what will probably be a third world country.
    In 50 years of observation I have never seen a single state say they would prefer to build their own interstate highways or fully fund their own militias or inspect food and drugs themselves or demand to take over any such federal endeavors that are now part of our social contract.
    I think life in such a libertarian state would be poor, nasty, brutish and short.

  21. Norbert M. Salamon says:

    The problem of USA at present since 2008 is that the government debt went up by about 7 trillion dollars, while the GDP [even including some funny treatments] has only increased about 300 billion dollars.
    This is unsustainable, whether the US has independent currency or not.
    While the inflation rate for the average [90%] of citizens is relatively low –2%per annum per USA Gov. 6% per Shadowstats.com the inflation rate of stocks is well over theses puny numbers; creating great social inequality [with its own future problems]. At the same time the unemployment rate is high [if excluding part time employment], with wages falling, median income of families falling etc.
    The coming default is a forgone event, only the timing is in question.
    There is one and only one solution, the income and the outgo of government has to be equal, a situation unforeseeable due to demographics of the nation and the pension/medical cost [be they government or other funding].

  22. Babak Makkinejad says:

    30 years ago I listened in astonishment to a lecture on how US Army Corps of Engineers went about executing water control projects that had been enacted by this or that other hare-brained that made no technical sense.
    In essence, the Engineers were building water-flow control structures that – in the long run, say 2 or 3 decades – could but only delay the inevitable destruction of what they intended to protect.
    And all of that was at enormous public expense.
    The speaker went on to mention the unintended consequences of many such projects; e.g. protecting one man’s shore line meant the erosion of another’s.
    He further observed that the Engineers were not dumb, they grasped all of that but they were only executors of what politicians – and through them the population – desired.
    The Engineers were powerless to refuse or question their orders.

  23. Peter C says:

    jr 786, lets assume that the separation of States that want to break from the Union happens. What happens to all those Federal Military Bases that surround San Antonio and sit above El Paso? Will the Republic of Texas be able to support these endeavors in the style that pumps billions into the Texas economy that are contributed by taxpayers (and money borrowed) form far and wide in the Union. Will Texas with it’s massive oil field equipment manufacturing capability in the Oil extraction business allow export to Union states??
    It will not be a painless divorce, who gets the children.

  24. turcopolier says:

    Complex countries DO break up in spite of the obvious difficulties brought on by that. Remember the USSR, Austria-Hungary and Yugoslavia. pl

  25. Margaret Steinfels says:

    Since I’m in favor of the federal government and paying taxes to it, I do not propose anything. I think those unhappy seaside residents of the aforementioned states come to grips with the connection between their votes, our taxes, and the policy they’d prefer: cheap insurance subsidized by the government. They can’t have it both ways.
    If I was a libertarian (libertarians invited to respond), I’d say, “go without insurance, and save the premium money to rebuild. When rebuilding, do it with an eye to the next storm and the likely damage based on a 500 year standard.”

  26. r whitman says:

    If Texas went at it alone there would be 10 million Mexicans invading and colonizing by noon of the first day. It would be the Reconquista for real.

  27. turcopolier says:

    This an interesting plot line for a story – Texas secedes, US armed forces withdraw from Texas. Texas eventually invades Mexico to establish a “cordon sanitaire” against smuggling and illegal migrants. pl

  28. turcopolier says:

    IMO no one intends to secede. They would rather stick around and drive their detractors nuts. pl

  29. What people intend to do is only partially relevant.
    Many years ago, in the course of a student career which seemed at the time unfruitful, but left some seeds which were useful in later years, I had the benefit of listening to an idiosyncratic series of lectures on the Commonwealth and Protectorate.
    The lecturer was — like the teachers Colonel Lang describes at VMI — someone who published, but not very much, and whose main work was as a teacher.
    The notion that the English Civil War was an inevitability, he showed, had no foundation in fact.
    When what became the Long Parliament was called, in 1940, the consensus of opinion was overwhelmingly that Charles had asserted the prerogatives of the Crown in a way which violated the traditional constitution of the realm.
    At that point, Charles could simply not have got sufficient support for a military challenge to Parliament.
    However, his opponents became involved, in challenging him, in dealings with the Scots which could quite legitimately have been regarded as treasonable. Accordingly, they were driven to demand restrictions on the prerogatives of the King, not originally because they had embraced a new ideological way of looking at things, but simply out of concern to survive.
    A fortuitous result was that much middle-of-the-road opinion moved back towards the King, the outcome being the kind of even split of the political classes which could only be resolved by violence.
    It is not necessary, at the outset, for people to have any kind of enthusiasm for an escalation of conflict, for the logic of events to run out of control.

  30. The Twisted Genius says:

    I share your opinion that no one intends to secede, although the apoplectic exasperation is growing on all sides. Things aren’t that bad yet and, after a couple of centuries, the roundheads and cavaliers have interbred and intermixed. Where would one draw the borders?

  31. Babak Makkinejad says:

    And then, per your plot line, there would be a “Frente Nacional para la Liberacion de Texas”; funded by the Mexican Government.
    Texas would elect to bomb Mexico City with left-over US airplanes.
    Mexico would start a crash rocketry program, buying it from any and all who would sell her the rockets.
    Furthermore, to neutralize the Texans’ technological superiority and stop it from nibbling away at Mexico, she also starts a crash nuclear weapons program.

  32. turcopolier says:

    On the Ocaquon for one place. IMO there are still clear demographic fault lines. They have moved around a bit but the populations are still distinct. Travel around in southern Illinois, Indiana and Ohio and you will find yourself in The South. You might want to read “The Nine Nations of North America,” an oldie but a goodie. pl

  33. turcopolier says:

    David Habbakuk
    I wanted to know if someone would rise to the bait over the word “intends.” I should have know that it would be you. I note that neither you nor your countrymen dispute my theory of the English roots of this conflict. pl

  34. Margaret Steinfels says:

    And Mr. Cruz could become the president of Texas. After he invades Mexico, he can go after Cuba. We’re onto a new TV series: “Gone South.”

  35. turcopolier says:

    Yes. I looked up the military resources of Texas http://en.wikipedia.org/wiki/Texas_National_Guard This is a potentially potent force when matched against Mexico. I doubt tha the withdrawal of federal armed forces would include the Texas National Guard’s equipment and the Texas State Guard is a substantial group. pl

  36. Will says:

    in the book One Second After, Newt Gingrich’s alternate history co-author William Forstchen writes about the consequences of EMO bursts frying our modern lives and plunging us back50-60 years. In that story the Chinese come over to help and wind up occupying the West Coast, and Mexico takes back Texas and the border states.
    Forstchen has that alternate history series with Newt. He also has a series called The Lost Regiment The 35th Maine Regiment (Maine only raised 32 during the civil war) based on the famous 20th regiment. They get wormholed to a planet w/ two moons and develop a steam punk-like military industry to help humans fight off alien mongol horde-like predators.

  37. jerseycityjoan says:

    That would have been right before Reagan. Those were the glory days, before both parties and most of our elites in all areas (government, academia, business, nonprofits) entered “The Magical Land of Wishful Thinking Where Dreams Come True”.
    Now people think they can have more government and have tax cuts at the same time.
    Businesses think they can avoid hiring Americans, cut their staffs and pay their employees less and that somehow, their American customers will always be able to buy as much as they ever did, even at higher prices.
    I could go on but I won’t.
    As long as so many in charge (a) are more interested in their particular group’s La-La Land than reality and (b) have more interest in what happens in other places than what happens here at home, we are all going to suffer.
    We have leaders over 65 with years of experience at the top whose willful blindness would shame college students.

  38. jr786 says:

    Apparently I’ve helped raise the awful specter of secession, or dissolution of the Union. The logistical problems are inconsequential – if you want to be rid of someone then it hardly matters how the spoils are divided.
    I’d like to know the opinions of people regarding a constitutional convention, one with the real possibility of dissolution of the Union. Of the two antagonists, who would resist more the possibility?

  39. Richard Armstrong says:

    Will, thank you for pointing out how fallacious the idea that a household budget is in any way like our Federal budget.
    When I hear someone try and make that comparison I know to quickly end the conversation if I’m not prepared to deliver a short course in economics. I have found that people who use that comparison are usually not persuaded by economic facts that they either do not or cannot understand.

  40. Richard Armstrong says:

    I think Harry Turtledove has already kind of done just that. But I’ll bet even money you already knew that. I recommend all of Turtledove’s works of alternative history and military fiction.

  41. Richard Armstrong says:

    I think Harold Coyle wrote something that involved the 36th Division in action in Mexico. I became fascinated by Coyle’s depiction of tactics after he expanded one chapter of Gen. Sir John Hacket’s ’77 novel about WW3 into “Team Yankee”.

  42. Will Reks says:

    This is useful right-wing populism and more about picking and choosing who benefits from government largesse. The same Tea Partiers who wanted to cut food stamps voted to retain agriculture subsidies that primarily benefit middle-class to wealthy whites. The same Tea Partiers who benefited from populist anger against bailouts for Wall Street elites want to repeal regulations on the behavior of that industry. It’s not so much federal government spending as spending that does not primarily benefit them or favor their interests.
    I don’t think of them as “illiterate buffoons”. That’s the language of victimization and they are entirely comfortable with the NE elites thinking of them in that way. I admire the influence they’ve had on the Republican party and wish there was an equally effective group on the other side.

  43. closer says:

    May come down to those who believe in gold and those who don’t. Zanzibar would know. Could it come down to modern day Jeffersonians (those who believe in gold) vs. modern day Hamiltonians (those who believe in fiat currency)?
    Texas apparently believes in gold. Univ. of Texas invested a billion dollars in gold. Yes, a billion dollars. I’d keep a close eye on where UT stores it. It will be truly fascinating if the USG tries to confiscate gold, a la FDR in 1933.
    In Bibles over the past century and more, you would often see the genealogy of different family members written inside the covers. In the deep South and perhaps beyond, you often would see the notation “GTT” when describing different family members. “GTT” means Gone To Texas. Usually those who had “GTT” written by their name had been up to no good and were just getting away to start a new life.
    Well, today, GTT may mean something else. Zanzibar would know. But I would watch what Univ. of Texas does with its billion dollars investment in gold. It may end up in a depository in Texas.
    Ain’t that Brenner fellow a professor at University of Texas?

  44. fred says:

    Just how are those ten million going to make a living?

  45. The Twisted Genius says:

    “On the Ocaquon for one place.”
    I think the status of Fredericksburg, Richmond and other urbanized areas of tidewater Virginia would be problematic with that border. Or perhaps the possibility of being called a yankee would cause any resident of Fredericksburg or Richmond to accept the Occoquan River as a border.
    As you often mentioned, the urban-rural divide in this country is real. This is especially true of the red-blue divide. “The Nine Nations of North America” might address this, but what I’ve read so far is that these nine regions are primarily economic/geographic in nature. Maybe that’s a more realistic approach.

  46. ISL says:

    I would like to voice the opposing opinion to the general tone of discussion. As I see the issue slightly differently than torries and whigs, but rather (a common theme here at SST), mega-urban coastal and small rural.
    I think it is clear that US economy and US gov’t favor the coasts. Currency costs, trade legislation, subsidies, many regulations, are banker/big business friendly (alert, I am neither a big bank nor a big business), and unfriendly to heartland/southern industries/economy. For example, agricultural subsidies now mostly benefit giant wall street agribusiness. This summer I drove 11000 miles across the US, and everywhere from Arkansas to Nebraska I saw small towns devastated and progressively abandoned.
    The grand bargain of the union was a balance that gave extra power to small/weaker regions to prevent their being steamrolled by larger/richer regions. Today the bargain is slipping, and either it will be righted, or the value of being in the union will fail.
    I agree no one plans to secede, but if the dollar loses its global reserve status and crashes and the US defaults because we have the worst balance of trade of any developed country in modern centuries, then, all bets IMO, are off. Since as Norbert notes, we seem unable to avoid running off the cliff at full speed, the question is: Do we land as a union or as disparate seceded groups?

  47. turcopolier says:

    In re the book, I see the divides as cultural. pl

  48. The Twisted Genius says:

    Then I definitely look forward to reading the book. I already liked the description the author had for New England. It was as if that cold, rocky, inhospitable region was created for Separatist Puritans like the ones that settled my hometown.
    Today I watched an interesting BBC documentary, “Roundhead or Cavalier – Which One Are You?” on YouTube. The commentators noted that a combination of both cultures is essential to what makes the English who they are today. I think the intermixing of these cultural ideas in varying ratios can explain a lot of our own cultural differences.

  49. turcopolier says:

    “Can a state be expelled from the Union? ” No. pl

  50. Babak Makkinejad says:

    It might interest you that Italy also went into the La La Land – as you put it – under Berlusconi.
    He told the Italian people that he would cut their taxes – which he did – but never mentioned the accompanying cuts in services.
    Like US, the Italians evidently expected lower taxes and same level of service.

  51. Peter C says:

    Under the assumption that the Republic of Texas arises and needs to patrol the Rio Grande (not very Grande in many parts these days due to ongoing drying up of the west)
    Texas State Police v. Pirates – Gun Boats!!!!!!
    Tejas (Native American spelling and pronunciation for Texas, and favored name used by local Texans

  52. PS says:

    The problem is that on the existing track, transfer payments (e.g., Social Security, Medicare, VA benefits, pensions) and military spending would take up the entire existing revenue and more, leaving all those other government functions (justice, infrastructure, research, foreign relations, etc.) with nothing.
    The Republicans have said that benefits have to be on the table for proposed fiscal negotiations, but unless they’re willing to put some specific proposals on the table (other than minor changes to calculating CPI), I’m not sure where this would go. Considering that they have been accusing Obama of instituting death panels for grandma, it will be hard for them to put forward concrete ideas to address rapidly ballooning Medicare costs

  53. jonst says:

    Neither of the “two antagonists” would resist the possibility. Indeed, they would rush to it and embrace as a chance to implement all their cockeyed schemes and dreams.
    The nation is getting what it deserves, sadly.

  54. Edward Amame says:

    It’s time to start thinking about how to change our system of gov’t. A parliamentary democracy makes the most sense with parties as divided as they are, and considering Col Lang’s theory of the roots of this political conflict.
    This would require amending the Constitution, but it’s hard to see what other reasonable choices we have.

  55. Fred says:

    The reasonable thing is for all those Americans who do not vote in primary elections to get off thier asses and get to the polls.

  56. Norbert M. Salamon says:

    Please check the USA Federal Budget – for you will find that Defence is discretory spending, for which there is no room after interest on the debt, Social Security and Medicare – that is the three mandatory budgetary expenses.
    On the 17th of this month the Federal Government has the first rollover of some 100+ billion of debt, with interest payments due on the 3oth.
    Theoretically the Government has a three day window on settling any bills, notes and or bonds.

  57. crf says:

    The origin of this particular crisis brought about by a failure to increase the debt ceiling is because of the repeal of the Gephardt Rule. Had this (entirely sensible) rule not been repealed, the budget vote would automatically increase the debt ceiling.
    You wouldn’t have two, potentially conflicting, spending fights: one over the budget, and one over the debt ceiling.
    The House leadership has decided that the debt ceiling will, in fact, be a second, completely rule-free budget process in direct conflict with the process-heavy rules described in the Budget and Accounting act.
    If the US decides not to have a Gephardt-like rule, then there really needs to be some process to control the debt-ceiling votes.

  58. zanzibar says:

    I believe Pat has characterized the contestants extremely well. IMO, “those who believe that the federal government is an engine of great good that should be given more and more functions and money” have trounced their opponents for the past many decades.
    At the beginning of the 20th century federal government spending represented around 3% of GNP while our population was around 76 million. Today, our population is around 316 million and federal government spending is around 23% of GDP. Of course, during the big wars the federal government spent even more as a percent of GDP for short periods.
    When state & local government spending is added, government spending has grown from 8% to around 40% of GDP in the same period.
    It would seem that in light of the above that “those who believe that the federal government is a necessary evil that restricts and blights private interests and lives and which should be greatly reduced in power and function” have not even shown up to the contest. As a member of this group I have taken our continuous defeats with much stoicism. Throughout my adult life I have been in the minority of opinion. I did not support most of our post-war military interventions based on a simple premise that they did not serve our national interest nor did they pose an existential threat. I have also clearly been on the losing side with the spiraling growth in the federal bureaucracy, the massive subsidies to politically well-connected interests and the increasing scale of government intervention in our lives. I believe there is an important role for the federal government, albeit small, as the umpire enforcing the rules of the game and as envisioned in our Constitution.
    When I began my career as an investment banker, all the banks were partnerships. Prudence ruled as partners’ own capital was at risk for any losses at the firm. Now, Wall Street’s business is primarily leveraged speculation and through government intervention have privatized profits and socialized inevitable speculative losses. The central planners at the Federal Reserve believe that a stable monetary unit must lose at least 2% of it’s purchasing power each year eroding the value of hard-earned savings and that it is their role to intervene in financial markets to manipulate asset prices. The academics that have developed economic policy these recent decades speak with immense certitude on the outcomes of their theories as “it’s all supported by mathematics”. The economists at the Fed are busy writing papers with much mathematical notations.
    Yet, incoming Fed chair Janet Yellen is quoted, “For my own part, I did not see and did not appreciate what the risks were with securitization, the credit ratings agencies, the shadow banking system, …. I didn’t see any of that coming until it happened.” Of course, how could they see any of this happening when they were instrumental in fomenting the bubble in the first place! And now, these “prescient” seers have even more power to “manage” the global economy since failure of government only means even more is required. Some of us more steeped in the humanities clearly saw the freight train hurtling at high speed towards a wall and closed shop.
    There is currently a “gospel truth” in economic theory that has become conventional wisdom that reducing government spending during an economic downturn cannot and has never worked since the mathematics proves it. Now, when it comes to economics my experience is to be humble, since I know it’s extremely difficult to model with any degree of accuracy the behavior of billions of individuals and millions of business managers and of course all the central planners who don’t all act rationally and according to the best laid mathematical equations all the time. What I do know is that when the credit & asset bubble around the Great War inflationary boom burst, peak-to-trough (Spring 1920 to Summer 1921), nominal GDP declined 24%, unemployment exploded from 2% to 14% – yes, a real depression! And, the horror, at least for Dr. Bernanke, prices actually deflated – the CPI fell by 8% and the wholesale price index crashed by 40%. In response to this real depression, President Harding & Congress cut federal government expenditures and lowered federal tax rates. The Federal Reserve raised interest rates to 8% from a business cycle peak of 6%. In fact, President Harding delivered budget surpluses in the depression years of 1920 & 1921, reducing the federal government’s debt. The federal government’s debt of around 33% of GNP in 1919 was reduced to 26% of GDP by 1923. Because of the Harding administration’s less government spending policy or despite them, unemployment came down to 3% by 1923. The recovery began quickly as the preceding mal-investments were cleared with industrial production growing by 27% in 1922.
    In contrast, the response to the bursting of a credit & asset bubble fostered by our central planners and taken to extreme by a taxpayer backstopped Wall Street and of course the many Americans who levered up the good life believing that house prices would inflate forever; was that both the Bush & Obama administrations increased federal debt from 65% of GDP at the beginning of the recession in 2008 to over 100% of GDP in 2013.
    The Fed, in addition, more than quadrupled its balance sheet during this same period conjuring new dollars, while pinning interest rates to the floor. The outcome because of these polices or despite them, is that food stamp recipients have grown from around 28 million in 2008 to 46 million now. Real median incomes have declined and the labor participation rate has plummeted. We also have the weakest post-war recovery. Yet, the calls are for even more of the same. There is not a question on the efficacy of current policy. It reminds me of von Mises, who notes, “No one should expect that any logical argument or any experience could shake the almost religious fervor of those who believe in salvation through spending and credit expansion.”
    Clearly, the cult of more government continues to grow. I see no force to arrest its seemingly inexorable growth let alone roll it back. Government erosion of our bedrock principles is best exemplified by the NSA, who spends billions hoovering all Americans communications under the guise of preventing terrorism, yet claims they have only prevented couple of potential terrorist acts. Secret courts with secret rulings. Government wrong doing protected behind the veil of “state secrets”. A couple of hoodlums with homemade bombs cause a major city to be in lock down with militarized police forces sweeping through in pursuit. I know my grandpa, “Pops”, is shaking his head in dismay. As Tocqueville wisely noted, “The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.” IMO, we crossed that rubicon some decades ago.

  59. Fred says:

    Very well written sir.

  60. SAC Brat says:

    There it is. That’s the flag, the standard to follow. After all the fakes and phoneys, the media people (am I being redundant?), grifters and debasers of language it is refreshing to hear truth.
    I could never understand how burning the furniture, eating the seed corn and crapping in the cabin could be accepted as good ideas no matter who was selling the concept.

  61. Richard says:


  62. Stephanie says:

    Possibly they also enjoy their fair share – indeed, often rather more than their fair share – of goodies from the tyrant Feds. There’s also the famous example of the Tea Party lady who demanded that Obama keep his hands off her Medicare.
    I like the fact that the Tea Partiers are making life difficult for the Wall Street wing of the GOP and I understand much of their resentment. Big Government is a genuine threat on the state level as well as the federal. Unfortunately, their energies are largely, and sadly, misdirected.

  63. Jack says:

    Its simple. Big government has the majority. The one percenters want big government to enforce their monopolies, bailouts, and complex tax loopholes. The 50 percenters want big government to give them their free cheese. Unions need big government for their fat benefits. The beltway bandits want big government for their moola. The authoritarians want big government to push their morality down everyone else mouth.

  64. Sam Peralta says:

    Thanks for writing in plain in English what I feel intuitively. Guys like me are falling behind as our incomes stagnate while the cost of living constantly increase. There is no way for us to keep up with the technical jargon laced spin that is used to obfuscate. I have read your insightful comments for some time here. In December 2008 while the financial world around us was falling apart in a comment you wrote then you were rather bullish on financial markets. Unfortunately I was fearful about my meager savings. What is your opinion now?

  65. zanzibar says:

    Only you know the right investment posture for your savings. In late 2008, there was deep pessimism and valuations on many instruments had declined substantially that increasing risk exposure would have been appropriate for long term investment portfolios.
    We are currently in a challenging investment environment with risk premiums artificially suppressed by government intervention and confidence in the ability of central banks & governments to manage adverse financial conditions very high. Investing looking in the rear view mirror is always fraught with more risk than is apparent at the moment.

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