I Couldn’t Ignore This Stupidity.
Go ahead and check this out on Bloomberg, but the key parts will be shown below.
A permanent extension of Bush-era tax cuts would provide a temporary boost to the U.S. economy and then become a drag on growth by pushing up interest rates, the head of the nonpartisan Congressional Budget Office said.
Douglas Elmendorf said extending all of the breaks due to expire at year’s end would increase demand in the next few years by putting more money in consumers’ pockets.
He says that like it’s a bad thing.
I mean, seriously, hasn’t the main argument been, we need to increase demand? Isn’t that a Good Thing anymore?
Over the long term, he said, the tax cuts would hurt the economy because the government would have to borrow so much money to finance them that it would begin competing with private companies seeking loans. That, in turn, would drive up interest rates, Elmendorf said.
“The problem is that if those tax cuts are not accompanied by other changes in the government budget and are simply funded through borrowing,” the borrowing “crowds out other private investment in productive capital — in the sorts of equipment, the computers, the machinery, the buildings — that are the source of long-term economy growth,” Elmendorf told the Senate Budget Committee today.
“That connection is less visible, and I think thus less apparent in most people’s intuition, but it is no less important for being not-so-visible,” he said.
I see that he is trying to be cute, to offer up what is essentially a supply-side idea that the real source of long-term economic growth is private investment in productive capital (the “supply” part).
Note that those who are concerned about the government crowding out private borrowing say that it’s already happening, but at any rate, this seems to me to be a disingenuous argument. Totally aside from that…
It’s Just Stupid.
I mean, seriously? Raising demand is bad? News flash: if the economy improves due to raised demand, we won’t have to worry as much about borrowing! For that matter, a country on the upswing has people rushing to throw money at it since they know they’ll recoup the investment.
Totally aside from that… this is the same logic with the $30 billion loan support program for small businesses. By and large, small businesses are NOT borrowing, because businesses borrow to EXPAND. When your production is already under capacity due to a lack of customers and orders – that is, due to a lack of DEMAND – there is no point in borrowing more money.
Let the big, bad corporations and the Mom and Pop businesses worry about how to borrow money from the private sector after the economy is back on track and their profits – and the lure of more profits – provide a genuine factual basis for borrowing and expansion.
One More Thing.
Incidentally, I realize the CBO has priced the expiration of the tax cuts for “the wealthy” (and small businesses with gross over 250k yearly – my best assessment of news reports is that there is simply no reliable statistical information publicly available to say how many businesses this includes) into its budget projections. Congress and the White House have similarly factored it in, deciding that the government has a right to that money and speaking of how the nation cannot afford to give a tax cut over and above… the raised level of taxes that will soon arrive as a result of inaction.
They have priced it in, but ordinary families have not. In fact, ordinary people are aghast at the lack of an extension for even the middle class, in addition to a reversal of relief from the Alternative Minimum Tax (AMT) and other “trap” provisions in the tax code that snare the middle class.
In other words, we are not discussing the cost of a “tax cut.” We are discussing the cost of not going through with a heavy tax increase, of which one component is raising the base income tax on the wealthy. (The AMT will surely squeeze a lot more than a simple base rise would.)
In other words, we are discussing raising taxes in a recession, and being proud of it.
Look, I thought this thought but, seeing someone else write it – not to engage in partisan politics, I won’t link, but… the idea is, Democrats are now willing to forgo job creation and economic revival. I’m stopping short of impugning their reasons. The fact is awesome enough in its raw stupidity that it requires no application of malice.
Supply Without Demand Is Ruin
Incidentally, to the extent supply-siders would actually support the idea that demand is irrelevant because supply creates it, that is a stupid and ruinous idea.
Broadly speaking, I’m not quick to support simply throwing money at people, but I’d support throwing money at people a lot faster than spending it in spectacularly wasteful ways that don’t give people the visceral feeling of a free lunch to encourage spending. That’s not really the point here.
The fact you have a factory means nothing if it is idle because you have no customers.
Therefore, a tax increase to support the government’s bloated finances just so that it does not “compete with private business” in borrowing years down the road is openly sacrificing the present for the future.
Look… keep your mind in the here and now, young Padawan. Do not be mindful of the future at the expense of the present.
The present is bad. To admit that not raising taxes would be beneficial in the short term is to make a mockery of the criticism of the long-term “problems.”
Without demand, none of us can do business, period. Without increased demand, few of us can do good business.
Let’s recognize that fact and drain the ideology from the issue. If we want prosperity, it must begin with allowing the economy to heal.
This won’t do it. This is actually choosing to continue the pain in order to create a politically appealing public lashing of the “wealthy” without the slightest regard for the consequences.
I still despise partisan politics in general, but my goodness, I never thought that a party going to the polls would actually choose to shun economic improvement because it doesn’t fit a redistribution agenda.