Sunday, August 2, 2009

White House adviser won't say no to tax increase



It's "read my lips" all over again...no...worse...it's 1937! This is also David Axelrod, Obama's chief political adviser, who believes there is much political capital to gain from reducing the deficit.

5 comments:

AK said...

So do you agree that there is no political benefit from reducing the deficit? Considering that "all, deficits add to private sector savings (domestic and foreign) by the same amount."

I don't care either way, but wanted to get your view on the subject.

http://TheHardWorkingDollar.com

Mike Norman said...

"Political benefit" does not necessarily equate to economic benefit. In politics you have to win elections and sustain a sufficient degree of popularity so as not to diminish your power. If the electorate believes that deficits are bad and that government spending harms them--even if it is not true--then there is a political benefit to pandering to that view, at least in the short term. However, you run the risk that the policy you implement does not achieve the desired result (like the economy collapses) and you lose political capital anyway. The public's view is fickle and really good leadership does not pander to what the masses want, but leads them with intelligence, reason, vision and courage.

Insofar as economics is concerned, yes, all deficits add to private sector savings. However, a deficit that results in an addition to aggregate demand so large that it uses up all our available productive capital (both physical and human) is not good. That would be too much. However, until that point there is nothing to fear and everything to gain.

AK said...

"The public's view is fickle and really good leadership does not pander to what the masses want, but leads them with intelligence, reason, vision and courage."

I definitely agree to that.

"However, a deficit that results in an addition to aggregate demand so large that it uses up all our available productive capital (both physical and human) is not good."

The issue with this fact, is that you never know when you've exhausted all of your productive capital when it is exhausted. Especially if you compare productive capital to any other commodity. It is when you try to find that resource and its supply has dried up that you realize that your access to that resource has passed its peak.

I guess my question would be, "have we passed our peak?" and gotten to a point where our aggregate demand has surpassed our ability to "pay for" the supply we need to feed that demand. Just a question. I don't really expect an answer here.

http://TheHardWorkingDollar.com

Mike Norman said...

Sure you know. Is unemployment at zero or close to it? Is capacity utilization at 100%? That's when you know.

We're so far from our peak that it's sad. We have the capital to produce wealth and prosperity, but we choose not to use it because of a belief system that is irrational.

googleheim said...

This is a dogma free zone !

We can only hope that the tax increase / deficit concern is a head fake to Republican's who are being pricks about the health care bill.

As for politics and dogma, You have to deal with dill weeds like Biz Radio's Jack Baroudijian the GOP boy scout extraordinaire who says stuff like stimulus like cash for clunkers is "welfare" when in fact we know that promoting the GENERAL WELFARE IS WHAT THE WHOLE ECONOMY IS ABOUT ...

Besides George Bush used negative spending ( by shelling out Clinton's surplus via checks ) to stimulate and sent out the tax rebate checks which can be considered both negative spending against a positive account and welfare or whatever.