Marshall Auerback — Even a deal on the budget is bad for the American economy

Policy formation must distinguish between financial provisioning and real provisioning for the future; only the latter can prepare society as a whole for coming challenges. While individuals can, and should, save financial assets for their individual retirements, society cannot prepare for waves of future retirees by accumulating financial trust funds. Rather, society prepares for aging by investing to increase future real productivity. Unfortunately, no such discussions are taking place, which is likely to lead to a bad to horrific policy outcome.

Pinetree Capital — Macrobits
Even a deal on the budget is bad for the American economy
Marshall Auerback | Corporate Spokesperson, Pinetree Capital Ltd
(h/t Kevin Fathi via email)

The "deal" and the numbers that go with it

All the media is decrying the wonderful "deal" over the weekend that had us avert default. Republicans are grinning ear to ear. Democrats are saying, it's the best we could do.

So here's the deal in a nutshell:

$1 trillion in spending cuts now. Then around Thanksgiving a bipartisan "panel" of six lawmakers decide on another $1.2 trillion in cuts that will go into effect in 2013. This decision of this panel, by the way, is final and not subject to amendment or filibuster. (More on that later.)

Let's go over the numbers:

$1 trillion in cuts equates to about 0.7% of GDP. That's a SUBTRACTION of 0.7%. Given that the economy grew at 0.4% in Q1 and 1.3% (preliminary) in Q2, we'll average that together and say that the economy is growing at around a 0.8% rate.

Now do this math: 0.8 - 0.7

You got that? (I know it's tough, but I believe most of you can do it.)

Okay, that means after these cuts the economy will be growing at 0.1% FOR THE NEXT 10 YEARS!

Right...no growth for the next 10 years. Nice!

But wait...we forgot about the additional $1.2 trillion of cuts that happen in 2013 and beyond.

We'll start with the very, VERY, optimistic asumption that the economy is still around $14 trillion at that time. (In all likelihood it will be far lower.) That means from 2013 on, the economy SHRINKS by 1.0% percent per year as far as the eye can see.

Somehow the Republicans equate this to growth. (Ah, yes, the "Confidence Fairy" at work.)

What this means is that AMERICA WILL NEVER AGAIN CATCH UP to other nations who's policies are fostering growth right now. It will be IMPOSSIBLE to catch up. Our standard of living is about to embark on an irreversible decline vis-a-vis other nations. We're done.

And what about the bipartisan spending cut panel who's powers make it exempt from normal, Constitutional procedure? Well folks, we've just experienced a coup d'etat. Aren't you happy you went to the voting booth and voted for your Congressional representatives and Senators? Your vote means nothing. Your future will be decided by six guys who just gave themselves unlimited power.

Nice to live in a democracy, isn't it?

Hi ho, hi ho, austerity we go!