Tuesday, November 29, 2011

Is it economics or politics? Part 3

It has been more than a month since part 2 and it is difficult for me to pull things together.  The truth is, the current machinations in Washington are both economics and politics.  I have to work to understand both if I am to have any chance at understanding what is happening.  A few things are clear, at least to me.

First, we will all be better off if we spend less money.  This applies to the government and to each of us as private citizens.  We need to reduce government expenditures and increase the quality and effectiveness of government programs.  I know that sounds contradictory but this is the essence of our problem.  Spending more money on anything doesn't in and of itself make that something better.  Surely our experience with health care is a case in point.  We spend a lot more money than other developed countries--both in total and per capita--and yet have no better health system and in many cases less good health outcomes.  I favor moving to single payer approach but there are other alternatives.  Without question, however, if we cannot figure out how to spend less on health care no amount of tinkering with payment systems will come close to touching our problem.

Both government and individuals need to move away from the use of debt to finance ongoing consumption.  Debt is important to families, corporations and government as a way of financing investments, not consumption.  Debt financed consumption is what leads to speculative bubbles and the resulting collapses.

So we need to change some of the rules to reduce future spending on Social Security, Medicare and Medicaid as well as the defense industry.  That will hurt, no question but there is no alternative. There is a big but.  We need to increase investment in fundamental infrastructure:  transportation, education, communication, and basic research.  If these are reduced when we already are feeling the impact of aging and inadequate infrastructure, what will happen if we reduce these even further?  While these investments must increase, we must also increase the quality and effectiveness of these basic systems.  It does little good to increase debt to increase college attendance if the resulting student debt is a crushing  load that distorts vocational and career choice.  We cannot let the cost of education run wild just as we cannot do that in health care.

Second, we must increase tax revenues and adjust the tax code so that it is more equitable.  The tax code is not going to increase or decrease job creation.  We need to make sure that we have enough common resources and that those most able to contribute do so equitably.  Those of us who paid federal incomes taxes from 2000 on have benefited from tax decreases that we did not seek and did not need.  We have gotten a free ride for the last ten years or more.  Simple equity suggests that we should now contribute more to help put the entire system back in balance.

So it is simple.  Spend less and take in more.  Sooner than later we will pay down the debt to manageable levels and begin to have a surplus just as we did before the drunken sailor in us got in control.  As a nation we took in less money and began to spend more, a lot more.  We used debt to finance the deficits.  Now we simply have to spend less and contribute more to get back to go.

I have little patience with either the Democrats or the Republicans.  Both parties have become so partisan that no one can simply stand up and speak the plain truth and be guided by what the country needs.