In our Hoopla of Political Ideologies We Just Made It Worse.

By this time, President Obama has signed a resolution to end the latest financial crisis this nation has faced. Well, that is what we hope.. Democrats, Republicans, and the Tea Party all agree that we need to reduce our deficit, which may be the direction to go in. However, as we all have come to learn, none have the desire to work in cohesion, nor do they have similar ideologies and there are reasons for it. 


This process started months ago, and in a less politically charged state of affairs, should have finished months ago. The first debt ceiling was enacted in 1917 at the level of $14.5 billion dollars. Since then it has been raised seventy-four times, ten of those coming in the past decade. The most recent cap prior to this debacle was set at $14.294 trillion, a hefty sum of debt. All of which has been in the theory that if there is a debt limit, congress won't be able to spend any more than their limit. In practice, this is nonsense, for every time the Treasury Department or Congress has needed to spend more for a new government program or investment, they simply raise the limit. Its almost like a kid at Disneyland, the parents say we need leave by 6pm to beat traffic, and by the time it becomes 6pm, the kid's say just one more ride, and sure enough they don't leave till 10pm. 


The next question is why do we need a level of debt in the first place? Essentially its like a credit card for the government, and without one, conceivably taxes would be higher, less programs would be funded, and a significant amount of what we see in government today would be less existent. In the early days of this nation, many Americans believed this nation should be free from debt, and it was not until Alexander Hamilton argued the opposite, did we have a change in perspective. He said "a national debt, if not excessive, will be to us a national blessing" and he was right. The government does need to have a level of debt, as it is the backbone of the financial system as we know it. Of course, and possibly more importantly for our current state, is the word excessive. Now $14.5 odd trillion dollars may seem like a huge figure, and it really is, but relative to an economy that has a GDP of nearly $20 trillion and is funding two wars, social programs, medicare, healthcare, etc, all while being in a substantial economic downturn, the worst its seen since the 1930's, it really may not be that bad. Of course, ideally speaking this debt level would be lower, so nations like China wouldn't own such a large portion of this nation, but in reality it may be something we need to swallow for a while. Don't get me wrong, its not an easy pill to swallow, but the alternatives are far worse. Reducing substantial levels of government spending during a recession or a fragile economy is one of the worst decisions a government can make. Bare in mind how GDP is calculated, the simple function GDP = Consumption + Investment + Government Spending + Net Exports. There is an endogenous relationship between GDP and government spending, in layman's terms decreasing the government spending of a nation will lower GDP. There are many steps in-between, but in essence that is the ending result. As the Nobel Prize winning economist Paul Krugman wrote in his New York Times Op-Ed piece last night, "those demanding spending cuts now are like medieval doctors who treated the sick by bleeding them, and thereby made them even sicker." (The President Surrenders) I agree with Krugman and as he further points out, this will depress an already depressed economy and with interest rates at a current very low level, spending cuts will do little to reduce future interest costs. Essentially, this plan is nonsense and really in the wrong direction. It hurts growth today, which in turn will hurt growth in the future. 


So we know now that spending cuts are bad and we know that while necessary today, running a large debt is not great either. Where does that leave us? Well it leaves us with a political atmosphere geared up to be the most intensely debated and fierce campaign season in recent memory. The victor go the spoils of a bad situation to deal with, and the loser a lesser burden to worry about. 


While I don't believe a change in course is anywhere in our near future,  I have a few ideas on how to restart our economy. First of all, I would raise the debt ceiling, because the argument of not doing so (as was suggested by Republican Presidential Candidate Michele Bachman) is about as flawed as all get out. Allowing a government default is absolutely insane and would make the situation far worse. Government spending would not be cut, as much as it would be examined for failures, hence I would focus on targeting that spending on programs that build upon jobs for the middle to lower classes, and improve infrastructure of this nation. Some of these infrastructure programs would be to renewable energy development (wind, hydro, solar, etc) as well as rebuilding roads/bridges and increasing incentives towards heavy rail transportation.  Notice that these things are job creators as well as investments made for within our borders, which in turn produce short run influxes of stimulus to the economy as well as long run options for future growth. Additionally I would encourage federal programs in urban renewal in the hardest hit places in this nation, namely among the racially divided areas, beginning to end the nearly constant 19% unemployment among African Americans. I would increase government revenue by increasing taxation on the wealthiest 2% of Americans. While I do not encourage socialist activities, I do believe that a group of people that has an unchanging propensity to consume and can afford short term taxation, can suffer along with the rest of us. That revenue would not be immediately spent, but instead invested in the financial markets, accruing interest and future gains, which would go solely to slowly paying off our national debt. Taxation among the middle class and below would remain the same and in some cases be lowered. As for healthcare, I would have a buy in program among Americans, not a provided for program. I would also encourage programs to improve the American diet as well as reduce subsidies on corn production. I believe investing in how Americans eat today will reduce future health costs. I have more ideas, but I will share those in a later post. 


In closing, as Alexander Hamilton once said, "I never expect to see a perfect work from an imperfect man" and nor should we expect to see perfect work from an imperfect government. 


These are just a few of my ideas, but how about you? What do you think? Share your thoughts and ideas in the comment box below.