Budget Crisis

Every economist, and every person who has tried to balance their own personal budget, agrees that there are only two ways to cut a deficit:

1. Cut spending
2. Increase funding (in the case of gov't, increase taxes)

Often a government can do one or the other. Sometimes it has to do both. When you are looking at a 14.3 trillion dollar deficit, you have to consider both, as there simply aren't enough places where you can cut to make up that mind-blowing figure.

The Republicans have said outright that raising taxes if "off the table" (John Boehner, among others). So, although there is literally and factually no way to cut spending enough to make up the difference in the budget, one half of all of the solutions to solve the budget crisis is off the table. This makes no sense, especially as you consider the fundamentals of the conservatives throughout the years (a good article calling this and other recent decisions into focus was published by Time recently). Why take any option off the table, unless you have an ulterior motive?

It seems like the Republicans want this crisis to grow and deepen for political reasons. While I did not condone or agree with the way the Democrats tried to throw their weight around when they won both the Presidency and control of Congress, it seems really petty and, frankly, dangerous how the Republicans are now doing the same thing back again. By making a bold declaration like raising taxes is off the table, they put the entire country at risk of financial collapse just so they can turn around and say, "See the President screwed up. He can't lead the country." And, unfortunately, most Americans appear to be stupid or ignorant enough to agree with them without ever looking at the facts.

Former Labor Secretary Robert Reich makes some very interesting points about the economy in 2 minutes and 15 seconds in this video. Yet our current Republican leadership wants to ignore those facts and figures and continue to give tax breaks to those who don't need it, screw those that do need it, and further the gap between the wealthiest few and the majority. The problem with trickle-down economics, as we learned in the 1980s and 1990s and are rehashing today is that those that have the money will do everything within their power to keep that money FROM trickling down (a good video explaining this, in part (about 10 minutes)). Business would much rather have free labor than pay for it, the rich would much rather keep their riches than have it flow to the government or trickle down to those who work for them.

And I don't blame them. I want to keep every red cent that I get from my own paycheck. I do everything I can to make sure my expenses are less than the paycheck each month so I can a) afford to save some money and b) afford to do or get the things I want and need. That is true of every person on the planet, and is doubly true for governments, businesses, and the wealthiest few.

I'm not blaming the Republicans for this impasse solely. The Democrats are too quick with the raising taxes philosophy. We should and do need to cut many gov't jobs and bureaucracies. Over the last 10-15 years, gov't has become a bloated entity with a lot of fat it could stand to lose. In this, the Republicans are right. But the Democrats are right also in that, following the advice of nearly all economists (from both sides of the argument), cutting is not enough and some way must be found to bring in more money -- and the only way a gov't can do that is through taxes. Even a 1% flat federal tax would make a significant difference to the deficit. Of course, as Robert Reich mentions in the link (above) and many economists have been arguing, getting more money into the hands of the majority of people means the majority of people will spend it, which improves the businesses, improves the economy, and also eats into the deficit. Getting the 150 million + people in the middle class spending $100 a month more into the economy helps a whole lot more than giving the wealthiest 10 million people another a tax break. If anything, we need to try a trickle UP economic theory, as that is precisely what made America great over the last 100 years -- the ability for more and more people to become a part of the middle class, and that middle class buying stuff, trickles the money up through the businesses to the wealthiest individuals and into the gov't coffers (through taxes to both people and businesses).

So, the Republicans need to stop throwing the baby out with the bathwater and start looking at ALL solutions to this economic crisis. While most of our leaders probably think they are in that wealthiest group and won't be affected by this budget crisis, they have another think coming. And the Democrats need to understand that the Repubs are right -- many gov't agencies and budgets could stand to be cut into, and deeply, and they should choose their battles over what to keep.

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Oh, and one more thing: the Repubs are going after two long-time "social" agencies, Social Security and Medicare. President Bush more than once went on record as saying that the money in SS was "ours" (meaning, each individual's). If the Repubs are successful in getting rid of that agency and "bloat," I'm going to be contacting them for a check for the 20 years worth of money I have invested in it -- their own most recent leadership agreed it was mine and that I should be able to invest it any way I see fit for retirement. Oh, wait, did you think I was just going to let you keep it to help with the budget crisis? No, I don't think so. Just like them, I want to keep every cent I have earned, including those that the gov't forced me to give them.

As to Medicare, it could stand to be trimmed and retooled, but doesn't have to go away. Why can't America look at any one of the dozens of other nations that do universal health care successfully and cheaply and model our agencies and services after those? It doesn't have to be a bloated mess and it doesn't have to use more than 1% of GDP. People don't seem to realize that, since the 1960s, America has steadily declined in per capita comparisons with all other industrialized nations in health care provided, costs, death rates, infant mortality, number of uninsured, and other key stats. So, since America privatized the medical business, people's health has steadily declined and profits for insurance, pharmacy, and medical business have increased (just one source, but you can find many that come to the same conclusions). Coincidence?

What the ???

The only way out of a recession or depression is to spend money. Recent articles concerning the housing market and cable companies show that some business areas or individual companies are choosing to ignore their customers, anger their client base, and/or make it as hard as possible for their clients to pay them money.

The housing article is particularly upsetting. The housing market drives much of the country's economy, so finding out first that the market is foreclosing on people who are paying their mortgages and are not in arrears is troubling enough (many articles, not citing a particular one here), but then to find that it is also not giving loans to those who are qualified and overqualified to get loans makes this insanely stupid. "We're in one of the most dire straights since the 30s and 40s. You're paying your mortgage, so we're kicking you out and trying to resell your home. And you want to buy that home we illegally repossessed, you can afford to pay the mortgage (just like the person we kicked out of it), but we're not going to give you loan. We're going to sit back and not let our clients pay us in any way. That'll fix things." Oh, and then the Senate quietly passes a bill that makes it harder for those who have been illegally kicked out of their homes to fight back. The bill only stopped when it reached President Obama's desk and he refused to sign it into law and asked for a probe into what was going on with the foreclosures. Thank goodness someone was using their head.

I don't think people are as up in arms over the cable industry issue, simply because we all know (not think or guess, but actually know) that cable companies are gouging us. What they don't seem to realize is that we all have so many other options by which to get the same content these days. While cable companies (and satellite vendors) provide us with possibly the easiest packaging and simplest connection to that content, we can now get it through legal and illegal means readily from a whole host of other means. We don't need them any more. And don't get the public started on battles between multi-millionaires/billionaires, whether they are corporations or people (I'm looking at you, NFL and NBA labor disputes). We don't sit with that any more. There are too many entertainment options out there now to be loyal to any one channel, cable company, sport, or venue.

Maybe, just maybe, actions like this will drive the cable companies and satellite providers toward giving the public what they want: per-channel pricing and per-channel packages. The technology has been available at least since the 80s for them to do this, yet here it is 30 years later and they still refuse. Yet, if they give the people what they want, rather than forcing packages containing dozens of channels the people don't want to watch, they actually become a better and more attractive option to the public. Imagine how many more customers they would have if a person could sign up for the 10 channels they want for $1 per channel/per month, instead of not buying anything because they can't afford the minimum $35/month for the channel package the cable company wants to give them.

So, here we have two examples of companies that are losing money, bleeding customers/clients, wounded and weak, that are going out of their way to anger and turn away even more customers. Doesn't seem like a smart business strategy for weathering the current economic crisis and being viable long-term, does it?

Economics 101

All the experts know that there is simply only one way to solve a recession/depression -- for people to spend money. It is a little counter-intuitive to those who don't understand the way economics work, but that is the simple truth.

What I don't understand is why the President or some of his top people don't do PSAs that state this. Maybe have Al Gore come on and do a send-up of his Oscar winning movie, An Inconvenient Truth, and show bar graphs and pie-charts that explain that when you spend money, it trickles through the economy and impacts, literally, hundreds of other people, jobs, and businesses.

For example, you go down to your local eatery of choice. You spend $50 for you and your honey to have a nice meal. That $50 and your presence at the restaurant causes the owner to have to hire and pay a server, a cook, a dishwasher/cleaner (each of whom then have money to spend on their own things). The owner also has to buy groceries from his distributor so he can make your meal, which then gives money to that distributor. Who then has to buy his goods from the manufacturers of the food products, which gives them money. And on each step of the way, each person or business who gets paid has to in turn spend more money on personnel to work the jobs and on other goods and services, all the way to the farmer who owned the cow and had to pay for water, grain, breeding, people to work the farm, etc.

Now, this system is slow. It provides for a strong foundation and is the most solid way to bring an economy out of a recession, but it is slow. Which is why so many countries in recessions go a faster route that works nearly the same way- war. War brings people into the military, and pays them to be there. It also pays for various businesses to make uniforms, guns, ammunition, bombs, electronics, food/rations, tires, oil, and everything else needed by the military to equip, train, and maintain those military people in the war. The same trickle down effect of the money pervading the country's economy works, but it works much faster than the first method.

This method of trickling money through an entire economy is so useful and successful that many charities have switched to this method of "donating" money to poor countries. Rather than just sending in experts to build something in a third-world country, they provide very small "micro loans" to an existing (or new) business owner. The act of that business owner building his business, hiring more people, buying his goods and services is more successful at raising the economy of the entire region than just giving the people food or sending in experts to build stuff for them. And, more importantly, it teaches them independence and the value of the money to them and their community.

This simple concept is foreign to so many, as they don't pay attention or do not take any sort of simple economics class. So, have our leadership or hire some high-profile actors to do PSAs to get this information out to the general public. By spending money you actually save the country and will, in the long-term, have more money to spend/save as you see fit.


Caveat: This message does not address the need for people to only spend within their means and to save for their future responsibly. These ideas would need their own PSAs and may be addressed in future blog posts by this author, as he sees fit or gets riled up about something.