Financial Times Austerity Debate
The Financial Times is publishing an important series on the austerity debate: Do we currently need more stimulus, or do we need to start paying off national debts?
I believe we need more stimulus for the moment. The debt is bad, but we need to get out of the hole before we start filling it in. Somebody had an interesting point this morning: Europe doesn’t need to provide stimulus, because it can count on the US and China to do so, and their imports will increase exports by Europe and thus provide the stimulus that Europe would have to provide itself. I’m not sure that’s correct, but it sounds reasonable. I could be one reason why Europe is much less interested in stimulus than the US.
At some point we do need to start paying down the debt, and it will be painful. But the rich bankers in New York ran the world economy off the cliff, and they have benefited more than anybody from the bailout. The government needs to help the little guys who got clobbered by the bankers, meanwhile trying to keep the bankers under control. Once the middle and lower classes begin to share some of the government largess that has been bestowed on the New York bankers, then we can begin to start paying down the debt.
Somebody had the interesting idea of encouraging Americans to buy US government debt, rather than depending on the Chinese to do it. Americans did this during World War II, and the current debacle is not unlike the stresses we when through then, although it was created by Americans who were willing to destroy America to enrich themselves. This crisis stands on its head the old idea that business is what makes America strong. Business, in particular the banking business almost destroyed America; it certainly made it much weaker. But a handful of people became obscenely rich in the process.
The fact that labor is taxed so much more heavily than capital is a huge problem. The Republicans complain about the high taxes on the rich, but by historical measures they are low, unless you go back to the days before income tax. The rich may pay the lion’s share of taxes, but they earn an even larger lion’s share of income. In addition, they don’t pay the tax rate they should on much of their income. For workers, gross income is usually pretty close to net income on which they pay taxes. The rich hide their gross income and then have huge reductions on the gross income that they grudgingly report. They hide their wealth in corporations, in off-shore accounts, with various tax loopholes, etc. They pay lawyers and accountants millions of dollars to reduce the taxes they pay by many more millions. One of the most egregious examples was the recent death of billionaire George Steinbrenner, whose estate paid no estate (“death’) taxes. This is taking food out of the mouths of the unemployed and giving it to the filthy rich.