Stop the Austerity Train Wreck!

Robert Reich

A small vocal group of populist academic Keynesian macroeconomists want to ‘Occupy the Economy!’

What possible harm, you may ask, can a few university eggheads who never even camped in Zucotti Park cause? Heck, they only innocently advocate new national economic policy. How boring!

But their ideas are wrong and dangerous.

They perpetuate the risky myth that governments can spend their way out of recessions indefinitely without ever having to pay the money back.

The problem with that… this time around the price tag for decades of government overspending has finally come back ‘payment due’.

It threatens the fabric of life as we know it in the United States.

Robert Reich

One of those well-known voices for curing our economic calamity is Robert Reich. He is the outspoken former Secretary of Labor under President Clinton.

He is currently Chancellor’s Professor of Public Policy at the University of California at Berkeley, just up Telegraph Ave. from the “Occupy Oakland” protestors.

When the media seeks learned, insightful commentary about the economy he is usually the first person they interview.

An example of his radical, unrealistic solutions to this nation’s economic dilemma is found in four suggestions Reich proposes to the super committee in his most recent article:
Stop the Austerity Train Wreck!
-Robert Reich, robertreich.org, 11/18/2011

Stop the Austerity Train Wreck!

Reich’s premise is that government isn’t spending enough. It must spend much more than the $1 trillion in the “stimulus package” to save the ailing economy.

He makes these proposals to the super committee:

  1. No cuts before unemployment is 5%
  2. Spend more… make the boost big enough.
  3. Raise taxes on the super rich to pay for it
  4. Cut military spending and corporate “welfare”

He concludes saying:

Do these four things and restore jobs and prosperity. Fail to do these, and you’ll make things much, much worse.

Flaws in Reich’s Proposals

  • Doesn’t say how much more spending is needed
  • Doesn’t say how much revenue could be realized by taxing the super rich
  • Doesn’t distinguish corporate “welfare” from legitimate deductions
  • Doesn’t say how many more jobs his proposals will generate
  • Does not say how much revenue the new jobs will generate
  • Ignores the fact the military already has a built-in $600 billion cut
  • Presents no fiscal analysis whatsoever of his solutions

The list could go on and on.

Reich presents another of his unrealistic, pie-in-the-sky academic solution. Without a rigid fiscal analysis of his suggestions they are not worth the screen phosphors they are displayed on.

Has Reich forgotten a basic concept in economics?… balancing revenues and expenditures. In the long haul, expenditures must match revenues.

Specifically, to fix the economy, what dollar amount is “big enough”? He doesn’t say. How much revenue could be raise by taxing the rich? He doesn’t say. What loopholes should be closed and how much revenue would that raise? He doesn’t say. How many jobs will his proposals create? He doesn’t say. How much additional revenue will the new jobs generate? He doesn’t say.

Since he doesn’t tell us any details its impossible to evaluate whether or not his ideas are even feasible.

Not All Reich’s Ideas are Wrong

Like all flawed proposals, his comes laced with some good ideas. Equalizing taxation and closing loopholes are two of them.

For example, Reich’s idea to equalize capital gains to income tax rates has merit. That inequity has helped grow the wealth gap being protested right now by the Occupy Movement.

Reich’s idea, however, is not new or original.

It is in one of three tax reform proposals made by the Bowles-Simpson Commission. Equalization occurs if we went to a flat tax. In it’s purest form a flat tax lumps all taxes into just one 3-tired tax rate. All loopholes, both corporate and individual, are eliminated and the tax codes are vastly simplified.

Everyone’s tax rates are actually DECREASED while government still has the same revenue stream.

Imagine that… if you can! As John Lennon might say:

Imagine all the people
Sharing all the world

You may say that I’m a dreamer
But I’m not the only one

Reich’s Biggest Mistake of All

Like all purist academic Keynesians, Robert Reich complete ignores debt. It is like it doesn’t exist.

The national debt rose above $15 trillion just two days earlier yet the word ‘debt’ isn’t uttered even once in Reich’s article or video.

And therein lies the danger in populist Keynesian macroeconomics. For them debt isn’t real. Debt is just an academic discussion point to present as an exercise to undergraduate students in Econ 101.

Unfortunately, the $15 trillion in government debt is very, VERY real.

That $15 trillion belongs to someone. Those people are gonna want to be paid back… with interest for loaning it to government in the first place.

Europe is learning that painful lesson right now.

Conclusions

Why can’t we learn from Europe’s mistakes?

Why do economist like Robert Reich and Paul Krugman insist on adding untold trillions more in unspecified public debt to buy our way out of recessions when we are already at a 100% debt-to-GDP ratio?

Government spending as a % of GDP 1929-Present

During The Depression FDR never spent more than 12% of GDP.  That’s affordable. Yet today, we are spending twice that much. That is not affordable, but Reich advocates spending even more than that. Today our credit card is maxed out.

Yet Reich doesn’t even bother to do a feasibility study of his suggestions. That is just like in his latest book, “Aftermath: The Next Economy & America’s Future”. In that book he presents an entirely DIFFERENT set of proposals to rebuild the economy from those in his article. No feasibility study of those ideas is done either.

President Obama, House Speaker John Boehner, House Minority Leader Nancy Pelosi, Senate President Harry Reid, Senate Minority Leader Mitch McConnell… and certainly NOT economists like Robert Reich and Paul Krugman are gonna pay off that $15 trillion in debt.  Elected officials should be fixing the problem, not make it worse.

Our children and our grand children’s children are gonna have to pay that money back.

By spending more without reasonable debt reduction we hasten the time when it all comes crashing down.

Robert Reich is dead wrong about his “four things”…
Mr President and Congress, if you enact Reich’s proposals “you’ll make things much, much worse”, not better.

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About azleader

Learning to see life more clearly... one image at a time!

Posted on Nov 20, 2011, in Debt, economics, Economy, National Debt, news, Occupy Movement, Politics, Robert Reich, Super Committee. Bookmark the permalink. Leave a comment.

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