Don’t Believe Me? Listen to the Democrats.

Despite Paul Krugman’s assurances that there is no such thing as inflation, despite Christina Roemer’s predictions that a V-shaped recovery is not that hard to believe, and despite Barack Obama’s insistence that there are “green shoots” in the economy, I have long maintained that our economy is in big trouble if Spend Big policies continue unchecked.

When conservative congressional leaders talk about how runaway spending will damage the economy, lefties across the country roll their eyes. However, ignoring the gravity of the situation doesn’t make the truth any less of a reality. If you are one who can’t bring yourself to listen to an amateur conservative blogger, or a select few of the congressional conservative representatives, maybe you’ll be willing to hear it from a Democrat.

I came across an article by Dr. Charles Wheelan, a.k.a. the Naked Economist. I’ve been a long time reader of his; his articles often grace the pages of Yahoo! Finance. Though I’ve had my disputes, I’ve always appreciated his irreverent approach toward economics. Dr. Wheelan is not just a finance writer; he recently ran to replace Rahm Emanuel’s seat in Congress...and lost. Now, don’t take this post as an endorsement of Wheelan’s political views, I haven’t looked into them. I simply felt like his article was making sense, although I'm sure his ideas of raising taxes drastically differ from my own. So, without further ado, here is some common sense from one of the Democrats’ own.

“We need to stop bickering about who got us here. Was it the Bush tax cuts (yes) or the Obama stimulus (yes) or profligate Congressional spending (yes) or voters who continually reward pork more than parsimony (yes)? But analyzing just overcomplicates things. We are deeply in debt because we have routinely spent more than we collect in taxes. That's just a mathematical reality that has become needlessly confounded with politics.”

I’ve been trying to make this point since February! Wheelan points out that it is ridiculous for either side to bicker whose fault our deficit’s woes belong to (it's Obama's if you were wondering ;). It is a simple fact that we are here and we need to do something about it- a fact that hasn’t sunk in with the Obama administration’s agenda of “Spend Big.”

“Chinese officials aren't worried about bankruptcy because the U.S. has an easier and more insidious option -- we can print our way out of the problem. Our debt is denominated in dollars, and the U.S. government has the authority to print those dollars. We could take a page from the Zimbabwe policy manual and just print money to pay our bills -- thereby debasing the currency, creating inflation, and devaluing the real value of what we owe.

Is that a sensible solution? No, as it imposes the costs of inflation on all of us. I don't know anyone eager to revisit the 1970s (in terms of economic performance or fashion).”

I might add that printing money is Obama’s solution at the moment. Wheelan points out that there are very real repercussions to Obama’s twelve trillion dollar budget. Namely, 1970s-style inflation (which I’ll remind you Paul Krugman thinks is a myth).

“The solution to all this is straightforward: Spend less than we take in, and use the surplus to pay down debt. At the risk of lapsing into economics jargon, yes, this is going to suck. Think about it: Americans don't like their current tax bills -- which aren't even high enough to pay for our current spending, let alone the bills we've run up from the past. In the future, we will have to pay more and get less.

But we've done it before. We paid off the debt accumulated during World War II. In fact, the ensuing decades saw some of the most impressive gains in wealth and productivity in American history. But it will require a radical change from what we're doing now…

…Will that dampen economic growth in the short run? Yes. Will it jeopardize important social programs? Yes. Will it compromise our ability to make important public investments? Yes. Does it limit what we can spend on healthcare reform? Yes.”

I’d like to some up Wheelan’s conclusion by addressing what the Obama administration should have done day one in office. Enact a stimulus plan with the biggest bang for the smallest cost. Then go line by line, like was promised by Obama and cut. Instead, we enacted a liberal wish list of programs, hoping the sheer magnitude would shock the economy back to life. We got pay-go promises twice, so long as it doesn't apply to executive or congressional spending. This attitude sending global investors away in droves. We bet big on bad odds; it's not too late to call off the bet.

Wheelan wasn’t the only Democrat seriously talking fiscal reality today. Roger Altman and former deputy secretary to Clinton had this to say today in the Wall Street Journal:

“Yes, the President's Council of Economic Advisors is still forecasting a traditional cyclical recovery -- i.e., real growth of 3.2% next year and 4% in 2011. But the latest data suggests that we're on a much slower path. Probably along the lines of the most recent Goldman Sachs and International Monetary Fund forecasts, whose growth rates average about 2% for 2010-2011…

…The problem is the deficit's sheer size, which goes way beyond potential savings from cuts in discretionary spending or defense. It's entirely possible that Medicare and Social Security will already have been addressed, and thus taken off the table. In short we'll have to raise taxes….

… We all know the recent and bitter history of tax struggles in Washington, let alone Mr. Obama's pledge to exempt those earning less than $250,000 from higher income taxes. This suggests that, possibly next year, Congress will seriously consider a value-added tax (VAT). A bipartisan deficit reduction commission, structured like the one on Social Security headed by Alan Greenspan in 1982, may be necessary to create sufficient support for a VAT or other new taxes…"

Tea Party naysayers I hope you are reading! All those crazy hicks protesting taxes, how silly did you think they were when they were really getting $13/month from Obama? Perhaps those bitter clingers saw something you yourself were blind to see.



I’ve posted the graph above in a previous post to show the price tag on Obama’s Spend and Tax policies. The littlest bar is Obama’s proposed tax on the rich. There are many that believe Barack Obama is the Messiah; however, I seriously doubt he’ll be able to work a Loaves and Fishes miracle on his puny tax revenue model. You see, there is a bar that is missing from the graph and it is the future legislation of Barak Obama to make tax revenues as big and gaudy as the gigantic spending bar. Obama’s budget is $4 trillion and we are getting $2 trillion in tax revenues. Logically, to meet Obama’s whims we need to double taxes. I mean double all taxes…double everyone’s income taxes; everyone’s gas taxes; everyone’s social security taxes; everyone’s medicaide/medicare taxes; everyone’s corporate taxes; everyone’s excise taxes.

The only thing missing from the mouths of Wheelan and Altman is yet another startling but true reality. The only thing going for Barack Obama’s economy for the last few months is perception- confidence from the consumers and investors that the economy would be turning around. According to new numbers, consumer confidence has dropped unexpectedly. The last hinge of Obama’s “green shoots” is breaking.

So, for those of you still following the cap and trade, government health care Obama parade- my only words are: the clock is ticking.