Rule Five Friday

2014_09_12_Rule Five Friday (2)How Long Can The Economy Absorb Excessive Government Spending?  Not much longer.  Excerpt:

The Congressional Budget Office’s latest budget estimates showing a marked decrease in the federal deficit seem to indicate the fiscal fights that have rocked Washington for the last five years are over. However that is wrong, these conflicts are perpetual.

2014_09_12_Rule Five Friday (3)CBO’s figures do project a significant fall in the deficit – to $506 billion, $174 billion below last year’s, and 2.9% of GDP. But it has only dropped so far, because it rose so high. In 2007, the deficit was $161 billion and 1.1% of GDP. In 2009, it was $1.413 trillion and 9.8% of GDP.

Washington has taken the federal budget to a higher plateau on taxes and spending, and will climb higher from there. However, just because the debate will resume again, and likely more virulently, why is it important?

It’s important because of the upcoming fiscal train wreck, of course.

2014_09_12_Rule Five Friday (4)At some point in the 20th century the primary role of government, especially the Imperial Federal government, became the redistribution of wealth through taxation.  Tax policy has changed accordingly; from the original purpose of raising revenue for essential government functions, the tax code has become a system for the redistribution of wealth and ensuring “fairness” (use of scare quotes intentional.)

How is this connected to the Federal Imperial debt?  Because 2014_09_12_Rule Five Friday (5)regardless of tax policy, there is a ceiling to tax revenues, that ceiling being about 21-23% of GDP.  To make up the gap, pols in the Imperial City first ran rampant through the Social Security “trust fund” (again, use of scare quotes intentional) and then began borrowing, at increasingly insane levels.

It is very likely we have gone past the point of no return on this issue.  What will the end game look like?  An Imperial repudiation of debt?  Runaway inflation?  One thing we know for sure – unless there is a major change in the Imperial City, there will be no growth-based solution to this mess; every economic policy put forth from Washington for the last ten years ago has been staunchly anti-growth.

2014_09_12_Rule Five Friday (6)If there is a pol in the Imperial City that knows the difference between ass and face where economics are concerned, I’m switched if I can think of who that might be.

The linked article concludes:

It is impossible to see an issue so fraught with import, short of war and peace. Yet, questions of war and peace are not perpetual, thankfully only occurring periodically and at crucial junctures. The question of taxing and spending is perpetual – and perpetually crucial.

And perpetually ignored, both by the pols in the Imperial City and a plurality of those who vote them into office.

2014_09_12_Rule Five Friday (1)