This is the “problem” from the progressive’s point of view: Hauser’s Law. That dotted red line is 20% of GDP in each of the years between 1929 and 2009. The vertical axis is federal receipts in $Billions and the horizonal axis is GDP in $Trillions. (Yes, you math geeks, it’s a log scale. Pay attention.) The solid blue line is the key. It’s the actual receipts of the federal government in each of those years as a percentage of GDP.
Notice anything interesting? Like, no matter what the highest marginal rates were … low-90%’s in the Ike years, upper-70%’s in the Carter 1970′s, or mid-30%’s in the Clinton 1990′s … regardless what the “soak the rich” marginal rates are, the maximum percentage of GDP that WDC was able to commandeer was always, ALWAYS less than 20%? Here’s the historic truth: Americans will not be taxed at European rates. Period. Progressive desires to grow federal spending into the high 20/low 30% of GDP range will run headlong into this taxpayer resistence.
So. Yes. This is the “problem” for Obama and his social equity brigade…
….but this is not the solution. Ben Bernanke famously once said the best way to “stimulate” the economy is to throw money out of a helicopter. He’s been “Helicopter Ben” ever since.
In the EU the constant chant among those panic-struck to retain the welfare state is for the ECB, European Central Bank, to print money by the helicopter full and scatter it all over the EuroZone. That is what fools like Paul Krugman are stumping for here in the US as well, taking into account Hauser’s Law and the oncoming market shutdown of our borrowing capacity.
Printing (in the current spin “quantitative easing”) more of these…
…isn’t going to solve anything, as a pathetically cowardly Congress will just spend all you print and 10% more. This futile effort will lead the nation eventually to an inflationary spiral this time, just as it did the last time we printed in volume in the 1970′s (then called “monitizing the debt”, as the dance of spinning vocabulary spins on). It’s good to remember that the $16.4 Trillion in national debt we will officially have by the end of 2012 is just…
…and that the unfunded liabilities of the nation total 6-7 times that number, on the order of $110 Trillion over the next several generations. it would take a madman to propose funding all of that with Fed printing presses.
The Federal Reserve is not the answer to ANY of the problems we have. This growing reliance upon and deification of Federal Reserve Chairmen is not only financially dangerous, it’s indicative of the political cowardice we are witnessing in Congress and the White House.
At the University of Texas @ Dallas I was nicknamed “FedBasher” for my (decidedly minority, given the liberal leanings of the rest of the faculty) views on the role of the Fed. It has two major jobs, imho.
First, The Fed should assure a stable currency. This is not a simple currency board function, however, because we are the world’s reserve currency. The currency still must be actively managed by adjusting the supply of currency and credit, C&C, for the strength or weakness of the economy, but with the sole goal of assuring that inflation is ever and always as close to zero as human abilities allow. This is a art that when fully embraced involves growing the currency and credit system as the economy grows to prevent C&C starvation, as happened frequently in the 1800′s.
Second, The Fed should act as the regulator of note to, and the lender of last resort to the commercial banking system, but never to the federal government. Shocks are inherent in any capital system, whether “capitalist” or “socialist”, and should be managed in the commercial market place. But the cowardice of Congress in refusing to deal with the deficit and debt issues should never be subsidized nor underwritten with purchases by the Fed of government Treasury bills, notes or bonds.
Stable and reliable currency; stable and reliable banking system. That’s it. All other roles, such as “insuring full employment” are just rationales for inaction by Congress; passing the buck to avoid the hard choices it and it alone should be making.
That liberals love “soft money” and an activist Federal Reserve should be signal enough that this policy is poison; inflationary poison; political poison; cultural poison. And if you want real world proof of that broad statement just look at the mess in the EU politically, culturally and economically, and then listen to what those struggling to preserve the welfare state model of European government are demanding the ECB do.
When you can’t impose new taxes directly through Congressional action, do so indirectly through the central bank, is the game in play currently in the EU today and scheduled for the US tomorrow. This game, too, must end.