Economics says Cut Spending - Politics says do both.
There is a theoretical and a practical aspect to this issue.
Last week I explained that the key players in DC all agree that the debt issue is critical. They did not say that it is an existential problem, but I will, because it is. The Debt Bomb will explode at some unknown future date if we ‘keep on keeping on’ and ignore the issue while the debt soars to $50+ trillion dollars and the Social Security and the Medicare Trust funds are fully depleted in 10 years. If that doesn't explode the bomb, we add another 100+ trillion dollars over the next 20 years plus dealing with the shortfall of Social Security and Medicare. That is the current projection from our government IF nothing unusual occurs, like a recession, war, pestilence, pandemic, etc. Something will happen to make it worse, I just don’t know what or when.
The bomb explodes when investors lose confidence in our bonds, and stop buying them. At that time this country will fail in ways never seen before. It will spell disaster for us and the whole world.
So, do we ignore the issue and destroy this country for us, our kids, grandkids and all future generations, or do we fix the problem while we still can. If we want to be responsible and fix it, what is the best way?
Economists say the right answer is to cut spending. There is good reasoning behind this approach, economics theory supports this. More importantly, every analysis of what works best in the real world shows that a limited government and more individual freedom leads to higher growth rates and a better standard of living. That is because taking less from the citizens in taxes leaves more capital in their hands to invest in productive resources which is essential for a growing economy. Even wealthy countries that have high taxes today, got wealthy when taxes were low, and now they have very reduced growth rates with heavy tax loads to finance all the government programs.
Politicians say raising taxes must be part of the solution because that is ‘fair’ and the people demand it. And a balanced approach is much more politically appealing to the voters, many of whom believe taxes are inequitable. I believe that is true, the tax system is horrible with much benefit to special interest groups, but that is another issue.
Most importantly, there are not enough people today that understand the critical nature of the problem and the need to do something about it. So, we just ‘keep on truckin’ as if all is ok.
ALL IS NOT OK, AND THE CITIZENS OF THIS COUNTRY MUST LEARN THIS AND SUPPORT MEANINGFUL REDUCTION IN SPENDING AND OR TAX INCREASES TO CONTROL THE DEFICITS AND GET THE DEBT TO A MANAGEABLE NUMBER IF WE ARE TO SURVIVE LONG TERM.
BOTTOM LINE
We citizens must take the time to learn the issues and support meaningful change before it is too late. The politicians will support change ONLY IF the public is behind it. That might include some tax increases but should be heavily weighted to spending cuts, as our spending is totally out of control. Reducing the size of government would pay handsome dividends to all of our citizens in improved growth and standard of living.
The two areas to focus on are Entitlements and Size of Government.
Entitlements must be reformed - the system simply does not work any more as the demographics have changed dramatically since these systems were designed, and the changes that have been made are too little to fix the problems. And it does not mean throwing grandma over the cliff, it can be done while maintaining current benefits, which is essential in any reform plan.
The Federal Government has grown too large. The Founders stated clearly what the federal government was to do in the Constitution, and all else was left to the ‘states or the people’. They feared that a too powerful federal government would lead to tyranny and loss of freedom. They were right. Our unaccountable bureaucracy has become our master instead of our servant. We need to move back toward the original intent of the Founders and reduce or eliminate many departments, and let the federal system work as originally planned.
LEARN ECONOMICS, THEN VOTE SMART.