Fixing the Deficit

Bernie Sanders serves in Congress as an Independent Senator from Vermont.  On November 18, 2011 while in a Senate Budget Committee hearing, he stated the following:

“This country does in fact have a serious deficit problem. But the reality is that the deficit was caused by two wars – unpaid for. It was caused by huge tax breaks for the wealthiest people in this country. It was caused by a recession as result of the greed, recklessness and illegal behavior on Wall Street. And if those are the causes of the deficit, I will be damned if we’re going to balance the budget on the backs of the elderly, the sick, the children, and the poor. That’s wrong.”

That is the most concise statement of fact concerning the deficit I have seen in print yet. Bravo Senator Sanders! And he did it without blaming an individual, an ideology or a political party. Another Bravo, Sen. Sanders!!

There is no doubt that the national debt is a serious issue. There is no doubt that annual deficit spending is another serious issue. But we must also remember some mechanics of the economy that are true:

• Deficit spending stimulates the economy by creating more money and credit for others to spend and invest in further economic activity
• Too much deficit spending in an economy that is roaring along would produce inflation: too many dollars chasing too few goods; supply and demand gets out of balance and the economy seeks a new point of equilibrium.
• Too balanced a budget, and no stimulus is created; the economy slows a bit
• Cutting the national debt, paying it down a bit, sucks money and credit out of the economy and slows it down. It contracts or shrinks economic activity.
• These three policy steps help manage the economy.

Our economic condition is one of recession: too little economic activity to keep available labor from fuller utilization. Cutting deficit spending worsens this condition. Spending deficit dollars boosts the economy. The new deficit gets paid from increased taxes on an improving economy.

Counter intuitive I know. We don’t expect the economy to work this way. But it does. Of course there are other complicating factors which make the above policy practice more challenging, but basically it works the way I outlined it.

Our unemployment rate is hovering between 9 and 10 %. Economists generally agree that 9 or 10% of current workers are underemployed, that is, working at lower paying jobs that are not fully using the worker’s talents and skill sets. The lower income recesses that household’s financial health, and that fact, multiplied by millions of households, means the economy will be dampened, or further recessed.

With $3 trillion of available cash in corporate and banking coffers sitting on the sidelines, investment in new industries, technology and business opportunities has stalled and also keeps the economy in a recessed condition. Tax policy in the past and present rewards the investor so that is not the cause of the treasure trove sitting idly by. What may be the prime contributor is lack of confidence in the American political leadership. Decision making is stalled. This is unsettling to business interests.

Oddly, politicos blame the president; others blame congress. The truth is, the President has led with good, bi-partisan ideas and program proposals. Congress, however, has the sole authority to fund those programs and authorize implementation. Political wars in Congress have stalemated the very engine our nation needs to get the economy going again. Ironic, isn’t it? The schoolyard bullies (republicans in this instance) are saying their approval of corrective actions to benefit the economy will empower the President, and they don’t want him to get the credit. They want him to lose the next election in 2012. What they fail to see is that corrective action earns credit for both sides in the dispute. They have to work together to serve the nation. Both get credit for solving the problem. No one gets the credit if the problem is not solved.

This high stake game is damaging the country. Millions of families are losing their homes, their paychecks, their food, their health insurance, their self respect. Countless houses sit empty and their numbers expand with increasing foreclosure rates. Housing prices (most of household wealth in America) have dropped greatly, and continue to sink.

At this rate it will take years of austerity to right the ship of America.

It doesn’t have to be this way. To say otherwise is irresponsible political rhetoric.

It will take courage for politicians to address this situation honestly and forthrightly. We need to get back to reality, and implement these fixes:

1.      Reinstate the income tax rates on the top 3% of income earners

       2.      Establish an infrastructure replacement program to rebuild railroads, public
              transportation, highways, bridges, water and sewer systems, and the electrical grid; bring all
              of these support systems into the modern age as quickly as possible

3.      Create a mortgage foreclosure program that funds underwater loans until homeowners get back on their feet; this will take 10 years of guarantees to do the trick and in the meanwhile boost confidence within the banking community so they will lend money again for investment in new industries

4.      Provide an education renewal program to upgrade the way we educate our children: intellectual development based on student interest, lifelong learning initiatives to help people adapt to changing conditions throughout their lifetime, improved financing methods that help states and regions fund education without hogtying property owners.

5.      Invent new energy sources and industries to replace the oil standard which continues in spite of declining oil reserves.

One other solution to be installed. This one by the voters: Vote only for candidates who offer solid program proposals in place of rhetoric. Get doers back in the House and Senate and give the boot to do-nothings!

The future is now and always has been in the hands of voters. However, to elect intelligent doers, we must do our homework and understand the issues and the facts. It takes hard work. Are we up to the task? If we aren’t,  I think the very future of democracy is in peril.

November 23, 2011