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Fiscal Insanity

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Fiscal Insanity

Junious Ricardo Stanton

 

For the month of January, the Treasury reported a budget surplus of $9 billion, down $41 billion or 82% from the same month a year ago… The widening deficit comes as the Congressional Budget Office is projecting a shortfall of $897 billion for the full fiscal year, or 4.2% of gross domestic product. That’s up from $779 billion in fiscal 2018, when spending climbed and revenue remained nearly flat. The CBO sees trillion-dollar deficits beginning in fiscal 2022.” https://www.marketwatch.com/story/us-runs-january-budget-surplus-of-9-billion-2019-03-05?mod=economic-report

 

When Trump and the Republicans were selling their supply side tax cut snake oil, I did some research to determine whether or not tax cuts actually spurred economic growth and boosted the economy. I discovered they did/do not. I went all the way back to 1920 and discovered that only in a short seven year period from 1920 to 1927 in the administrations of Warren G. Harding and Calvin Coolidge did a fiscal policy of austerity actually produce the desired results.

Despite taking office during a depression in 1920 (https://fee.org/articles/the-depression-youve-never-heard-of-1920-1921/), Warren Harding following the advice of his Secretary of Treasury Andrew Mellon, cut taxes, cut government spending targeted paying down the national debt and actually generated a three hundred million dollar surplus! Harding died in office in 1923 (there was no autopsy; he was embalmed within hours of his death so no one knows what he died from). His Vice President Calvin Coolidge assumed office and continued Harding’s policies.

Coolidge declined to run again in 1928 and a recession occurred in the final months of his administration that eventually morphed into the Great Depression once Herbert Hoover took office. Various schools of economic theory debate and argue over why Harding and Coolidge were able to resolve the 192-21 depression without using accepted “modern” interventions like increased government spending or inflationary monetary policy.

What these economists ignore is the basic approach Harding and Coolidge took to the economy which was: don’t spend more than you take in in revenue, live on a balanced budget and pay off your debts. They cut taxes, cut spending and paid down the debt. Their actions along with new technologies, spurred economic growth during the era known as the “Roaring Twenties”.

Despite these policies, when Hoover assumed office in 1929 the recession was worsening. He doubled down on Harding and Coolidge’s policies but they didn’t work for him. Hoover had always an interventionist. In Harding’s diary he noted Hoover who was his Secretary of Commerce was always coming to him with one idea after another about how to deal with the depression. Hoover’s ideas were more interventionist than either Harding or Coolidge’s.

Ironically one of the justifications for creating the Federal Reserve Bank (it’s not a government entity at all, it’s a group of privately owned banks) was it would end the relentless cycles of boom, bust, prosperity, recession and depression. However, history has shown this not to be true.

Since the 1929 Great Depression all Presidents even so called “conservatives” like Ronald Reagan have eschewed the holistic policies of Harding and Coolidge: tax cuts, spending cuts, paying down the debt and accountability (Harding created the General Accounting Office to audit government spending) in favor of either tax cuts or spending cuts done separately and randomly rather than in tandem. Of course in 1921 there were no gargantuan New Deal Programs or Military Industrial Complex to pay for like today.

Today a charlatan like Donald Trump hoodwinks the people by telling them tax cuts will stimulate the economy while he simultaneously increases government spending (granted some government spending was for wildfires, floods and hurricane relief) in addition to initiating a boneheaded trade war around the world.

But Trump is not the only president to do this, all of his immediate predecessors even the ones who raised taxes like Bu$h Senior and Clinton have spent more than the government took in. Presidents Bu$h Jr. and Obama both cut taxes (Obama extended Bu$h’s tax cuts), but simultaneously increased spending. By doing so, they increased the federal deficit. Ronald Reagan did the same thing although the media perpetrates the lie his tax cuts stimulated the economy which they did not!

The United States is in a deep fiscal hole. It spends far more than it takes in. Trump’s tax cuts and spending spikes increased the federal deficit over $700 billion dollars in 2018 and is projected to increase the deficit by $879 billion in 2019! This is insane.

Even though the Federal Reserve Bank and US Treasury can theoretically continue to create and print money via computer strokes, that policy is unsustainable over the long haul. Even the IMF says so. https://www.pgpf.org/blog/2018/10/imf-raises-concerns-for-fiscal-stability-of-the-united-states. This coupled with the escalating economic slowdown we are now experiencing https://www.investmentwatchblog.com/u-s-job-cut-announcements-rise-117-percent-to-the-highest-level-that-we-have-seen-in-more-than-3-years/ things do not bode well for us.

Insanity is defined as, doing the same thing over and over with the same people, expecting different results. By that reckoning we truly are insane.

 

-30-



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