Why Deficit Spending is Wrong, But How Keynesians May Be Right

There is a lot of focus today on the economy and how it should be repaired. Today’s economy is far more complex than that of the 1930s during our last depression and for that reason different tactics have to be employed. With this major recession, there has been a renewed focus on Keynesian economics, which countries like the United States and Great Britain have employed to reduce the sting of the faltering economy. There is a lot of debate as to whether monetarism, laissez- faire or Keynesian economics should be used to combat the “Great Recession”. As with many problems, usually the solution is a combination of varying ideas.

Keynesian economics argues for government intervention in the marketplace to reduce the pain recessions and depressions provide to a nation’s production, while people with a laissez-faire mindset believe the market will eventually correct itself without any government interference. I believe it is true that without any interference, eventually the economy would stabilize and grow again, but at what cost? If the economy becomes so unstable, it’s not hard to comprehend a country falling into chaos. Imagine if 30%, 40% or 50% of the nation became unemployed. There are plenty of current and former examples where a country’s economy has collapsed to devastating results. The problem with allowing this to happen in a developed country is how a developed country is comprised.

No longer do most people live in small rural villages, on large plats of land where one, if need be, could live off the land and depend on no one else. Americans, while living in rural locales, used to be well rounded and adapted to provide almost anything needed in a household, whether that was building new furniture, constructing a home or hunting and farming for a meal. Today’s American is no longer a generalist, but a specialist. We know how to do our one specific job, and often very well, but depend on other specialists to build our houses, construct our furniture and provide our food. Our society and economy has progressed so much in the last one hundred years that we no longer can fend for ourselves, because we either lack the skills, the means or both.

Due to this transition in our society, we can no longer afford a purely laissez-faire economic policy. If we allow it to collapse and the majority of Americans lose their job, how do they survive? Where do they grow their food? How do they build their shelter? Quite simply, they can’t. It’s imperative that the government intervene before such draconian results occur. Keynesian economics suggests that the government should become involved during economic downturns and cut back during economically strong years. Unfortunately, our politicians in Washington always forget to run a surplus and cut back, regardless of party affiliation. We either overspend in military or in domestic initiatives, creating a bigger hole for the government to fight future economic battles.

Unfortunately for Americans and citizens in other developed nations, economic warfare will be far more devastating than traditional warfare in the future and Americans are at a huge deficit disadvantage. Plenty of liberal politicians (and some so-called conservatives) believe that in order to promote the Keynesian model, deficit spending should be implored. This is absolutely incorrect. Deficit spending puts huge strains on a nation’s currency and inflation. While in the short run, it may stop the initial bleeding, it creates future troubles for years and even decades. Instead a nation’s government should curtail its spending and run a surplus in economic growth years. Taxes should not be continually cut to a balanced budget, because of the economic cycles, which vary in intensity based on the strength of the previous economic expansion. Instead, there should be a tax benchmark established for a “normal” economic year, which would create enough money to provide for essential government programs and save for the inevitable economic downturn or even collapse. In contrast, government should shrink during economically strong years, cutting unnecessary services established because of the recession.

Once a recession hits the economy, a government should spend, but only from a saved surplus, not deficit. This should help to keep government focused on only essential government spending and prevent pet projects or idealistic policy reforms. The government should also spend on activities that will promote private job growth (not public) and provide a social safety net for those individuals most impacted by the downturn in the economy. To effect this, government should reduce taxes by targeting business investment and expansion, so that they employ more people or lay off far less. Additionally, government should increase unemployment benefits and health benefits for a longer period of time for people actively seeking jobs, so that they can continue to pay essential bills. Today, many of the unemployment benefits are so low, that people cannot even make housing payments, causing excessive foreclosures only exasperating the economic pitfall. The combination of tax cuts and increased benefits for the downturn, paid for by the surplus, would simultaneously encourage fewer layoffs and economic expansion, keeping even unemployed purchasing goods and services thus dramatically reducing the severity and cost of a recession.

If the government used its surplus to pay for these items, it would avoid the inflationary spike and currency devaluation often accompanying deficit spending, meaning commodities and goods would not drastically increase in price. Once the economic downturn subsides, the government must gradually begin reinstating taxes (similar to interest rate increases by the Federal Reserve) and reduce unemployment benefits until we reach “normal” benchmark levels and a surplus is once again in effect. While this approach is not hands off, it prevents unnecessary government intervention and public works projects that waste more money than it provides jobs while softening the overall impact and duration of a recession.

The Debate about the Public Debate on Healthcare

So there is a lot of debate about "the debate" on the national heath care plans being pushed by the Democrats and the President. Yes, health care must be reformed. I'm not sure there are many people who disagree with that idea, except for maybe the companies profiting under the current system. But what the new health care plan should be is rightfully up to debate. There is nothing wrong with opposing views or there being a true debate between the citizens of this country and the politicians in Washington.

I must admit that I'm not for the current plans being pushed by the Democrats. I don't agree with a public option. Sure, President Obama whispers in your ear as you are drifting off to sleep that the Democratic heath reform plan will not take away your right to choose your own health plan. Well, true it doesn't directly take away your right to choose your health plan. But, creating a public option is akin to allowing a company to enter into the marketplace and undercut everyone and rewriting the laws to allow it to happen. So eventually, the public option will be the only option with less services and more costs in tax increases.

However, this isn't the real reason of my post. It's about the debate about this plan. There have been some truly heated exchanges in some "town hall" meetings. I love that politicians are actually going out and facing a tough crowd. I do give credit to the politicians in both parties actually facing their constituents and not stacking the crowd with party loyalists. What I'm not happy with are politicians branding these people as crazy, renegades, Nazis, or accusing them as being "organized protests" that are bad for democracy. Well, I'm pretty sure the American Revolution was one big "organized protest". Who cares if these Obama dissidents are from an organized group or are just angry citizens not aligned with anyone? They are all citizens with a right to oppose the reform.

When a Senator or Congressman is elected, they represent all of their constituents, not just the Democrat constituents. They should listen to opposing viewpoints, even if they come from the evil and vile Republicans, after all, it's not like anyone is busing in foreigners to protest this legislation. What I'm most surprised about is that it's Democrats complaining about protests, since they invented the modern day protests, marches, large public speeches, etc. It becomes scary when elected officials claim that people who are downright mad and are angry are blocking the democratic process. No, people have a right to tell their elected officials how they feel, whether the elected official wants to hear it or not.

I think the Democrats were caught a little off guard by the large scale dislike for this plan. And, even though the arrogant White House likes to paint Americans as simply confused...many Americans do understand what this means...higher taxes, more bureaucratic red tape and ultimately less competition and services. American people aren't confused, they just don't like this "change". Democrats thought when they were elected, voters wanted liberal change....when really, they just wanted change from the Bush Administration. No matter how Democrats like to paint the "crazy" people in the town hall debates, no matter what poll you read, roughly half of Americans do not like this health care reform...and those numbers increase every day.

How should our politicians respond? Well, first they should listen. Don't engage protesters. Just sit, listen, nod your head and say thank you for your comment. Whether you agree or disagree, town hall meetings are really for people to get their feelings off their chests. Second, politicians should actually listen in these meetings. Don't try and shove what you want down the citizens' throats, but pass a bill that a strong majority of citizens want. Third, actually draft a bill that addresses health care's problems. Where is the strict tort reform? A huge reason health care is so expensive is because of the lawsuits. Doctors have to run every test imaginable to WIN (not avoid) a lawsuit. They have to pay huge amounts in malpractice insurance, because they will get sued. This costs a lot and increases the costs for everyone. Fourth, you don't need government to actually run health care to have a lot of influence in it. When did people begin to think Government is the answer to all problems? Do we go and buy government food, tvs, cars, houses? No, almost everything we interact with on a daily basis is from the private industry. Why do we think Government is suddenly the solution? Everything the government runs is inefficient. Plus, Government can make regulations to help cover everyone that wants insurance or needs health insurance. If people don't buy it and need help? Sure, go to the ER, but they need to get the bill, even if it bankrupts them. We can make affordable health care options available if we curb the litigation and through smart legislation.

What we cannot afford are politicians trying to take more control of our free market economy so they can gain even more power over us. That is really what this is all about...power. Most politicians love the power, like a rock band loves to hear the crowd scream. They feed off of it. If they really did it just to "help" people, then politicians like Senator Kennedy would resign his seat so the people of Massachusetts would have two Senators in the Senate chambers voting on the issues that matter to them. Politicians would quit after 10 or 15 years, not live in their elected offices.

It is our right to stand up and say no to them. It is our right to organize and go to to town hall meetings and express our views, so long as we aren't hurting or threatening anyone. I think it's time for the Democrats to start working with Republicans (and Republicans work with Democrats) and the American people to find a solution, rather than imposing the Democratic Party's liberal solution that simply won't help anyone in the long run.

Why Dick Cheney Is Wrong About RINOs

Recently Dick Cheney said it was a mistake for the GOP to moderate. I, however, believe that is exactly what the Republican Party must do in order to take back control of Congress and the White House. In an interview, Cheney said that it was the fundamental beliefs of the Republican Party that should prevail, and that if you compromise and “moderate” then you are not being true to the party. Remember the old saying, “cut of your nose to spite your face”? That is Cheney’s answer, and many other very conservative members in the Republican Party, to bring back the GOP. It can’t and won’t work.

Does it seem like the Democratic Party is more liberal today than in a long time? Yes. Is it because the party went more left and excluded moderates to win Congress and the White House? No, instead it was the exact opposite. Democrats won control because they appealed to moderates in both parties and independents. They ran very moderate to conservative Democrats in more conservative districts…and won. Cheney says it would be a mistake for the Republicans to mimic this strategy. Wrong to mimic a strategy that works? Do all the Democratic members in Congress agree on every point? Absolutely not, how could they? But, that is Cheney’s answer to saving the Republicans. They need to purify the party and only have members that believe in the fundamentals of small government and socially conservative issues.

This coming from former Vice President Cheney is no surprise. Over the past nine years, even longer by some accounts, the GOP has been slowly killing off the moderate and liberal Republicans by steering the party sharply to the right. There are very few Republican Congressman in the North anymore, with only three Republican Senators in the Northeast. Of course, the "true" Republicans called these people RINOs. Republicans in name only. But, the West and parts of the Republican stronghold in the South are turning more Democrat, too. Does this mean that everyone wants bigger government or everyone subscribes to the extreme liberal mantra? Not at all. I still tend to believe that most Americans, given the choice, what a smaller government, are somewhat fiscally conservative and don't like quick changes in social norms. That doesn't mean Americans are far right conservatives, though.

Looking at the trends from younger Americans, who will continue to make up more of the electorate, the Republican message of social conservatism will be grounds for making the GOP even smaller. Would Republicans rather have only twenty or thirty Senators, but stay true to their some of their core beliefs? Or would they rather moderate to prevent extreme liberalism and socialism from sweeping the country? Dick would rather have the former. Cut of his nose to spite his face. I guess his comments frustrate me even more, because it completely cuts libertarians out of the party, which probably will become a larger part of the Republican Party as Cheney’s generation fades into the pastures. We do believe in a smaller government. We believe in fiscal responsibility. But, we also believe that people should be allowed to live their lives however the heck they want to, so long as it doesn’t hurt others.

If the Republican Party continues to the right, they are doomed. They will ultimately regulate the party to permanent minority status, until they join up with a new party formed from moderate Democrats and Independents who can no longer stomach the far left and their ways. I'll call this party the Republicrats.

Life is built around compromises. We don’t live in a black and white world, but one filled with gray. We compromise with our jobs, our friends, our family...we compromise on everything. Why would it make sense for the Republican Party not to compromise? If it does, it brings in more members and at least can obtain some of its goals and prevent the extreme goals of the new Democrats. If it doesn’t, like Mr. Cheney suggests, its left to watch the Democrats do whatever it wants with America. Dick Cheney and his fellow ultra conservatives are wrong on this topic. If Republicans want to have a voice in Washington again, they need to make some compromises and invite back the moderates. Reclaim parts of the North, South and the West. Sure, the Republicans won't be able to agree on everything if this happens. But they will be able to agree on a lot more than they can with the Nancy Peolsi's and Harry Reid's of the Congress.

I hope for all American’s sake, that the GOP disregards Cheney’s advice and creates a party that invites conservatives, moderates and libertarians to work together in achieve the truly most important goals of smaller government and fiscal restraints.

Why Liberals Can't Find The Answers

I had a discussion with a very good friend today about how to explain to liberals that their beliefs, while well intentioned, cannot work.  I told him that in order to be enlightened, one has to allow their mind to open up and recognize there is another side to the argument and that side may have a valid point, or even be correct.  I am one of the very rare individuals who went to a big state university and came out more fiscally conservative than when I went in.  Entering college, I was a mainstream Democrat, buying into higher taxes for the rich and plenty of government intervention.  I then took a political science class with a professor who taught all sorts of topics, including markets and governments, from a more conservative view.  You can imagine how the other professors treated him.  Let's just say that his office was not in the "political science" building.  After taking his courses, I became either a fiscally conservative democrat or a moderate republican.  I had an awakening.  I finally allowed myself to see the other side of the argument. Mostly, that there are consequences to our liberal well intentioned actions.  This, is something today's liberals, and maybe yesterday's, do not understand.

I read an email from a friend of a friend that explained how evil Republicans were for not wanting to crack down on credit card companies.  Now, I can see why we sometimes need regulation of credit cards, because while there are two people entering into a contract, one side really has all the leverage.  Consumers need credit for almost everything, unless you want to pay for everything full in cash, even your house or cars.  So, credit card companies don't always have to give the most generous terms.  But, that isn't the issue of my rant.  This person was upset with the Republicans, because the people being hurt by the credit card companies are victims of the Republicans by not allowing a raise in minimum wage.  This liberal's argument was that if these people made more money doing their jobs (i.e. a higher minimum wage), they wouldn't have gotten so deep into credit card debt.

Let's look at this debate from the "other side".  If you are a liberal and your mind is not open, if you aren't willing to acknowledge there may be an other side that has a point or *gulp* is correct, please stop reading NOW.  But, let's look at this individual making the minimum wage that charged up their card.  First, this card does not hand out free money.  Someone leant the money so they could go buy things, whether it was food, clothes or a flat screen tv, it doesn't matter.  What if the credit card company lending you money was your next door neighbor, your best friend or a family member .  Do you think you should be able to just keep taking their money and never pay them back?  Of course not.  Stop looking at these companies as faceless corporate giants.  Many people you know are the shareholders of these companies, the owners, so when you or someone else charges up their credit card and don't pay it back, you are stealing from your next door neighbor, friend or family member who owns shares in it.  

Second, should minimum wage be increased?  Do you think someone sweeping the floors of your local market deserves 10 dollars an hour?  15 dollars an hour for that task?   While they may break a sweat doing it, is it really worth that amount?  If you owned that store, if it was your pride and joy, your sweat equity, would you want to pay some guy 15 bucks an hour to sweep it?   No way!  But, liberals believe everyone should earn a living wage.  I agree!!  Everyone, but students, part timers and retirees who have other sources of income or do not need a full time job, should be making a living wage, but the answer isn't forcing a higher minimum wage on businesses for every minimum wage employee.   If all their employees that should only be making minimum wage, because the jobs and tasks are mindless, that's a lot more money they have to start paying.  The money comes from somewhere.  There isn't a magic money tree outside.  Will it will come from someone else's salary?  Maybe that will mean one less well paid job.  Maybe everyone will have to pay more to purchase the items at that store.  Maybe the store will eventually have to close because the items are too expensive and then everyone is out of the job.  All because minimum wage was increased.  The counter argument is what's another 5 bucks an hour?  It's so little.  Well, I used to work minimum wage jobs in high school and college and it matters.  When wages went up, even a buck, people got less hours.  It matters.  When you multiply that wage increase to all the employees that make a minimum wage in a company, that is a lot less profits, and after all, companies are out there to make money for their shareholders...you and me.

So, can you see there are consequences to these actions?  If you raise minimum wage, others could lose their job.  Critics point to when minimum wages have been increased in the past, there is no massive job loss.  I can promise you some lost their jobs.  I can also tell you that the increase is phased over a period of time, often years, and it's not usually huge.  It's never a living wage.  If liberals get their way and the wage is increased to meet the living wage...layoffs will be huge.  

We also have to look at it from a practical perspective.  Should people be making that much for that task?  Those jobs are not supposed to be careers.  They are supposed to be part-time jobs for students and retirees or people with nothing to do that don't need the money.  If we want to help people make more money, we need to invest in giving them a better education and giving them the skills to work better paying jobs.  Then they will have more to spend in the economy and everyone will be better off. But, why don't liberals focus on that?  Because they think there is a quick fix to it all and there isn't.  

I thank my undergraduate professor every day for opening my eyes.  Showing me the other side to the argument.  Often, the answer rests somewhere in between.  But, if you can't ever see the other side, you will never find the answer to the problem.  I hope all these new and old liberals out there take the time to actually learn about the consequences of their actions and do things that will actually help most Americans, rather than just hurt them in the long run.

Congress Making AIG Problems Worse

So the House yesterday decided to tax the AIG scumbags, who are partly to blame for this economic disaster, at a whopping rate of 90%. They say the state and local governments will collect the other 10%. This new bill, which is not yet law, is targeted for AIG and other companies who are taking government bailout funds in excess of 5 billion and giving bonuses to its employees. This new tax rate targets bonuses given to those making the magic number of $250,000.00 per year.

I think we can all agree, it’s pretty bad that these guys and gals somehow get to reap a monetary windfall when their company was collapsing and the worldwide economy is in bad shape. It seems, on its face, not to be fair. Now, I haven’t reviewed the contracts giving them these bonuses, or the circumstances that must be met for these employees to get the money, so we will have to leave that to the imagination. I know I may be strange and unpopular here, but it isn’t the fact that these people got the bonuses that trouble me the most. Why? I'm more scared of the unintended consequences of such a rush to judgment by our Congressmen.

The dangerous underlying issues surrounding this outrage are: (1) why is Congress wasting so much time on millions of dollars, when we are running a debt in the trillions; (2) what will this do to all the other major banks and their employees (who most are not bad, but very good) that are taking TARP funds; (3) what are the consequences of Congress passing a retroactive bill, or a bill that changes the legality of something after it has already occurred?

Topic 1: Congress has spent the entire week now debating this AIG tax rate scheme. The worldwide economy is falling apart. We have two wars and a possible third or fourth on the way in Iran and North Korea. We have education, healthcare, infrastructure and defense issues at home (besides the failing economy). Why on earth are our representatives wasting such precious time on something that is honestly a drop in the bucket? Because of the media. The media is making the Democrats look bad, like the administration has no control over the TARP funds, the economy or its rebound. Fact is, it’s impossible to keep track of how every company is spending every dollar that is from TARP. I imagine this administration is doing the best it can. And, the reality is that the Obama administration doesn’t control the economy, at least not directly. So, this bill passage is just a circus to distract Americans and make the ruling party in Congress not look so bad.

Topic 2: The other major banks taking TARP funds will now fall victim to this potential new law. They too will not be able to give bonuses. This will force one of two things to happen. They will pay back TARP funds before they really should, leaving them in a weaker position, so that they can retain top talent (and pay them bonuses); or they will not be able to keep their top talent. I don’t know about you, but I (as a taxpayer) have a lot of money invested in these financial institutions, let alone all of our jobs depend on the banks staying afloat. I think I want the best and brightest minds in there. Do whatever it takes. So, how does taking away bonuses, or forcing these major banks pay back the TARP funds too early help? It doesn’t. This is not the way to handle the situation.

Topic 3: This is probably the most egregious thing that has taken place. Congress is now trying to implement a law that would take effect in the past. That means actions taken, when you thought they were, in effect, legal, become at best frowned upon and worthless and at worst illegal. There are a lot of legal theorists out there that suggest that creating retroactive laws is a horrible idea. Why? How do you follow the law, if it can be changed at anytime? What if you drove 70 on the interstate last Thursday, because it was legal? Then your state changed the legal speed limit to 40 on that same road three weeks later, but made the law effective when you drove on it last Thursday. The punishment is 10 years in prison, and there is proof you drove 70 on it. Now you can be convicted of a crime, although when you drove 70 on that road, it was legal…but now it isn’t. See the problem? You can never predict what the law will be. Now, my example is a little different than what is happening, but it will have the same effect on the stock market and the economy. How can investors properly plan their investments or execute contracts when Congress, at anytime in the future, could write laws to change the rules of the game. It’s going to scare people and it should. Retroactive laws are about the worst that can be made. Hitler use to make them in Nazi Germany to make his actions legal and the actions of his enemies illegal.

Congress’ new bill many face constitutional questions and be ultimately ruled unconstitutional. Representative Lamar Smith said it best, “Congress has let expediency override common sense.” We must ask ourselves, why is Congress rushing this? Why not take some time to debate the issue and figure out the best course of action. The money has already been given out, so why the rush? I can tell you this is not the best course. The simple answer is that House Speaker Nancy Pelosi wants to pass a quick law and sweep it under the rug, so she can say she tackled and solved the problem. Unfortunately, this solution will cause far more problems for her and President Obama to solve and could really hurt the Democrats in a couple of years at the polls. Democrats like to think they are the new world order, but Republicans had a pretty strong grip on things for a while, too…and look at what happened to them.

Is Obama Letting the Economy Tank on Purpose?

So, I have been watching the economy collapse day after day.  One would almost think the press itself wants it to keep diving.  That's obviously not the case, as we see newspapers and television stations scrabbling for more cash.  Today, the Rocky Mountain News published its last paper.  

Listening to President Obama over the past few weeks, I too was wondering if he had a stake in all of this.  When he was running for office, he had a message of hope for Americans.  He was going to solve all of our problems.  He was going to bring a new day.  We would be strong again. Granted, he has only been in office for a little over a month, but the market has fallen even further since inauguration day.  Rather than listening to the hopeful messages we got accustomed to hearing during the campaign days, we heard an Obama who has been downright scary.  Words like catastrophe, worst ever, and never recover.  What?

Since the birth of our nation, there have been between 18 to 20 recessions, depending how you count them (and depending on wikipedia's sources).  That's a lot.  Every time, America has bounced back.   We are stronger today for it.  We have learned from past mistakes.  So how is this one going to be the end to end all?  It isn't.  We just aren't used to bad ones anymore.

So why has Obama been so negative.  Simple, he wanted to get the stimulus bill passed.  Is that so wrong?  It depends on what you think will stimulate the economy.  If you think tax cuts, which has gotten us out of recessions before, then it was a bad deal.  If you think more government spending (which technically did get us out of the Great Depression, but it was spending for a war, not the New Deal), then it was smart.  However, here we are, after all that negative rhetoric, and the Dow is hovering just above 7000 points and it keeps falling day after day.  Investors are terrified.  That's not good for the economy.   They are waiting for a leader to emerge.

Then came the nearly 4 trillion dollar budget announcement this week.  Now, I'm for deficit spending in a recession.  I think it does help, but it's important where you spend all that money.  This budget is laced with Democratic Party initiatives rather than concepts that will help American's get jobs.  Higher taxes on the "rich".  Universal health care reform.  Some of the policy ideas are probably good.  Some are probably bad.  But, what you don't do when you are in a recession and America is broke...is create a bigger deficit than you need.  You wait on your drastic  reforms, because America just can't pay for it right now.  Just like we should only use credit cards sparingly, so should the government when considering deficit spending.  Not the Democrats, though.

So, why is Obama pushing this now?  Dick Morris suggests he made the economy sound even worse than it is (if you can believe that), so that the Democrats could push through their liberal agenda.  It's plausible.  The stimulus bill passed.  The Democratic Party has been licking their chops since they took control of everything to shove through their policies.  To make up for old times.  Nancy Pelosi says the people demanded it!  Really?  I think many people voted for Obama and the Democrats, because they were tired of all the corrupt Republicans and W's way of running things, more than anything.  They were tired of deficit spending!  They were tired of Iraq!  

My point is, if Obama truly is catering to his party now, not the American people, and making the economy out to be even worse, to pass through Democratic Party agendas, then it's a sad day in America.   What we need is a hopeful President with tighter controls on spending, not excessive spending.  There will be plenty of time for the Democrats to push through their agenda.  I just hope that Dick Morris is wrong and Obama is living up to his campaign promises.  We shall see.

How to Stimulate the Economy

What is happening to the American Economy? Well, it’s really the global economy, but to simplify things…let’s just keep it American. First, people borrowed more money than they could afford to pay back with their income. They financed credit with more credit. This was accomplished through credit cards, car loans and mortgages. Second, the banks went along with it. Finally, the crap hit the fan when the debt came due. Demand for everything softened, because Americans finally had tapped all their credit and couldn’t pay for anything else. There became less demand for homes, so prices fell. Then people defaulted on their mortgages…we have heard this explained a thousand times on the news and we know the outcome. We are living it.

So how do we fix it? Well, there are two models: 1. The Government spends its way out of the mess by spending money it doesn’t have…by spending OUR money. They use OUR debt to finance public projects and employing more people to build the projects. 2. The private market spends its way out of the mess. This is accomplished by massive tax cuts…basically letting businesses and individuals keep more of the money they earn.

Fans of Option 1 believe that the private market got us here. That is partly true. People got greedy and either loaned money on risky investments, or spent more than they made. Both parties in Government turned a blind eye. But is doing the same thing (Government spending more than it brings in) going to solve the problem? Don’t two wrongs make a wrong? The reason the American economy is in a tail spin is very simple…no one is buying anything. People are scared so they have cut back on spending. In part, this is irreversible, because we spent more than we could in the past. So, no matter what happens, Americans will spend less, because there is less credit.

Well, if the problem is less spending then the solution needs to be getting Americans to spend more (since we are anywhere from 2/3rds to 3/4ths of the economy, depending on the economist). The theory is, if Government spends more, it creates more jobs allowing people to spend more, because they have their new government job. But, what if instead we gave everyone that currently had a job a lot more of your money back by cutting taxes? What if we cut business taxes drastically for a period of time then gradually increased them? Businesses would have a lot more money and so would consumers. Consumers would buy more, because they have so much excess money to spend. This creates more jobs, so businesses can keep up with demand. Businesses have more money to keep current employees, make investments, and hire new help. More people have jobs, so they can keep spending money. Say goodbye to the recession.

So what happens when the tax cuts are gone and taxes increase? Well it must be increased gradually and if done gradually over time, the consumers will keep spending, because they have jobs, and businesses will keep hiring and not firing because they have consumers. Remember, the Government’s spending plan ends too. Eventually they will spend all of their money building the roads and improving the schools. What happens then? Well the roads are built and the schools are fixed…so time for layoffs? Allowing Americans to spend their own money will increase demand faster than the Government can implement its programs and by giving everyone 13 more dollars a week. Tax cuts are more drastic and immediate. People see the effects quicker and react quicker. Do our roads need to be fixed? Of course, but that can be dealt with at another time. Right now, we need to simulate the economy and fast. The Democrats can deal with education, infrastructure, and their other pet projects at a more appropriate time.