Thursday, December 02, 2010

Fiscal Reform Commission FAIL

The panel has such a lofty title - the National Commission on Fiscal Responsibility and Reform - but it's proposals seems mostly irresponsible.

A hodgepodge of limp proposals, including tax increases on gasoline, raising the retirement age, eliminating tax deductions for charities and mortgage interest, and many others all ignore the basic problems in the nation's financial structure.

Back in June, economist James K. Galbraith spoke about the inherent flaws in the entire project:

The President created the Commission while pressing for a stronger growth strategy, and has sent every discreet signal (notably in the commission’s minuscule operating budget) that the exercise should not be taken seriously.

Nevertheless, there is a danger that the Commission will take a path — “stimulate now but austerity later” – that will lead to unnecessary, economically-damaging and socially destructive cuts in Social Security and Medicare. And there is a danger that such cuts will be stampeded through Congress in the months immediately following the 2010 elections.


"Overwhelmingly, the present deficits are caused by the financial crisis. The financial crisis, the fall in asset (especially housing) values, and withdrawal of bank lending to business and households has meant a sharp decline in economic activity, and therefore a sharp decrease in tax revenues and an increase in automatic payments for unemployment insurance and the like. According to a new IMF staff analysis, fully half of the large increase in budget deficits in major economies around the world is due to collapsing tax revenues, and a further large share to low (often negative) growth in relation to interest payments on existing debt. Less than ten percent is due to increased discretionary public expenditure, as in stimulus packages.

This point is important because it shows that the claim that deficits have resulted from “overspending” is false, both in the United States and abroad."


"You are plainly not equipped by disposition or resources to take on the true cause of deficits now and in the future: the financial crisis. Recommendations based on CBO’s unrealistic budget and economic outlooks are destined to collapse in failure. Specifically, if cuts are proposed and enacted in Social Security and Medicare, they will hurt millions, weaken the economy, and the deficits will not decline. It’s a lose-lose proposition, with no gainers except a few predatory funds, insurance companies and such who would profit, for some time, from a chaotic private marketplace.

Thus the interesting twist in your situation is that the Republic would be better served by advancing no proposals at all."

No comments:

Post a Comment