I stumbled upon a small piece in the Guardian by Dean Baker (at http://www.theguardian.com/commentisfree/2013/feb/08/us-deficit-obama-grow) this morning. He wrote it in 2013, yet in light of several events this story still holds some visible issues, even though I completely disagree with it. It was however a nice piece to read. Dean Baker is the co-director of the Centre for Economic and Policy Research, which means that he has degrees in economy and I do not. So, why do I disagree?
This view comes through the following quotes. “First, the United States has large deficits because the collapse of the housing bubble sank the economy“. That in itself does not sound incorrect, yet when we look at the definition of ‘deficit’, we should accept this simple one: “The amount by which expenses exceed income or costs outstrip revenues“. So how is this housing bubble a US deficit problem? Houses are built through real-estate people, developers and such. So, there is a little truth in there. As these people made a huge loss, they would not be paying any taxation, which means the US is not getting money through taxation, which means that they get less money for their budget. So, in that regard we are all fine. The linked 2008 economic downfall was due to several idiots (or geniuses depending on your viewpoint) in Wall Street and Financial districts who were playing with all kinds of mortgage based hedge funds and in that way ‘lost’ about 8 trillion dollars, which comes down to devaluating 32 million houses from newly built to the instant value of $0. This comes down to the housing value of 27% of the US households became null and void with the instant snap of the fingers.
So, yes, we can agree that this impacts the deficit as taxation goes down, however should we consider that part of these events is because the US treasury failed completely? Consider that there was a recognised housing bubble at the time that Henry Paulson (who was at that time the big boss of the US treasury). The deficit grew to such an extent because the elements were not properly monitored. So in this view the quote “First, the United States has large deficits because the collapse of the housing bubble sank the economy” should be “The United States diminished its income as the US Treasury did not act preventive, proactive and in a timely fashion in regards to the housing bubble“.
The second quote we see by Dean Baker is “Second, if we had smaller deficits the main result would be slower growth and higher unemployment“. Well, that is one bubble we can pinch through. If taxable amounts increase deficit goes down, if expenditure goes down, then so does the deficit. Neither forces us into the view that this will result in higher unemployment rates, neither prove that there will be a slower growth.
This all depends on the application of the tools available. Yes, taxing extensively is a massive downturn, but is that the approach that should be taken? Am I against taxing the ultra-rich? That depends on the way taken. I do not think it is fair to just tax the rich, yet removing some of the tax shelters would be a very acceptable approach. Consider the following quote by the NY Times (at http://www.nytimes.com/2011/08/15/opinion/stop-coddling-the-super-rich.html)
“In 2008, the aggregate income of the highest 400 had soared to $90.9 billion — a staggering $227.4 million on average — but the rate paid had fallen to 21.5 percent“. This is less than people making $36,251 – $87,850, they pay 25%. So, there is a massive imbalance here, which leads to the approach that a smaller deficit could be gotten by properly addressing a flawed tax system.
This is where we get to the news of January, (at http://www.theguardian.com/world/2014/jan/04/bill-de-blasio-new-york-mayor-inaugurated), where a quote is given that reads like an incorrect act. “But the most controversial element is to extract an extra $530m (£323m) in taxes from those earning more than $500,000 a year to pay for universal pre-kindergarten education and after-school programmes“, so New York wants to get a little more cash. I have mixed feelings, yet I do understand this move when the top 1% of the people in New York makes up for 39% of all income. Those objecting to this better understand that the tax increase amounts to an annual rise of $973 for those making a million a year, which is less than the price of a coffee a day. My issue is the fact that tax deductions allow for millionaires and billionaires to pay 4% less than those on an average income, which adds up to massive amounts of dollars. Dealing with these factors will not slow growth, it will not lead to a higher employment rate, it will however allow for a smaller deficit as the US grows its collected income from tax donations.
The third quote by Dean Baker was “Third, large projected long-term deficits are the result of a broken health care system, not reckless government ‘entitlement’ programs“. In my view it is both. I have a hard time speaking out against certain entitlements. Not because they exist, or should exist. The reason is that the 2008 crash left a massive population in an unfair position. A large group of people lost their house and homestead and these people had to be protected in some extended form. The fact that those who caused it walked away with amounts in that year would be beyond what the victims would earn in an entire lifetime is just obscene. Consider that in 2008, the year of the crash, Merrill Lynch handed out over 3 billion in bonuses (at http://www.forbes.com/2009/01/28/wall-street-bonuses-business-wall-street_0128_bonuses.html) and it happened just before they merged with the Bank of America. When we look at this all, we see entitlements, who largely impacted the US government due to what should be seen as high stakes poker games played by the commercial sector, which was loosely ignored by the US treasury. When we see the broken health care system, it seems that there is an issue there. We see the massive amounts of issues on all kinds of newscasts where we see that Obamacare will cost the people. Their premiums will double and in some cases triple. Now, on the side of the people there is outrage. I get that, but look at it from the other side. Does this mean that for decades, the people got medical care, whilst not getting properly charged for it? It is nice and easy to lash out at President Obama on this, but is this his fault? The actual costs, the investigations and as such the in-activities would play into the hand of President Obama. I might just casually ask whether the US treasury should have looked at this. Was this an area that had been ignored for way too long?
So in the end, Dean Baker makes one point that holds ground to some extent.
So why was I looking into this article 405 days (actually 4926 hours and 17 minutes) later? This is all due to an article that the NY Times published (at http://www.nytimes.com/2014/03/20/business/us-current-account-deficit-is-smallest-in-14-years.html). Let’s not get fooled here. This article is about trade deficit, not the US deficit or the US debt. The quote “Big gains in exports and overseas investment income narrowed the United States’ current-account deficit in the fourth quarter to the lowest level in 14 years“. So for one quarter they were only short a little north of 80 billion. It reads like when you have debt, flaunt it!
The valid question that you the reader might have is how the articles and the issues are linked. Well, they are not, but the issues of data behind them are. We are offered information by those who should give us clarity and information, yet, we have been ‘bamboozled’ for some time with an overly deep view in information, so the overview is gone for nearly all readers. When you want something to pass unseen, you just make sure that you give the people everything. It is something some researchers do. When the initial results lead to that one question, you just give them all 1247 result tables; there is a high chance that the certain question ends up not getting asked.
The last point to leave you with is the small issue that is playing thanks to some Ukrainian disagreements. How will these numbers impact when the acts of the EEC and the US will result in Russia closing the gas tap to Western Europe. As the Dutch NOS reported earlier this week, the Rotterdam Harbours are ready to switch and get their energy through the provision of liquid gas from the USA, the trade deficit will get smaller even still, yet the 20% hike the consumers in Europe face is something the people will only read about after the fact.
The US has a long way to go, with a national debt of well over 17,500 billion and a total debt of around 61,350 billion, being short by 80 billion seems like a pinch not worth mentioning, yet consider that the US is forecasting an total income of 3 trillion (before expenses), in 2013 the deficit ended up being $680 billion, which makes it unlikely that 2014 is a turning point for now, which means that the total deficit will grow for at least one more year. Then and only if severe cuts are found, it will still take up 70 years for the national debt to be gone, there is no way to predict how long the total debt of 61 trillion will take. So when you read all the upbeat articles on how there are three issues with the deficit remember, it will take 3 Generations (3G) to get rid of the national debt, the USA, now a 3G nation, how happy can anyone in the free world be for the foreseeable future?
Lawrence van Rijn - Law Lord to be 