Cafe Hayek: Framing the 'Trade Deficit'

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March 21, 2006

Framing the 'Trade Deficit'

Don Boudreaux

My friend Jack Wenders, Emeritus Professor of Economics at the University of Idaho, notes this passage in a recent AP report:

The U.S. must borrow more than $2 billion per day from foreigners to finance its huge trade deficits.

Jack's reaction to this typical way of framing the so-called 'trade deficit' is noteworthy:

Maybe a better way of putting this would be to say: "Foreigners must sell the U. S. more than $2 billion per day in goods and services to finance their huge purchases of U.S. assets."

Exactly correct.

Posted by Don Boudreaux in Myths and Fallacies, Trade | Permalink

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Comments

This is from a recent essay by Joseph Stiglitz. I'd like to get reactions to the points Stiglitz makes:

Trade deficits are always equal to the difference between national (domestic) savings and investment. Trade deficits are, therefore, the result either of increased investment or reduced savings. If national savings go down – as when the government runs a huge fiscal deficit – then, unless investment goes down in tandem, the trade deficit must rise. That is why we speak of the twin deficit problem: fiscal deficits normally lead to trade deficits. We had this problem in the Ronald Reagan years, and we are having it again now.

If the trade deficit is the result of the fiscal deficit, we need to push the analysis back one step further. What caused the fiscal deficit? Four years ago, the George Bush administration could blame the deficit on the economic downturn or problems inherited from the past. This is no longer the case. Economic growth has resumed and unemployment has fallen, and it is clear that America has a very large structural deficit. The turnaround from a surplus of 2% of gross domestic product (or national income) inherited from the Clinton administration to the 4% deficit is dramatic and largely due to the Bush tax cuts for upper-income Americans.

Of course, the war in Iraq has contributed, but so too have the enormous increases in corporate welfare and the subsidies for agriculture. The effective tax amnesty – inducing American corporations to bring their money back to America in return for paying a tax that is a sixth of their normal tax – has made this year’s revenues look better than they otherwise would, and the deficit smaller than it otherwise would. Make no mistake, however: there is an enormous structural deficit in the American economy thanks to increased public spending and tax breaks for business and the wealthy. And structural deficits do not just go away by themselves.

Fiscal and trade deficits are not always a problem. It depends on what gives rise to them. For instance, in the Clinton years, the fiscal deficit was brought under control but investment boomed, and America had to turn abroad for finance. There is a difference, however, between borrowing to finance investment – it provides the basis for future growth, enabling the country to repay the debt – and borrowing to finance a consumption binge.

Unlike the trade deficits of the 1990s, America’s borrowing today is not the result of an investment boom. Nor is the government’s deficit caused by a sudden commitment to repair its ageing highways and bridges, to modernize its airports or to strengthen the levees that protect the country against floods. On the contrary, the disaster in New Orleans showed that there had even been cutbacks in essential investments. It will be years before we see the full consequences of other cutbacks in long-term investments, such as in university-based basic research.

Today’s trade deficits are caused by low savings rather than high investment. With personal savings close to a record low of zero, and the government running huge deficits thanks to the tax cut for rich Americans, the term “consumption binge” is the best description for what is going on. Whatever the rhetoric, the Bush tax cuts have not led to more investment.

It is because the Bush trade-cum-fiscal deficits are a consequence of this consumption binge that they pose such high costs and risks for the future. They have also brought few current benefits. What is remarkable about the fiscal deficit is how little stimulus it has provided the economy. Normally, a 6% fiscal turnaround (from 2% surplus to 4% deficit) would have led to a true boom. Had he tried, it would have been difficult for Bush to have achieved less “bang for the buck”.

This is important, because it has forced the Federal Reserve to have extraordinarily low interest rates. Ordinarily, low interest rates lead to more borrowing and also more investment, so while indebtedness increases, this is balanced by an increase in assets. In this case, lower interest rates have helped the American economy mainly by inducing households to refinance their mortgages, and this refinancing has caused some households to spend some of the money freed up. The housing bubble has meant that balance sheets still look good. It is hard to see, however, how this engine for the economy can continue in the face of rising interest rates and oil prices. Furthermore, if the bubble does burst, household balance sheets will really be in trouble. The problems in government and household balance sheets make responding to the inevitable crises – such as that posed by Katrina – all the more difficult.

Posted by: djd | Mar 21, 2006 12:33:32 PM

This article also makes the common "mistake" of confusing the trade deficit with the budget deficit. The US doesn't borrow anything to finance our trade deficit; individual people and businesses do.

Posted by: Stormy Dragon | Mar 21, 2006 12:50:35 PM

Stormy -- your analysis implies that there is no such thing as the United States.

It is fairly common to use the term the United States to refer to the government, businesses, people, etc., of that country.

Moreover, if you want to make your argument
you must be assuming that foreign central banks are not purchasing US Treasury debt.

I'm curious. What were you trying to demonstrate with your comment.

Posted by: spencer | Mar 21, 2006 1:28:25 PM

I can't speak for Stormy, but to me the difference is as follows. The budget deficit is a property of the entity we call the United States, or more properly of the /government of/ the United States. Our government, proxying for the people of the nation, borrows money thus creating the budget deficit. The trade deficit on the other hand is purely a statistical construct which attemps to summarize the result of the actions taken by every person that calls the United States home. We attribute it to the nation, but it is not a true property thereof, in the same way that an object has mass or temperature. This is meaningful because it means the trade deficit is not a controllable variable, while the budget deficit is.

Posted by: Noah Yetter | Mar 21, 2006 2:39:26 PM

By saying that the "US" borrows money for something, the implication is that the responsibility for this debt is held collectively.

This is true in the case of the budget defict. As taxpayers, everyone in the country is ultimately responsible for repaying these debts and thus should rightfully be concerned about how much borrowing occurs.

This is not true in the case of the trade deficit. If Walmart borrows a billion dollars in debt to pay for imported consumer goods from China, you're never going to be responsible for that debt. If your neighbor runs up a huge credit card bill buying Japanese electronics, you're never going to be responsible for that debt. So it's silly to be concerned about they size of the aggregate trade deficit. It's like worrying about the size of your neighbors credit card bill.

Posted by: Stormy Dragon | Mar 21, 2006 2:58:59 PM

Typical liberal dogma...only tax cuts cause budget deficits. How does Stiglitz explain the explosion of revenue into the U.S. Treasury? I submit it might have something to do with the incentives for risk taking and entrepreneurship that were provided by the 2003 tax cuts. The very simple reason we have a fiscal deficit is because Congress overspends!!

Posted by: SCOOP | Mar 21, 2006 4:39:16 PM

Question: How much of this money is lent back to the government to buy bonds, converting it into "public debt owed to other countries?"

The question is not rhetorical/provocative. I'm genuinely trying to understand who holds the notes on the national debt, and to what extent it's related to our trade deficit.

--johngaltline

Posted by: johngaltline | Mar 21, 2006 5:16:38 PM

djd: "the government running huge deficits thanks to the tax cut for rich Americans"

I'd love to see somebody prove that.

Posted by: johngaltline | Mar 21, 2006 5:20:11 PM

Economic evidence is pretty clear that this round of deficits that have been added to the national debt were caused by a decline in revenue of about 3% of GDP while revenue stayed about the same. The historical averages don't lie...only fiscal conservatives do.

Posted by: Hit The Bid | Mar 21, 2006 5:43:04 PM

Inversely, show me this explosion of revenue into the treasury, as well as causal evidence that tax cuts on investment capital not only pay for themselves, but actually make the treasury money!

Posted by: Hit The Bid | Mar 21, 2006 5:45:06 PM

I find the Stiglitz article impressive in that he is able, without making any blatantly false statements, to paint a picture that is both quite misleading and quite convincing. It's brilliantly written.

As an example, consider the first paragraph of the excerpt which contains "[i]f national savings go down – as when the government runs a huge fiscal deficit – then, unless investment goes down in tandem, the trade deficit must rise." The statement is not quite false, but has several subliminal implications that aren't quite true.

First, there is no inherent link between "huge fiscal deficits" and having "national savings go down." For example, consider a country that has nominal GDP growth of 5% per year and has a government budget deficit of 3% of GDP per year. Such a country would end up with a steady state (relative to GDP) level of government debt of 60% of GDP. That's a bit higher than the supposedly "huge fiscal deficits" of the United States under Bush and a bit lower than most other developed countries such as France, Germany, and Japan. But the point is that in such a steady state scenario, national savings would neither go up nor down due to the fiscal deficit.

In other words, it's only the change in the size of the fiscal deficits that could potentially affect national savings rate. The current deficit is very close (withing a couple of tenths of a percent) to the average for the last 25 years so we're actually somewhat near steady state.

Also, when the change in deficit is due to tax cuts, as opposed to increases in spending, it's also not inherent that it causes a decrease in the national savings and investment rate. For example, if I borrow $100 from you and invest that money, that transaction leads to no immediate change in investment. Likewise, if the government borrows an additional $100, taxes me $100 less, and I invest that money, there's also no immediate change in investment.

There's a variety of other points that mitigate the impact of this single sentence which I don't have time to address in this comment. That's the amazing beauty of this and just about every other sentence in the article. They are carefully crafted to present exactly one perspective and to not only ignore, but to make it difficult to even consider, contradictory information.

Posted by: Bret | Mar 21, 2006 7:03:30 PM

Hit the Bid: "Economic evidence is pretty clear that this round of deficits that have been added to the national debt were caused by a decline in revenue of about 3% of GDP while revenue stayed about the same."

So you're agreeing that revenue stayed the same despite lower taxes. Congratulations -- I know how much that must have hurt you to admit.

Now, if I could just call your attention to the fact that outlays went up by some $600 billion over the same period, then perhaps you can explain how that spending increase was caused by lowering taxes.

Posted by: johngaltline | Mar 21, 2006 9:05:34 PM

hit the bid said:
"Economic evidence is pretty clear that this round of deficits that have been added to the national debt were caused by a decline in revenue of about 3% of GDP while revenue stayed about the same.

This sentence is akward to me. Did you mean to say while spending remained the same?

Posted by: John Pertz | Mar 21, 2006 9:50:55 PM

It is sheer ignorance to say that if we have a trade deficit of $2 billion a day that we as a nation have to borrow $2 billion a day to finance our foreign purchases. We can also do so if foreigners buy stocks, or real estate, or factories, or starting new businesses in the US etc, involving no debt whatsoever.

All that assumes the trade tail is wagging the investment dog. The opposite seems to never occur to these people. It seems pretty clear to me that the US is the safest place in the world to invest your money, and people in all kinds of insecure countries are doing just that, safetying their money in the US.

If we have more foreign money wanting to invest in the US than US money wanting to invest overseas, then by definition the only way those foreigners can get the currency for those investments is by foreigners selling more goods and services to Americans than they buy from the US. In equal amounts no less.

Posted by: happyjuggler0 | Mar 21, 2006 10:51:22 PM

This is a subtle but an important point. About 30% of the total trade deficit is created from intercompany transfers. Ultimately, the second point of the issue comes on the value (and return) on assets that we own abroad (versus foreign investments). The worry I have is not the trade deficit - which is fundamentally an accounting issue but the budget deficit - where we are asking (mostly) foreigners to finance our profligate governmental spending. Goods ultimately balance - government deficits do not.

Posted by: drtaxsacto | Mar 21, 2006 11:06:20 PM

One other point. Stiglitz was of course the guy who wrote the laughable book called Globalization and its Discontents where he disavowed any responsibiity for his role in IMF decisions.

Posted by: drtaxsacto | Mar 21, 2006 11:08:17 PM

One more point - During the Clinton Administration we went to 21% of GDP for revenues - higher than at any time in the country's history. (Or close to it.) Bush brought the numbers down back to normal ranges. Clinton saw a 43% increase in the take from PIT revenues, a 50% increase in Corporate taxes and a 16% increase in Social Security taxes - do some of the earlier commenters think that is a good thing?

Posted by: drtaxsacto | Mar 21, 2006 11:18:02 PM

If U.S. (via its citizens or the government) are trading capital for consumer goods, how is this good for the long term future of the U.S.?

Posted by: Half Sigma | Mar 22, 2006 12:00:14 AM

"to finance their huge purchases of U.S. assets."

Exactly incorrect. They aren't financing anything...they are buying productive US assets with cold hard cash.

Gotta give you credit for being consistent.
Pun intended.

Posted by: RP | Mar 22, 2006 1:48:37 AM

Half Sigma wrote:

"If U.S. (via its citizens or the government) are trading capital for consumer goods, how is this good for the long term future of the U.S.?"

Actually, the goods AND the capital are flowing here, to the United States!

If net exports are equal to net capital outflows, then the inverse must also be true -- that net imports are equal to net capital inflows. Of course that means that the capital (in the form of direct investment or purchased debt instruments) that is (are) being utilized in America is (are) owned by someone who is not American and they lay claim.

If you don't believe this, then check out the link

http://www.usd.edu/~rbrown/Mankiw.macro.open_economy.ppt

Posted by: LowcountryJoe | Mar 22, 2006 6:44:38 AM

HIT THE BID: I suggest you simply go to the U.S. Treasury website to look at Federal Receipts and Outlays. You will find Receipts have soared since the end of 2003. No lying here...just cold hard fact.

Posted by: SCOOP | Mar 22, 2006 8:55:28 AM

Don,

It does not matter whether you frame the trade deficit as a deficit (too much consumption) or a "capital surplus" (too much investment, by the opposite party). Either way we are faced with a situation that is likely far past equilibrium. Changing the wording to something more palatable is simply spin.

I bet you don't believe its possible to have too much investment. Then I wonder if you've heard the news that Google is considering starting a zero-gravity "extreme sports" league in collaboration with NASA (http://www.marketwatch.com/News/Story/Story.aspx?guid=%7BECAB617A%2D4B9F%2D4879%2D9A31%2D37575268C435%7D&siteid=myyahoo&dist=myyahoo). Any investment is good investment, right?

A macroeconomic example of the above is the entire dot-com bubble, and the real estate bubble after that. Capital overhang, on whatever scale, destroys the investment landscape. An imbalance is an imbalance, on both sides of the equation sheet.

Posted by: Aaron Krowne | Mar 22, 2006 9:43:25 AM

Sorry John Galt Line...that was a typo. Expenditures stayed about the same for the fiscal year of 2002 after the majority of the tax cuts took affect.

I apologize, but I only use accurate data, so you will not be very satisfied with me.

EGTRRA of 2001 decreased revenue while spending stayed about the same...thus we have what are called structural deficits...that is to say, essentially, that no matter what is done on the spending side, we will run deficits every year.

Taking into account what we policy analysts call "political feasibility", where are you going to come up with $400 billion a year?

Would common sense not suggest we find a mix of cuts and tax increases to strike a balance internally and externally?

Posted by: Hit The Bid | Mar 22, 2006 10:44:31 AM

Sorry John Galt Line...that was a typo. Expenditures stayed about the same for the fiscal year of 2002 after the majority of the tax cuts took affect.

I apologize, but I only use accurate data, so you will not be very satisfied with me.

Taking into account what we policy analysts call "political feasibility", where are you going to come up with $400 billion a year?

Would common sense not suggest we find a mix of cuts and tax increases to strike a balance internally and externally?

Posted by: Hit The Bid | Mar 22, 2006 10:45:46 AM

My apologies for the double post to all of you.

To Scoop I say of course revenues have increased during this period...the economy has been growing. I look forward to your citation of a study that concludes that revenue to the treasury would have been significantly smaller if EGTRRA were not enacted.

Thanks.

Posted by: Hit The Bid | Mar 22, 2006 10:49:27 AM

But the $2 billion question is why there is such a strong demand for "US ass-ets."

Posted by: deb | Mar 22, 2006 1:16:25 PM

Hit the Bid

http://www.cbo.gov/budget/historical.pdf, (page 2 of 14)

year revenues outlays
1998 1722.0 1652.7
1999 1827.6 1702.0
2000 2025.5 1789.2
2001 1991.4 1863.2
2002 1853.4 2011.2
2003 1782.5 2160.1
2004 1880.3 2293.0
2005 2153.9 2472.2

From 2000-2005, revenue is up over $125B.
Outlays, over the same time, are up $686B. There's your deficit.

Yes, revenues are up when taxes are set to a lower percentage of GDP. That's precisely why the taxes were lowered. The economy grew such that, even at the lower percentage of GDP, revenues now exceed prior levels. Now if only spending hadn't grown even faster.

Posted by: johngaltline | Mar 22, 2006 1:53:56 PM

I'm still waiting to wake up one day and read the headline "US Capital Account Surplus Hits All-Time High". I think the media prefers "US Current Account Deficit Hits All-Time High", but the first headline is no less true than the second.

Posted by: joe | Mar 22, 2006 2:03:16 PM

re drtaxscto:
I haven't read Stiglitz's book. I am pretty sure,however, that he was at The World Bank and not at the IMF after he left the Clinton White House.
Hence, his criticisms of the IMF don't imply "laughable" criticisms of himself.
He does criticize Clinton and his role in economic policy in his book on the 1990s.

Posted by: malcolm | Mar 22, 2006 3:27:25 PM

Thanks DEB...

HIT THE BID: And why has the economy been growing so rapidly? Check out my prior post...one reason is that incentives for risk-taking and entrepreneurship were boosted by the Bush tax cuts!!!
Kennedy, Reagan, GW Bush...all three demonstrated the power of marginal tax rate reductions and/or lower rates of taxation on capital formation.

Posted by: Scoop | Mar 22, 2006 3:40:35 PM

Scoop, that is all just patently false drivel I don't even know where to begin.
Those marginal tax rate decreases had about as much to do to the economic growth as CLinton's tax increase did to economic growth.

reagan and BushI at least had the sense to know when to raise taxes as well(1982 and 1986 for reagan and 1990 for Bush) to address fiscal realities. please tie up your dogma horse to the hitching post outside, and no I will not read your post based on your assertion here. I can make assertions of correlation too want me to do that as well? You seem to be having so much fun doing it!

Posted by: Hit The Bid | Mar 22, 2006 3:47:01 PM

John Galt Line.
"The economy grew such that, even at the lower percentage of GDP, revenues now exceed prior levels"

All those numbers show me is that the economy was most likely growing during the time period you display.

To wit: Between 2000 and 2004 , as a percentage of GDP, expenditures went from 18.4% to 20.1%. BUT, revenue declined from 20.9 to 15.8%.

Economy wide then, the drop in revenue accounts for 76% of the deficits and spending only accounts for 25%.

No one doubts that tax cuts have a stimulative effect..they certainly do! I am just suggesting that you are way over emphasizing that effect, and thanks to that conservative over-assumption, we have added Hundreds of billions to the debt (which will require future tax increases to cover)

I am all for bringing back dynamic scoring, if thats what you want (and I think that is what you are alluding too when you stress that the the fiscal boost to the economy and thus tax revenue more than pays for itself).

However, this Admin already tried to jump on that train, but the initial reports only proved embarrasing and it was halted.

Tax cuts do not pay for themselves. repeat after me.

Posted by: Hit The Bid | Mar 22, 2006 4:10:34 PM

"Economy wide then, the drop in revenue accounts for 76% of the deficits and spending only accounts for 25%."

Assumes a ridiculous premise that the "correct" size of the federal budget is a function of GDP. That makes no sense, because as an economy grows and society gets wealthier it should in fact have *less* need for a welfare state, not more.

Unless, of course, you think equality is more important than wealth.

Posted by: johngaltline | Mar 22, 2006 4:50:52 PM

No JGL...but I think using these things called "benchmarks" and "averages" are great ways to judge, hostorically, where we are.

For instance, revenues are at their lowest point as a percentage of GDP since about Eisenhower. Now, that is neither a good nor a bad thing unless there is context. Conservatives would probably argue that that is always a good thing.

What I think I am saying is that perhaps this evidence suggests that rather than spending being too high, historical averages are pointing to the fact that maybe revenues--and thus tax rates--are too low. And despite the recent very robust economic growth, deficits are growing.

Do not get me wrong though...I think we should cut spending AND raise taxes a bit...like any sensible person would suggest.

Posted by: Hit The Bid | Mar 22, 2006 6:25:44 PM

I don't see how it's any more "sensible" to raise taxes and lower spending than it is to simply lower spending more.

It is not the responsibility of "the rich" to solve this problem.

Posted by: johngaltline | Mar 22, 2006 7:37:23 PM

Hitthebid,

Has government spending ever been cut? In the loony term sof inside the beltway any budget that does not spend as much as it would have otherwise is a spending cut, even though the rest of us call it a spending increase since spending is up on the previous year.

When government spending ever goes down then we can talk about tax rate increases. However, if spending ever does go down, we won't need to talk about tax rate increases.

Hence, there is no such thing as a responsible tax increase, since it merely enables more government spending than otherwise would have taken place.

Posted by: happyjuggler0 | Mar 22, 2006 11:29:32 PM

HIT THE BID: Do you honestly beleive that higher marginal tax rates will have NO impact on the incentive to work and take risk? You "hardly know where to start" because your understanding of the issue is hopelessly naive. If you try to tax me back into the stone-age in an attempt to raise more revenue, working harder so I give give even more of the fruits of my labor to the federal beaucracy becomes a lot less attractive to me. Wake up! You might learn something by checking out this op-ed in today's WSJ (not that you will!)
http://online.wsj.com/article/SB114308110030405957.html?mod=opinion_main_review_and_outlooks

Posted by: SCOOP | Mar 23, 2006 8:42:55 AM

Already read the WSJ Scoop and Happy Juggerlo and others...thanks. I am as pleased to see it as you. Revenue is indeed climbing back into the treasury. Thanks for the Snark though. As a former bond trader, I read the WSJ alot, and understand capital markets and numbers etc, unlike you all.

Increasing revenue to the treasury is what happens when the economy grows. Are you asserting that the tax cuts, and only the tax cuts created this growth? If so please prove it. Otherwise admit you cannot.

I think that the tax cuts very slightly contributed to the growth. I like your usual straw man approach though "Liberal doesn't think tax cuts create incentives to take risks and invest"...not true so don't even try it.

If you recall, this debate is about whether or not tax cuts themselves cause enough growth in the economy as to increase tax revenues enough so that they pay for themselves...and therefore deficits just go away.

I assert, correctly, that they do not. There CAN be a stimulative effect, but any economist will tell you ( and no Kudlow doesn't count--he's not even an economist)that the size of the effect is not big enough to replace the revenue that otherwise would have been there if they were not cut--beside this whole stimulative effect argument only works if taxes are too high and impeding growth.

I think you all need to revisit some statistics as well. The growth in revenue reported is not adjusted--it is gross...that is to say it is not controlled for inflation or the growth of the economy in general OR EVEN PLACED AGAINST ESTIMATES AS TO WHAT IT WOULD HAVE BEEN IF TAX RATES WERE AT THEIR 2001 level.

In most cases, except for semi-intelligent Conservatives, gross numbers like the ones in the WSJ are meaningless IN THE CONTEXT OF OUR CURRENT DEBATE. They are also meaningless because the argument that you would make that "see! if we could keep spening down then we would balance the budget"...but of course, you fail there as well. These tax cuts and other that followed were made with knowledge of spending increases like the war on terror and AMT encroachment and demographic based increases in certain social programs.

Now, as to your claim that raising taxes can curb economic incentives, you are right...they do! But, I believe, along with thousands of other economist, that there are benefits to a growth in the national savings rate that comes about by decreasing deficits, and decreasing crowding out effects from too much treasury debt on the mkt.

As for that old chestnut about a cut never being a cut in DC, you need to understand something called "baseline budgeting". Each year, budgets are put together for each agency to attempt to do in 2006 exactly what it did in 2007...the reason they go up each year is because the cost of doing the exact same things go up...increases in population and inflation account for that. SO if you kept the military budget the same so that they could only do what they did the previous year it would go up by what I just mentioned. So if you do cut the baseline, you are cutting the budge for the coming year. SO you can make the political/rhetorical argument about a cut not being a cut( and I'm sure all osrts of pundits would applaud you), but don't sell that bullshit to me, because sometimes an increase is still a cut.

Jeez...I should be charging to teach you guys this stuff. I mean scoop, come on "my understanding of this is hopelessly naive"?

What you fail to remember Scoop is that this nation collectively allowed you to work hard and meet your potential and earn what sound like tons and tons of money...as a Pinko/commie/Liberal I actually think people making lots of money is a GOOD thing!!! Thats right...so do all other liberals!!! What liberals tend to think, though, is that it is important to pay taxes back to the sytem...ie the united States...our government that we formed for us all..to pay for things like infrastructure, military, courts, police and all the social insurance programs that allow us to pursue a market based economy. Unlike conservatives thoug, I believe in smart public policies that are mindful of the public dollar.

Do you all realize that we could not have a market based capitalistic economy if it were not for collective social insurance programs like Social Security, Medicare, Medicaid, Welfare and unemployment insurance??? Please think about that. It is my free lesson of the day...and it has the added benefit of being true. WIthout them, stifling socialism would have won the day in the 1930s.

Boo Ya!

Posted by: Hit The Bid | Mar 23, 2006 11:38:59 AM

HIT THE BID: Your post reinforces my point that your grasp of macroeconomics is indeed helplessly naive!!! You beleive in "smart public policies"? Such as? Welfare without work? Affirmative Action? Cradle to grave big brother handholding? No thanks, not for me. I prefer freedom myself. If people need some assistance in life (and there are many needs), private charities perform these duties with much more efficiency and effectiveness than Uncle Sam. Your last paragraph is simply ridiculous.

Posted by: SCCOP | Mar 23, 2006 1:16:38 PM

You are hopeless. Thank God no one agrees with you so there is no danger of you ruining our economy or democracy. That last paragraph is the truest sentence there is.

Tell me why the largest presidential Pr campaign in American history to change social security was also the biggest failure in American history?

Social security works, so does "welfare" (even though you probably don't even know what it actually is) so does medicare and medicaid...what doesn't properly work is the free market...wanna know why? because it distributes goods too efficiently and a collective society called a country cannot maintain its cohesion in that system.

Your ungratefulness to your country is as astounding as it is selfish...I hope nothing bad ever happens to you.

Posted by: Hit The Bid | Mar 23, 2006 3:20:21 PM

PS...nice try AGAIN with the "strawman" crap...

"Welfare without work? Affirmative Action? Cradle to grave big brother handholding?"

How old are you 12??

Posted by: Hit The Bid | Mar 23, 2006 3:21:46 PM

First (if you don't mind my breaking in), there's the fact that social security, welfare, medicare, and the like have grown to encompass half the federal budget. The last time something like this happened, it was FDR prolonging the Great Depression. "Social Security works"? To do what? "The free market distributes goods too efficiently"? That sounds very Marxist! What you're suggesting is taxing someone for the "privilege" of being born in America. That's the opposite of freedom. It has been solidly proven that voluntary charities handle welfare more efficiently than government ever has. Government's job is to protect us from fascism, those who would seek to impose their will on us. The deficits are growing faster because our welfare programs are growing faster. Our spending is growing faster than we could ever hope to make up for in tax increases, especially since taxes inhibit growth. Taxes and growth share an inverse relationship. It's true that high growth does not necessarily coincide with low taxes, but high taxes always coincide with low growth.
Incidently, I love the site.

Posted by: JohnJ | Mar 24, 2006 2:01:43 AM

If something bad does happen to me, I won't go crying to Uncle Sam for a handout!

Posted by: SCOOP | Mar 24, 2006 10:54:39 AM

"It has been solidly proven that voluntary charities handle welfare more efficiently than government ever has".

Maybe so, but private charity never gives enough to satisfy the level that our society requires...hence we collectively decide more needs to be done.

"It's true that high growth does not necessarily coincide with low taxes, but high taxes always coincide with low growth."

Not true. By your insinuation that taxes can be too high, you concede that their is a correct level of spending and taxes...an equilibrium..arrived at by a political consensus...since it is arrived at in that manner, it is not tyranny--as you libertarians like to proclaim.

Tjose social programs make up 50% of government spending because theya re the most popular and effective manifestations of collective social insurance on the planet. They are popular and they are effective at what they do. Period. the private market cannot always deliver a universal good at realistic price...they are called market failures (note adverse selection and and moral hazard with respect to insurance especially when they are public goods.

Posted by: Hit The Bid | Mar 24, 2006 11:40:18 AM

Scoop. Good for you! You're Dad must be so proud!

Posted by: Hit The Bid | Mar 24, 2006 11:42:04 AM

Sorry one quick thing:

"Government's job is to protect us from fascism, those who would seek to impose their will on us".

--no it is not..its job is to protect private property rights.

Posted by: Hit The Bid | Mar 24, 2006 11:43:19 AM

...and, it seems, to provide us with cradle-to-grave social services.

Posted by: Scoop | Mar 24, 2006 1:40:37 PM

"the level that our society requires...hence we collectively decide more needs to be done." This is the tyranny of the majority that Plato warned of democracy. We supposedly conquered this tyranny by breaking our nation into provinces that were autonomously run, so that people could choose to live with the majority of their preference, but the increasing federalization of our country threatens to overrule the individual's right. If I and my ilk decide that we would rather live under a free society, what right does government have to seek to impose its will on us?

"By your insinuation that taxes can be too high (Taxes can't be too high? This is not an insinuation; it's a fact!), you concede that their(sic) is a correct level of spending and taxes...an equilibrium..arrived at by a political consensus...since it is arrived at in that manner, it is not tyranny--as you libertarians like to proclaim." It is tyranny whenever one person forces their will on another, by definition. And I'm not a libertarian, I'm a conservative.

"They are popular and they are effective at what they do. Period." Popular? Yes. Effective? No. This is a proveable claim, so prove it. But you can't, and you won't, so your point is lost. I double-dog dare you to try to prove that government is a more effective charity than private charities.

Posted by: JohnJ | Mar 24, 2006 4:46:18 PM