Friday, August 5, 2011

Hurriances and the US: Things that get downgraded

In the August 4th Financial Times, Harvard Economics Professor and Stanford Hoover Institute senior fellow Robert Barro outlined the usual free market economic philosophy.  Barro, the polar opposite of Nobel Prize Winner Paul Krugman, throws out the Milton Friedman playbook play be play: Keynesian economics is wring, stimulus failed, Wall Street gets no blame for the great recession, tax cuts are the most effective form of deficit spending, lower all marginal tax rates to zero, impose a flat tax, and set US corporate tax rate to zero, yes that’s right set the corporate tax rate to zero.  Of course, the esteemed Mr. Barro fails to quantify his suggestions in terms of revenue creation.  Now I am not as nearly schooled in economics as Mr. Barro, but I think he has a credibility gap:
a)      To not cite Wall Street as complicit in the Great Recession is either an accidental oversight or pure folly.  No matter what, Mr. Barro immediately loses credibility.
b)      While the stimulus may not have achieved what was hoped, the main reason was the 30% allocated to tax cuts.
c)       Tax cuts are the least stimulative of all fiscal policy tools.  According to the CBO: purchases of goods and services by the federal government--such as for public works--had the largest bang for the buck, raising GDP by $2.50 for each $1 spent. Tax cuts for low-income individuals raise GDP by as much as $1.70 for every $1 of revenue loss, while those for the rich and for corporations raised GDP by at most 50 cents for every $1 of revenue loss.  In other words lowering a rich person’s marginal tax rate from 38% to 35% has a negative impact.
d)      Flat tax rates sound nice, because they appear to be simple.  Well that may be true, but they are not fair.  Taxing a person making $30,000 at the same rate as someone making $3,000,000 for food and clothing does not seem fair and balanced to me; which is why the richest Americans (Steve Forbes) love the concept.
e)      But to actually set corporate tax rates to zero has got to take the cake.  He claims corporate taxes are inefficient and generate little income.  Perhaps if we were to lose the loopholes and subsidies corporate taxes would be efficient and income generating.  
I guess this shows that credentials don’t guarantee credibility. 
So S&P has stripped the U.S. of its AAA rating based on our government’s inability to get its collective act together.  The folks at the ratings agency clearly saw through the toothless deficit plan approved this week and recognized that our government is unable to manage its finances.  Perhaps this will serve as a wakeup call to our nation’s ‘leaders’, and instead of forming more committees we will actually follow the best plan on the table: Simpson-Bowles.  If we don’t we will truly become a beggar nation. 
Now back to Kip Moneypenny and “The Blame Game” with tonight’s contestants Grover Norquist, Tim Geithner, Michelle Bachmann, and Nancy Pelosi.  Remember no one wins on “The Blame Game” but plenty of Americans will surely lose.
I guess there is no wonder that Congress has a 82% negative approval rating.

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