Wednesday, January 9, 2013

“A View from the Tube”

Sydney M. Williams

Thought of the Day
“A View from the Tube”
January 9, 2012

There is nothing like being in a confined space to focus the mind on big, broad issues. Thirty minutes in an MRI machine yesterday (degeneration of a couple of discs in the lower lumbar region of my spine that has caused sciatica, and is now in its fifth week) allowed the opportunity to consider why so many people are in denial as to what is really happening to the finances of our federal government – and, in fact, in most state and local governments as well.

In physics, there is what is known as the omnipotence paradox. It is best explained in an old Chinese proverb that tells of a man who wishes to sell both a shield and a spear. The shield, he alleges, can deflect any spear. The spear, he promises, can penetrate any shield. How can both be true, asks a respective buyer? In Washington, a similar scenario is playing out. Some will argue that the omnipotent paradox is a consequence of recalcitrant Republicans and demagogic Democrats. But the real problem is a refusal to admit the math. We have had economic policies that have caused sluggish economic growth, resulting in shrinking tax revenues, while spending has steadily increased. To offset rising deficits, the President insists on higher taxes, which history has proven result in slowing economic growth slowing even further, putting increased downward pressure on tax revenues. It creates a downward spiral. What is needed is obvious – more rapid economic growth, which will increases jobs and tax revenues.

Politics of “fairness” is difficult to counter. Who in Washington wants to be known as not being fair? When the President tells the people he wants the wealthy to pay their “fair” share, who wants to argue? But, what does he mean about being fair, especially when the “fiscal cliff” deal raised taxes on 77% of all Americans? And the increase in taxes purports to raise $60 billion annually, while deficits continue to accrue at an annual rate of $1 trillion. Another favorite word of Democrats is “balanced,” as in we must have a “balanced” approach toward addressing the deficit. What is meant by “balanced?” Sunday evening I listened to Representative Chris van Hollen (D-MD) use the word repeatedly. He sounded like a parrot, but made less sense than most parrots I know. Of course, when the same two words – fair and balanced – are used by Fox News to describe their approach to news coverage they are seen as cynical usurpers.

But as used by the President, “fair” and “balanced” are considered more critical than policies that embrace economic growth, which may be neither fair nor balanced but which would cause all boats to rise. Washington seems only to understand growth as it applies to the government – expanding existing programs and adding new ones. It should not be a surprise to anyone that seven of the richest counties in the U.S. are in the metropolitan D.C. area. Nevertheless, government’s revenues do not come from the increased sale of products or services, nor do they come from productivity improvements. Government does not add to GDP; they may consume a larger percentage, but they don’t expand the pie. Revenues are derived from taxes on their citizens – expanding and mining the tax base. It is only the private sector that can create real growth. Government can certainly ease the process, through both tax and regulatory processes. But, as we all know, they can also impede growth. It shouldn’t be a battle between the forces of government and those of the private sector. The relationship should be symbiotic.

The Democratic mouthpiece, the New York Times, in a Monday editorial suggested exactly the type of tax policies that would further retard economic growth. They noted that Mr. Obama has pledged to demand even more significant tax increases, an event with which the Times concurs. Among the Times recommendations were a higher tax on investment income, a carbon tax and a value-added tax. Think about the retardant effects of their suggestions. The country needs increased investments; so they want to tax investments more heavily? For the first time in decades, we have the opportunity to become energy independent; so why layer a carbon tax to prevent that possibility? The measurement of a nation’s GDP is in its sale of goods and services; so why add a regressive sales tax?

Unless Washington is willing to cede power to the private sector and until they are willing to encourage private competition, economic growth will continue anemic and such growth will never provide the revenues necessary for a government with an insatiable appetite. To operate the size of government Mr. Obama wants will require higher taxes on everyone, a retardant to economic growth.

The answers are obvious. Incent the private sector to expand – hire people and invest. The problems are the promises made by the public sector that can never be fulfilled. We need a period of detoxification to rid ourselves of this addiction to spending. But no politician wants to play the Grinch. When some brave soul dares broach the subject, he or she is immediately condemned. Like the anti-Communist Richard Nixon going to China in 1972, it will take a Leftist Democrat to buck the spending trend of his Party, and put the country back on the road to salvation. It doesn’t seem likely in a world in which long term is the next election, and in which loyalty to one’s Party supersedes loyalty to one’s nation. But my guess, at some point, it will happen. Common sense will out.

This ostrich-like behavior on the part of Democrats in Washington reminds me of what my brother Frank recently said of our great-grandmother when confronted with what appeared to be insurmountable problems – get back in bed and pull up the covers. As I think of the refusal of supposedly intelligent people to deny the magnitude of our debt and deficit problems, I am tempted to climb back into the claustrophobic MRI machine.

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