How to Get the Economy from its Vicious to a Virtuous Cycle -- But Radical Righties Won't Let it Happen

Policies founded upon lies rarely work.

The economy has deteriorated, and will continue to spiral downward, but the reasons for the vicious cycle have been ignored, and thus the cures not even discussed. That represents a victory for the radical rightwing ideologues and a major defeat for the people of the United States.

The major reason for the downward spiral is the upward spiral in the US deficits and debt. Remember, our dear leader inherited a projected surplus of $5 Trillion, and succeeded in transforming that into a debt of an additional $4 Trillion, the most spectacular case of fiscal mismanagement in world history.

The boy wanted to outdo dad, and, boy, did he!

Even admitted economic illiterates like Bush and McCain would understand that when you accomplish such a feat, the value of your currency is likely to go down. And, it has. Yesterday, our dear leader told us that he was not an economist but an optimist. Golly-gee.

When the currency falls in value, the price of imports increases. We import most of our oil. Hence, the price of oil and gas increase.

The premium paid for gas at the pump ($1.50-$2 of the price) is a "tax" that goes to the oil companies instead of your government where all would share in its benefits.

So, the way to get gas prices down, and thus the tax on consumers that goes to the oil companies reduced, is to have a stronger currency.

How can that be accomplished? Well, interest rates could be raised. Yes, but that also increases the payments on the debt and thus annual deficits, further damages the housing market and, without dealing with the deficits, injects little confidence that the US was becoming serious again about prudent management.

Some of the radical righties propose increasing interest rates. Perhaps the dollar would creep up, but very slightly, and the impact on the housing market would be negative, thereby decreasing the wealth of the majority of Americans. Of course, the radical righties do not really care about the wealth of the majority of Americans whose home is their major asset.

But, we know what works.... because we did it in the early '90s. We were coming out of the Savings & Loan Crisis, the economy was doing poorly, George H.W. Bush kept proclaiming we were not in recession. But HW acted, and did so against his "read-my-lips" pledge, earning him the undying enmity of the radical righties, but taking the major first step that righted the economy.

He raised revenues by raising taxes. Bill Clinton then upped the ante again, and, in the midst of an economic downturn, the myths of the radical righties exploded -- the economy actually reversed itself and grew despite the slightly increased tax rates.

Here's how. The major problem at the time was that the deficits were reflected by high interest rates. That kept investment low, and the interest on the debt high, becoming a major component of government spending that accomplished nothing. By restraining spending via pay-as-you-go (aka, "pay-go"), and taking in more revenues through higher taxes on the wealthy, interest rates came down, and the economy took off.

Today, the major problem the deficits cause is a low dollar. Restrain spending, and increase revenues by increasing taxes on the wealthy and restoring the estate tax to 2000 levels and closing loopholes and imposing the surtax to pay for the Iraq and Afghanistan wars--and, voila!, the dollar will strengthen substantially.

A strong dollar will then reduce dramatically the price of oil, and gas, and reduce the "taxes" we are all paying to the oil companies. It will enable interest rates to stay down, thereby allowing the housing market first to stabilize and then rebound over time.

Why can we not do this? Because the radical righties cannot abide the notion that raising marginal tax rates slightly on the rich can indeed work. They will tell you that cutting taxes raises revenues, but even Bush Treasury Secretary Paulson said in his confirmation hearings that tax cuts "do not pay for themselves". The true irony is that the wealthy were actually much better off, i.e., they were wealthier, when their slight increased tax rates got the deficits down, and thus their wealth up.

We still would have a lot of problems: the crisis in the financial institutions, the dependence on foreign oil, global warming, failed foreign policies, etc.

But, the vicious cycle we now face could be turned into a virtuous one.

Comments

[BBackSoon]

Hey Paul,

I like the fact that you stay involved in your story. It is good to see you defending your claims and admitting minor technicalities.

Quite refreshing to see a blogger that get"s down in the trenches with the rest of us political junkies.

Again thanks for your time and opinions.

[Bendersky]

"Why can we not do this? Because the radical righties cannot abide the notion that raising marginal tax rates slightly on the rich can indeed work. "

I think it's less sophisticated and ideaological. It comes down from plain, old greed. I'm not sure if people even get to the point where they say "raising taxes can't work" because, as you pointed out, it clearly worked under Big Bush and Clinton. I think there is such a strong feeling of entitlement in this country that the wealthy aren't willing to see the tragic effects of Bushenomics.

Neglected in this article is that creating massive deficits has become boiler plate policy for the neo-cons. I read an article a while back interviewing some Reagonite economists, and they pretty much said as much. The strategy is to create these massive deficits so they can "shrink government" while padding the pockets of their consitituency. This serves the duel purpose of creating such economic chaos that if/when the dems come to power, the repubs know the only way for them to clean up the mess they created is to raise taxes which allows the repubs to continue the myth of tax-and-spend democrats which they can use in the next election.

[PaulAbrams]

I mentioned your point of the deliberate strategy in my prior article, "Gramm-y Awards", referencing David Stockman, Reagan's Director of OMB, who said it directly.

The reason I think it's ideological is that the wealth of the wealthy increases with better fiscal policy that depends in part on higher taxes.

[tmckly]

Raising taxes is not the answer!!!!!!!!!!!!!!!
Washington needs stop spending some much!!!!!!!!!!!!!!!!
Tax money is like heroin they addicted to it
Tax revenue has been the highest under W
Why do libs want to take other peoples money?
Go make your own.

[PaulAbrams]

Your !!!s suggest you have a built-in bias, but I'll try anyhow:

1) Revenues always go "up", the question is whether they grow adequately to meet needs.
2) Republicans controlled all 3 branches for 6 years, and THEIR SPENDING went up faster than revenues...hence, the gaping deficits.
3) Washington spends money on what people want...yes, there is waste, and programs that could be done without, and special interests that continue them...but the BIG STUFF is Military, Social Security, Medicare, Interest on the Debt, etc. According to Tom DeLay, after 6 yrs of a Republican Congress, there was no more waste, but neither you nor I believe it. It would be nice to cut it out---but, they won't even audit the money we've lost in Iraq, mostly to rogues and US contractors---but that is not a reason not to close the deficit gap.
4) Spending restraint and slight increases in taxes on those over $250,000 adjusted gross income would do the trick, and make everyone wealthier.

[bgregs]

"Tax revenue has been the highest under W "

Now, what exactly do you mean by this? Do you mean that we've taken in more total tax dollars? Cause if you think that you're entirely wrong. After accounting for inflation we are taking in CONSIDERABLY less than we've taken in under any president except perhaps raygun. Perhaps you mean the PERCENTAGE. That's also wrong, since under bush we've dropped the tax PERCENTAGES a lot too.

Finally, let's address the rest of this post. The government provides certain services. This can include MANY things, from military to protect us from external threats, to the police to protect us from internal threats, to the fire department to hopefully save our homes if they catch on fire, to the clean air act so that you and your children don't develop asthma, to the clean water act which keeps carcinogens and other nasty things out of the water that you drink. In order to pay for all these things the govt charges taxes, since otherwise they would simply be printing money to pay for it all, and that money would rapidly become worthless. To claim that they are simply stealing our money to use like heroin is kinda like a little tiny black lie!

[brighterside]

This is what I don't get? Republicans call themselves patriots and fiscal reform minded people. But how come they can't sacrifice paying a little higher percentage on taxes? Its obvious to some that the middle class is carrying the burden on paying taxes. Why aren't the republicans willing to prove that they care for America and will accept higher taxes for the rich for the sake of helping our country?

Warren Buffet mentioned once that he pays more taxes than his secretary. I don't see any problem whatsoever in paying a little more tax when you have all the money in the world.

Now the economy is in bad shape. Yet they want to continue with tax breaks for the rich. I don't get it?

[111]

What any of our politicians, Democrat or Republican, say publicly is to perpetuate the illusions of their party's ideals and principles. One of the lessons of life I think I've learned is to never believe what people say, believe what they do.

Our government is being run by corporations, what do they do there? Send jobs overseas to reduce costs. Negotiate billion dollar tax breaks for their companies. Incorporate offshore to avoid paying taxes or, like Enron, they cook the books. They practice corporate anorexia working with a skeleton workforce but still cut jobs to make even bigger profits.

If the CEO has brought their company to the brink of bankruptcy they are given their multi-million dollar salaries and more millions in bonuses and more millions in stock options. There is a reduction in workforce (people are fired to "rightsize"). The remaining employees, lose their pensions, don't get a raise that year, may be asked to take a pay cut or pay for their own health benefits - loyalty to the company.

This is what is happening to us and Democrats are equally responsible for our desperate situation.

[WindRiver1]

The government is the biggest and worst run corporation. Newer industries run well, but the old ones seem to be more the focus of some politicians (e,g, auto, steel, airlines, manuf. in general.

I think you are talking about some isolated cases because well run business with good boards and reasonable stockholders work pretty well. Thing is that the government has no say in how the stockholders.owners of a company invest their capital. The areas where it might and does get shady is in regulated areas like energy, healthcare. The ones the government does help run into the ground are the union based corp.

[AFCOL]

Gotta agree with you, 111. Being a professional politician in Congress has become a very dirty thing. Unfortunately, good leaders/citizens of modest means are not well represented in Congress. There are some, but not many. The vast majority are multi-millionaires (particularly Senators) with some, like Kerry, being worth half a billion dollars or more. No, Congress is the realm of the filthy rich...Republicans and Democrats. I don't think a majority of our leaders in Congress are genuinely interested in the concerns of the average citizen. For actions speak louder than words and so much of the media posturing simply doesn't match actions. I often wonder why we continue to vote into office the very people we criticize (the rich). To genuinely believe that someone in Congress who is worth more than the combined annual salaries of 1200 teachers, really cares about/watches out for the average citizen, is simply amazing. Oh well, gotta go fill up the car. I'm confident that our wealthy leaders in Congress are feeling my pain!

Need an electable third party.

[bgregs]

Not to mention the fact that the REASON that we have a progressive tax scale is that the rich USE more of what the govt provides! Therefore, just like anything else that they buy, they should pay more.

Think of it like being at a bar. The rich guy is drinking Dom Perrignon, while the poor guys are sharing a Bud, and then when the time comes to pay the bill it's REASONABLE for the rich guy to pay MORE of the bill, since he drank a more expensive drink!

[WindRiver1]

Are you serious? Most of the present day government came from cabinets to target the poor. regulate business, etc. I don't get anything form the government except for endless rules and procedures on auditing business.

What do you think people paying higher progressive rates get back form the government. If you are thinking of the Cheney example that is a good old boys club that nobody else is in either.

I still haven't figured out this tax cut for the rich line.

[WindRiver1]

Warren is only talking about capital gains tax because his income comes from long term investments. People are paying progressive taxes, but one of the big issues is the financial sector, capital markets, housing crash, increased debt, currency exchange rates, and other factors are eliminating capital. If the government bails out a bunch of banks mortgage companies and the Freddie Mae Mac mortgage bonds of hundreds of billions, then that has to be borrowed again from overseas investors as additional federal debt and interest. Those defaults alone took away more capital than we would have been getting in the financial infusion plans from the candidates. IF everyone lost wealth and we added debt in that exercise then we need a joint business plan to create business, jobs, taxes, etc.

I'm still trying to see who all profited. but I can say for sure that the middle east countries and China increased their U.S. and financials sector ownership when they rushed in to take advantage.

We also have around 42% of our debt from foreign sources which is bad with a depressed dollar.

[Rule Of Law]

Hey Republicans--

Inflation Equals Tax Increase!!!

Any questions?

[monpetitesweet]

I have often wondered when people speak of the rich, it seems like they are referring to some well-defined group who wears the same colored shirts and are easily identifiable. Whta is the definition of wealthy anymore, are we lumping together a family that makes 125K vs. 5 million? Is there a wealthy benchmark somewhere or is if just more fun to blame this nebulous group.because they are an easy target?

[Tulka2]

Only a small percentage of U.S. citizens have an annual income of over 250,000 dollars. We want to tax them. Oh, and powdered wigs. We will blame you if you wear a powdered wig....or talk like you do. A great problem in America is the corruption of citizens by our gambling culture. Too many people walk around in some kind of fool's paradise... they feel they will win the economic lottery. They are goining to be "rich 'ens" themselves. So deluded. Read: _What's the Matter with Kansas_ for an interesting take on why people vote against their own economic interests.

Speaking of class warfare....? Does it occur to any one else that the same talking- heads we see day after day rolling around in politics on the boob tube are actually part of that tiny minority that makes more than 250,000 dollars a year? Do you suppose they might have a vested, private interest in the outcome? Do you think there NEEDS to be a secret conspiracy when every one of them knows what side of their bread has the butter? It really pisses me off when rich people talk about class warfare from poor people. As if.

[PaulAbrams]

There is no "blame" suggested, except for the radical rightwing ideology. To their credit, rich people were not clamoring for the tax cuts.
You are correct, there is no agreed definition of rich. For the purposes of taxes, it is usually pegged at $250,000 taxable income after deductions, so it means $300,000 in annual salary or more.

[monpetitesweet]

Yes, my apologies about the blame comment - the chant of raise taxes on the wealthy seems like such a party line and gives people a cause they can rally behind because there is never a real definition of who is really going to be affected. It just seems ridiculous to have an income bracket of $250K on up to, ya know, "billions" considered in the same income bracket. The way taxes are structured, those at the low end of the so called wealthly scale can pay upwards of 56% when you add in federal, state, county, FICA (15.4 %) if self employed, basically giving a salary of $110,000. Not that much considering the level of effort needed to attain the salary in the first place and where you live, i.e. New York vs. small town usa.

[davidpeace]

The economy "hasn't" deteriorated. It IS deteriorating! It's not finished yet and won't be for a long time to come. This house of cards was built very big and took a long time doing it; it will take a while for it to finish collapsing. Furthermore, all these problems, the economy, oil and gas prices, food prices/crises, global warming..., are all related to each other. These crises are happening because the lies told to hide reality from Americans are unraveling. For too long we have insulated ourselves from the problems of the rest of the world: manipulating (or trying to) inflation, ignoring the environmental impact of our use-it-once-then-throw-it-away lifestyle, always going for "bigger is better" mentality. If someone wants to know why there is so much hatred for America in many parts of the world, look to the reasons behind our foreign policy and the reasons behind those. This is what that person will find.

[JackWOrf]

I agree to a certain extent. I liked Wesley Clark's idea (which no one picked up on) that there should be no taxes whatsover for people below a certain income level ($40,000?). That would cause the economy to boom overnight. That's why I voted for Hillary. I want a third Clinton term.

But there HAS been a total paradigm change because of the global economy. Keynesian economics might not work predictably anymore. Reagonomics doesn't work anymore because the old "trickle down" has become "trickle offshore". That is why Bushonomics hasn't worked.

While the rich have made big bucks under the Bush tax cuts, that money has NOT trickled down to the poor and middle class, as it did under Reagan. The rich invest their money where it is more profitable: In cheap labor countries. The return on investment is much better.

That is the BIGGEST difference. If you cut taxes on the poor and the middle class, they will spend and invest locally, in the USA. They are too unsophisticated to invest abroad. So that will do much more to save America.

And America needs saving. This country is in dire straits, and I haven't heard enough from Obama to reassure me. He is a rookie. We need Bill Clinton. He has a demonstrable ability to make the economy work. Obama is a gamble at a time when we can't afford to gamble.

[Tulka2]

So... you don't blame Bill for selling us out to the pirate, international corporations? Maybe he was just practicing when he signed NAFTA and hadn't really thought it through....? Is it your position that we could have entered the world economy more skillfully? I might agree with you. It seems to me ole Bill really sold us down the river, but maybe he wasn't in it just for the money...? Perhaps he was just unskillfull because no president had ever before thrown in with pirates? I don't know. I'm kind of glad he won't have another chance to muck-up big time.

[Liberal2]

I for one DO blame Clinton for selling us out to pirate international corporations. The problem was he *DID NOT* think the issue through to its final consequences. Ross Perot was correct on this matter and Clinton/Gore couldn't see the obvious truth. It didn't fit into their economic worldview. I read somewhere that Clinton has acknowledged that near the end of his eighth year he realized the dimension of the disaster his policy was leading to, but it was too late to change anything.

[brighterside]

"That is the BIGGEST difference. If you cut taxes on the poor and the middle class, they will spend and invest locally, in the USA. They are too unsophisticated to invest abroad. So that will do much more to save America."

Wow this is what we learned in economics 101. Cut taxes to allow spending which in turn stimulates the economy.

Its funny that the economist haven't thought of this theory since its been taught in our colleges throughout.

I also like that idea of not taxing people under a certain level. I can really see that it will not only stimulate the economy, but will also cause the increase in value of the dollar.

[bgregs]

But there are certain groups that will not spend if you cut their taxes. If I already have more money than god, and you cut my taxes, all that I will do is invest it in the stock market (which too many people think means that I will be helping companies!! Never mind that I will be using my tax cut to buy stocks off of some other rich person!!) On the other hand, if I'm living paycheck to paycheck to pay my bills and eat, and you offer me a tax cut (up to a certain point....) then I WILL be spending it!!!

[PaulAbrams]

If you consider ONLY the effect of cutting taxes on stimulating the economy, you are correct. But, there is another axis that needs to be included--inflation. If you cut taxes, and give someone another $1000, but prices have increased by that same amount on the goods and services he buys, there is no net gain.

Two ways to stimulate inflation--too much money chasing too few goods; and, devaluing the currency so that imports are that much more expensive. If an import happens to be part of the core costs of doing business--i.e., like energy--the price of everything goes up.

Hence, if we constrain spending via pay-as-you-go, and increase revenues as indicated in the article, the currency strenghtens, lowering the cost of energy, keeping a damper on other prices, and allowing the tax cuts for the less well-off to mean something.

That is--you have to consider the ENTIRE impact, not just a single axis.

[WindRiver1]

Unfortunately they have been playing this card for 20 years now because 70% of our economy is consumer based. The personal debt from credit cards and loans has been rising steadily per capita since the 80's and this is one of the reasons why they would drop the fed rate when the market got unsteady. Buying more on borrowed money followed by sub-primes housing catastrophe to get lower and middle income home buyers with small or no down payment. Trying to keep the market moving with the price tag of this bailout is insanity. The trail of financial institutions, other entities, and individuals that have their finger prints on this crosses the globe. We really need to follow that trail because you could see it coming, but couldn't tell how extensive they had made it.

I am leary of the international banking sector based on this. We have to be careful and not let some of the same scum try to manipulate our plans for recovery.

[bgregs]

Of course I just thought of something else. In addition to cutting taxes, which can stimulate the economy, there is something else that the govt can do which STRONGLY stimulates the economy. Targeted spending. Say, for instance, that the govt would like to cause the population to get more educated. They could simply offer a tax cut to those who go to college, OR they could offer to PAY for college. That one will actually get more people into college, which will result in more people getting educated. This has a side benefit in that those people with degrees are now more hireable to companies, and thus you have a result similar to the original GI bill, which saw something like a $7 return to the economy for every dollar spent on the program!

[111]

Alan Greenspan referred to Bill Clinton as a Republican for a reason. Democrats are fully as responsible for what is happening to our economy as the Republicans and Bill Clinton was a hero to Republicans, Wall St. and big business. Rewriting history doesn't change that.

[bgregs]

Of course, so was Carter, and Johnson, and Kennedy.... And don't forget Truman, and Roosevelt during WWII.....

[WindRiver1]

We need to avoid buying into the political talk about how the economy works because both parties have been grabbing the wheel and steering us off the road..It isn't tax x you don't know for y that is you. It isn't all big companies. It isn't people in one party or another, it isn't global business being bad. There are good and bad business, politicians, and people and it isn't split by party lines. The global economy has a lot of complexity and what the politician would position to us as a seemingly commons sense way to address an issue is sure to have the opposite economic effect.

If you were to model the 90's growth it is completely false per the article to say tax increases caused that growth because to be sustainable you also have to grow the size of the tax base which would then drive a greater tax output. There was a surge in corporate spending from late 80"s through the 90"s in Y2K readiness that spawned our tech sector Businesses were doing better and driving more jobs. 401k investments drove the mutual funds up to $6 trillion by end of 1998. NYSE and NASDAQ become overvalued. This all drove a huge tax surplus from corporate, income, and capital gain taxes that wiped out the deficit. This then led into the series of bubble bursts, 9/11, and other other factors. I can forward on the part I'm writing up from 2000-2008

[AFCOL]

If you believe either party in Congress really cares, or more accurately, represent your interests, you are naive. The vast majority of politicians in this country are rich. In fact, six of the ten richest politicians in America are Democrats...most in Congress. Those six are worth in excess of $1.6 billion. Of course, the same holds true on the other side of the aisle. In most cases, neither Republicans nor Democrats in Washington really represent our interests. They represent their interests. Unfortunately, so many voters tend to blindly follow and worse, continue to re-elect the same tired faces from their neck of the woods. It's not "righties" and it's not "lefties". It's the whole damn crowd and I have just about had it. Imagine believing that a handful of Washington politicians worth over 450,000 times what a factory worker earns annually actually understand that workers day to day problems. I doubt it. No, four dollars a gallon just doesn't make a hell of a lot of difference to someone who has the money to buy an SUV for every day of the year. The good news? Congress now has an impressive 18 percent approval rating. Maybe voters are waking up. But I doubt it.

[research]

You are 75% correct.

a little over 50% of the dems actually seem to vote and act in our interest.

Look up the votes on FISA as a starting indicator. the Folks around Kucinich also seem to have integrity.

Perhaps if we contribute to Kucinich, we will create a new coalition and power center.
http://kucinich.us/

[WindRiver1]

we really need to scale back the federal and leverage states to design economic zones. The low dollar actually gives us a window to plan for appropriate manufacturing base and be able to export.

The Fed has driven my crazy going back 20 years because you can't just set monetary policy and just say the delusional line about how markets will efficiently drive the capital to the right opportunities. We have some core industries like technology and others where there are reputable businesses with deep understanding of how to succeed in this global market, but we need to make the cost labor U.S be based on the productivity we can build through education/training, process, and the business model of a unified employee base. If you show people how the business actually works, set financial incentives to allow everyone to increase their financial position from working, innovating, collaborating, then you can compete from here, but it won't work setting the price of labor arbitrarily in unions when company no longer has ability to generate competitive product pricing. We lost a lot of industry because of those protectionist approaches when Americans could have beaten the Japanese auto companies, created more financial upside to corporate citizens, and had a happy and motivated workforce.

We can still do all of that, but it takes the willingness to embrace change versus the politicians allocating a shrinking pool and protecting and scaring their voting blocks.

[creationwaits]

I think the author kind of gets it right - he understands that inflation and currency devaluation is a big part of the rising cost of oil. However, it's a bit ironic calling what profit the oil companies make on gasoline a "tax." Check out that chart of gas prices across America: http://www.gasbuddy.com/gb_gastemperaturemap.aspx. States with lower prices are states that have lower gas taxes - real taxes. The price of oil has jumped something like 6 times while the price of gasoline has only doubled, so I wouldn't be attacking the oil companies.

As for McCain being an "economic illiterate." Maybe so, but have you heard his economic advisor Steve Forbes speak? He's brillant, and he understands the inflation and dollar problems probably even better than the author of this article. If McCain being an "economic illiterate" just means he will listens to his advisors more, this is no problem at all.

[brighterside]

But his wrong about O-bama's tax plans.

He said that O-bama's tax plans for the middle class doesn't offer specifics. If he visited O-bama's website he can look up the specifics to O-bama's tax cuts.

Also, how can he make a comment about O-bama's tax plans when he doesn't know the specifics and the details? Obama's plan gives back more than 3 times the tax deduction than it does compared to McSame. Secondly, the ones that will see an increase in taxes are those that make $250,000 and not those making less than that. So Forbes is wrong and playing the game of politics for the republican party and McSame.

[bgregs]

Why do you write his name as O-bama? It is spelled OBAMA. No hyphen there!

[creationwaits]

"The premium paid for gas at the pump ($1.50-$2 of the price) is a "tax" that goes to the oil companies instead of your government where all would share in its benefits."

Actually, the second part of the sentence is odd too. First of all, government spending sometimes causes more harm than good. Even if they do some good you might not "share in its benefits." And most oil companies are publicly traded - you could become a shareholder, get some of those oil company "taxes" for yourself, and make sure they are well spent.

[bgregs]

First, the price of oil when bush entered office was around $20-30/bbl. Now it is more than $140/bbl. That is an increase of 500-700%. At the same time, gas where I lived at the time was $1.07/gal. I just found out from my parents that gas at the same station has been AVERAGING $4.99! That's almost 5 TIMES!! Therefore to claim that gas has not kept up with oil is ridiculous!

Second, it is reasonable to call it a tax, but as he said in the article, it is a tax with no benefit to US. Real taxes are collected by the govt and used for the common welfare. This gas "tax" is collected by the oil companies and oil countries and used for the welfare of THEM!

[PaulAbrams]

McCain called himself not well versed in economics

[gevan]

You are saying that a million dollars in 1999 value dollars would make someone richer than a million dollars in 2008 value dollars. That's ridiculous. China and India have sucked away all our 1999 value dollars and they don't want to give them back.

[PaulAbrams]

Are you serious?
The dollar changes in value daily. There are no "1999 dollars" that retain that value.
The risk is that China especially stops buying our debt, because they do not want to hold dollars period. Then the chickens come home to roost. What keeps them from doing that? They would also be hurting themselves.

[brighterside]

The problem was that when Boosh too power he deregulated international trade. This caused the Chinese to flood our markets with cheap junk. And in order to compete, American companies shipped their manufacturing and workforce overseas.

This slowed our GNP and increased China's economic growth in return.

McSame wants to continue with those same free trade policies as Boosh. Even more jobs will be shipped overseas and will even have a bigger trade imbalance with countries like China and India.

[bgregs]

I think that he was being sarcastic! I certainly hope so, anyway!

[Donald Wolberg]

It is amazing that just as everyone talks about the weather (and presumes to be an expert), the same is true about the economy (and everyone presumes to be an expert). So it is with Mr. Abrams and the left of center mantra of doom and gloom. Unfortunately the "demise" of the the American economy is as Mr. Twain said of reprts of his death, "premature." The American economy is the largest in the world, $13.4 trillion (that's $134,000 billion). Unemployment is "full" in an economic sense at 5.5% and the forclosure hoopla is actually less than 3% of all mortages; 97% are being paid on time. The deficit is large, but $800 billion of that goes to fereign oil sources, largely because the Democrat controlled Congress prevents development of vast untapped American energy resources. The outcry of the cost of the Iraq war is again a mixed bag; 150,000 American soldiers in Iraq would be paid anyway and perhaps 60% of the iraq costs are troop salary and support costs. If Congress let America develop energy resources, the deficit would drop in direct proportion to the amount of energy produced here. Perhaps Mr. Abrams should spend more time looking at the weather than being a doom and gloom prophet--he might do better.

[PaulAbrams]

Actually, I was not gloom-and-doom, it was a prescription for a way out of a morass!

[Donald Wolberg]

I must disagree with the premise that there is a serious flaw in an economy that is $13.4 trillion. By any rational measure, the economy is sound except in one sector, ensrgy costs. As shown in the last two days with a $10 drop in oil prices (after the President suspended the Clinton executive order ban on drilling) as speculators flee the oil market, we see a substantive bump up in stock prices, energy supply increases will lower oil prices still further and end with more discretionary spending by the public. The energy crunch is an artificial one and can be remedied by supply. It is likelt that public pressure will accomplish what is needed and the Democrats will see the "wisdom" of production increase, and I bet even Mr. Obama will find a way out of the corner inot which he has painted himself.

[CalexenderJ]

really?! Your argument that the economy isn't in trouble is that it's the largest in the world? You sir are obviously no economist. What you dismiss as the foreclosure hoopla has already led to the bailout of Bear Sterns, indymac, fanniemae and freddymac with tax payer dollars, and more foreclosures are on the horizon as home prices continue to drop. the dollar reached it's lowest point against the euro this week, which raises the prices of all imports including oil. The author's central argument is that raising taxes may increase the value of the dollar, your comments ignores this in favor of a Bush like "the economy is fine" response

In order to lower the price of our oil, energy does need to be produced here as you mention. However oil drilled here, is sold on the global market (i.e. despite our vast consumption the u.s. currently exports some oil). So unless the oil reserves here significantly increase global supply, drilling off the coast won't have a huge impact on prices our imports. We need to develop technology to wean of off of oil, and not pretend drilling is the answer to all our problems.

[JustMyWords]

You touched on one of the things that totally irritate me.

We're told constantly about the rise in oil costs essentially being the fault of (a) those darned Chinese and Indians using up all that oil, and (b) those darned tree-hugging Democrats that won't let us drill up the oceanfront property. By golly, if we could use our own oil and not have to buy someone else's oil, we'd be in just dandy shape.

So, for the love of God, why are oil companies selling American oil to those pesky foreigners? I'm not buying the idea that it is some sort of bizarre hope that if we increase worldwide supply that somehow the costs will go down for us. No, somehow, in the twisted world of speculation and commodities trading, oil companies can make a bigger profit selling US oil abroad while essentially buying the oil back on the world market. There is something very wrong with this picture....

[ejay579]

Excuse me, how many years did the Repukes control Congress? How much leadership has the Chimp shown on the energy problem? All of a sudden it is a Democrat problem.

[brighterside]

Maybe Congress should just let these oil companies drill so that the uninformed will shut up for once.

The deficit is not the fault of Congress. Deficit started from the time Boosh took office. When he took office there was a surplus. Now we have the biggest deficit in our country's history.

If you want to point the finger, put it at Boosh and his failed economic policies. Drilling for oil has nothing to do with the deficit we have now. Blame it on the republican party, the price of oil due to speculation, and the weak dollar. All contributing to factors which could have been controlled by this administration.

[alejo699]

What does this mean -- "a "tax" that goes to the oil companies instead of your government?" Do the taxes on gasoline actually go to the oil companies? Am I ignorant for even asking?

As for the rest ... of course the righties claim taxing the rich won't help the poor. They want ALL of the money, although what they'll do with money that's completely devalued, I have no idea. Who cares about the bottom line two years from now when you can have it all NOW?

[PaulAbrams]

"Tax" was in parentheses to try to signify that it is not really a "tax", but operates as "tax" because it is not an inherent cost of getting oil out of the ground plus demand, but rather a skewed price based upon two facts: a) oil is purchased in dollars; and b) the dollar is very weak.

Hence, the oil companies are raking in dollar far beyond the actual supply/cost vs. demand for the commodity. It is that premium I called a "tax" (in parentheses) because it has that impact on individuals.

Sorry for the confusion

[davidpeace]

The tax that goes to big oil is in the form of subsidies. We are essentially allowing the big oil corporations to forgo paying royalties for drilling on public land and waters, paying them premiums for more exploration. I looked for when this first started but I can't find it. I'm guessing in the fifties. But regardless, you can bet that democrats and republicans were in on it together.

[brighterside]

The theory is that if you give tax breaks to the rich that they will take the money that they made and invest it into more jobs and infrastructure. Its called trickle down economics.

But the problem to do that is it hardly ever happened. Corporations took their wealth and their money and shipped it overseas to China. They hired Chinese and shipped Chinese made stuff to the US flooding our markets with crap.

This trade imbalance caused the devaluation of the dollar and slowed our economy. What was worst is that we borrowed money from China to pay for the Iraq war which even further the devaluation of the dollar.

Now because China has all this cash they made from the unfair trade imbalance, they bought themselves items such as cars to drive around. The increasing number of cars in China and their increasing demand for more oil caused oil prices to increase. This, coupled with the unstable middle east is causing to edge oil prices even higher.

The way to do this is stimulate the economy by increase consumer spending on US manufactured goods and products, regulate the trade imbalance and start lowering the demand of oil. I know its easier said than done but its the best possible solution we have to fix this economy.

[bgregs]

Perhaps tax was the wrong word. What he's talking about is that we are paying more at the pump than we should have to, and a certain percentage is going straight from our pockets to the oil companies, which wouldn't otherwise be happening. This is the same thing that would be happening if we were to have placed an actual tax on gas sales, but it would be going into the govt coffers to be used for the common welfare, rather than in the oilco coffers to be used for the welfare of the oilcos.

[websmith]

If you go back to the days of Kennedy when the national debt was zero, you will see that it really hasn't mattered who was in the White House since he was killed. They are all the same.

The people directly responsible for this have been the owners of the Federal Reserve Bank who have pushed for deregulation, that wasn't really deregulation, in the name of free enterprise, that wasn't really free enterprise, so that opportunities to loan money would be created. Nixon played right into their hands when he was duped into "temporarily", it wasn't really temporary, removing the gold standard. The things that created the necessity to do this were, FRB pushed for, inequitable trade agreements that created deficits.

We can't keep buying theirs when they don't buy ours until we have no money. That is not a fair trade agreement.

[research]

75% of the current debt was accumulated during GOP presidents.

[JustMyWords]

So much for the "tax and spend" Democrats.

[brighterside]

Sorry when Clinton left office we had a surplus, healthy economy and created more than 20 million jobs under his administration. Therefore, most if not all the debt is attributed to the GOP.

[bgregs]

"If you go back to the days of Kennedy when the national debt was zero, you will see that it really hasn't mattered who was in the White House since he was killed. They are all the same."

Actually, you've got two things wrong here. Kennedy was almost the last President with zero DEFICIT. In other words, Kennedy had a balanced budget. However, we still had a DEBT, which was caused mostly by the combination of WWII and the Depression. Clinton was the last President to have zero deficit.

The second thing that is wrong is the NUMBERS. Under DEMOCRATIC Presidents the debt was increasing, yes, but at a MUCH slower rate than under REPUBLICAN Presidents. In fact, in straight dollar values you can attribute almost 90% of the current $10 Trillion debt to the last three republican presidents: raygun, bush I, and bush II. Even allowing for inflation, they were responsible for more than 75% of the national debt that we all owe!

[larry278]

Mr Abrams has pointed out yet another example of how the USA's corpoRATS prey upon all other Americans.