Less Government or Lower Wages? You Choose 43 comments
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The nationwide revelry surrounding our apparent economic recovery was disrupted this week by the release of lower-than-expected retail sales data. However, rather than sending a chill up the spines of those hoping for a quick end to the downturn, the numbers should be welcomed. Though this may come as a surprise to most observers, lower retail sales are precisely what our economy needs.
To return our economy to health, we must first allow market forces to ring out the excesses of the bubble years. Even government economists acknowledge that this decade’s spending boom resulted from a combination of asset bubbles and the dangerous overextension of consumer credit. Yet the same economists balk at the logical need for spending to drop now that the stimuli are no longer in effect. They argue for the resumption of spending by any means, regardless of its ultimate cost. This is a recipe for momentary gain and lasting pain.
America’s economic vitality will never be restored until we rebuild our savings and pay down our debts. To build back up, we must change the pattern of capital flows from the phony economy. It is a painful process, but one that will leave our economy on a stronger foundation.
Unfortunately, Americans cannot accomplish these goals unless they stop shopping, live within their means, and replenish their savings. Though this may be problematic for retailers, it is beneficial to the overall economy.
But rather than accepting the market’s medicine, our government is overriding its own citizens’ responsible behavior. To do so, it has put borrowed money into consumers’ pockets, and then conjured various incentives for them to go out and spend it. This process requires more government bureaucracy, more debt, and more regulation at a time when we can’t afford any of it.
In contrast, I believe that we must restore the conditions that led to our economic preeminence. We must once again become the leader in economic freedom. This entails dismantling a significant portion of our federal and state governments, repealing countless unnecessary regulations, significantly lowering and simplifying taxes, and reinstituting sound money. If we accomplish these tasks, conditions will be ripe for a lasting recovery that solidifies our place at the top of the global economic totem pole.
However, if we neglect these reforms, and instead continue on our present course of more government and less freedom, more borrowing and less savings, more spending and less production, then our standard of living is doomed to fall. As the world cuts us off from its savings and production, we will finally be forced to live within our means.
On a practical level, imagine living without easy access to the cheap and abundant goods with the “made in China” label. Imagine Walmart rolling up prices every week, while wages continue to fall. This pain would hit every American, not just retailers.
There are two ways to rebalance the American economy. The right way is to restore competitiveness through diminished government spending, deregulation, lower taxes, and higher savings. Higher savings will facilitate capital formation, and lower taxes and fewer regulations will allow that capital to improve the competitiveness of American labor. Improved productivity and capital investment will translate into higher real wages and pave the way to higher future living standards.
Alternatively, if we don’t rebalance our economy on these terms, our foreign creditors will do it for us – and they may have no compunction about imposing harsh measures. This tough medicine will be delivered in the form of declining value for the dollar. This will effectively raise consumer prices and interest rates for all Americans and dramatically lower the real value of our wages.
In other words, balance will be restored from abroad by forcing our living standards to match our diminished industrial capacity. If we cannot compete based on lower taxes and increased capital investment, our only alternative will be to do so based on cheap labor.
Though President Obama claims that his policies will not raise taxes on average Americans, the unfortunate truth is that the effect of his policies will be to lower wages. The choice is simple: either we shrink government and enjoy higher wages, or grow government and accept lower wages. As for me, I prefer the former. However, if we do not change course soon, we will all be stuck with the latter.
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Thanks for saying it.
On Aug 16 07:27 AM ron_paulite wrote:
> Great article.
> Peter you should in the White House, for all our sakes.
> Run for Senate ... and then the White House.
> We need somebody to tell the truth in Washington.
John Maynard Keynes ----
"By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."
No wonder our politicians love Keynes. Taxes without consequences -
Priceless!
But America is far more than free market capitalism. It is oligarchy capitalism where approximately 1% of the population own at least 35% of the wealth. The corporations they own are international. They create demand through advertising or government decree (have you tried driving a natural gas, or even diesel gas car?) and economic policy is created by politicians who are bought and sold in a section of the free market that still exists.
It is meaningless to ask Americans to live within their means because the American economy is built on credit and it isn't possible to decide what level of credit is acceptable, except by fiat. You might be able to dictate that level if you are elected to Congress but not yet.
And the only way we could possibly restore American "preeminence" would be to restore the world back to the way it was in 1965, twenty years after Europe was crushed definitively, Japan was turned into a client state, China was neutralized by a revolution and Russia was still crippled by the massive effort needed to defeat the Nazi war machine, virtually single handed, added to the inefficiency of an economy that attempted to distribute goods and services according to need instead of ability to purchase them.
Higher government spending, more regulation and higher taxes are symptoms of the present American malaise and getting rid of symptoms does not cure the underlying disease. If it did, we could stick our heads in a bucket of ice water to get rid of the flu.
On Aug 16 10:52 AM Kalani Martin wrote:
> Hey Peter,
>
> I've always had a lot of respect for you and your ideas, but how
> about writing some articles about our currrent markets and leaving
> the politics alone for a while. I know you're considering running
> for Senate in Connecticut, but this is a financial web-site, not
> a political web-site. I know you're going to say the two and intertwined
> and I agree, but the emphasis of your articles has changed and is
> now too far skewed towards politics. Save it for the campaign and
> the folks in Connecticut and please share your insights about more
> market specific subjects. Thank you!
That leads us with a continuation of the current trend: massive growth of both the cost and reach of government.
That also leads to a larger budget. Which means (especially during a recession/depression) higher taxes from non-Austrian government economists. Buy stock in pitchforks and torches for the assault on the "wealthy"...which will have to be defined often during hyperinflation.
Much like all corp taxes are passed on in the form of higher prices and/or lower wages, we will see wages significantly drop in the USA. I already have many friends who've taken pay cuts to keep jobs. Of course, with a few million extra people looking for work no one needs to pay top dollar. Raises are also getting scaled back for several obvious reasons. Yes, wages have more downward pressure now than in many, many decades. Luckily, millions will just give up and accept being much poorer (or about 1/10 the lifestyle they could've expected had anyone with a clue been running the country).
Enter inflation to the rescue! I've written many times that many problems for Congress are solved with a weak-ass US$. Several have also noted that devalued currency is yet-another way to tax citizens.
Let's summarize our future:
1. Lower wages
2. Higher taxes
3. Continued growth of government's budget and intrusion into your life and the market
Change? Hope? Bueller?
I cannot imagine the advances in every area that will be pushed out decades due to the fiasco. I just wish people would learn that all resources are precious.
Peter is right Govt intervention (and jobs) would lead to lower wage and poorer quality jobs- but the current path chosen with BHO at the helm is much bigger Govt. So in the end lower wages and lower standard of living is the inevitable outcome - all closet socialists would be happy with the outcome - till they run out of rich to tax - that is when everything implodes.
With inflation so tame the politicians have lost the fear of deficits - they will print and spend to no end - no entitlement is too small now a days. Where the money will come to pay for it - nobody bother asks - it of course comes from the printing press. Yes, we are in big trouble Depression 2.0 has not been avoided - we are heading that way- frogs being slowly boiled.
Isn't this the while idea of Big and controlling government to steal the people's wealth and savings? Every excuse in the book will be given to TAKE TAKE TAKE. And of course the ignorant American will comply with these tricks and excuse.
When you take the wealth and money away form the people and grow government as big as possible, then the Totalitarian Plutocracy has complete control.
Why do you think they created the IMF and CFR?
Wash, Rinse, Repeat...
Ring out?
Or wring out?
On Aug 16 06:55 AM optionsgirl wrote:
> I'm willing to endure the pain necessary to return to a fiscally
> responsible, small federal government that recognizes US citizens
> choose capitalism and democracy, the "old normal".
> There is no "greater good" than the protection of our individual
> rights and property.
It will take a crisis that can't be papered over to cause change. Until then, there is absolutely no mechanism that can be brought to bear on the problem.
On Aug 17 12:08 PM carey_jim wrote:
> And the only way we could possibly restore American "preeminence"
> would be to restore the world back to the way it was in 1965, twenty
> years after Europe was crushed definitively, Japan was turned into
> a client state, China was neutralized by a revolution and Russia
> was still crippled by the massive effort needed to defeat the Nazi
> war machine, virtually single handed, added to the inefficiency of
> an economy that attempted to distribute goods and services according
> to need instead of ability to purchase them.
>
On Aug 17 11:39 PM AllStreets wrote:
Can anybody suggest the best way to
> go long bankruptcies and foreclosures?
Buffett Slams Tax System Disparities
By Tomoeh Murakami Tse
Washington Post Staff Writer
Wednesday, June 27, 2007; D03
NEW YORK, June 26 -- Warren E. Buffett was his usual folksy self Tuesday night at a fundraiser for Sen. Hillary Rodham Clinton (D-N.Y.) as he slammed a system that allows the very rich to pay taxes at a lower rate than the middle class.
Buffett cited himself, the third-richest person in the world, as an example. Last year, Buffett said, he was taxed at 17.7 percent on his taxable income of more than $46 million. His receptionist was taxed at about 30 percent.
Buffett said that was despite the fact that he was not trying to avoid paying higher taxes. "I don't have a tax shelter," he said. And he challenged Congress and his audience to see what the people who "clean our offices" are taxed, to loud applause.
....
......
The rich can take advantage of tax loopholes, including one that allows those managers to pay the capital gains tax rate of 15 percent instead of the ordinary top income tax rate of 35 percent.
look how Ronald Reagan raised the SS tax in 1984. here look at the government chart look at what happened to the total in 1984
www.ssa.gov/OACT/ProgD...
the payroll tax is paid disproportionally by the poorest workers. it used to be that incomes over $60,000.00 paid no payroll tax on the amt over $60,000.00. Now that was raised to $100,000.00.
when right wingers talk about the tax burden, they never include payroll taxes
- Real Median Household Income in 2008 Fell Below 1973 Level
- Income Dispersion Intensified in 2008
- Restricted Income and Credit Expansion Inhibit Economic Growth
- Economic Crisis Is Far from Over
"Consumer Liquidity – Special Report"
Linda Douglass
White House
Office of Disinformation
Is this scary enough for anyone? As if those smart enough to follow Seeking Alpha need governments interpretation of economic subjects to make sense of it. Some of us do not trust the governments intention and are fundamentally opposed to redistribution policies in general. That makes any opinion from the White House contrary to any opinion of mine. But that is not enough for you, you insist I believe what your selling. God help us when the government is trolling the web to censor.