Less Government or Lower Wages? You Choose 43 comments
an article to
-
Font Size:
-
Print
- TweetThis
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 Yet the same economists balk at the logical need for spending to drop now that the stimuli are no longer in effect.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.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication in the last week
Seeking Alpha 100 » -
Fastest Climbers
Those with the largestSee all
increase in followers
in the last week
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most activeSee all
Instabloggers.
Top Instabloggers » -
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
the methods used to fight this crisis has placed a debit crisis time bomb into the future. while everyone pats each other on the a$$ how we dodged the bullet, we have placed power into the hands of the creditors. this severely limits future options.
If there were ever to be a nuclear war on earth, it would probably had to begin with foreign countries putting a stop to their moneylending to the U.S. Government. This would probably make the Nice Government Men to loose it completely. So the thought of foreign nations not lending any more money to the U.S. is a little bit scary if you ask me. Either we bankrupt ourself by trying to keep up this silly economy based on the not-so-actually-great John Keynes, or we destroy the world completely, because war really is what the U.S. government considers when it can't upfill its wishes with other means, such as printing money.
There is no "greater good" than the protection of our individual rights and property.
I agree with everything you said but to expand, it isn't even just about lower taxes it IS about a simpler taxes.
How come the head of the Treasury ( the guy in charge of the IRS) can't even do his taxes right? He's a dishonest petty thief at best and incompetent at worst. Why do we have to spend so much money on accountants and software and have no idea if we did our taxes right or not? Thousands of pages worth of laws?
Why can't it be as simple as this is what you made, and this is what you owe? There are so many rules governing this is good behavior our government likes so you get a credit, and this is bad behavior we don't like so you pay extra. It's all one giant mess.
Obama claims his policies won't raise taxes for average Americans. He claims that he'll just make the rich pay for it. Apparently he hasn't read "Atlas Shrugged".
Who is John Galt.
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.
This is the key to the article. Our current administration is trying to ignore the global ramifications of its actions - much to the peril of our country.
Schiff, when are you announcing your candidacy?
I wish the right and the left would get together and find admit that they're correct. Government is critical, without it, we could not function. We need rules to govern our common infrastructure.
The problem right now is there is a huge disconnect between the right and the left and the president is really the one to bridge that. I had high hopes that Obama would fix it -- he has not. If McCain hadn't been such a warmonger, I think we might have actually been better off with him.
The answer is not to have D.C. rewrite the regulations.
The answer is to completely scrap every regulation written on the Federal level over the last 40 years and let the states pick and choose which ones are worthy of existence.
The founders invisioned states as laboratories for growth.
The answer to most of our problems is right there in the 10th amendment.
When the top 5% of U.S. earners pay 60% of the income taxes and the bottom 75% pay 13% (as they do today), growth of the U.S. government is a certainty as is the failure of the U.S. republic.
On Aug 16 09:39 AM yellowhoard wrote:
> Forget taxes. Regulations are the real burden on American business.
>
>
> The answer is not to have D.C. rewrite the regulations.
>
> The answer is to completely scrap every regulation written on the
> Federal level over the last 40 years and let the states pick and
> choose which ones are worthy of existence.
>
> The founders invisioned states as laboratories for growth.
>
> The answer to most of our problems is right there in the 10th amendment.
>
Yet, most of what you are preaching doesn't even peripherally mention employment/unemployment.
Yes, you can spend a lot less but you can't save more when you're not working.
Yes, you can cut the size of government by eliminating more jobs.
Yes, you can cut taxes so those that do have jobs take home more, and business see smaller top lines but better bottom lines while all those people who are not working do not pay taxes. And revenues to run the country drop even more than they already have. [Unless of course you enjoy major potholes on your highway while driving on a "less government, no speed limit" trip to the local head hunter who is going to tell you there's nothing right now.]
Just think how low the price of gasoline will be when no one is working!!
Yes, market forces can ring out excesses, just as they did when businesses closed, successful companies dramatically reduced payrolls at the first sign of trouble and asked questions later. Question is, how do you grow from there? Answer is, you don't.
How can you write an article about "less government or lower wages" and not mention "In July, the number of unemployed persons was 14.5 million. The unemployment rate was 9.4 percent"? Maybe the article's title should be changed to "Less Government AND No Wages"? In your approach, do unemployed people just disappear??
Given your solutions to the current state of the economy, what would you estimate would be the appropriate number of people out of work to "fix" the situation? 20 Million? 30 million? 40 million? Maybe we should shoot for an even 50 million? When we get to those kind of numbers will we be on the right track to "returning our economy to health"?? Amazing.
We go with your solutions, it won't be safe to walk to streets. And you'll be smack in the middle of your "surviuval of the fittest" routine.
This is a world of "gray", not black and white. Government and the private sector need to work together to make "free markets" work correctly. Your "free market" solutions produced, not one, but two great depressions [late 19th century and early 20th century]. And major consensus for oversight and regulation of the capitalist/free market system.
Fortunately, this is the 21st century where enlightened minds understand that regulating a free market is necessary, that regulation differs with current economic circumstances and times, and regulation works when done with insight. Ideologues just don't get that.
Regulations are the reason why we are not solving our energy crises with new nuclear plants.
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!
Your premise is if we do nothing, things will get worse. If we do something, things will get better. Peter's premise is all of the stimulus we are spending on won't help in the long run and only postpones the inevitable. Politicians doesn't have the luxury of telling people all of these spending won't help. If politicians do nothing and things gets worse, they won't be re-elected. If this stimulus doesn't work they can always say the economy would have been worse without the stimulus. This is the reason most politicians have no problem following Keynesian economics.
On Aug 16 10:04 AM studiophototrope wrote:
> It's odd how in writing this article you talked about consumers spending
> less, saving more, cut the size of government, cut taxes, cut regulations
> and "let market forces ring out the excesses".
>
> Yet, most of what you are preaching doesn't even peripherally mention
> employment/unemployment.
> Yes, you can spend a lot less but you can't save more when you're
> not working.
> Yes, you can cut the size of government by eliminating more jobs.
>
> Yes, you can cut taxes so those that do have jobs take home more,
> and business see smaller top lines but better bottom lines while
> all those people who are not working do not pay taxes. And revenues
> to run the country drop even more than they already have. [Unless
> of course you enjoy major potholes on your highway while driving
> on a "less government, no speed limit" trip to the local head hunter
> who is going to tell you there's nothing right now.]
> Just think how low the price of gasoline will be when no one is working!!
>
> Yes, market forces can ring out excesses, just as they did when businesses
> closed, successful companies dramatically reduced payrolls at the
> first sign of trouble and asked questions later. Question is, how
> do you grow from there? Answer is, you don't.
>
> How can you write an article about "less government or lower wages"
> and not mention "In July, the number of unemployed persons was 14.5
> million. The unemployment rate was 9.4 percent"? Maybe the article's
> title should be changed to "Less Government AND No Wages"? In your
> approach, do unemployed people just disappear??
>
> Given your solutions to the current state of the economy, what would
> you estimate would be the appropriate number of people out of work
> to "fix" the situation? 20 Million? 30 million? 40 million? Maybe
> we should shoot for an even 50 million? When we get to those kind
> of numbers will we be on the right track to "returning our economy
> to health"?? Amazing.
>
> We go with your solutions, it won't be safe to walk to streets. And
> you'll be smack in the middle of your "surviuval of the fittest"
> routine.
> This is a world of "gray", not black and white. Government and the
> private sector need to work together to make "free markets" work
> correctly. Your "free market" solutions produced, not one, but two
> great depressions [late 19th century and early 20th century]. And
> major consensus for oversight and regulation of the capitalist/free
> market system.
> Fortunately, this is the 21st century where enlightened minds understand
> that regulating a free market is necessary, that regulation differs
> with current economic circumstances and times, and regulation works
> when done with insight. Ideologues just don't get that.
I was in Shanghai in mid 2008 when the credit crisis was starting, helping a friend with some investment there. We went to a few banks to exchange my USD for RMB. There were strict daily limits which I didn't remember existed before. When my friend tried to get USD or HKD (which is pegged to USD) loans from the bank, he was rejected all the time. The banks would only lend in RMB. It was as if everybody there thought the USD would collapse one day. It then dawned on me that one day all the USD I am holding can only be used inside the USA because the rest of the world would not want it. Very scary feeling.
The present administration hoped to pay for universal health care with the cap and trade auctions. When that didn't work out, they talked about cutting Medicare costs (rationing) When they realize they can't tweak this sacred entitlement, they will resort to taxes to give everyone the health care and insurance promised during the Presidential campaign.
Even though it is the last thing we need, I'm planning on getting higher taxes which means I and others will have less to spend.
There is a lot of disinformation about the economy out there, spanning from out-of-control government spending to out-of-control government, period. These rumors often travel just below the surface via chain emails or through casual conversation. Since we can’t keep track of all of them here at the White House, we’re asking for your help.
Although your article is, technically, accurate, we are sure you share our concern that hard- working Americans may read it and come to the improper conclusion that their government does not have their best interests at heart.
In order to avoid having hard-working Americans reach conclusions that may cause them to believe their government is acting improperly, please pre-submit all future articles to flag@whitehouse.gov
We will be happy to review your writings and correct any misinformation prior to publication.
Thank you.
Linda Douglass
White House
Office of Disinformation
NOT ONE
p.s.
Can anyone tell me where I can get my hands on a MINT CONDITION set of financial crisis cards? I have looked everywhere!!!!
Thanks, in advance
On Aug 16 07:05 AM John Galt wrote:
> Great article. Well written and simple enough that it should be in
> a major newspaper for everyone to read, and not just us financial
> geeks at Seeking Alpha. I do believe that most people would be able
> to understand this one and I wish they were exposed to it.
>
> I agree with everything you said but to expand, it isn't even just
> about lower taxes it IS about a simpler taxes.
>
> How come the head of the Treasury ( the guy in charge of the IRS)
> can't even do his taxes right? He's a dishonest petty thief at best
> and incompetent at worst. Why do we have to spend so much money on
> accountants and software and have no idea if we did our taxes right
> or not? Thousands of pages worth of laws?
>
> Why can't it be as simple as this is what you made, and this is what
> you owe? There are so many rules governing this is good behavior
> our government likes so you get a credit, and this is bad behavior
> we don't like so you pay extra. It's all one giant mess.
>
>
> Obama claims his policies won't raise taxes for average Americans.
> He claims that he'll just make the rich pay for it. Apparently he
> hasn't read "Atlas Shrugged".
>
> Who is John Galt.