By Charles Biderman
This government sequestration BS is driving me nuts. I can no longer watch the TV talking heads describing how horrible sequestration will be. The talking heads are saying that if sequestration happens, airports will close, aircraft carriers won’t sail, national parks will close and hundreds of thousands of jobs will be lost.
Yet, the TV talking heads who are predicting doom apparently haven’t bothered to do the math. If they did, they would discover that an $85 billion cut in government spending is only 2.4 % of the entire $3.75 trillion federal budget. OK. Back out $2.3 trillion, 62% for entitlements but $85 billion as a % of non entitlement spending is still a relatively modest 6%. So will a 6% drop in non entitlement government spending destroy the economy? They cannot be serious to even consider this.
Parenthetically, total income tax collections this year will be $2.6 trillion, meaning that the budget deficit is a modest $1.1 trillion.
What is apparent to me is that our government is becoming very good at the big lie. Our government will never say that $85 billion is only 6% of non-entitlement spending. Rather by comparing apples to oranges they are trying to say sequestration is more then 15% of spending. And to increase the fear factor, our government now uses 10-year numbers. Therefore, to scare people silly, sequestration is not $85 billion but a much more ominous $850 billion. Isn’t $850 billion much scarier than $85 billion?
So it is obvious to me that our government is deeply committed to not reducing the size of government, and is willing to either outright lie or twist the truth into an invisible pretzel. And if the government is not committed to cutting spending, then it is equally obvious that our government, in fact, is committed to growing the number of people who either work for the government or get paid by the government.
Let us backtrack for a moment. I have been saying that Paul Krugman, NY Times columnist and Princeton professor, will not be remembered kindly by history similar to Yale Professor Irving Fisher. Just prior to the Wall Street Crash of 1929, Fisher said that the stock market had reached a permanently high plateau.
Paul Krugman will be remembered as erroneously claiming that “deficits do not matter.” If deficits do not matter, as Krugman keeps saying, then there is nothing wrong with using newly created money to grow the government. And what is more, Krugman is saying, that people like me who keep complaining about government deficits are just wasting our breath. Why? Krugman’s reality is that because bond and stock prices have not gone down as of yet even though the US has been running huge deficits that, obviously, deficits do not matter.
Following along that chain of logic, if deficits do not matter, then government spending newly created money is a good thing by itself.
Really? Here is what happened to the Roman Empire as a result of debasing the Roman currency in a more ancient method then the US government.
In 200 AD new Roman Emperor Caracalla levied all kinds of new taxes so he could increase spending on the Roman military and government. For example, Caracalla raised the pay of soldiers by 50%, which he funded doubling the inheritance tax.
Surprise, high taxes did not generate enough new revenue to pay the governments bills, and Emperor Caracalla apparently realized that if he raised taxes any more he risked rebellion. Thus, he resorted to the traditional method of governments who need more revenue to pay bills – he debased the currency. The silver denarius introduced by the first Roman Emperor Augustus started out at 95 percent silver. By the time Caracalla got through the denarius was only 50 percent silver.
However, after Obama’s, I mean Emperor Caracalla’s, rein things got worse, much worse. By 268 AD the denarius had less than 1% silver. The result, in hind sight, was quite predictable. Inflation! Prices rose by a 1,000%. The “barbarians” hired as mercenaries stopped accepting Roman coins, and insisted on being paid in gold. Such manipulations of Roman currency directly contributed to the decline and fall of the Roman Empire.
How do you respond to that Mr. Krugman?
Tags: Biderman Deficit Economy federal reserve government government budget Inflation Interest Rates sequestration Stock Market tax rates TrimTabs