You have been right to identify America's runaway problem with indebtedness as the fundamental cause of the dollar's depreciation and you are right to say that we would all benefit if debt levels are reduced significantly. Unfortunately, you have generally ignored the fact that our economy is profoundly dependent upon spending. Contrary to what many Republicans would have us believe, all jobs in the economy are ultimately dependent upon spending for their existence. Whenever the economy is suffering from any level of unemployment, it is because NOT ENOUGH SPENDING is taking place in the economy. The only way it is possible to eliminate unemployment is by increasing aggregate spending.
If the federal government were to cut its spending, it is true that it would be able to better balance its budget by reducing its borrowing, but the price we would pay is the elimination of millions of jobs. That is precisely what John McCain is recommending. The problem is that our economy has become so addicted to debt in order to maintain our aggregate spending levels, any reduction in borrowing that is not accompanied by some other compensating fiscal initiative will lead directly to a contraction of the economy, all else equal. The challenge we face, that you did not articulate, is how to reduce our nation's overall indebtedness while at the same time maintaining or even increasing spending levels in order to prevent an economic contraction. (Borrowing levels always drop during a severe recession, which is the primary reason why unemployment rates shoot up during a recession.)
The answer to this dilemma is to recognize that the federal government has all the power it needs to increase spending during a recession without borrowing. It can simply RAISE TAXES on rich people. Contrary to the economic fantasies of the Republican Party, increasing the income tax rates of Rich People (the nation's biggest savers) is something that is guaranteed to provide a economic stimulus to the economy. This is because doing so takes money that would otherwise have been removed from the economy (saved by rich people) and spends it instead. Yes, you heard it right: INCREASING taxes provides a stimulus to the economy IF the citizens who are being taxed more are the nation's biggest savers.
Increasing the taxes of poorer citizens does not provide a net economic stimulus because it simply takes money from people who would have spent it, themselves, and gives it to the government to spend. The increase in government spending is exactly matched by a reduction in consumer spending. The result: no net gain in aggregate spending. But if the taxes of very rich people are increased, a net increase in aggregate spending is guaranteed, as long as at least some of the money collected from rich people would have been saved, instead.
Let's think about this for a minute. If the federal government and state governments and individual households and corporations were to all start borrowing less money, the result would be an accumulation of money that was taken out of the economy by rich people (saved) that no one wants to borrow and spend. That would lead us directly to another Great Depression. Look at it another way, if you wanted to increase savings levels without increasing borrowing levels, then the net result is an economic contraction---reduced aggregate spending---because money is being removed from the economy (saved) without it being returned through the practice of lending. If you want to avoid a recession while maintaining aggregate spending levels, you absolutely must reduce the amount of money that is being taken out of the economy by savers. That can be done if the government were to tax those [now excess] savings and spend it on much needed infrastructure projects or green energy projects.
Yes, Bonddad, it is possible to reduce the nation's overall indebtedness without the kind of severe pain you are recommending (reductions in government spending). While people and institutions are borrowing less money, aggregate spending can be maintained or even increased IF a sufficient amount of money is collected from the richest Americans and spent by the government at the same time. Contrary to the mythology being promoted by many, it definitely is possible for an economy to experience too much savings.
It is important to understand that to say there is too much saving occurring in the economy is not to say that everyone is saving too much. If your country's economy needs a reduction in total savings (an increase in total spending) in order to eliminate unemployment, it makes sense for the federal government to only tax the savings of those who need 'extra savings' the least. The ultra rich should be asked to give up much more of their 'extra savings' than middle-class savers are asked to give up. Indeed, in order for more people in the lower-middle-class to be able to save more without their additional savings hurting the economy, it is necessary to ask the ultra rich to save substantially less. For a number of reasons, the best way to achieve this goal is to simply make the income tax much more steeply progressive.
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