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Posts Tagged ‘Government Spending’

Do We Want Real Tax Cuts? How About Cutting Government Spending?

Posted by M. C. on September 1, 2022

Government is not a wealth generator, as it relies on its sources of funding on the private sector. If government could generate wealth, then obviously it would not need to tax the private sector.

We conclude that it is not possible to have a effective tax cuts without a cut in government outlays. A so-called tax cut while government spending continues to increase is just an illusion.

https://mises.org/wire/do-we-want-real-tax-cuts-how-about-cutting-government-spending

Frank Shostak

According to many economic commentators, an effective way to generate economic growth is through the lowering of taxes. The lowering of taxes, it is held, will place more money in consumers’ pockets, thereby setting in motion an economic growth. This way of thinking is based on the belief that a given dollar increase in consumer spending will lift the economy’s gross domestic product (GDP) by a multiple of the increase in consumer expenditure.

Assume that out of an additional dollar received individuals spend $0.9 and save $0.1. Also assume that consumers have increased their expenditure by $100 million. Because of this, retailers’ revenue rises by $100 million. Retailers in response to the increase in their income consume 90 percent of the $100 million—i.e., they raise expenditure on goods and services by $90 million. The recipients of these $90 million in turn spend 90 percent of the $90 million—i.e., $81 million. Then the recipients of the $81 million spend 90 percent of this sum, which is $72.9 million and so on. Note that the key in this way of thinking is that expenditure by one person becomes the income of another person. At each stage in the spending chain, people spend 90 percent of the additional income they receive. This process eventually ends, so it is held, with total output higher by $1 billion (10*$100 million) than it was before consumers had increased their initial expenditure by $100 million.

Observe that the more that is being spent from each dollar, the greater the multiplier is and therefore the impact of the initial spending on overall output will be larger. For instance, if people change their habits and spend 95 percent from each dollar the multiplier will become 20. Conversely, if they decide to spend only 80 percent and save 20 percent then the multiplier will be 5. All this means that the less that is being saved the larger is the impact of an increase in overall demand on overall output.

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Biden Economic Adviser Asserts That More Government Spending Will Solve Inflation Crisis

Posted by M. C. on June 24, 2022

By Tyler Durden

Zero Hedge

Biden’s “Build Back Better” efforts have been a phenomenal failure so far, but maybe that’s because Americans just don’t understand a good thing when they see it?

This has been Biden’s argument on the state of the economy lately, as he persistently argues that there is no threat of recession because the US jobs market still “strong.”  There is no mention from the White House regarding the fact that covid stimulus spending artificially drove up retail demand and created a temporary spike in jobs.  If they were to admit that layoffs are about to ramp up because the covid checks are gone and people’s credit cards are maxed out because of inflation, then Biden would have nothing left to brag about.

Biden economic adviser Cecilia Rouse responded to media question on the inflation situation in particular this week and offered even more propaganda, rather than an honest assessment of the dangers ahead.  Remember, this is the same administration that was still saying only a year ago that inflation was “transitory” despite all evidence to the contrary.  Yet, we’re now supposed to trust their opinions on the potential for recession and solving inflation?

One of the key obstacles to “Build Back Better” is the reality of high inflation.  If Biden gets what he wants, which is at bottom an infrastructure renewal plan similar to the New Deal plan under FDR during the Great Depression.  Whether or not the New Deal actually saved the US economy is up for debate (the destruction caused by WWII left the US as one of the only major manufacturing nations still intact, and this was the main reason for the explosion in wealth and the national escape from poverty), but even if it made a difference the circumstances today are not the same.

The problem is that FDR was facing a deflationary crash in which the US dollar remained viable and strong.  Today, we are dealing with a stagflationary crash in which price inflation is rampant and the dollar’s buying power is growing ever weaker.  One of the main reasons for this inflation is due to government spending and massive Federal Reserve stimulus created from thin air.

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Instead of Sharing Burdens, It’s Time for America To Start Shedding Burdens

Posted by M. C. on February 2, 2022

It is time to have these debates and begin reducing US ambitions, instead focusing on the interests of the American people while adapting policies to available resources.

by Doug Bandow

It is tough today to be a member of the Washington foreign policy establishment, called “the Blob” by onetime deputy national security adviser Ben Rhodes. Members of the Blob make, implement, and assess foreign policy. Their general shared objective is to run the world. Alas, nothing they do seems to be working very well.

Although they fight fiercely over influence, positions, and rewards, they even more resolutely work together to resist accountability. The Blob took America over a humanitarian cliff in the Iraq war, yet who among those responsible for years of brutal sectarian conflict, hundreds of thousands of civilian deaths, millions of people displaced, and the destruction of historic religious minorities in Iraq alone paid a professional price for their grotesque policy malpractice?

To the contrary, they uniformly advanced professionally and continue to despoil the foreign policy debate, authoritatively pushing more interventions, commitments, and wars. The cost never seems to matter because others always pay.

Instead, Washington should be retrenching. America is under domestic siege, with widening political divides and uncontrolled government spending. Today policymakers are juggling at least four possible wars: Russia, China, Iran, and North Korea. An outside observer could be forgiven for believing that Blob members have never heard of the concept of setting priorities. Everything is vital and we are a global power! The entire world must be brought under Washington’s, meaning the Blob’s, control. Onward, irrespective of cost and risk!

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Biden’s Rescue Act Targets Americans’ Freedoms | Mises Wire

Posted by M. C. on August 4, 2021

The Biden administration is bringing the same solution to America that previously failed in Afghanistan. After Barack Obama decided to “surge” U.S. troops into Afghanistan, the Christian Science Monitor noted in 2010, the U.S. Agency for International Development (USAID) “created an atmosphere of frantic urgency about the ‘burn rate’—a measure of how quickly money is spent. Emphasis gets put on spending fast to make room for the next batch from Congress.” One Kabul-based analyst employee lamented, “As long as you spend money and you can provide a paper trail, that’s a job well done. It’s a perverse system.”

https://mises.org/wire/bidens-rescue-act-targets-americans-freedoms

James Bovard

Since the 1800s, surly Americans have derided politicians for spending tax dollars “like drunken sailors.” Until recently, that was considered a grave character fault. But Joe Biden’s American Rescue Plan Act shows that inebriated spending is now the path to national salvation.

It was a common saying in America in the 1930s that “we cannot squander our way to prosperity.” But that was before the latest “best and brightest” crop took the helm of the federal government.

The rescue act is based on blind faith in government spending—the revival of the “Magic Bean School of Political Economy.” When he signed the bill on March 12, Biden declared, “We have to spend this money to make sure we have economic growth, unrelated to how much it’s going to help people.” The act’s $1.9 trillion price tag is proof of its beneficence. Biden boasted that he would be sending federal “stimulus” checks to more than 100 million Americans in the following ten days. The White House called the bill “the most progressive piece of legislation in history.”

The biggest fear in Washington is that federal agencies will not be able to throw tax dollars at citizens, businesses, and local and state governments quickly enough. The Washington Post frets that “the sheer volume of new programs threatens to swamp federal agencies.” This is the sixth federal COVID bailout since last spring, and “a slew of other efforts to help struggling businesses … have been trapped in the federal bureaucracy.”

The purpose of this rescue act is to rescue faith in Big Government. In his televised address, Biden declared that in order to “beat this virus,” Americans must “put trust and faith in our government to fulfill its most important function, which is protecting the American people…. We need to remember the government isn’t some foreign force in a distant capital. No, it’s us. All of us. We, the people.” At the time of Biden’s speech, the U.S. Capitol was surrounded by high fences topped with razor wire. Thousands of National Guard troops prowled the grounds of the Capitol and elsewhere in the District of Columbia to deter any unpleasantness from uppity citizens. Luckily, most of the Washington media continued to vouch that the political class was dutifully serving Americans behind closed doors.

Oversight

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Author:

James Bovard

James Bovard is the author of ten books, including 2012’s Public Policy Hooligan, and 2006’s Attention Deficit Democracy. He has written for the New York Times, Wall Street Journal, Playboy, Washington Post, and many other publications.

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Want to Really Cut Taxes? Cut Government Spending. | Mises Wire

Posted by M. C. on August 26, 2020

If government activities could generate wealth, they would be self-funded and would not require any support from other wealth generators, and the issue of taxes would never arise. As it is, government cannot make any contribution to savings and thus to the pool of real savings.

https://mises.org/wire/want-really-cut-taxes-cut-government-spending?utm_source=Mises+Institute+Subscriptions&utm_campaign=8bed6b0866-EMAIL_CAMPAIGN_9_21_2018_9_59_COPY_01&utm_medium=email&utm_term=0_8b52b2e1c0-8bed6b0866-228343965

New government spending projects amount to little more than government squandering wealth. The fact that the private sector does not undertake these projects indicates that they are of low priority to individuals. The implementation of these projects will undermine the well-being of individuals, because they are funded at the expense of projects that are of a higher priority and would otherwise be undertaken in the private sector.

Moreover, whenever wealth producers exchange their products with each other, the exchange is voluntary. Every producer exchanges goods in his possession for goods that he believes will raise his living standard. The crux of the matter is that the trade must be freely undertaken. Government activities, however, are of a coercive nature; they are funded by forcing wealth producers to part with their wealth in exchange for less desirable government services. Producers of wealth are forced to exchange more for less. Obviously, this impairs their well-being.

Let us assume that the government decides to build a pyramid and that most people regard this as a low priority. The people employed on this project need access to various goods and services to sustain their existence.

Now, the government is not a wealth producer; it has to impose taxes on wealth generators—those individuals who produce goods and services in accordance with consumers’ priorities—in order to fund the building of a pyramid. The more pyramid building that the government undertakes, the more real wealth will be taken away from wealth generators. It follows that the level of tax—i.e., real wealth taken from the wealth-generating private sector—is directly determined by the size of government activities.

If government activities could generate wealth, they would be self-funded and would not require any support from other wealth generators, and the issue of taxes would never arise. As it is, government cannot make any contribution to savings and thus to the pool of real savings. The essence of the previous analysis is not altered by the introduction of money. In the money economy, the government will tax and transfer the received money to various individuals who are employed directly or indirectly by the government. Government employees can now exchange taxed money for various goods and services and engage in the consumption of real wealth without contributing to its formation.

Government uses various methods to divert wealth from wealth producers toward its activities. These methods, which can be summed up as “effective taxation,” include direct and indirect taxes and levies, monetary printing as a result of government borrowing from the central bank and borrowing from the private sector. The method of diverting real wealth is of secondary importance. What matters here is that real wealth is diverted from wealth producers. The more is diverted, the higher the effective tax imposed on the wealth-generating private sector is going to be.

A superficial view could argue that government borrowing from the private sector must not be regarded as taxation. However, when government borrows from the private sector, it cannot repay the borrowed real wealth. Only wealth producers who are borrowing from each other are in a position to repay from their future production of wealth. All that government can do is to pay back borrowed wealth by means of newly created money, through new taxes, or through new borrowing, thereby further impoverishing wealth producers.

Similarly, when government borrows from the central bank, it effectively causes the central bank to hand the government newly created money, which is employed to divert real savings from the private sector.

One could argue that government could also borrow overseas, thereby reducing the burden on the private sector. Since government is not a wealth generator, however, the burden of servicing the foreign debt will fall on the private sector.

What, then, is a budget surplus? It means that the government intake of money exceeds its spending of money. It is a monetary surplus; that is all. The emergence of a surplus produces the same effect as any tight monetary policy would. On this, Ludwig von Mises wrote,

Now, restriction of government expenditure may be certainly a good thing. But it does not provide the funds a government needs for a later expansion of its expenditure. An individual may conduct his affairs in this way. He may accumulate savings when his income is high and spend them later when his income drops. But it is different with a nation or all nations together. The treasury may hoard a part of the lavish revenue from taxes, which flows into the public exchequer as a result of the boom. As far and as long as it withholds these funds from circulation, its policy is really deflationary and contra-cyclical and may to this extent weaken the boom created by credit expansion. But when these funds are spent again, they alter the money relation and create a cash-induced tendency toward a drop in the monetary unit’s purchasing power. By no means can these funds provide the capital goods required for the execution of the shelved public works.1

Contrary to the widely held view, the budget surplus does not automatically make room for lower taxes. Regardless of the monetary surplus, taxes cannot effectively be lowered until real government outlays are curtailed, i.e., only when the government cuts the number of pyramids it plans to build.

Would a slower growth rate in government outlays permit an effective cut in taxes? There is no doubt that a slower rate of increase in government outlays is preferred to a higher rate. Nonetheless, it still implies less of real savings for the private sector—for government outlays are still growing, although at a slower rate.

Only a cut in real government outlays will result in an effective tax cut. All else remaining equal, a cut in the income tax rate while government outlays continue to increase will lead the government to impose greater burdens on wealth producers through higher borrowing, higher levies, and higher indirect taxes, and through monetary pumping at some point in the future.

The way to make tax cuts effective is to back them with spending cuts.

Author:

Contact Frank Shostak

Frank Shostak‘s consulting firm, Applied Austrian School Economics, provides in-depth assessments of financial markets and global economies. Contact: email.

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While You Were Obsessing Over Impeachment

Posted by M. C. on January 4, 2020

The political class, including the mainstream media, would prefer you pay attention to the fluff, not to the things that really matter. Perhaps instead of obsessing over impeachment or the latest debate over a Trump tweet, you would be better served to pay attention to what they don’t want you to pay attention to.

https://tenthamendmentcenter.com/2019/12/20/while-you-were-obsessing-over-impeachment/

…While you argued over the gory details of impeachment with your friends on Facebook, Congress passed the 2020 National Defense Authorization Act. The nearly 3,500-page bill authorizes $738 billion in defense spending in Fiscal Year 2020. It creates a “Space Force,” so the U.S. can expand its empire into the cosmos. And Congress rejected a provision that would have made it just slightly harder for the president to unilaterally send American troops into combat. In other words, Congress agreed that it would not bother to do its job and declare war before sending the U.S. military to conduct offensive combat operations as required by the Constitution. It will continue to let the president make that call on his own. You know – the president the House just impeached.

Even worse, the current iteration of the NDAA extended provisions written into the 2012 National Defense Authorization Act that effectively authorize government kidnapping. The vaguely worded sections purport to authorize the arrest and “indefinite detention” of anybody the president decides might be associated with “terrorism” and subject them to the law of war. In effect, the government can deem you a terrorist and lock you away without due process. Government kidnapping may sound like hyperbole, but that’s exactly what the NDAA authorizes in effect.

Speaking of war, while all eyes were glued to the three-ring circus in D.C., the Washington Post released documents revealing that the U.S. government has been lying to us about the war in Afghanistan for decades.

“A confidential trove of government documents obtained by The Washington Post reveals that senior U.S. officials failed to tell the truth about the war in Afghanistan throughout the 18-year campaign, making rosy pronouncements they knew to be false and hiding unmistakable evidence the war had become unwinnable.”

As one three-star general put it, “What are we trying to do here? We didn’t have the foggiest notion of what we were undertaking. If the American people knew the magnitude of this dysfunction .?.?. 2,400 lives lost.”

This seems, maybe, just a tiny bit, significant. But the news barely saw the light of day. It was completely buried under an avalanche of impeachment reporting…

So, let’s review. While America was mesmerized by the pro-wrestling event on Capitol Hill, Congress agreed to maintain the government’s “authority” to kidnap you, to keep spying on you without a warrant, to continue unconstitutional wars, and to spend you deeper into debt.

Political theater makes for splashy headlines and heated debates, but it really has very little impact on your life. The political class, including the mainstream media, would prefer you pay attention to the fluff, not to the things that really matter. Perhaps instead of obsessing over impeachment or the latest debate over a Trump tweet, you would be better served to pay attention to what they don’t want you to pay attention to.

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The Dreaded Government Shutdown – by Robert Ringer

Posted by M. C. on December 26, 2018

The truth is that there’s a very credible budget plan to avoid raising the debt ceiling.  It’s called:  CUT SPENDING!

http://robertringer.com/the-dreaded-government-shutdown/

by Robert Ringer

The average low-information voter, who depends on getting his news from the FNM, is trembling in his shoes right now because the life-ending government shutdown he has heard so much about has finally arrived.  How in the world can the United States possibly survive such a calamity?

But let’s get serious:  Every reasonably well-informed individual with an IQ above 32 realizes that a government shutdown is not only not a bad thing, it’s actually a positive.  Let’s face it, the only way to stop government spending and borrowing is to close shop.  And, amazingly, when that happens (as it has 18 times in the past), the anti-Armageddon truth is that the average person is totally unaffected!

While the amount varies from month to month, the government brings in, on average, about $200 billion a month from (mostly unwilling) taxpayers and pays out, on average, about $20 billion in monthly interest charges.  That’s a tenfold coverage.

Second, Social Security and Medicare are easily covered by government revenues each month, at least right now.

Third, there’s plenty of money available to meet our current military obligations (though we need a good debate about how much military we really need to properly defend our country).

Fourth, everything that’s left (about 30 percent of scheduled expenditures) can be prioritized, with the only question being who should make the decisions as to what goes at the top of the list and what goes at the bottom.

Former Secretary of the Treasury Timothy Geithner once insisted that the notion of prioritizing payments is futile because the debt limit must be increased regardless of which spending path is adopted.  He boldly stated that “there is no credible budget plan under which a debt-limit increase can be avoided.”

That, of course, is status quo thinking — and patently false. Read the rest of this entry »

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Half of Health Spending in the US Is Now Government Spending | Mises Wire

Posted by M. C. on November 10, 2018

Of course, prices continue to skyrocket in the US. But this is not because there is too much “market competition,” but because healthcare is heavily subsidized by various government interventions. As is always the case, subsidized goods and services experience growing demand as the cost — as perceived by consumers — goes down.

It would seem that the goal of the free-market reformer in the current climate must be to stop speaking of preventing “socialized medicine” but instead he or she ought to focus on carving out a role for the market in what is clearly a government dominated sector.

https://mises.org/wire/half-health-spending-us-now-government-spending

Needless to say, the idea that the US has a “free market” in health care is pure fantasy. The so-called safety net is huge, expensive, and dominates the industry. With so many Baby Boomers going on Medicare in the near future, and with continued expansion of Medicaid, it won’t be many more years before a much larger majority of healthcare spending is done by governments.

This, however, won’t mean a fundamental change in the the US healthcare system, but a continuation of an established trend.

I don’t say this to advocate for more government spending on health care, but merely to point out that the US has not embarked on any sort of new road it hasn’t already been traveling for years.

You Don’t Need a Single-Payer System to Get to Single-Payer Levels of Health Spending

As it is, the US is moving toward levels of public spending that will rival those of some nations that aren’t exactly known for any devotion to “free market” healthcare.

As it is now, government-sector spending in the US is similar to that of Chile (which, by the way, has a slightly higher life expectancy).

Given the growth of Medicare benefit spending has nearly doubled over the past decade, it’s not impossible to imagine overall public spending rising to levels we now see in some countries with so-called “socialized” medicine.

publichealth.PNG

Source. “OECD Health Statistics 2015 – Country Notes”

After all, contrary to the widely-held misconception that all healthcare (including prescription drugs) in Canada is “free,” nearly 30 percent of all healthcare spending takes place in the private sector — mostly to cover prescription drugs, dental care, and other types of care not covered by the state.

Moreover, healthcare in the US offered by ostensibly private sector firms in the US is done overwhelmingly through heavily regulated and highly bureaucratic insurance schemes.

This sort of insurance is so widespread that fewer Americans purchase health services out-of-pocket than in most other OECD countries. While Swiss, Italian, and Australian out-of-pocket expenses constitute at least one-fifth of health spending, the total is only 12 percent in the US. The US is well below the OECD average of 19.5 percent. The idea that millions of Americans are handing over huge sums of cash out-of-pocket to afford basic medical procedures is fiction.

pocket.PNG

Source. “OECD Health Statistics 2015 – Country Notes”

At this point, the debate isn’t over a choice between a market healthcare system or a government healthcare system. We’re now just really talking about how much the government sector should grow as a component of all health spending.

Now that the federal government is, by far, the largest single payer for healthcare purchases in the US, we have to openly admit that there is no longer any functioning market pricing system in healthcare. The industry is now dominated by government contracts, government spending, and government regulations on healthcare services.

Of course, prices continue to skyrocket in the US. But this is not because there is too much “market competition,” but because healthcare is heavily subsidized by various government interventions. As is always the case, subsidized goods and services experience growing demand as the cost — as perceived by consumers — goes down. This happens everywhere that healthcare is subsidized, but US policymakers, so far, have lacked the stomach for controlling costs by denying care to people, or making them wait in long queues — as is done in other government-controlled healthcare systems.

It would seem that the goal of the free-market reformer in the current climate must be to stop speaking of preventing “socialized medicine” but instead he or she ought to focus on carving out a role for the market in what is clearly a government dominated sector.

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'Due to funding cuts, the Government has supplied us with its very own doctor!'

‘Due to funding cuts, the Government has supplied us with its very own doctor!’

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