Nobody knows the troubles we’ll see
If the keyboard allowed, I’d type those words in squiggly lines for full effect. Whether talking to a Ouija Board, a Magic Eight Ball, an economist or the president of the United States, the answer is the same. Nobody knows.
And the question is: Will the U.S. economy bounce back after billions and trillions in rescue, recovery and spending?
It’s all a gamble. The Republican attempts to “starve the beast”—slash taxes and force government spending cuts—didn’t work because spending never got cut. So now, apparently, we’re going to feed the beast.
As we cross our fingers (and our toes), our minds warp at the concept of trillions. What is a trillion, anyway?
Chris Martenson’s online “Crash Course” in economics explains a trillion this way. First, picture a million dollars as a 4-inch stack of thousand-dollar bills. A comparable billion-dollar stack is 358 feet tall. A trillion-dollar stack of thousand-dollar bills stands 67.9 miles high.
So, yes, that tightening you feel in your gut is a perfectly rational response. Trillions in government spending, while raising taxes on those who do the most to drive the economy (hiring and investing in risky markets, for instance), is a frightening proposition. Or is it?
That question led me to a sit-down with Matt Miller, one of the saner voices amid the cacophony. Miller, who so strongly resembles Tom Hanks that you want to ask him about “Wilson,” isn’t a shouter. A former Clinton budget aide and author of the path-breaking “The Tyranny of Dead Ideas,” he finds the current hysteria over Obama’s proposed budget misplaced.
Upfront, he says that Obama isn’t coming completely clean on taxes. Everybody, not just the richest, will have to pay more taxes in Obama’s second term (assumptions pending), owing to the strain that retiring baby boomers will put on Social Security and Medicare. Miller figures Obama is hoping that by then, enough people will be pleased with the government his administration has put in place and won’t mind paying for it.
In the meantime, Miller says the key to assessing whether the budget is terrifying or reasonable under the circumstances is by examining spending, taxes and deficits as a percentage of GDP.
Emergency spending in 2009 will raise the percentage of GDP from 21 (last year) to 27.7, which Miller concedes is “scary.” But the 10-year spending average under Obama’s plan (assuming reasonable recovery) will be at about 22 percent of GDP—the same as under President Reagan.
Tax rates, which will return to Clinton levels (but not until 2011), also shouldn’t be alarming, says Miller.
“We know from the Clinton boom of the 1990s that marginal tax rates of 39.6 percent put no brakes on entrepreneurship or growth. And the modest limits Obama is proposing on the value of itemized deductions for mortgage interest and charitable donations puts their value exactly where they were under Ronald Reagan, which no one would say was a ‘socialist’ interlude for the U.S. economy. So everyone jumping up and down about how supposedly ‘radical’ Obama’s plan is should calm down and look at the facts.”
But, I asked, how about this: If deficits are the problem, why not cut spending and taxes, rather than increase spending and impose higher taxes on higher earners to drive the economy?
Because businesses and individuals are pulling back and don’t have enough discretionary money to stimulate the economy, says Miller. And thanks to the huge deficits bequeathed by the Bush administration, Miller says we have no choice but to run even higher deficits for a few years to get the economy out of the ditch.
Feeding the beast, in other words, is unavoidable. But will it work—or will we all be speaking French and eating moldy cheese in two years?
To the “nobody knows” chorus, add at least one strong dissenting voice. Miller says that though stimulus efforts may or may not work, Obama is doing the right thing with the budget.
And no, we won’t be socialists when it’s all over. There will still be room for a “cowboy economy,” he says.
I can’t say that I suddenly have a yippie-kay-yo in my heart, but Miller’s less-scary scenarios, based on facts rather than rhetoric, help tamp down the impulse to build a bigger bunker. If Miller wants to be heard in Rantville, however, he may have to learn to shout.
Kathleen Parker is a columnist for the Orlando Sentinel. Her e-mail address is email@example.com.
Last updated: 9:55 am Thursday, December 13, 2012