Economics 101

Disclaimer: I took the equivalent of Economics 101 in college... pass/fail (I passed). What I know about economics can be written in big block letters on a postage stamp.
That said, I feel like a genius compared to our policy-makers!

Stimulus Talk Yields to Calls to Cut Deficits
By DAVID E. SANGER and SEWELL CHAN
NYT
Published: June 8, 2010
WASHINGTON — At a moment when many economists warn that the American economic recovery is likely to be imperiled by prolonged high unemployment and slow growth, President Obama is discovering that the tools available to him last year — a big economic stimulus and action by the Federal Reserve — are both now politically untenable.

The mood in both parties of Congress has turned decidedly anti-deficit, meaning that the job-creation programs once favored by the White House and Democratic leaders in Congress have been cut back, then cut again.

What???

A gentle reminder to our esteemed Senators & members of Congress:

GDP = Consumption + Investment + government spending + (Exports − Imports)

Another gentle reminder:

Consumers are NOT spending (~70% of the U.S. economy!).
Businesses are NOT investing (banks aren't lending, either!).
... and the recent strength of the dollar mitigates AGAINST balance of trade!

So, where will GDP growth originate???
Now, not everyone at once!
That's right, Johnny: Government Spending!

Now is precisely the WRONG time to be worrying about deficits.
(Where were these deficit-hawk fiscal conservatives when W cut taxes & got us into TWO unfunded wars???)

This is not academic theory.
We have perfectly good RECENT examples of what happens when governments respond to economic downturns with austerity measures: Japan in the 1990s and Argentina in the early years of this decade.
The result of government austerity?
What Paul Krugman calls "the lost decade"!

A suggestion: if you're REALLY concerned about the deficit - RAISE revenue! - increase tax rates on those who can afford it - the wealthy.
We've seen NO EVIDENCE that increasing marginal tax rates on incomes over $1M discourage those earners from working... or that they're resolutely investing their excess $$$ in GDP-promoting economic activity.

As most of us on household budgets realize, increased spending can be offset with increased income.
RAISE MORE MONEY! - increase tax-rate on those who can afford it.

A related article, again from NYT:

Legacy for One Billionaire: Death, but No Taxes
By DAVID KOCIENIEWSKI
Published: June 8, 2010
A Texas pipeline tycoon who died two months ago may become the first American billionaire allowed to pass his fortune to his children and grandchildren tax-free.

That's right: W's tax-policies are now creating an hereditary plutocracy in America!
... and the austerity measures being considered by our leaders will impact ONLY those of us who actually work for a living!... those that constitute ~70% of our economy! - thus ensuring a self-reinforcing downward spiral!

Not to put it too gently: GET YOUR HEAD OUT YOUR ASS!
... and, oh yeah:
STOP THE MADNESS!