Tuesday, October 6, 2009

We've so far avoided a depression, but for how long given Obama's policies?

There's article in the Washington Post by columnist and economist Robert Samuelson entitled, "Why there was no depression." I would add the word "yet", because I don't think we're out of the woods yet. I say that because the problems and sources of problems underlying the 1930s Great Depression are still distinct possibilities today with policy proposals trumpeted by President Obama.

The Depression in the 1930s is attributed largely to bad government policies. Raising up tariffs dramatically during the early 1930s which choked off trade and reduced economic activity. Raising taxes dramatically on businesses, which create jobs, and private individuals. Bad monetary policy -- keeping interest rates artificially low which distorted investment and business decisions. And so forth.

Now fast forward to 2009. There are efforts to restrict trade on some goods and services with other countries, e.g. tariff barriers.

And the Fed has continued to print money and have kept interest rates artificially low.

President Obama has exploded the government's debt load and to close the gap he'll invariably choose taxes increases over spending decreases. He'll allow many of the Bush tax cuts to expire in the next year or two. He's proposing "cap and trade" policies which will slow economic activity and drive up the cost of goods and services for families. Estimates suggest cost increases would be the equivalent of anywhere from a $800 to $1700 tax increase per family. And he's proposing a massive increase in health care spending. By as much as $100 billion a year.

Arthur Laffer in a Wall Street Journal article, "Taxes, Depression and Our Current Problems" argues that bad fiscal policy played an important role in continuing and deepening the depression.
The damage caused by high taxation during the Great Depression is the real lesson we should learn. A government simply cannot tax a country into prosperity. If there were one warning I'd give to all who will listen, it is that U.S. federal and state tax policies are on an economic crash trajectory today just as they were in the 1930s. Net legislated state-tax increases as a percentage of previous year tax receipts are at 3.1%, their highest level since 1991; the Bush tax cuts are set to expire in 2011; and additional taxes to pay for health-care and the proposed cap-and-trade scheme are on the horizon.
The longer I look at things, the more convinced I am that government got us into this mess and government will likely keep us in this mess longer than necessary.


zzz said...

with $915.1 billion dollars being spent towards iraq, the real person you need to blame is the person that got us here. Which is The conservative administration that was both morally bankrupt and corrupt. So which would I rather support? The one who is getting us out, and is thinking about what is here and the people here and how to take care of them.

Thats where I put my moral structure and support.

Herb said...

read em and weep

Dow Closes Above 10,000 for First Time in a Year

only people like the MFC would want our president to fail. He is worldly popular, is giving face back to america, washing the egg off the egg of america that the last administration put there.

Its more than just hope he is has promised us, its success is what he is giving us.