David Stockman Hawkish on the US Federal Budget
David Stockman was on Bloomberg yesterday reviewing the Obama 2011 Budget proposal. His view dovetails with the view on the budget I presented yesterday, when I said:
The key, however, is that no one actually wants to cut the items in the budget which account for the lion’s share of spending: defense, Social Security, and Medicare. Now, if the President were a lame duck or if this were the first Congressional term in his tenure, he could take these issues on. But, cutting any of these areas is not likely to win voters. So, the President is forced to cut more deeply into non-military discretionary spending in order to position himself as fiscally responsible.
In the video below, Stockman accuses both the Obama Administration and the Republicans of ducking these central fiscal issues and advocates cutting spending and raising taxes (as they have done in the UK). That’s a recipe for disaster in my view. See my comments from the last Stockman video I showed in September.
Question: isn’t it true that cutting military spending, fixing healthcare costs, means testing Social Security and raising retirement ages as Stockman suggests would eliminate the longer-term structural issues? Why then would one need to cut cyclically-induced deficit spending in that case? That makes no sense to me. Again, if the economy were operating at full employment and the government instituted Stockman’s recommendations on military, Social Security, and Medicare, there would be no deficit.
OK. So here’s the problem.
We need austerity measures to control the deficit.
But we also have 20% real unemployment. Will unemployment get better or worse when fiscal support is withdrawn.
Personally, I think we’re on an unsustainable path no matter what choice we make.
Here’s a great report pinpointing 2015 as the ‘forecast’ for when all this rolls into another crisis.
I have by 2017 as my next crisis but close enough. The US can turn itself around but not if they do not raise taxes. Raising taxes will enable the deficit to be paid back without extending spending. Making the tax system more progressive is the most important. They also need to equalise income and capital gains taxes. Warren Buffet has already stated that it is wrong that he pays a lower tax rate that his secretary. Then look at Tobin taxes on Wall street transactions, drain the dark pools and start criminal investigations into the banks.
The retirement age does need to increase. It is happening in Europe. It is unrealistic to expect 30 years of pension saving to fund 40 years of retirement, especially at the low rates of pension contributions that is happening right now. Ban early retirement. Make it an ongoing cost to the company until retirement. If the company goes bust the employee must look for a job. That will stop the draining of pension pools by the early retirees. Life Expectancy is so much higher than when pensions were introduced they are a huge burden on the state.
OK. So here’s the problem.
We need austerity measures to control the deficit.
But we also have 20% real unemployment. Will unemployment get better or worse when fiscal support is withdrawn.
Personally, I think we’re on an unsustainable path no matter what choice we make.
Here’s a great report pinpointing 2015 as the ‘forecast’ for when all this rolls into another crisis.
I have by 2017 as my next crisis but close enough. The US can turn itself around but not if they do not raise taxes. Raising taxes will enable the deficit to be paid back without extending spending. Making the tax system more progressive is the most important. They also need to equalise income and capital gains taxes. Warren Buffet has already stated that it is wrong that he pays a lower tax rate that his secretary. Then look at Tobin taxes on Wall street transactions, drain the dark pools and start criminal investigations into the banks.
The retirement age does need to increase. It is happening in Europe. It is unrealistic to expect 30 years of pension saving to fund 40 years of retirement, especially at the low rates of pension contributions that is happening right now. Ban early retirement. Make it an ongoing cost to the company until retirement. If the company goes bust the employee must look for a job. That will stop the draining of pension pools by the early retirees. Life Expectancy is so much higher than when pensions were introduced they are a huge burden on the state.