On Economic Policy and Myths: Romney vs Obama

People keep talking about debt and jobs and economy as if they have some idea of what they are talking about. They don't. They get talking points with no background from Newsmax and Fox "News" and MSNBC and Paul Krugman. These sites and people provide no context. How many times have you heard someone compare the US to Greece? Get real. Greece could fit in America's back pocket with room to spare. Their situation does not approximate ours in any way. If you want to compare yourself to a country you have to compare yourself with England, the last great superpower. They ran huge deficits for 600 years and still ruled the world until they lost their international hegemonic possessions. The US is far more like England than Greece.

How many times have you heard "we can't keep borrowing forever."? Well, guess what? We can continue to borrow for quite some time to come. You see interest rates keep falling. That's because everyone in the world is buying US bonds -- even at the lowest rates in history. As long as they do, we can borrow as much as we like. Is it smart? No. It's stupid. We need to fix our problems. But we aren't in crisis mode and things were MUCH worse debt-wise after World War 2 than they are now.

There are only a limited number of actions the US can take at the moment:

1) Cut spending
2) Raise taxes
3) Create inflation
4) Create growth
5) Default and Balance

That's it folks. And guess what? None of them is viable in the short run. We could NEVER cut spending enough to balance the budge, not realistically. We could NEVER raise taxes enough and so on.

There's an iron rule of economics that never fails -- cut spending or raise taxes and you slow the economy. Slow the economy enough and you get recession, or worse, depression.

What Romney doesn't tell you is that even if he cuts all the spending he wants, he will suffer 4 - 5 years of massive recession, perhaps depression. There is no other option under his plan. Even if his plan works in the long run, and there is no way to prove it will, we suffer HUGE misery. If you want to compare yourself to Greece, the current situation there is the right comparison under the Romney plan. They've cut spending like crazy, still haven't balanced the budget AND they are in recession. That is what Romney's plan does to us. When the US bailed out the auto industry it cost about $100 Billion and save a million jobs directly and 5 million indirectly. What do you think would happen if the US cut spending, say, $500 Billion next year? 10 million jobs lost? And then what?

On the other hand, the current Administration's plan is neither fish nor fowl -- it does not lessen the severity of the recession AND it creates more debt. It does not accomplish its goals and it makes things worse. Nevertheless, you NEVER heard ANYONE complain about passing debt to their grandchildren when WW2 debt was worse, and we paid that off in 1980. It is not a disaster. Yet.

The biggest problem isn't even government debt. It's private debt. Lazy Americans owe $900 Billion on credit cards; $1.2 Trillion on school loans, $500 Billion on autos and more than $2 trillion on mortgages. I think 1/3 of our GNP is built on credit. The government accounting office believes a quarter to a third of all income is used just to maintenance private debt. We pumped up the economy using credit cards, now when we have to pay it back, we can't unless we stop buying shit. Of COURSE the economy is going to slow down. Of COURSE jobs are going to suffer. In real terms, China passes America in REAL GNP, probably in 2008.

And the bullshit about the debt ceiling -- does anyone even know what this is? It was made during WW1 to HELP the government raise money. NOTHING anyone, Republicans OR Democrats EVER do is going to lower the debt ceiling. EVER. Even if we stopped spending completely as a government -- no army, no highways, no government employees, etc -- the debt would go up. The debt limit is a political chimera that has no applicability to real life. It is just used as a political hammer to hurt the Administration. If Romney wins the election, you will never again hear of any negative discussion about the debt ceiling and the votes will happen quick and painless as they always have.

The only way out of our current condition is strict reform and discipline. Neither of these will happen. No one is seriously going to cut Social Security -- old people vote. No Americans are seriously going to cut back on boats and second cars and Ipads. As long as they have credit cards, they will live on debt.

Eventually, we will have high interest, mega inflation, collapse of commercial loan market -- no one is going to buy a car or house at 10 percent interest. The US as a reserve currency is finished, perhaps in the next 10 years. The US as a superpower is finished.

If you want to contrast the economic policy if Obama wins vs Romney, assuming they actually implement their plans, then Obama gives us 4 more years of what we already know -- slow or no growth, debt build-up, discontent. Romney gives us Greece -- misery, unemployment and depression, at least for the first 4 years. It might fix the economy 20 years down the road. It HAS to work that way. You can't legislate away the rain, and you can't pretend the iron laws of economics don't work.The thing is Romney is never going to tell you that his plan puts 15 million people out of work and Obama is never going to tell you that things just don't get any better.