Archive for March, 2010

I took my 4 year old son to eat breakfast this morning. Having three sisters, he appreciates the father-son time more than most. We went to eat at one of Marion’s iconic eateries, Richard’s Restaurant. It’s your typical greasy spoon that you can find in just about every small town in America. Richard Godbold has been a short order cook in Marion for over 50 years. He has been serving up good food for good folks at his present location since 1982. My father’s morning ritual always included breakfast at Richard’s nearly every day up until shortly before he died. I always enjoyed the times that he let me tag along.

We sat at the counter, looking up at the walls clad with old license plates and Route 66 signs from all over the country. Distinctive 1950’s music provided a faded backdrop to the sizzling griddle and folks going about their morning. Noah pointed to a colored-pencil sketch, reminiscent of Norman Rockwell, of a red 1955 Chevy hanging over the door. There’s just something about nostalgia that makes me proud to have been raised in a small town in America.

As we sat there eating our breakfast, Noah explored the limits of the swivel bar stools. He was grinning ear to ear and ever confident that his Daddy had the answers to all of his questions. “Why do these stools spin around?… Do they make baked potatoes here?… Does apple juice have seeds?”

It’s my hope that one day Noah will have fond memories of spending time like this with his father, as I do of mine. And, if he is lucky, he will be able to share similar experiences with his sons and grandsons and the tradition will perpetuate.

Staring into my plate of grits and eggs, I worried about the future that lies ahead for my son. One day, I may not have all of the answers for him. I’m concerned for our little town and our country. I feel that each generation is obligated to leave the country in better shape for the next.

When I was born in 1965, the national debt was only $322 billion. Today, it’s 38 times that amount – $12.5 trillion, and that number is expected to double in the next ten years. To some, the whole national debt issue is irrelevant. They feel that it doesn’t affect them and never will – It’s just something they ignore.

When I try to pay attention to national issues and things that are affecting our government, I hear, “You’re way too involved in that stuff. Why? There’s nothing you can do to change it.” But if not me or you, then who? Isn’t that one of the founding principles of this country – a government of the people and for the people? “The right to petition the government for a redress of grievances” and rest of the Constitution says it all. In America, the ability to affect change is not reserved for just noblemen or monarchs. The power lies within its people.

I had a fun, but spirited conversation with a good friend the night before about the healthcare bill and politics in general. He’s a moderate democrat who has had some experience in politics. I was amazed at how little he was concerned about our country’s financial situation. “We will never pay it back. So what?” he said. “(In Marion) we are on the receiving end.” To him, government spending is just a way that we can get a bigger piece of the pie. I do not agree. Nor do I agree with his misinformed rhetoric that it’s all Bush’s fault, and that Clinton left us a surplus. You see, this is a common misconception among democrats. It’s the deception that politicians portray when they use the terms “deficit” and “debt” interchangeably. My good friend is under the impression that the Clinton surplus was somehow over and above our total debt. You know, “We were paid in full, until Bush ran up the deficit.” LOL.

What really happened in the Clinton years (1993-2000)? Well, according to the Office of Management and Budget (OMB), Bill Clinton increased the national debt EVERY year he was in office, starting from $4 trillion in 1992 to $5.6 trillion at the end of 2000.

The so-called surplus years were actually annual budgets where our federal revenues turned out to be more that what we spent in that year. That’s a good thing. However, some of those revenues were from “off-budget” items, like Medicare and Social Security. Until recently, both Medicare and Social Security have taken in more in taxes than they have had to pay out in entitlements each year. This “extra” money gets immediately borrowed by the government, which adds to our national debt. That’s a bad thing. Right now, $2.5 trillion of our $12.5 trillion debt is owed to the trust funds of the Medicare and Social Security programs. The trouble with this is that the “off-budget” surpluses have been masking the “on-budget” deficits that have been occurring over and over and over. Folks, this will catch up with us. Our current track is unsustainable.

If we are to leave this country to our children in sound shape, we must act now. So for now, my part is to help educate people on the real situation. I will engage folks in conversation. I will write this blog. Do your part. Come November, go vote. Vote in the primaries. Support candidates around the country that will demonstrate fiscal responsibility. It’s time to put people in office that “get it.”

Noah and I finished off our breakfast and headed out of Richard’s Restaurant this morning. An Elvis song was just coming on as we walked out of the door. Noah grabbed my hand; his other hand was occupied, nibbling on his toast. It was my turn to grin.

Here’s why America needs to listen to Arthur Laffer.

Like any field, economics has its trends and fads. Recently, Keynesian economics has been in vogue. Based on the work of British economist John Maynard Keynes, Keynesian economics urge governments to increase their spending and to stabilize the economy in crisis periods. The Obama administration has tried to explain its response to the current financial crisis in terms of the application of Keynesian principles. But as many conclude that our government’s responses have been flawed as well as expensive, it’s time to listen to the advice of another major 20th century economist—Arthur Laffer.

If most Americans have heard of Arthur Laffer at all, it’s probably because of the Laffer Curve, a simple chart that shows that raising tax rates does not necessarily produce greater tax revenues. Laffer first demonstrated the idea to the White House during the Ford Administration; later, it became famous as the idea behind the Kemp-Roth tax cuts that fueled the tremendous economic boom of the Reagan years.

Laffer is one of the most important 20th century economists, but his greatest work may actually be in the 21st century. That’s because he is warning us now that if America doesn’t change its economic course, quickly, we are in for bad times ahead.

To explain, Laffer looks to a few simple axioms on which the field of economics is based – rules that predict how both economies and individuals will behave when faced with a set of choices. For instance, the law of supply and demand explains a great deal of how the economy works – when demand for a particular good increases, supply and demand will eventually equilibrate at a new equilibrium price and quantity.

Right now, Laffer warns that simple economic principles are pointing to a potential macroeconomic meltdown.

First, government borrowing continues at alarming rates. The federal budget deficit is expected to top $1.5 trillion this year, even exceeding last year’s staggering deficit of $1.4 trillion, and Congress recently expanded the national debt ceiling by a similar amount. Federal spending on bank and auto bailouts and stimulus all adds up. All this spending must be financed somehow, and the patience of our Chinese, Japanese, and Arab creditors may one day run out.

Laffer’s second point is that the supply of money continues to grow. The monetary base, which is the narrowest measure of the money supply or total amount of money in the economy at a particular point in time, has just reached an all time high. Left unchecked, the high supply of money could fuel inflation. Unfortunately, the Federal Reserve is caught in a Catch 22—if they decide to fight inflation they will have to sell about $1 trillion worth of government bonds alongside a Treasury auctioning off record amounts of bonds to finance record deficits. Given the fiscal backdrop, were the Fed to go from being a huge net purchaser of bonds in 2009 to a big net seller in 2010, interest rates would be sure to rise drastically, pushing the economy into recession yet again.

Laffer’s third point is that taxes are high and likely to go up from here. Our corporate taxes are already the second-highest among the advanced economies in the Organization for Economic Cooperation and Development. For individuals, the Bush tax cuts expire next year, which will send personal income tax rates, dividend and capital gains tax rates, and estate tax rates higher. Unless Congress passes another fix, the sharply higher Alternative Minimum Tax will snare millions of middle-class taxpayers, instead of the uber-wealthy it was originally designed to target. And that doesn’t even count proposed tax increases in relation to health care reform or climate change legislation. As the incentives to work, save, and invest are all decreased via increased marginal tax rates, economic growth is sure to suffer.

Finally, Laffer points to trade issues. Rather than opening ourselves to trade with the world, we are increasingly cutting ourselves off from it. It’s a basic principle of economics that trade benefits both parties to a transaction, but rather than seeking to negotiate trade agreements with countries around the world, we are not ratifying the ones we have negotiated, and we’re imposing tariffs on China – the very country we need to finance our budget deficit! Open trade will help us move toward the jobs of the future rather than inefficiently seeking to hold on to the jobs of the past.

Laffer is right: no economy can long prosper if it is overspending, increasing tax rates, printing too much money, restricting trade, and increasing regulations. It’s simple, really – but the potential consequences if we don’t change economic course soon could be profound. So the Lafferian response to the economic crisis is simply to take the opposite track and embrace pro-growth economic policies: reform the tax system by moving toward a broad-based, low flat-tax; address the looming unfunded liabilities crisis; decrease the size and cost of government; reinstate a sound and stable money; support free trade for all; and repeal ill-conceived regulations. By turning away from Keynes and toward Laffer, America can begin to grow again and we can all recover.