The Seven Deadly Deficits -- By Joseph E. Stiglitz

[Dover]

Nov/Dec Issue

...There are two hypotheses (besides simple incompetence) about why Republicans paid so little attention to the growing budget shortfall. The first is that they simply trusted in supply-side economics—believing that, somehow, the economy would grow so much better with lower taxes that deficits would be ephemeral. That notion has been shown for the fantasy that it is.

The second theory is that by letting the budget deficit balloon, Bush and his allies hoped to force a reduction in the size of government. Indeed, the fiscal situation has grown so scary that many responsible Democrats are now playing into the hands of these "starve the beast" Republicans and calling for drastic cuts in expenditures. But with Democrats worrying about appearing soft on security—and therefore treating the military budget as sacrosanct—it is hard to cut spending without slashing the investments most important to solving the crisis....>

http://www.motherjones.com/news/feature/2008/11/the-seven-deadly-deficits.html

[Ghost Dog]

1. At least, in essence, part of the right approach is described:

... snip...

At the federal level, we need to spend more, not less. The economy must be reconfigured to reflect new realities—including global warming. We will need fast trains and more efficient power plants. Such expenditures stimulate the economy while providing the foundation for long-term sustainable growth.

There are only two ways to pay for these investments: raise taxes or cut other expenditures. Upper-income Americans can well afford to pay higher taxes, and many countries in Europe have succeeded because of, not despite, high tax rates—rates that have enabled them to invest and compete in a globalized world.

But needless to say, there will be resistance to tax increases, and so the focus will shift to cuts. But our social expenditures are already so bare-bones that there is little to spare. Indeed, we stand out among the advanced industrial countries in the inadequacy of social protection. The problems with America's health care system, for example, are well recognized; fixing them means not only greater social justice, but greater economic efficiency. (Healthier workers are more productive workers.) That leaves but one major area in which to cut—defense. We account for half of all the world's military expenditures, with 42 percent of tax dollars spent directly or indirectly on defense. Even nonwar military expenditures have soared. With so much money spent on weapons that don't work against enemies that don't exist, there is ample room to increase security at the same time that we cut defense expenditures.

The good news about today's bad economic news is that we're being forced to curb our material consumption. If we do it in the right way, it will help limit global warming and may even force the realization that a truly high standard of living might entail more leisure, not just more material goods.

The laws of nature and the laws of economics are unforgiving. We can abuse our environment, but only for a while. We can spend beyond our means, but only for a while. We can free ride on the investments made in the past, but only for a while. Even the richest country in the world ignores the laws of nature and the laws of economics at its peril.

/... http://www.motherjones.com/news/feature/2008/11/the-seven-deadly-deficits.html

[Dover]

3. It would be an interesting study to see how those other countries with a sustainable

system AND higher taxes, avoid the pork issues and other systemic problems that result in diverting our tax dollars away from their intended projects. And if we only enforced the laws and COLLECTED those taxes (current AND back taxes) that are currently sitting in overseas accounts (some estimate it being in the trillions of dollars) and then did away with those loopholes that allow that activity, perhaps that would get the money flowing again. THEN raise taxes on the higher earners AND corporations.

Also a priority - granting corporations the status of legal "persons" effectively rewrites the Constitution to serve corporate interests as though they were human interests. Ultimately, the doctrine of granting constitutional rights to corporations gives a thing illegitimate privilege and power that undermines our freedom and authority as citizens. While corporations are setting the agenda on issues in our Congress and courts, We the People are not; for we can never speak as loudly with our own voices as corporations can with the unlimited amplification of money.
http://www.reclaimdemocracy.org/personhood/

[Dover]

2. Kevin Phillips (author of Bad Money), talked about the "Seven Sharks"

In his interview with Moyers:


BILL MOYERS: So who do you trust anymore? I mean, you write in your book that the most worrisome thing is the extent of official understatement and misstatement, the preference for minimizing how many problems there are and how interconnected they are.

KEVIN PHILLIPS: Well, just to give you an example of how many there are, Alan Greenspan has finally decided to admit, you know, this may be one of those once-a-century biggies. Well, what makes it fascinating is that I sometimes use the description "seven sharks." There are seven sharks in the tank with the economy.

And the first is financialization because we're so dependent on this industry that's sort of half lost its marbles. The second is that you have this huge buildup of debt, absolutely unprecedented anywhere in the world. The third is you've now got home prices collapsing. The fourth is you've got global commodity inflation building up.

The fifth is you've got flawed and deceptive government economics statistics. The sixth is that you've got what they call peak oil where the world is, to some extent, running out of oil. So it's not just commodity inflation, it's a shortage of oil. And then the last thing is the collapsing dollar. Now, whenever you get this sort of package in one decade, you got a big one. And when Greenspan says it's a once a century, I think it's another variation but on a par with the Thirties.

http://www.pbs.org/moyers/journal/09192008/transcript2.html

[eridani]

4. He has an article in Vanity Fair as well

http://www.truthout.org/121008R

The administration talked about confidence building, but what it delivered was actually a confidence trick. If the administration had really wanted to restore confidence in the financial system, it would have begun by addressing the underlying problems - the flawed incentive structures and the inadequate regulatory system.

Was there any single decision which, had it been reversed, would have changed the course of history? Every decision - including decisions not to do something, as many of our bad economic decisions have been - is a consequence of prior decisions, an interlinked web stretching from the distant past into the future. You'll hear some on the right point to certain actions by the government itself - such as the Community Reinvestment Act, which requires banks to make mortgage money available in low-income neighborhoods. (Defaults on C.R.A. lending were actually much lower than on other lending.) There has been much finger-pointing at Fannie Mae and Freddie Mac, the two huge mortgage lenders, which were originally government-owned. But in fact they came late to the subprime game, and their problem was similar to that of the private sector: their C.E.O.'s had the same perverse incentive to indulge in gambling.

The truth is most of the individual mistakes boil down to just one: a belief that markets are self-adjusting and that the role of government should be minimal. Looking back at that belief during hearings this fall on Capitol Hill, Alan Greenspan said out loud, "I have found a flaw." Congressman Henry Waxman pushed him, responding, "In other words, you found that your view of the world, your ideology, was not right; it was not working." "Absolutely, precisely," Greenspan said. The embrace by America - and much of the rest of the world - of this flawed economic philosophy made it inevitable that we would eventually arrive at the place we are today.