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Federal Debt is Masking Major Problems with Our Economy ^ | libertarian neocon

Posted on 07/06/2012 8:22:11 AM PDT by libertarian neocon

I noticed something that seems pretty disturbing.  If you look at how much our government is adding to the debt every year and compare it to how much the economy has grown every year, you see that the economy isn't growing at all outside of government stimulus.  And I'm not talking about just now when we have an anti-American, anti-free market President who is only interested in giving handouts to his special interest groups (though his numbers look pretty catastrophic now when we add over a trillion every year to the debt and only get a meager few hundred billion dollars of growth out of it), but its been happening for much of the last thirty years.  Take a look at this graph showing the growth in real GDP in billions of 2005 dollars (red line) and compare it to the growth on an annual basis of our debt in billions of 2005 dollars (blue line):

Notice that back in the 1950's and 1960's, back when America actually made stuff and government regulation of the economy was a fraction of what it is today, the economy was growing at a pretty steady clip, with very little help from federal deficits.  Then starting with Nixon and Carter, a large proportion of our growth seems to be coming from deficit spending.  In the 1980's, that's when the wheels really came off and our economy, more often than not, has grown less than the increase in our debt for the last thirty some years.  The only period when this wasn't the case was in the late 1990's when government shrank as a % of GDP and we had the benefit of a technological revolution that originated on our shores.  Take a look at the graph below that shows what our Real GDP growth would look like if you subtract out the growth in real gross federal debt (the red line is the reported rate of real GDP growth while the blue line is the debt adjusted GDP number):

It's pretty startling.  It shows that only 6 of the last 31 years were actually growth years when you adjust for increases in our debt and the last few years have essentially been like another Great Depression (something we already felt, even if it wasn't borne out in the official government statistics).

One thing that this made me realize, and bear with me on this, is that the Reagan and Bush tax cuts only gave the illusion that they were shrinking government and fixing our problems as neither President actually shrank the size of the federal government (Outlays as a % of GDP only went down marginally under Reagan and grew magnificently under W).  They made it seem like everything was okay and might have actually done harm as people felt less urgency to make the structural reforms that this economy needed to attract jobs. 

Don't get me wrong, I love tax cuts, I think taxes are essentially just highway robbery by the government, however tax cuts without spending cuts are just smoke and mirrors.  Government is still bigger than ever and eventually you will have to pay those increased deficits with increased taxes.  Republican administrations seem to have wanted the best of both worlds, they wanted to tax like Republicans but spend like Democrats, giving a double dose of Keynesian stimulus to make the numbers look good. 

But none of that was real and has delayed the reforms that we have needed to fix the system.  They were looking to maximize short term outcomes at the expense of the long term.  Instead of thinking, "hey, everything is fine, the economy is growing at 3 or 4% a year" they should have been thinking "how do we attract businesses to move their factories to the United States".  Or "how do we get America actually making stuff again"?  Perhaps without those deficit fueled booms, we might have lower regulations and lower corporate taxes today, which would keep companies from relocating to Ireland or Bermuda or moving their manufacturing to India and China.

I'm sure some liberals looking at those graphs will conclude quite the opposite of what they should conclude.  They will probably think that Obama did a great job with his massive stimulus in keeping our economy out of a deep depression.  No, what he actually did was delay the market clearing processes that are required for this economy to really get back on its feet.  And as we are seeing in Europe, chronic deficit fueled growth can't go on forever, eventually investors just stop giving you money.  Remember, when you are growing your debt by over a trillion a year, that means you need to find a trillion dollars worth of additional investor money per year.  Places like China don't even need to cut back their existing hordes of treasuries to create a crisis, they probably just need to stop adding to their hordes to create a crisis.  We are just one failed bond auction away from a real $hitshow.

Republicans need to get it through their thick skulls that they need to stop just running on tax cuts without actually limiting the size and scope of government.  They are doing our children a great disservice by doing so and should know better.  They claim to have read people like Ayn Rand and Hayek but have failed to actually put anything like that into practice.  I would try to give Democrats a lesson but I'm convinced that is a lost cause.  I actually think many of the Democratic elites are actually gunning to make America a failure and a second rate country.

TOPICS: Business/Economy; Government; Politics
KEYWORDS: debt; deficit; obama; taxes

1 posted on 07/06/2012 8:22:22 AM PDT by libertarian neocon
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To: libertarian neocon
I don't have time to research it, but my mind flashed back to a time when the Clintons were in charge.

It must have been early in Bill's first term, when the media was selling Hillary as more of a "Co-President" than first lady. There was talk of a tax rebate to stimulate the economy, but Hillary nixed the idea, saying she feared the American people "Wouldn't spend it right".

What a quaint notion, that of putting money in TAXPAYER's hands to stimulate the economy! Of course, we all know now that it's the GOVERNMENT's task to stimulate the economy, using money taken from taxpayers (or their children), so as to "spend it right".

Now it's years later, and someone needs to ask Hillary: How's that working out for you? Do you think the gov't is spending the public's money in the right places?

2 posted on 07/06/2012 9:15:07 AM PDT by ZOOKER ( Exploring the fine line between cynicism and outright depression)
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"Do you think the gov't is spending the public's money in the right places?" Now that it's going for ObamaTaxCare, their answer would be YES.
3 posted on 07/06/2012 9:25:33 AM PDT by radioone
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To: radioone
You spotted the flaw in my argument.

Who defines what "Spending it right" is?

Liberals would point to all the free stuff out there, and claim the stimulus saved millions of disadvantaged Americans. They'd parade a bunch of poor recipients who got their free food or healthcare or contaception, and thank Obama for saving us from the Abyss.

A conservative would look at the hundreds of Billions in stimulus doled out for little or no improvement in the economy, the Billions squandered in questionable loans to connected "Green" companies, the tens of Billions to constituents like the UAW, and deduce that no, it's obviously not stimulating the economy, it's paying off cronies. He'd look at the local DC economy and wonder just how many more Billions never made it out of the district. He might even do some calculations and wonder how much of Obama's Stash simply disappeared without a trace.

But, as I said, that's the flaw in my argument - no one will ask those questions. No one will do the calculations or check up on how the money was spent, who benefitted and who didn't. And no one will calculate what might have happened if people were allowed to keep their money to spend as they see fit.

4 posted on 07/06/2012 10:13:16 AM PDT by ZOOKER ( Exploring the fine line between cynicism and outright depression)
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“We could give the money back to you but you might not spend it right.” Bill Clinton 1/20/99, Marine Midland Arena (now HSBC Arena), Buffalo, NY.

From here:

I wanted to reach through my TV set and bunch the Rapist in the nose after he said that. It is a beautiful insight into the mind of an insane liberal. They honestly believe it is the government money and you have no right to your own money, because you can’t be trusted to spend it the way they KNOW you should spend it.

I hate liberals. They should all die.

5 posted on 07/06/2012 10:33:01 AM PDT by Freedom_Is_Not_Free (REPEAL OBAMACARE. Nothing else matters.)
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