I’ll be clear:
I like Elizabeth Warren. While overseeing TARP as chair of the Congressional Oversight Panel, she made the following comments:
To restore some basic sanity to the financial system, we need two central changes: fix broken consumer-credit markets and end guarantees for the big players that threaten our entire economic system. If we get those two key parts right, we can still dial the rest of the regulation up and down as needed. But if we don’t get those two right, I think the game is over. I hate to sound alarmist, but that’s how I feel about this.
Of course this consumers-first approach made her unpopular with Geithner & the rest of the mob who hold as a precept that those very “big players” are the economy, and any threat to them is a threat to capitalism, America, and the universe.
And now — as candidate for Scott Brown’s Massachusetts Senate seat — she has blown-up over the internet:
Libertarians, very amusingly, responded with this:
Now Warren’s point is essentially that the rich aren’t paying their fair share —and they need to pay some more for the “next kid that comes along” — and that’s why America is in the budgetary mess that it is in. Sadly, she’s wrong:
Tax receipts as a percentage of GDP have remained relatively stable, but the debt has soared. And that additional debt isn’t funding “the next kid that comes along” — it’s funding warfare and corporate bailouts. Let’s see what America is spending the money on:
The problem is not that libertarians, or the rich, or anyone else is violating the social contract. The problem is the excessive cost of military spending in policing the world. That is what is bankrupting America, and that is the reason why America is getting poorer, why roads are deteriorating, and why social services are underfunded.
America already pays enough taxes to fund an effective government.
Sorry, Elizabeth.
azizonomics 
While defense spending is part of the problem, we need more revenues in order to achieve some semblance of a balanced budget.
Well I would probably say that perhaps a significant part of the tax burden needs to be shifted from the middle to the rich. If the middle payed less taxes they would have more money to invest in their local communities (needs much more liquidity). If the rich paid more they would have less to spend on US treasury bonds (the most liquid market in the world).
But the problem is spending — and in my view, the most significant increase has been in playing “world police” to ensure global trade keeps flowing, and the costs of the war on terror.
Revenues are close to their historical average — spending is significantly above it. Every dollar spent on war is a dollar not spent on roads, education and social security, or a dollar not invested in small business.
Warren was simply addressing one of many popular Republican talking points. Of course military spending needs to be cut. But good luck getting the Republicans in Congress to vote for such measures.
I am only interested in two Republicans.
Ron Paul & Gary Johnson.
They both see it the way I do. The others need to take a hike.
I think you are really off base here. Military spending has always been the largest part of the budget for several reasons: 1) US security for the world has brought more out of poverty than any other mechanism in history; 2) better economics overseas mean better economics at home (comparative advantage); 3) US security for the world has been empirically proven to provide stability; and finally 4) no other country has the means, economic power OR will to provide the security/stability that the US has been able to since WWII.
It is kind of odd that we are moving towards a more European economic model when Europe is getting ready to tank. Europe has lived under the blanket of US security since WWII (under NATO: the US provides about 40% of all funding for the alliance, this includes air transport that is not readily given in the funding numbers, for 28 nations) and Europe STILL cannot seem to manage the progressive/socialist models that they have enjoyed. Imagine if they had to actually pay for their militaries.
While I agree that the piece of the pie for the “Past Military” needs to be reduced (and this is being looked at based on current actuary tables), these arguments about raising taxes on the rich and cutting the military are all about finding the largest amount of cuts or tax income that will affect the fewest amount of voters. This wrangling is not based in empiricism, it is based on politics.
Tax revenues only go up slightly and for a limited amount of time when increased. As the world goes more global, more options become available for the wealthy to move their taxes out of the country, shifting the burden back to the middle class. Warren’s comments do not stand up to any empirical or logical reasoning: since everybody in the country has the same opportunity and is represented equally in terms of votes, why should one have to pay more tax because of their success? The social contract that she describes does not discriminate, however, she does based on the “factory builders” success. Providing these basic social services was a tenet of the founders only because they saw the economic need to do so. She views this basic infrastructure as the reason for success.
Very interesting response.
I absolutely agree with point 1. Point 2 is not quite that linear: cheaper foreign goods means less competitiveness at home, putting Americans out of factories and into service/creative/design/intellectual jobs. The merits/demerits of this are long and debatable, but it does tend to create dependency on globalisation (bad if that collapses) and higher domestic unemployment. Point 3 is true, but my view is actually that that stability is artificial (subsidised) and lowers shipping costs to a point where Paul Krugman’s new economic geography comes into play: manufacturing, commerce and output migrate to the places with the highest population density, leaving America to those service/creative/design/intellectual jobs
Point 4 is moot: because the rest of the world can be empirically proven to gain more from globalisation than America, surely they should be required to contribute to the costs of providing global stability? Whether we like it or not, America is effectively subsidising the rest of the world’s manufacturing. Fine, they purchase American treasuries. But the fact America has accumulated such a huge debt I think is evidence that the rest of the world is not paying their fair share.
I don’t actually dispute that a “hunk” of money goes from taxpayers to creating infrastructure and jobs. Perhaps the whole progressive taxation system is discriminatory. Another way to look at it is that the rich taking a larger share of the burden is fairer, because that gives the chance to the middle and lower classes to be more entrepreneurial. But the point of this article is that however the overall tax burden is distributed, it does not need to rise to pay down the debt.
A good blueprint of world stability would be the US reducing its overseas military bases, its allies hiking its own military budget for the compensation, plus the countries where American camps are located paying their fair share of the protection. S. Korea pays billions of dollars to USFK annually even though their annual expenses are hardly over a billion… As in this case, I believe that the US troops encamped in other countries should get paid at least partially from the country they are actually in.
Absolutely.
I agree with you regarding raising taxes, it should not happen. Cutting spending is actually very questionable at the moment as well. Many economists have stated that Japan should have injected a lot more cash into their economy to prevent their “lost decade” in the ’90s. I don’t know where I yet stand with the US economy, honestly.
Please don’t flame me too bad if you have already seen these, but they are very well made and even educational:
http://economix.blogs.nytimes.com/2011/04/28/keynes-vs-hayek-a-rap-battle-renewed/
To tag on the tax issue, I think there is a rather large misconception in the US that equates democracy to equality. We are all equal in a democracy in that we have one vote. However, we are not equal when it comes to ability (if it were true, I would be out making a living playing golf every day). Bottom line: some people are better at making money than others. Is this learned, passed down from generation to generation by parents who know the secrets; genetic; luck? Who knows. Should they be punished any more than the brilliant starving artist whose paintings/music make millions after their unfortunate drug-related death? I think not. The infrastructure of a nation are the seeds of opportunity. The more I think of Warren’s comments, the more it reminds me of a Spike Lee monologue that talks about welfare parents: “Well…I *take care* of my kids…” says one of the welfare parents. Lee’s response: “Well no SH*T, that is EXACTLY what you are supposed to do!” The infrastructure is the government’s responsibility–a no brainer. And now they want to punish the people that they are supposed to be taking care of. Brilliant.
In the US, only about half of the people are paying taxes, but all are using the roads and infrastructure. Is that fair? I think a flat tax is in order.
Many economists are basically wrong. Japan can inject all the cash in the world, if it all gets sucked up by crony capitalism and zombie banks they won’t get growth. America is facing the same problem. They need to let the bad shit fail.
The infrastructure for the 700+ military bases around the world isn’t so bad. The infrastructure of global trade isn’t bad either. America as world policeman is spending what it should spend on domestic infrastructure on world infrastructure and military infrastructure. The fact that all of this military spending benefits foreign manufacturers — and destroys American manufacturing — is a double hammer blow
Possibly. It’s not really the highest priority, though. If anything I prefer the FairTax because it abolishes the bureaucracy and the information-gathering apparatuses. But frankly spending reform is significantly more significant than tx reform.
” America as world policeman is spending what it should spend on domestic infrastructure on world infrastructure and military infrastructure. The fact that all of this military spending benefits foreign manufacturers — and destroys American manufacturing — is a double hammer blow”
There are a lot more intangibles that come into play with US military bases abroad that are well worth the investment: security, boost to the local economy, soft power and plain old-fashioned image/projection of power. Getting rid of a few overseas bases is not worth the cost. There is a rather large disconnect between those who provide security for the world and those who enjoy it–it would seem that to many that it is a given. This is a historical fallacy, one that most of the older population in those countries where a US base resides understand, and one that the younger generations have either not experienced (WWII, the cold war, etc.) or has failed to learn. Spending on domestic infrastructure needs to come from social services, not the military. I stated in a previous post under this topic that the social/progressive model is failing before our eyes (Europe), why would the US want to mimic it? Cut social services and invest in basic infrastructure to provide the atmosphere for economic growth. We are going to go bankrupt a lot quicker with the social programs than the military, it is basic numbers: there is a lot more people to support.
I agree with Ron Paul: you have to cut the military before the social services. Why? Cutting food stamps, social security and medicare means riots. Entitlements need to be dealt with over the long term, so that nobody gets hurt. Is it your fault that you’re sitting on welfare because the system has encouraged and habituated welfare lifestyles, and because globalisation and technology have destroyed Western jobs? No. As a defence contractor, is it your fault that Congress is buying fuckloads of weapons from you because you paid lobbyists to make them do it? Yes. So which do we cut? The one where there is more personal responsibility — the weapons contractors.
Again, I don’t think “global security” is a net benefit for America. Specifically, I think America’s imperial power (soft power, projection of image, etc) and their involvement with the Mujahedeen (Hekmetyar, bin-Laden, Zawahiri) in Afghanistan directly caused 9/11, and created huge hatred of America worldwide. It’s all blowback — and that’s not my opinion, that’s the opinion of former-CIA analyst Michael Scheuer. The people who benefit from global security are manufacturing nations — the same nations who now have massive trade surpluses with America, while American factories close and basic infrastructure rots. Let China, India, Russia, Brazil and the EU pay their share for global security. If they can’t pay their share, let insurance costs soar as pirates move onto the seas and as global shipping infrastructure deteriorates. America would net-gain from such events — it would make American manufacturing more competitive, and encourage America to re-create domestic supply chains.
Elizabeth Warren is honest, but she’s still wrong about a lot.
If GDP goes down and spending remains constant, spending as a percentage of GDP will go up, so it’s a poor analysis. And revenues as a percentage of GDP would go up, but they’re way below average, even with the drop in GDP, because of the Bush and Obama tax cuts.
Spending in both absolute terms, and inflation adjusted terms has soared in the last decade. You can’t just dismiss it as a recession adjustment, because it isn’t.
They shouldn’t have been engaging in tax cuts. I agree with you there, but this isn’t the problem itself. It’s exacerbating the problem. Bush destroyed the federal budget — but the significant portion of that was raising spending above and beyond GDP growth (so much for him being a “small government” guy), and we know that his two main targets were corporate handouts and military spending.
I disagree strongly that the US’s ‘world police state’ escapades have brought anyone out of poverty.
We funded (see: armed) all of the middle east and africa, and used our troops to install dictators of our politicos’ choosing in those states. Furthermore, as opposed to the European colonialists, who brought economics, infrastructure, and education to Africa, the only thing the US ever did was install and maintain the rule of dictators.
Oh, except for that one time when we starved half of the Iraqi population to death. That was a proud moment indeed.
Perhaps you should do some research/reading of empirical studies vice parroting common misbelief. It is amazing the freedom one can gain from actually finding out the facts for themselves. I will be more than happy to provide them for you for you to make what you will with them all on your own.
Well the global stability imposed by the global empire did provide a level playing field for the world to sell their wares. This has destroyed a lot of wealth, but it’s created a lot too. For China it has been a net gain. For America (don’t buy Tom Friedman’s bullshit) a net loss. For many parts of Africa, a significant net loss.
C’mon now, aren’t you all about creative destruction? The economies outside of the West, except Japan, Hong Kong and a few others, do not operate on a macro level like ours. The creation of wealth goes to the guy with the biggest guns. And they were going to get those guns wherever they could. Attempting to lay blame on the US for this is absolutely ridiculous.
Ever lived in a country that does not have a strong rule of law? Almost all of the people are dirty. The ones that are not have found a way out and are living in Europe or the US, are doing incredibly menial jobs that are well below their education level or are in jail. Who/what is left? It is like picking the leader of the inmate population at a maximum security prison: who is the lesser of all the evils. That is who is running these countries.
Here’s a map of global population density:
Under a global marketplace — created artificially by US taxpayers — it is largely accepted that production, capital and output will gradually migrate to the places with the highest population densities. Does America look like a densely populated nation? No — and this is one of the current reasons for the migration of jobs, production (and ultimately, I think services) away from America and toward Eurasia. Now this is happening because there is a global marketplace, and specifically because America spends so much of its productive capital on creating that marketplace. While other nations won’t pay their share it’s artificial globalisation, and it’s unsustainable, because of the huge deficits America has to run to sustain it.
Worse, it reminds me of the British and German Empires before World War 1. Britain created global stability, and Germany produced the goods. And we all know how that ended.
This is a wonderful blog. Keep up the great work please!
Yes, great stuff Aziz, I feel like I should be paying for it.
I’ve considered putting up a donate button, but I’m still trying to build a following by dropping links around the net and I feel like having a donate button while dropping links looks kind of bad. Maybe I should put it on the About page so it doesn’t appear on every article but those who want to pass on a little from a successful trade still can.
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