Friday, February 17, 2012

Congress seems like it is breaking its deadlock of not being able to agree on anything. This is a good thing. We need the give and take of different ideas to make progress in dealing with issues. Unfortunately the current agreement to extend the payroll tax cut is ill conceived. The $20 per week benefit offered by the payroll tax cut is unnecessary. The cost of this tax cut / loss of revenue versus the stimulus benefit to the economy is mismatched. One of the ways to address the deficit problem is to use any increase in economic activity to withdraw any tax break or special program and let the economy absorb the hit. Twenty bucks a week does not mean much to most working people but the cost is almost 100 billion to the deficit. I know some people will be affected, but by and large most wage earners will not. We do not need it and it should not be extended. Yes this will slow down the recovery a little but we need to look at both spending and revenue to correct the deficit problem. This is a perfect place to start.

Other countries can provide a real time demonstration of how our current options will play out. Look at Portugal. The country accepted funds and agreed to austerity measures. Certain people seem to be surprised by the fact that their economy is slowing down. Of course it is slowing down. Once the government stops spending economic activity will slow down. What the politicians should tell the Portuguese people is the truth; that the austerity measures will suppress your economy for years. Getting their fiscal house in order will benefit the Portuguese economy in the long run but in the short run it will prolong their current slump. This is true everywhere, so when a politician tells us cutting government spending will create jobs what he is carefully omitting is the job creating is in the future not the present. Again I have no problem with this debate, I only think we should be more willing to have it honestly and not pretend there are no economic consequences to our choices.

Lastly, why is Moody's still in business?

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