Why Can't We Cut Our Way to Prosperity? - Seeking Alpha

This article on spending, the deficit and the debt makes too much common sense, but of course runs counter to the spendthrifts currently in power. They forget their own history and cherry-pick data to fit their narrative du-jour.

Additional spending, in this economic environment, has done nothing to encourage growth. NOTHING!! The answer is NOT, "Well, we didn't spend enough".

There are good reasons why when you are mired in debt, the bank refuses you for a loan and the credit card companies cut down your credit limit. You are an increased risk of defaulting, or not paying the debt back. The same is true for nations, eventually.

The line of the day - "The Fed may not be out of bullets, but they appear to be shooting blanks."

And once the this economy / currency goes down, nobody will step in and bail U.S.
out. There are nations (China, Russia) that will step over our cold, lifeless body and reshape the world economy, that's for sure.

These knuckle-heads always point to the Clinton-era as the Shangri-la of recent economic history, but they always misrepresent some of the reasons why and forget that many of the seeds for our recent demise were planted during the Clinton-Rubin-Summers era.

How soon we forget.

Why Can't We Cut Our Way to Prosperity? - Seeking Alpha:

"In his weekly radio address yesterday, President Obama said, in regard to the upcoming talks he will be having with Congressional leaders over reviving the stalled budget negotiations, 'we can't simply cut our way to prosperity.'

He might do well to consider the record of the Clinton administration. As these charts show, federal spending as a % of GDP fell 4 percentage points—from 22% to 18%—during the 1993-2000 period, thanks mainly to 8 years of very low spending growth: 3.1% on average. During that same period, real GDP grew at an annualized rate of 3.8% per year, well above its long-term 3.1% per year average, and the unemployment rate fell from 7.4% to 3.9%.

During that same period, rising prosperity resulted in a surge of federal tax receipts, which rose from 17% of GDP to 20%, as revenue growth averaged 7.8% per year. The combination of very slow spending growth and a strong economy reduced the budget deficit from 5% of GDP to a surplus of 2.5% of GDP. And thanks to the combination of strong growth and tight monetary policy, the dollar rose 20% during this period, further boosting confidence and investment."

The hallmarks of policy during the 1993-2000 period are exactly what we need today: 1) sharply curtailed spending growth and 2) tighter monetary policy. It's not a coincidence that explosive spending growth and easy money have given us the slowest recovery on record. Moral of the story: you can't simply spend your way to prosperity.

UPDATE: To expand on this most important of themes: You can't spend or print your way to prosperity; prosperity comes only from hard work and productive investments. Government doesn't know how to do either very well, since it lacks the profit motive, and politicians have the luxury of spending other peoples' money instead of their own. Printing money doesn't create prosperity because it only fosters speculation and destroys confidence in the value of a currency. The worst thing about policies of the past several years (including the Bush administration) has been the reliance on policies (e.g., lots of government spending and easy money) that don't make any sense, but which sound good because they supposedly put the politicians and the bureaucrats in charge of pulling the economy out of a slump that they themselves (of course) were responsible for creating. The Keynesian belief that politicians and bureaucrats can pull spending and money levers and thus turn around the economy have once again been totally discredited. How long will it take before we as a country learn this lesson?

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Was the President smarter then or now?

“The fact that we are here today to debate raising America's debt limit is a sign of leadership failure. Leadership means that ‘the buck stops here.’ Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better. I therefore intend to oppose the effort to increase America's debt limit.” - Barack Obama March 16, 2006

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From the Daily Capitalist blog:

The New Theater Of The Absurd: The Budget Debates
By Jeff Harding, on June 29th, 2011

http://dailycapitalist.com/2011/06/29/the-new-theater-of-the-absurd-the-budget-debates/#more-11698

The worst thing I heard from Mr. Obama this morning was his assertion that we can’t cut spending that makes the economy grow, or words to that effect. Our President is channeling J.M. Keynes and FDR. Government spending can’t make the economy grow. It never has, never will. Otherwise, just let the government run the economy in its entirety if they think they can make it grow. We all recall the places where that has been tried and the results of that policy. It happened here during the FDR regime when he tried to substitute central economic planning for market forces. The Great Depression lasted about 20 years.

But then, we are witnessing the Theater of the Absurd. Like those Existentialist plays, it is as if we are trapped in an incomprehensible world, devoid of meaning, reason, and morality, and where gibberish is substituted for rational thought and discussion.

I don’t think this will be a spectacle that we will enjoy watching.

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From Kark Denninger's Market Ticker blog:

More Debt Threats: Don't Fall For It Congress

http://market-ticker.org/akcs-www?post=189127

Right. But here's the problem - Treasury has more than enough coming in from tax deposits to honor that thirty billion in rollover.

The government borrows about 40 cents of every dollar it spends at present. This means two things:

There is more than enough money coming in to pay the debt and interest that matures. Therefore, a default would be an intentional act by Tim Geithner, much as it is when you decide not to pay your mortgage (despite having the money to do so.) Selective default is a choice, but it is a freely-entered into choice. What Geithner is doing is threatening an intentional, strategic default if he doesn't get his (and Obama's) way.

If the government does not get its debt increase it must immediately balance the budget. This is good, not bad, in the intermediate and longer term.

The problem is that this situation also exposes the truth, which nobody wants to face in Congress: Whether you raise taxes or cut spending the economic impact is the same - 12% of GDP disappears.

Sorry folks, that's the arithmetic - fifth-grade arithmetic.