Charles K. WilberOctober 18, 2010

The old advice, “Keep your eye on the ball,” applies to current discussions of the U.S. economy. The country has been diverted from focusing on the immediate issue, which is jobs, to an issue of importance over the longer term—namely, deficits and the national debt. The claim that the national debt will bankrupt the country deserves serious consideration later but not now, in the short term. The claim that the debt hinders economic recovery by crowding out private investment is not currently significant. Private investors are not investing in new capital goods because there is insufficient demand for the output from those capital goods and thus low profit expectations. The reason is not primarily, as some claim, because the federal government is out-competing the private sector for available savings.

There is, however, one argument for making debt reduction a key issue now, and that argument is a psychological one that goes something like this: Investment by businesses, particularly small businesses, is driven by future profit expectations; large federal budget deficits increase uncertainty about the future stability of the economy, with the result that businesses invest less and hire fewer workers. This, in turn, impedes the economy from recovering. What is needed, proponents say, is a firm sign that the debt problem will be addressed. If this is believed, they say, businesses will be willing to invest and hire workers in the expectation that the future will be stable and prospects bright for future profits.

The major problem with this theory is that there is little undisputed empirical evidence to support it as an explanation for growth or the lack thereof. On the other hand, there is evidence to refute it. Ireland, for example, has pursued a deficit reduction program for the past two years, but the Irish economy has not improved at all. Rather, it has declined further than most, averaging 13 percent unemployment at the present time. Nevertheless, a number of European countries are pushing for debt reduction now. The argument cannot be ignored, and I will return to it.

The recession of the past three years has held back growth in income and, as a result, tax revenues. The normal expectation is that there should soon be three or four years of better economic growth, enough to reduce the deficit significantly. But the problem with that expectation is that the economic stimulus of 2009 was too weak, too small to kick-start the economy into a growth path that would absorb the unemployed and provide jobs for new entrants into the labor force. Now Congress (mainly Republicans and Blue Dog Democrats) is resisting any further stimulus on the grounds that it will worsen the deficit.

The undesirable prospect facing the nation is decade-long, Japanese-style stagnation of growth and employment or even a double-dip recession. The primary task at this time, therefore, is to provide further economic measures that will generate jobs and a growth in incomes that will result in increased tax receipts. This in turn will help reduce the deficit, though it will not be enough by itself.

Long-Term Deficit Reduction

In three to five years, attention will have to be given to the structural deficit problem, defined as a deficit at full employment. Continuing economic growth in the United States will require an increase in national savings (defined as personal plus business plus government plus foreign savings) by reducing the chronic federal budget deficit (which is “dis-savings”) to finance private and public investment.

An approach to deficit reduction in the long term that relies on economic growth to increase tax revenues is faced with a chicken-or-egg problem: economic growth is needed to lower the deficit, but deficit reduction is needed to ensure long-term economic growth. Though control of expenditures must be part of the solution, neither “natural” growth nor spending cuts can of themselves eliminate the deficit. It follows that tax increases are also needed. In economic terms, the deficits resulting from the ill-advised tax cuts of the early 1980s and the early 2000s are dis-savings. They have lowered the total national savings available to finance long-term investment in the economy, the source of productivity gains and economic growth.

Except for the last years of the Clinton administration, the continuous deficits over the past four decades have forced a reliance on foreign savings for U.S. domestic investment, resulting in increasing trade deficits.

Fair Tax Increases

One must conclude that while deficit reduction is not the primary problem at this time—creating jobs is—deficit reduction is a serious problem for the long term. The Obama administration would do well to signal now that it is thinking and planning how best to reduce the deficit when the time comes to do so. This is where values are crucial in making the best choices regarding tax increases and cuts in spending.

Since economic institutions and policies have a major impact on human dignity, they raise not only technical concerns but moral concerns as well. As the National Conference of Catholic Bishops argued in the very first paragraph of its 1986 pastoral letter “Economic Justice for All,” every perspective on economic life that is human, moral and Christian must be shaped by three questions: What does the economy do for people? What does it do to people? And how do people participate in it? In addition, the bishops argue that in pursuing the common good, special concern must be given to the economy’s impact on the poor and powerless because they are particularly vulnerable and needy (No. 24). Equity, then, is an important factor in deciding how taxes are to be raised and expenditures reduced.

Two arguments are typically made against raising taxes: first, that citizens are already overburdened and second, that more taxes will reduce incentives to save, invest and work. In fact the available empirical evidence supports neither contention. The United States and Japan have the lowest rate of taxes (federal, state and local) out of income (G.D.P.) among the major industrial countries: 27 percent and 28 percent compared with an average of 45 percent for Europe. The excessive-burden argument against tax increases is therefore unpersuasive.

What about the argument that high taxes work as a disincentive that slows economic growth? When cross-country studies are used to measure economic growth for industrial countries in comparison with tax rates, there is no undisputed relationship. Some high-tax countries grow rapidly; others grow slowly. It is the same for (relatively) low-tax countries. Econometric attempts to tease out a relationship have led to mixed results with no clear-cut outcomes. Some years back Robert Barro of Harvard University found a relationship, and a few others have done so after him; but many studies find no relationship. Empirical studies appear to indicate that higher taxes do have a small effect on investment, but the results are murkier in terms of any effect on savings and work.

Why do Americans resist taxes more than others? The major reason for low tax rates probably has to do with U.S. political culture: Americans have always been more suspicious of government than Europeans. President Ronald Reagan, who had a visceral, ideological distrust of government, played on that suspicion to convince the public that taxes were too high and government spending wasteful. President George W. Bush learned from his father’s election defeat that reducing taxes, not raising them, was a winner. A politician running for office who advocates more taxes takes an enormous risk.

New Revenue Sources

From my viewpoint as an economist concerned for the common good, the Reagan and Bush tax cuts, coupled with dramatic increases in military expenditures, have led not only to persistent structural federal deficits but also to a record widening of the income and wealth distribution between the rich and the poor. In the near future, tax increases will be needed to help close that structural deficit. Increasing the progressivity of the federal income tax is an important step, but other options ought also to be part of the political dialogue.

First is the adoption of a value added tax system for the United States. An exemption for basics (food, housing, medical care) would reduce the regressivity inherent in any such excise tax. The overall level of income taxes could be reduced (while increasing progressivity) as an incentive to accept a VAT. It would be easy to share the VAT revenues with states and local governments to carry out needed programs. An added advantage is that the tax would fall on consumption rather than income, thereby providing some incentive for savings.

Second, increased taxation of gasoline could raise additional revenues and encourage conservation in its use. U.S. gasoline prices are still among the lowest among industrial countries and, in real terms, not significantly higher than they were before the 1973 oil crisis. The following inflation-adjusted gasoline prices are on an annual basis: 1958 $2.24; 1968 $2.11; 1978 $2.16; 1988 $1.75; 1998 $1.35; 2008 $3.23; and 2009 $2.28. If additional gas taxes were used partly to subsidize public transportation, it could be of real help to the poor.

Third, a good case can be made for a securities transfer excise tax. Such a tax could raise an estimated $100 billion a year in revenue and would discourage dubious short-term, speculative practices while fostering a more stable supply of long-run capital funds. Lawrence Summers offered the following opinion on this in an article published in the 1980s: “Such a tax would have the beneficial effects of curbing instability introduced by speculation, reducing the diversion of resources into the financial sector of the economy, and lengthening the horizons of corporate managers.” In a recent interview, however, Summers, currently assistant to the president for economic policy and director of the National Economic Council, has backed away from supporting such a tax, maybe for political reasons as much as for economic ones.

Reduction of Expenditures

If one looks at the 2010 federal budget, one sees that three expenditure items dwarf all the others: Social Security ($695 billion), Medicare plus Medicaid ($743 billion) and military expenditures ($664 billion). Social Security appears politically untouchable at this time, and, in addition, it is paid out of a separate fund that has had a surplus every year and has not required subsidy from the federal budget. In fact, the Social Security surplus has been used to cover the federal budget deficit through the purchase of government bonds. There are real limits to military reductions as long as the war in Afghanistan continues. The new health care bill may or may not reduce medical costs, but reductions are not even calculated to begin until 2014. The belief that expenditure reductions alone can substantially lower the deficit, therefore, is mistaken.

How can federal expenditures be reduced? In the very near term the Social Security fund will move from a surplus to a deficit. Government will have to take corrective measures to restore sustainability—measures like reducing the inflation indexing and fully taxing benefits. The government and the public will have to face up to end-of-life issues in Medicare and Medicaid. Currently, medical expenditures in the last six months of life absorb nearly a quarter of all medical expenditures. Tort reform for medical malpractice suits is needed to stop defensive medical practices. Finally, voters must rethink whether it is necessary or feasible for the United States to carry a defense budget so much greater than those of other nations.

The economic problems confronting the American people are real and extremely serious. In the near term, it is proper for the United States to continue the deficit and even increase it through added stimulus spending. The economy needs policies deliberately aimed at overcoming stagnation and promoting equitable and sustainable growth, while also protecting the environment. In the longer term, however, we cannot achieve any of these goals, nor can we contribute to global economic stability as long as we suffer from the fiscal constraints imposed by the trade and federal budget deficits.

Many Americans are already correctly convinced that there are no painless solutions. In practice, all workable programs will meet opposition from powerful special interests. Yet they must be enacted and carried out despite deep philosophic differences among the American people over such issues as free markets versus government intervention, individual freedom and responsibility versus community obligations and so on. The times, in short, demand real political leadership. As Americans we must expect it and require it of our representatives.

Prof. Wilber will be answering readers' questions about his article on Thursday October 14. Questions can be posed in the comments boxes below. To read this article in Spanish click here.

Comments are automatically closed two weeks after an article's initial publication. See our comments policy for more.
Mike Evans
10 years 7 months ago
First of all, the social security and medicare funds have revenues associated with them and actually do not properly belong in the federal budget except when subsidies are needed for the income/expense to break even. Military expenditures do not earn anything at all. Only 10 years ago we were able to generate a tidy surplus each year. But that was before the massive recession and Bush tax cuts and enormously wasteful expenses of wars in Iraq and Afghanistan. For anyone to argue that we must now penalize everyone and make them  suffer and cut all programs below the bone to regain that position is insane. This current recession will be over soon and markets (even for real estate) will recover. No new military adventures are needed and the two underway are coming to a close. Firms will invest when effective demand creates a strong draw for their products and services. Note that novelties such as Iphones, Ipads, big screen 3-D TV and innovative auto technology have demand which exceed supply. Firms are now sitting on huge cash balances and are ready to invest. Once the Repulsive Republican and Tea Party threats are dismissed in this November election, it will be time for business as usual with little disruption or distraction. Please stop giving the 'starve the beast' folk any more credibility.
TM Lutas
10 years 7 months ago
By mistake, businesses, including small, one man sole proprietorships find themselves facing the prospect of having to file hundreds, even thousands of IRS form 1099s each year. The problem is so severe that certain business models have simply become unprofitable and the only hope to save those businesses and their associated jobs is to repeal this measure prior to it coming into effect in January 2011. 

This is just one example of a huge job killer, the regulatory state. There are many jobs, enough to absorb all our unemployed and more, that have been made illegal. Some of these restrictions might even have been justified at one time but when those justifications died, the restrictions remained.

It does not cost significant money to legalize jitney service, but it would create jobs. It would not cost significant money to put micro-distilleries on the same legal regime as micro-breweries, but there would be jobs created. The examples could go on and on and on. 

Instead of worrying about which tired solution from the past is least exhausted, tax policy or fiscal policy, why not have a focus on freedom policy and simply do the honorable jobs that we have, for many reasons, felt it necessary to restrict and outright ban. 
10 years 7 months ago

Professor Wilbur makes excellent points about the need for tax increases and, at least, some deficit spending in the short term.  To the contrary, I do not believe that monetary policy is sufficient to revive the economy.  Unless we address the country’s underlying economic deficiencies, continued tax cuts or deficit spending will be counter-productive and fail to reinvigorate the economy.

The nation’s reliance on foreign petroleum and its adoption of “free trade” have created huge trade deficits, decreased manufacturing, and eroded the nation’s tax base.  Since 2002, hundreds of thousands of manufacturing and service jobs have been outsourced abroad, complete sectors of the economy have essentially disappeared, and the U.S. has incurred cumulative trade deficits of more than $4.5 trillion.  Stated another way, the capital equivalent of 3 -6 % of our gross national product is being lost from the U.S. economy each year as Americans purchase gasoline or and consumer goods produced abroad.

In addition to depleting capital, our dependence on foreign petroleum and the loss of manufacturing hinder our ability to deal with recession.  In earlier recessions, tax cuts or spending stimulated the economy, because the U.S economy was nearly self-contained, without large trade imbalances. Additional money injected into the economy due to tax cuts or governmental spending stayed in the U.S.  Now as citizens purchase essential goods or services (gasoline, clothing, consumer electronics, tools, small home appliances, kitchen appliances), they have virtually no choice and must purchase imported products or out-sourced services that grow the trade deficit and drain capital from the U.S. 

Unless we established focused programs and tax policies to reduce our dependence on foreign oil, to re-establish manufacturing in America, and to reduce our importation of consumer goods, continued across-the-board tax cuts or unfocused spending will only bankrupt the nation sooner.
Cliff Kirchmer
10 years 7 months ago
This is a question for the discussion on Oct. 14.  Please explain more completely just what the securities transfer excise tax is, and how such a tax would discourage dubious short-term, speculative practices while fostering a more stable supply of long-run capital funds.
Thomas Farrelly
10 years 7 months ago
A question for Oct. 14:

"In a recent interview, however, Summers, currently assistant to the president for economic policy and director of the National Economic Council, has backed away from supporting such a tax,[a securities transfer excise tax] maybe for political reasons as much as for economic ones."

Is it not probable  that in the quarter century since he advocated this tax he has found good reasons to change his mind?  Especially since he is leaving the highly political White House and returning to a tenured academic position?

Thomas Farrelly
10 years 7 months ago
Another question for Oct. 14:

The articles argues that "...the economic stimulus of 2009 was too weak, too small to kick-start the economy into a growth path that would absorb the unemployed and provide jobs for new entrants into the labor force."
 "The economy needs policies deliberately aimed at overcoming stagnation and promoting equitable and sustainable growth, while also protecting the environment."

Yet most of the article deals with various measures for increasing taxes and reducing expenditures and is silent on the nature of the needed stimulus and growth-promoting policies.    What exactly are the stimulus measures being advocated?  I hope they are not a repeat of the "job preservation" measures that primarily benefited government workers at the state and municipal level, and neglected workers in private industry, with the notable exception of UAW members.  Or more "shovel ready" projects will supposedly take place at some time in the future.

Please identify the stimulus measures that will create private sector jobs in 2011. 
Thomas Farrelly
10 years 7 months ago
Since few questions have appeared, I'll ask another one:

"One must conclude that while deficit reduction is not the primary problem at this time—creating jobs is—deficit reduction is a serious problem for the long term. The Obama administration would do well to signal now that it is thinking and planning how best to reduce the deficit when the time comes to do so. This is where values are crucial in making the best choices regarding tax increases and cuts in spending."

Can you suggest some "signals" that are concrete and visible, rather than just words?
The Right never trusted Obama, and a large part of the Left no longer does, accusing him of breaking his promises.  So there is no reason to think anyone will trust him now.  Please identify some credible, substantive signals that the Obama administration might send out that will actually convince people that deficit reduction is on the way. 
C Walter Mattingly
10 years 7 months ago
A few reflections on the above essay and comments.

I recall Milton Friedman saying some years ago to a Keynsian economist who stated that the reason a federal program had failed was that we had underfunded it. Smiling, Friedman commented, "I can almost guarantee you that when a hugely expensive government program fails its intended purpose, as it usually does, the economists who promoted it will say that was because we did not spend enough money on it."

Here, we spent the better part of a trillion, and it didn't do the job, now we should throw another trillion or two at the problem....Problems with our disastrous education system? Send us more money to cut the class sizes. We send another trillion or so, and cut the class size from 27 to 16. Result? Nothing. Now the old liberal mantra of just send more dollars our way, etc is wearing thin on the American public, thank goodness, as the popularity of such quasidocumentaries as Waiting for Superman evinces.

Yet if Prof. Wilbur believes that programs should be fully funded or they will be ineffective, why limit the tax increases to the very wealthy? Why not include all those making over the tax break point of $83K? All the tax breaks from the Bush tax cuts are theoretically supposed to cost us 4 trillion dollars over a ten-year period,  but raising taxes only saves 800 billion, a mere 20%.  If that were extended to the moderately affluent and the somewhat wealthy, it would rise to 2.6 trillion, or over 3 times the revenue. The 800 billion is simply far too small to have much of an impact and really seems to have class warfare demagoguery in mind more than soving the deficit.

Spend the money now and cut later? The government has lost credibility on the proposal. No one believes that the politicians of tomorrow trying to get elected will ask the electorate to sacrifice at the expense of losing his election. Simply put, there is no faith that "tomorrow" will ever come. Only the actions of cutting now, as Cameron is doing in Britain and Christie is doing in New Jersey, have credibility with the public.

Prof. Wilbur does mention the last few years of the Clinton administration as the sole surplus years. That of course roughly paralleled the Contract with America years, when President Clinton, under republican pressure, reformed welfare, reducing welfare rolls from 12 million to 6.5 million.

More such entitlement reforms are going to have to come, as stated in the essay, but they are going to be very difficult politically.

Professor Wilbur also mentions that Ireland, like the rest of Europe, is trying to deal with its huge deficit issues by cutting spending, and has not yet recovered. It is possible that given the size of Ireland's deficits, nothing will come easily to correcting them. Prof Wilbur does not, however, mention Germany, with substantial though less severe deficits, also cut its spending and entitlements and has already emerged from recession.

Cutting spending and raising taxes seems inevitable. Mr Cameron in Britain seems to have a workable formula: $3 in spending cuts to every $1 of tax increase.

As regards the comments that Social Security and Medicare are self-funded, perhaps the more accurate description might be underfunded, with the monies you and your employer have provided to Social Security "borrowed" without your direct approval. These retirement ages have been and will continue to be moved back, as we simply don't have the money. And the "Death Panels," the ones which tell you whether you can or can't receive certain life-extending medical care, are, as Prof. Wilbur implies, coming our way, although they will be renamed.

Mike refers to Repulsive Republicans and unproductive military expenditures. One such Repulsive Republican, Secretary of Defense Robert Gates, is trying to control those bloated defense contractor expenditures led by such Repulsive Republicans as Senator Dodd, the former John Murtha, etc, but is having a hard time garnering support. It is also worth noting that in the last few years of the Bush administration and the first of the Obama administration, the proposed salary and benefits increases recommended by the defense department and the administrations had their modest salary increases replaced with far greater ones, largely because of the efforts of democratic senators and house members. It was either for offering greater rewards to our dedicated military or to buy votes, take your pick. Unlike the rest of our secretaries, Mr Gates is trying to rein in the bloated payroll of Pentagon officials. Although government employees make 22% more than similarly qualified private ones, only Gates is seriously trying to contain such wasteful government bloat that contributes to the deficit. A little more backbone from the president and company supporting his efforts across the board might help here.

It is interesting to consider what Mike finds the most productive and promising innovations in the US and their genesis in feference to defense expenditures. Mike mentions the iphone and ipods.  What are the foundation technogies for these products? The internet, an outgrowth of the Department of Defense's communication needs, satellite technology, an outgrowth of Nasa, computer technology, immensely aided by defense expenditures on chip development and computer needs. Every time you get the weather, we can thank our satellite communications programs.
We are all entitled to our opinions, but not, as the saying goes, our facts.

But I agree with Mike that we should look forward to the November elections.
10 years 7 months ago
When did stimulus policy or government spending ever work?  It certainly did not work during the Great Depression.  It didn't work during the 1970's.  And it did not work in the last 18 months.  I can give several very logical reasons why it cannot work and there is little to believe it can ever work.  The reason is, it means that the government pick winners and their track record is always horrendous.  We don't need infrastructure spending.  There was unspent money when Obama came to office for road projects. We have the same infrastructure that existed a few years ago when we had essentially full employment.

Here is a comment by Roosevelt's Secretary of the Treasury Henry Morgenthau in 1939.

"We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and now if I am wrong somebody else can have my job. I want to see this country prosper. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. I say after eight years of this administration, we have just as much unemployment as when we started. And enormous debt to boot." 

So the real question is why should we believe you?
10 years 7 months ago
Prof. Wilbur:

You seem to make 2 arguments for higher taxes: moral & pragmatic.

The moral argument seems to be summed up here: "also to a record widening of the income and wealth distribution between the rich and the poor".

- My question is how do economists measure this empirically?  What factual evidence/indicators are looked at to determine A) who "the rich" are (Obama's $250,000 threshold?), B) what "wealth" is?, and C) what factors such as education, job type, location are involved?

The pragmatic argument is simply that we need to bridge the gap between revenue & expenditures & cutting expenditures (particularly entitlement spending) is politically dangerous, so raising taxes on "the rich" is the best bet. 

- My question here is isn't it not the case the "the rich" already pay a large percentage of taxes whereas most Americans pay little to no taxes?  So why not advocate for tax reform across the board?  Secondly, you only mention cutting military spending.  Why not discuss discretionary spending cuts, which are up some 30% in the last 2 years?  It just seems to me that politically it doesn't take an economics degree to perceive that the government is spending more than its taking in and just arguing for more taxes isn't going to sit well.
Marie Rehbein
10 years 7 months ago
In your opinion would it have worked better, worse, or just differently, if instead of bailing out the investment banks, the same amount of money had been disbursed in equal portions to each US household?  What would have been the pitifalls, and what would have been possible benefits to the economy?
10 years 7 months ago

A couple additional comments and one major question for Prof. Wilber.  

I made the point above that fiscal stimulus never worked.  To support the point that it did not work in the Great Depression, I gave the quote of Henry Morgenthau, Roosevelt's Treasury Secretary and one of his closest friends.

The next time stimulus spending was done in large amounts was by Jimmy Carter and here is a quote by his main domestic adviser, Stuart E. Eizenstat:

"The principal fault of the economic policy of the Carter years was a failure to identify the ferocity of the underlying inflationary pressures of the economy. We stuck too long to the stimulative fiscal and monetary policies promised in the 1976 presidential campaign, to end what we called “the Ford recession.” In retrospect, we were blind until it was too late to the rising level of inflation. . . . The president’s top aides, myself included, and the Democratic party in general, feared and tended to oppose any economic decision which risked restraining growth and causing higher unemployment to fight inflation."

So Morenthau and Eizenstat admitted that fiscal policy failed. 

Ronald Reagan had the guts to make the right decisions that the Democrats would not and we have prospered ever since.  He knew he would take a lot of hits for stopping the inflation and the subsequent job losses.  Here are some financial numbers from the Carter/Reagan years that I found.

Carter: growth in GDP after inflation 3.5% (total for 4 years so less than 1% a year for all that fiscal stimulus and low Fed rates;) growth in government revenues after inflation - 9.3%.  As Carter's policies pushed people into higher tax brackets, they paid a greater percentage of their wages in taxes.

Reagan first term: growth in GDP after inflation 11.1% (the recession of the first two years;) growth in government revenues after inflation - 9.0%.  Much higher growth in GDP than Carter and good growth in government revenues despite the tax cuts.

Reagan second term: growth in GDP after inflation 13.3%; growth in government revenues after inflation - 16.8%.  Again much higher growth in GDP than Carter and outstanding growth in government revenues despite the tax cuts.  This puts to rest the myth that tax cuts cost the government money.  it is just the opposite.

Since Ronald Reagan implemented his economic policies, total GDP had doubled (about 104% gain) and Federal revenues have doubled (105%).  These include adjustments for inflation.  Population growth during this time was about 32%.  From 1981 to 2005, 45 million new jobs were created in the US and all this new job growth can be credited solely to small business start ups.  None can be attributed to large business expansion as some obviously grew but others contracted so the net was zero.  The reason for this were the financial incentives Reagan's policies provided and the removal of regulation inhibiting start ups.

Given this how can one recommend fiscal stimulus's and tax increases as a policy that is likely to succeed.

A final comment.  During all previous recessions including the Great Depression, there were natural forces causing a rebound of both economic activity and hiring.  But today as in the Great Depression, despite favorable forces in the economy, great uncertainty and incredible disincentives have caused the main engines of hiring to wonder what the benefits are to hire anyone.  No one knows the future that the recent large legislative reforms will cause and no knows the future costs of doing business.  Under such a climate I would outsource as much of my productions and services as possible.  That is exactly what we are seeing whether it be to foreign countries or to independent contractors or to longer hours for current employees.

C Walter Mattingly
10 years 7 months ago

In his response, Professor Wilber continues to be selective in ways that I believe distort economic and political reality in the US by omission and questionable generalizations. For example, he characterizes republicans as tending to favor tax reductions, which most would agree is accurate. On the other hand, he does not go to the other side of the leger and balance the equation, which is that democrats tend to favor tax increases. Also, he goes on to state that republicans tend to favor defense spending, his leaving that side of the equation open implying democrats don't. This does not accord with recent reality, in my view. It was Senator Webb who lobbied for increased educational and other benefits for the military upon separation. Noone pushed for expenditures for expensive and questionable, even noncomptitive bid contracts harder than Senators Dodd and Murtha (republicans such as Shelby did also.) And it is the sole republican secretary in the Obama administration who is seriously trying to contain military spending, Defense Secretary Gates.  The most expensive portion of the defense budget is personnel, and democrats have put upward pressure on these expenses by their actions as much as or more than republicans. And unionized shipyards and defense contractors have joined in the game as well as their state senators and representatives.
So on the issue of reducing defense spending, which is one of their favorite talking points, there is a disconnect between their words and actions.
An example of distortion by omission occurs when Professor Wilber argues against cutting spending by noting that Ireland's expense reductions have not resulted in economic improvement while ignoring that Germany also committed to cutting spending with the result that it is already out of recession. Indeed, as he notes, Europe has generally responded to excessive spending related to income largely by cutting spending, as would any reasonable family in like circumstances.
The same can be said regarding democrats being more willing to spend money on education than republicans. It might be more accurate to say while republicans are more interested in getting value and results for educational values, democrats have been more anxious in getting more money to their contituents, the oligarchs NEA and AFLCIO, than are republicans, but that until now, as they can no longer get away with it, they obviously have not been determined to see that there has been a corresponding increase in student achievement for the huge increase in dollars invested. And therein resides the main difference: republicans tend to be more interested in results, whereas democrats tend to be more interested in redistribution of resources to favored constituents. I suspect that if our highest per student expenditures produced top level educational achievement rather than sitting atop the bottom quartile, republicans would be more supportive of the monies spent than they have been.
I gladly note that under Arne Duncan, a refreshing change has come across at least one portion of the party on this issue. They are of course responding to public outrage on the expensive but poor quality of public education in the US. If vouchers are added to the equation, we will have genuine reform and more hopeful prospects for public education in our near future.
Now perhaps we can get closer to the core distinction between democrats and republicans that Professor Wilber has not addressed: democrats tend to want to place decision-making and resource expenditures in the hands of the bureaucracy; republicans, closer to the position of the Founding Fathers, tend to want to put those processes in the hands of the citizenry. Democrats have tended to believe that the bureaucrat is better suited to where the child should go to school; republicans tend to believe that the parents are better suited to determine which school in her neighborhood is best for their child. Likewise, republicans tend to believe that putting the citizen in control of his health care expenditures through the use of HSA's will result in more cost-effective use of the resources and better results; democrats tend to want the government to oversee the expenditures from a central point. In short, republicans tend to believe that teaching the person to fish and providing him the tools to do so is the best way forward and, indeed, the more christian way to proceed, whereas democrats tend to want to give him the fish paid for by others, thereby increasing his dependency, along with government control of his life and increases in governmental power at the citizen's expense.

10 years 7 months ago
A question for Professor Wilber after reading Awakening the Giant AMERICA Oct. 18, 2010. In order to stimulate the economy, is it better to add to the deficit through direct Federal Government spending or to add an equal amount to the deficit through tax reductions?

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