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09/15/2009

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Anonymous

This is a masterful analysis of our situation and what consequences it is likely to produce. But, oddly, it ignores any economic explanation of the "perfection of interest group politics" that produces (and perpetuates) the stalemate that is at the root of our inability to get control of spending and the debt.

This, I believe, is because there is no economic, or even political, explanation of that dilemma. The root of the problem has more to do with political culture than economics. Your evasion of that issue becomes ever more clear with each posting on this topic.

Anonymous

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Anonymous

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Anonymous

Yes, very truth. Obviously, "The root of the problem has more to do with political culture than economics.", but the status of US in the world is at risk.
I´m Spaniard. As Spaniard, I see increasingly worried your growing Debt.
But it is also true that the main countries are in the same way, so I hope at the end you´ll conserve the advantage.

Anonymous

THE DOLLAR

Dean Baker wrote: Pleased by the prospect of the dollar declining. If foreign investors stop buying US bonds, that would be just great. The only mechanism for getting the trade deficit down is a lower dollar. Simon Johnson wrote similar comments in his blog. It makes me sad to hear such views by prominent US economists.

Well, even Botswana can lower its deficit in this way. It is not an "accounting identity", it is an accounting gimmick and a beggar-thy-neighbor policy. What if every nation was going to follow retaliatory competitive devaluations of their currency? According to the economics I know and have been teaching my students, this is a short-term "solution" which will backfire. Is it by accident that the world's least competitive countries are the ones that are constantly devaluing their currencies? The trade deficit can only be reduced by increasing competitiveness and productivity, technological superiority, innovation, entrepreneurship etc. A constantly declining dollar will bring about inflation and higher interest rates for obvious reasons. US consumers' purchasing power will drop. This will hurt manufacturing through a drop in consumption and demand for their products, and through an increase in their financing costs and imported raw material costs. They will become less competitive. This will increase the trade deficit. The decline of the dollar and its consequences will be exacerbated by the foreigners dumping the dollar and the dollar-denominated assets. I don't know who will then finance the US debt. Americans will also try to protect their life's dollar savings by converting them to stronger currencies, investing them in foreign-currency assets and perhaps moving them offshore. This capital exodus will further negatively impact the US current account deficit. Wall Street will plummet, and it will be very difficult for US companies to raise capital. A long-term Depression will hit the country. It's a vicious circle. And gradually but surely the world will move to other reserve currencies. America's economic and political standing in the world will erode.

Anonymous

Judge Posner's observations are consistent with the very insightful analysis published around 1983 by Mancur Olson in his book "The Rise and Decline of Nations". Unfortunately, unless the general public wakes up to the corrosive impact of "distributional coalitions" and special interest groups on our economy, the future does not look particularly bright. Anyone care to wager on the liklihood of the public coming to its senses any time soon?

Anonymous

Some sage comments on a sage analysis. However the little ball in which all of this mechanics is working is bouncing around in a social and political system which is based on a larger and larger part is parasitizing a smaller and smaller part. Oh, I forgot to mention that the ball is made of glass.

Anonymous

"The perfection of interest-group politics seems to have created a situation in which taxes can't be increased, spending programs can't be cut, and new spending is irresistible. Judging by the Bush Administration's profligacy and its impact on the public debt, the situation is bipartisan."

That's why I advocate a Negative Income Tax and Milton Friedman's Health Plan: Namely, fulfill the basic goals in a less expensive and intrusive manner. We should aim to aid the poor and cover everybody with health care. But, in doing so, we should attempt to confine the aid to people who really need it, relative to others. Otherwise, you have an irresolvable conflict between goals ( which raise taxes ) and the unwillingness to pay for them ( which keeps taxes from being raised to pay for the goals ).

Don the libertarian Democrat

Anonymous

Why is it worth remebering that the British decline as an economic power since the early 20th century is purely relative decline? Britain is a much richer place than it was then. It is worth remebering that because the relative decline of the USA from being the world's dominant economic power has been a clear prospect for more than a quarter of a century. Europe already is in the same economic league as the US. Japan is close, China and India will join that league. Thev USA will go on getting richer.

But the resons for British and American relative decline may be different. In the early 20th century, Britain was the world's leading creditor nation; the USA is now the world's leading debtor. The British political process before 1914 was challenging the country's vested interests, with some success. In the USA today the vested interests seem to be getting steadily more entrenched.

I doubt if deficits and national debt are the basic problem. As Samuel Johnson noted when faced with a lament about public spending in 18th century Britain, "There is a lot of ruim im a nation". But if vested interests prevent the debt burden being handled properly (as they did in pre-revolutionary France), deficits can become lethal for a society and a political order.

Anonymous

Medicare tax rates, versus Medicare expenditures

Hello people,

Medicare is a typical example of an unfunded government entitlement program. The program began in 1966, with a tax on wages up to $6600 of 0.7%, resulting in a maximum contribution of $46 per year. In 1976, the employee and employer contribution amounted to 1.8% of wages, not to exceed $275. In 1986, the contribution was 2.9% of wages, capped at salaries of $42,000 per year, for a maximum contribution of $1305. In 1996 the rate was 2.9% and max contribution was $1818, and in 2009, the combined employer and employee contribution is 2.9%, on maximum taxable earnings of $106,800, and maximum tax is $3,097 annually.


In return for these annual payments, which were as small as $46 in 1966, the retired citizen receives insurance at age 65 which pays 80% of medical expenses, for a small, monthly, fee.

A comparable policy from Blue Cross of Illinois, the I-Chip insurance policy, for a 65 year-old man, costs $20,028 per year, according to the Blue Cross web site.

How can a person pay $3,097 annually from his wages (in 2009), and receive an insurance policy for life valued at $20,028 per year? Only by borrowing from future generations.


This is a tax on the unborne and on our children. I raised the issue at one of my adult education classes (among seniors, like myself) at Northwestern University, and nobody seems to think it was unfair, nor a generational time bomb.

Big problem.

Jim

Anonymous

In addition, if a health insurance policy costs $20,000 at age 65, and $25,00 at age 75, it probably costs $35,000 at age 85, and $45,000 at age 95, if any such health insurance were available. In actuality, health insurers take pains to deny insurance coverage to people older than age 40, for fear they will be forced to pay a large claim, so the issue is moot.

Jim

Anonymous

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Anonymous

" Certainly the Bush Administration ran big ones..."

The Administration can only spend what Congress appropriates, not a penny more and, thanks to the Budget Impoundment Control Act, not a penny less. The Administration has no control over taxes, other than persuasiveness and a veto.

So, how is it that you can blame any Administration, past (post 1974) or present, for budget deficits?

Anonymous

" Certainly the Bush Administration ran big ones..."

The Administration can only spend what Congress appropriates, not a penny more and, thanks to the Budget Impoundment Control Act, not a penny less. The Administration has no control over taxes, other than persuasiveness and a veto.

So, how is it that you can blame any Administration, past (post 1974) or present, for budget deficits?

Anonymous

" Certainly the Bush Administration ran big ones..."

The Administration can only spend what Congress appropriates, not a penny more and, thanks to the Budget Impoundment Control Act, not a penny less. The Administration has no control over taxes, other than persuasiveness and a veto.

So, how is it that you can blame any Administration, past (post 1974) or present, for budget deficits?

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Why is it worth remebering that the British decline as an economic power since the early 20th century is purely relative decline? Britain is a much richer place than it was then. It is worth remebering that because the relative decline of the USA from being the world's dominant economic power has been a clear prospect for more than a quarter of a century. sesli sohbet Europe already is in the same economic league as the US. Japan is close, China and India will join that league. Thev USA will go on getting richer.

seslis ohbet

Why is it worth remebering that the British decline as an economic power since the early 20th century is purely relative decline? Britain is a much richer place than it was then. It is worth remebering that because the relative decline of the USA from being the world's dominant economic power has been a clear prospect for more than a quarter of a century. Europe already is in the same economic league as the US. Japan is close, China and India will join that league. Thev USA will go on getting richer.

sesli sohbet

Why is it worth remebering that the British decline as an economic power since the early 20th century is purely relative decline? Britain is a much richer place than it was then. It is worth remebering that because the relative decline of the USA from being the world's dominant economic power has been a clear prospect for more than a quarter of a century. Europe already is in the same economic league as the US. Japan is close, China and India will join that league. Thev USA will go on getting richer.

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