ROBERT REICH: The Republican Economic Plan Is An Austerity Death-Trap

Ron Paul’s newly-unveiled economic plan – promising to cut $1 trillion from the federal budget in year one (presumably that means 2013) – is only slightly more ambitious than what we’re hearing from other Republican candidates. They’re all calling for major spending cuts starting fifteen months from now.

Can we just put ideology aside for a moment and be clear about the facts? Consumer spending (70 percent of the economy) is flat or dropping because consumers are losing their jobs and wages, and don’t have the dough. And businesses aren’t hiring because they don’t have enough customers.

The only way out of this vicious cycle is for the government – the spender of last resort – to boost the economy. The regressives are all calling for the opposite.

But even without these hair-brained Republican plans, we’re heading in their direction anyway. Unless Republicans agree to a budget deal before the end of the year (don’t hold your breath), the temporary payroll tax cuts and extended unemployment benefits we have now will end.

The result will be the most stringent fiscal tightening of any large economy in the world.

Together with ongoing cuts at the state and local government level, the scale of this contraction will be almost unprecedented.

It will come at a time when 25 million Americans looking for full-time work, median incomes dropping, home foreclosures rising, and a record 37 percent of American families with young children in poverty.

“I will tell you what the US needs. The US needs a Lee Kwan Yew who stands in front of the US and tells them, listen you lazy bugger, now you have to tighten your belts, you have to save more, work more for lower salaries and only through that will we get out of the current dilemma that essentially prevents the economy from growing.” No money printing, no extensive protests, no excuses. Of course, this would have to accompany a global overhaul of the system, something Zero Hedge has been advocating since day one, as it is impossible to reform this broken system from within: “The problem i have with the investment universe is that i find it difficult to envision how the US and western Europe can return to healthy sustainable growth without a complete purge of the financial system and some type of catalyst. Something that restores some measure of social cohesion among people; it could be hyperinflation, a complete credit market collapse, widespread sovereign defaults, civil strife, major military confrontation.” marc faber

Can we just put ideology aside for a moment and be clear about the facts? Consumer spending (70 percent of the economy) is flat or dropping because consumers are losing their jobs and wages, and don’t have the dough. And businesses aren’t hiring because they don’t have enough customers.

The problem here is that Mr. Reich doesn't go the next step. WHY are United States consumers losing their jobs and wages? WHY don't business have enough customers?

Could it have to do with all the "social improvements" that the Democrats like to make, "improvements" that raise the cost of doing business without significant improvements on the revenue side? Could it have to do with the one-year "fixes" that have some desired short-term effect but no lasting improvement? How about all the manipulations of the tax code to "encourage" certain behaviors?

Could it have something to do with the bloated salaries that Congress gives themselves and the Federal employees? How about them pensions, something that damn few non-union people have these days? Is the cost of living in DC high because people like mosquitos, or is it because the pay is so high that landlords can jack up the prices and get it?

The OWS talks about the pigs at the trough in New York, but they don't make a single squeak at the amount of pork in Washington DC. When you consider that the Community Redevelopment Act was the seed that grew the housing bubble (nurtured so lovingly by ACORN and other community activist groups) who thought that banks should be more "flexible" in their lending practices, isn't the occupation in the wrong place?

Ideology? How about the single-mindedness of the environmentalists? Are they a good example to the Republicans on how to "work together"? If "working together" is so damn important, then show us how it's done, environmental lobby. Oh, and while we're at it, how about them "green jobs" -- is that working out for ya?

I don't spend more in the market because the various levels of government take more and more and return less and less to me. If the money were spent on effective education for our kids, I'd cheer for it. If the money were spent on effective society protection, I'd cheer for it -- instead of the war on some drugs, the war on some plants, the war on women, the war on the homeless who got whipsawed in the first place by governmental overspending. And how about all them hand-outs? I used to give regularly to charities that would feed those less fortunate. I don't any more, because the government has become the charity, and I "contribute" at the point of a gun.

During a seminar I attended in college, the speaker gave a piece of paper to each person in attendance. She said "Describe yourself in 10 words". We all struggled with that. "Now, nine words." "Eight." And on down the line, until she got to "three words." Instant insight: "I help people." For the majority of my life, I did exactly that. I had to stop six years ago because I didn't have the money to help myself, let alone others. Instead, it's left to a bunch of screaming maniacs who like to spend other people's money.

Democrats AND Republicans are equally to blame. Progressives AND Conservatives have their insane fixations. Personal responsibility assumes one has choice. I believe firmly in that. That's why I'm an Independent.

I'll shut up now.

“With what money?”

Indeed. The plan is to compel people to spend money they don’t have - a delusional non-starter. Adding a proxy (to wit: confiscating that non-existent money for another to spend) to the plan doesn’t work. Forcing people to go further into debt doesn’t work (at some point the payments can’t be made), and likewise doing _that_ by proxy doesn’t work either.

The problem with socialism is eventually you run out of other people’s money.
We’ve run out of money.
We’ve run out of money we will have.
We’ve run out of money our kids will have.
And our kids’ kids won’t be particularly keen on paying grandpa’s debt compelled by a proxy.

The US economy doesn’t need “jobs”.
That’s been the problem. We’ve had “jobs”. Lots of “jobs”. “Jobs” which give money to someone who does not produce wealth greater than wage. The Left’s approach to “jobs” is like going into a casino on the theory that if you put enough money in enough slots enough times, you’ll hit it big and come out better off than you started. Fact is, freakish rare events aside, every nickel inserted in a slot produces an average wealth-creation payoff of four cents (or so). Likewise, mandating “higher pay” one way or another, and “job security” regardless of need, means putting money into a job and getting less value out ... an economy can only withstand so much cumulative loss of value until all participants start suffering.

We need value- (wealth-) creating jobs. We need jobs where the value of the work done exceeds the wage paid. Much as “investing” may be derided as “gambling”, the difference is the average normalized payoff is positive instead of negative. On average over the long run, putting money in stocks will garner more money. Likewise, on average, jobs must produce more value than the cost of wages & overhead ... an economy can only grow if, in total, workers create more wealth than they consume.

Hence the absurdity of compulsory spending by proxy: forcing the payment of wages for work which does not produce enough value to persuade citizens to purchase via normal supply-and-demand incentives. If the gov’t has to threaten people into spending in order to create “jobs”, that’s ignoring the fact that those jobs aren’t worth it - and thus will bring the economy _down_ faster.

Government “stimulus” is a cure worse than the disease, because it feeds the disease in the process of salving the symptoms.

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