|
Sometimes
I ask myself, "Are our leaders just confused on economic policy, or is
it something worse?" Take for example the president's
recent comments after the election:
"Well, obviously, we can all imagine a scenario where
we go off the fiscal cliff. If despite the election, if despite the dangers
of going over the fiscal cliff and what that means for our economy, that
there's too much stubbornness in Congress that we can't even agree on giving
middle-class families a tax cut, then middle-class families are all going to
end up having a big tax hike. And that's going to be a pretty rude shock for
them, and I suspect will have a big impact on the holiday shopping season,
which, in turn, will have an impact on business planning and hiring, and we
can go back into a recession.
"It would be a bad thing. It is not necessary. So I
want to repeat, step number one that we can take in the next couple of weeks:
provide certainty to middle-class families ..."
At
first, this got me really excited – he seems to get it here. Tax
increases are a bad thing. Well, actually, he's even a bit more pessimistic
than me here. A tax hike would hurt the economy, but I don't think it would
send us spiraling into a major recession. Look back at the history of
recessions over the past 100 years. You know what they pretty much all have
in common? They weren't caused by tax hikes. I'm not trying to blow off the
tax increase as unimportant, but it's just not as huge of a problem as
something like the housing bubble. Regardless of your opinion of Obama, we
should at least applaud him for recognizing in this case that taxes are not
good things for the economy. Before I could get too happy though, his
statements were followed by this:
"As we've already heard from some Republican commentators,
a modest tax increase on the wealthy is not going to break their backs;
they'll still be wealthy. And it will not impinge on business investment.
"So we know how to do this. This is just a matter of
whether or not we come together and go ahead and say, Democrats and
Republicans, we're both going to hold hands and do what's right for the
American people."
OK,
so I'm trying to follow the train of thought here. Tax hikes on the middle
class are bad for the economy. But tax hikes on the rich don't matter? I'm
just trying to figure this out. It doesn't really make sense to me.
Furthermore,
Obama said that tax hikes on the middle class would "have a big impact
on the holiday shopping season, which, in turn, will have an impact on
business planning and hiring, and we can go back into a recession." But
for the rich he says, "it will not impinge on business investment."
So wait… if I'm a business and I make less money because middle-class
consumers are facing higher taxes, then that's bad for my business planning.
However, if I have less money because I'm being taxed more, then my business
planning won't be affected?
On
a side note, it's always disturbing to hear this line repeatedly by both
parties – keep people spending and endlessly in debt, and the economy
will be fine.
Maybe
I'm a little slow or something, but it seems to me that in both cases I have
less money and that will affect my business planning to some degree. Also,
what about businesses catering to the upper class? Won't rich consumers do
some holiday shopping as well? What about the effect on high-end business
such as Louis Vuitton, Ritz Carlton, etc.? Just because they're high
end doesn't mean that the bartender at the hotel or the salesperson at the
mall is a high roller. Even if you are rich, higher taxes will slightly curb
your spending.
Economics
is based on a very simple premise: there's no such thing as a free lunch. The
administration is suggesting that one could get money from the rich without
any adverse effects, essentially a free lunch. Of course, a tax hike on the
rich isn't going to make them start clipping coupons, but there will be an
effect – that's just basic economics.
I've
seen a couple of pundits defending the plan by saying that the tax cuts on
the rich will barely affect the economy. However, even if that's right, it's
no excuse. That position is like saying, "Just take a little of this
cyanide pill. Don't worry; it won't kill you." It doesn't matter if the
tax hikes would negatively impact the economy a little or a lot. We shouldn't
be doing anything that could hurt an economy still crawling away from a
crash.
I
understand that some people want bigger government. I get it. But what really
frightens me is when our leaders can't even piece together an internally logical
argument. Hey, the Republicans don't get a break here either. Somehow
spending cuts work great when it's on food stamps, but not when it's on
bombs.
The
problem is that the two parties must reach some sort of compromise. But it's
hard to reach a reasonable solution when both groups are coming to the table
with incoherent economic ideas. When two idiots sit down and compromise, the
end result isn't a problem solved, but more often than not, another one
created.
Now that the election is over, you'd think members of
Congress would put their differences aside and tackle the formidable problems
facing the country. Unfortunately, both parties are digging in for an
ideological battle that seems more and more likely to end in a stalemate.
So what happens if they don't stop us from careening off
the fiscal cliff? Is another recession around the corner? What about
quantitative easing? What happens to the purchasing power of our savings if
the Fed keeps its easy-money policies?
To provide answers to questions like these, the folks at
Mauldin Economics are putting together a free online video event featuring
some of the world's leading economists and investing experts. They include
John Mauldin of Mauldin Economics... Mohamed El-Erian of PIMCO... James
Bianco, president of Bianco Research, LLC... Barry Habib, vice president and
chief market strategist of Residential Finance Corporation... Barry Ritholtz,
CEO of Fusion IQ... Richard Yamarone, senior economist, Bloomberg Brief...
and Gary Shilling, president of A. Gary Shilling & Co., Inc.
These financial luminaries will shed light on such
critical issues as the fiscal cliff, exploding budget deficits, entitlements,
artificially low interest rates, and where the world economy is headed.
More important, they'll offer strategies that you can
implement right away to protect what's yours from new risks in the
post-election economy.
This event will be held online at 2 p.m. Eastern time on
Tuesday, November 20. Learn more and
sign up here.
|
