It’s the economy, stupid!

There are times when academic theorists are simply too arcane for their own good. While the politicians and think tanks in Washington debate the complexities of fiscal reform, additional stimulus, and the desirability of expanding this or that entitlement program, ordinary folk can see some very clear principles that the politicians and theorists seems to be missing:

1. Nothing is possible without a healthy economy. Without a healthy economy, the nation simply can’t afford a strong military, good schools, expensive entitlement programs, up-to-date roads and water systems and electric grids, etc. etc. Everything depends on a strong economy, and any government worth its name would be spending ALL its energies right now getting the economy healthy again.

2. The economy can’t be healthy when we spend more than we make. The Federal government spends about twice what it takes in, borrowing the rest. Any sixth-grader understands that this simply can’t go on forever. There comes a day when we either have to pay back the loan or we have to default on the loan. (Allowing inflation to reduce the loan is just a way of defaulting on the loan.)

3. There are only two ways to balance our budget – cut spending or increase taxes. There are no other ways. There are no miracles, or rich uncles who can die and leave us a fortune, or Powerball lotteries that can pay off the national debt. Cutting spending and/or raising taxes are the only two options – it’s as simple as that.

4. Taxes are a drag on the economy. That doesn’t mean we don’t need taxes to pay for necessary things, like police and fire protection, but taxes are an added cost on a business, reducing its competitiveness, and taxes on individuals reduce their disposable income, and so reduce their purchases in the economy. Any middle-school student could understand that. Clearly one wants to keep taxes as low as possible if one wants as strong an economy as possible.

5. That means spending cuts are the better way to balance the budget. Of course spending cuts mean eliminating someone’s subsidy, and they will scream like a stuck pig. It also means Congress forgoing the opportunity to buy votes with taxpayer money, a longstanding practice. Still, it doesn’t take a PhD in economics to see that spending cuts are necessary anyway.

Is any of this complex? No. Does any of this take an advanced degree to understand? No. Could your 10 year old child or grandchild understand this? Yes. So why can’t Washington?