Volcker: Raise Taxes Now

Oh look here, someone who can balance a checkbook!

In a speech Wednesday that Volcker himself said was intended to be “a little provocative,” he challenged U.S. leaders to go further in raising taxes and cutting spending than suggestions laid out by bipartisan deficit-cutting commissions and panels.

“The problem is the United States can no longer claim unchallenged leadership over the world economy,” Volcker said at the Economy Summit sponsored by The Atlantic. “We have to do better . . . only a strong economy can ensure our political strength and national security.”

Yeah well, there’s a problem with that Paul, and you know damn well what it is.  We’ve got a GDP that doesn’t represent actual demand.  Instead, it’s been “goosed” for the last four years sequentially borrowing more and more money, sending false demand signals.

There’s a difference between a short-term rescue and structural spending as well.  Unfortunately our structural deficit games go back to 2001 post-9/11 and encompass both Democrats and Republicans.

Structural deficit spending is a massive problem and it is how Greece got in trouble.  It’s also how virtually every other nation that has found itself in the middle of a debt crisis got there.  When false demand signals become embedded in the economy they then become politically impossible to remove, as the entire compounded effect of them over time will immediately come off.

Economic advisers thus strongly recommend that politicians do no such thing, as they are well-aware that withdrawal of the false demand will lead to an instant economic Depression and that, of course, leads to immediate loss of power (through electoral defeat.)

In short you have a bunch of lawmakers that are drunk on power and are willing to wantonly, recklessly and intentionally violate their oath of office along with violating the people for their own personal aggrandizement and power.

Am I surprised? No.

But can this sort of thing avoid the inevitable — that which awaits all who try to abuse compound growth functions?  Nope.

I expect Volcker to be ignored for the same reason that everyone else is ignored in this regard, right up until the math forces contraction in government services, increased taxes or both — Volcker is well-aware that every dollar of tax increase is a dollar that doesn’t get spent in the economy, since deficit reduction through tax increases is a net GDP negative on a dollar-for-dollar basis.

He’s right, but he’s also being disingenuous in that Tall Paul is not putting numbers to paper and pointing out exactly how much government must contract or taxes must rise (or some combination of the two) to restore balance.

That’s probably because we’re talking about a doubling of taxes or a 50% reduction — or more — in federal spending.

Best of luck with the path we’re on folks.

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