All we hear now from Washington and from the EU is budget cutting and austerity as if that somehow will fix deficits. Well it won't of course and all economists know that. Government economics is not Kitchen Table economics. When the Government reduces spending it increases unemployment and reduces tax revenue. This is just the opposite of what is needed. What is needed of course is to increase revenue to the Treasury. In the US much could be done to fix our budget problem by simply undoing the tax cuts on the wealthy that Bush put in place and which were the prime driver, along with Iraq war, of the deficit. According to economists, only about 1/2 of the money transferred to the wealthy in tax breaks actually comes back into the economy so such actions depress not expand the economy. We see that from the
charts in an earlier post.
It seems that now it has become a matter of faith, a religion really, that giving more money to those who have the most will increase employment and grow the economy. That has never happened. There is no evidence that it will or ever has. It does not make sense. Trillions of dollars are sitting in banks, hedge funds, venture capitalists and accounts of large investors waiting for a place to be invested. The problem is finding a place to invest those funds where they will get a good return.
It appears that we have three groups in Congress.
- Those who act on blind faith in the austerity ethic
- Those who know the austerity solution is bunk profess it anyway to intentionally depress the economy with hopes that voters will blame the Obama Administration
- Those who simply are doing what their wealthy benefactors want them to do without regard to the consequences.
The public hears the mantra on the TV, radio, and in print that "we must cut spending and cut taxes on the wealthy." The have heard it so much that many have come to assume it is true. That is what I call a bubble. Not unlike the tulip bulb mania in 16th century Holland when a single bulb at the peak sold for what would be a million dollars today. "Extraordinary Popular Delusions & the Madness of Crowds," Charles Mackay, republished by Three Rivers Press, NY.
Is this a bubble?
