Friday, September 28, 2012

Liars, fools, fanatics, and the ignorant. Subtitle: If it ain't broke, don't fix it.

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One of the most striking differences between a cat and a lie is that a cat has only nine lives. -- Mark Twain
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We can put all of our untruths in 3 baskets. The first basket is for liars - it isn't true, and they know it isn't true.

The second basket is for when folly is involved. Folly is when a person ignores some basic part of reality that tells them something isn't true. We either call these people foolish, or a fanatic.

The third basket is for ignorance. I think that speaks for itself. So, we have liars, fools, fanatics, and the ignorant.

Now I want to show you a graph I ran into for the first time in the early 1990's, in economics classes. It made it instantly obvious to me that a whole class of politicians fit into one of the above labels. 

 




  You see, we had politicians pointing fingers at one side, shouting slogans like "Tax and Spend!" Easy to remember and repeat. But, it wasn't true. They fooled a lot of people with it, and their inheritors are still trying to use the same formulas. Let's take a look. The graph above is for a 50 year period, starting near the end of WW2. Obviously, Truman brought the deficit war-time spending right down. Things were pretty steady, until LBJ, and he has a little blip caused by Vietnam. Then we have Nixon, and he triples LBJ's deficit spending. Ford doubled what Nixon did! Carter kept things on an even keel, and even brought in a slight decrease. But Reagan looks like the Himalayas compared to everything in the history of the US up till then, except WW2. (We'll look at WW2 in the next graph.) Bush1 piles it on, and it climbs higher, until Clinton.  And Clinton got the bus running again. In the first graph, we only see the start of what Clinton did. On to the 2nd graph.




These are the same numbers, but over an 80 year period. Clinton actually brought us back to historical spending patterns - a balanced budget, and paying off our debts properly. Even though the budget was in the positive, you see, we still had a lot of debt to get rid of. Bush 2 blew that away, inserting tax cuts that did not benefit the economy, and bank deregulation that DID affect the economy, just a few years later, but not in a way that most of us could benefit from. Bush2 sent spending and debt so high that the first graph looks like little pimples now. Which is why I showed this to you in 2 graphs. I just don't think you can see the significance of Nixon, Ford, and Reagan in the big graph.

Now I will show you graph 3.




This graph shows the income tax rate for the top 1% over the last 65 years. A slow decrease for the top folks, and a big jump down with Reagan. (Remember 'trickle-down' economics? It didn't work then, and it doesn't work now.) Now, let me tell you a couple of numbers to go with this. Reagan has long had a reputation as a tax cutter. On the other hand, some people have begun to point out that Reagan raised taxes by other methods. I offer two numbers, and I'll let you decide whether he raised taxes or lowered them. In 1981, when Reagan took office, the IRS took in 407 billion in income tax. In 1988, when Reagan left office, the US received 607 billion from income tax. That is a 50% increase. In 1981, the US had 228 million people. In 1988, that had only increased to 244 million. That is less than one percent increase.

If you ask me, that means that the middle class was poorer because of Reagan's tax adjustments, and the upper class was richer. I will say this, Reagan did see that it was important to balance the budget. The history shows us he did try to make that happen.



In 2001, when Bush 2 took office, we had finally set aside decades of mismanaged finances, and we were on the road to fiscal health. Clinton raised taxes slightly, and you can see that on graph #3. But I sure don't remember that it hurt! I DO remember the Reagan tax adjustments, and I DO remember that they DID hurt. I also remember the Bush2 tax CUTS, and I remember I did not notice them at all. And I'll bet you didn't either.

Remember what I said in the title? If it ain't broke, don't fix it? Well, I've watched what people have been telling me over the years. I had come to the conclusion a long time ago that one side fit real well into one of those baskets I talked about at the start.

In 1937, FDR was forced by his political opposition into cutting spending. And it showed. FDR took unemployment from MORE than 25% (that is one in every 4 people was unemployed), to 14%. In 1937, it shot back up. By 1939, the recovery was underway again, employment was up. It was still not healthy, as unemployment was still in the double digits, but it had improved. It took the massive spending of WW2 to put an end to the Great Depression.

But we can learn from this. FDR had no history of economic management to draw on. We do. The messages to reduce spending TODAY are the same ones FDR got in 1937. And, we also KNOW our recovery has not finished yet. That is obvious.

We can also see, that we have paid off seemingly insurmountable debt before. Truman did it. I don't know if you remember the end of the Reagan years - I do. Interest was high, and so was the debt. The pundits and experts were saying we could never pay it all off before 2050! And then only if we basically went on an anorexia level fiscal diet. Clinton did it, and we didn't suffer. And guess what? When all that debt freed up, and we had a better balance on the books? Business skyrocketed. Investment was everywhere. Which made everything even better, with MORE government income as a result.

So, I look around, and I see people who were NOT standing up and shouting about the spending and debt happening in 2002 and 2005, and they are shouting about it now. These are the same people, and their children, who were telling us lies about the economy before. Some of them are fanatics, some are fools, some are liars, and some are ignorant.

I'm going to trust the people whose actions have spoken for them. The same people who have consistently shown more responsibility towards fixing our economy and running a tight fiscal ship. The people who do less name-calling, and more doing. When it comes to politics, unfortunately, actions do not speak louder than words. I wish they did. We need first to take things back to where they were when they weren't broke. Start with taxes. Clinton found a good level. He was paying off our debt, and running a responsible government. We weren't hurting! People calling for more tax cuts, or even KEEPING the Bush tax cuts, acting like fools. HISTORY is there for us to read, and it is obvious that the constant tax cutting is not increasing our income.

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