Tag Archive: fiscal policy

The Difference Between Deficits, Debt and How Scott Garrett’s Fiscal Philosophy Dooms us All

Cross posted from www.retiregarrett.com

Scott Garrett wants his constituents to believe that his brand of fiscal conservatism is a solution to the economic woes of the Federal government.  After all, the United States has run an annual budget deficit of over $1 Trillion every year Barack Obama has been in office.  WOW!  That sounds really bad, and it is.  But let’s stop for a few minutes to understand how we got in this position; what we’re doing about it; and the history of budget deficits over the last 30 years (after all, you can’t be expected to know where you’re headed if you don’t know where you’ve been).

Deficits are different from debt.  Debt is the running total of all the deficits we’ve accumulated over time.  Annual deficits are just that; annual.  As an example, if I earn $300 dollars a year, but spend $400 a year, I’m running an annual deficit of $100.  I need to borrow that $100 difference and let’s say further that you were kind enough to make me a loan.  I continue my spending patterns for 5 years, and as a result I’ve had to borrow $100 from you every year and haven’t paid you back.  So after 5 years I owe you $500. (to keep things simple I’m excluding interest owed on the borrowed money).

Reaganomics And Christie’s Budget Cuts

Once upon a time, there was a man named Ronald Reagan. After many years of social programs being well funded by taxes on the rich, Reagan decided he had a different idea of how he was going to do things, because after all, he was the rugged individualist spreading his faux-populism around and boiling economic and foreign policy down to cowboy utterances

He decided to institute a policy called Reaganomics, or in other words, “trickle down economics”. The idea behind this economic theory was that tax cuts without strings attached towards the top end could create jobs; because, after all, corporations could be trusted to create jobs with that tax cut instead of, say, spending that money on a trip to the Cayman Islands, where one will stay 7 days and 6 nights at the top resorts and eat the finest food, and see the sights in luxury, and maybe sometime in between, deposit some money in that secret account.

The result was predictable: the best analogy for it would be the rich kids getting lots of presents each in the hope that some of those presents would trickle down to the less fortunate, and the parental unit turned a blind eye as they used all the toys for themselves.

Now, flash forward nearly 30 years later. New Jersey, after many failed policies, decided to elect the no-nonsense prosecutor Chris Christie, who was the proponent of Reagan-esque economic philosophies. He decided that he was going to take a hatchet to school aid much like Reagan took a hatchet to taxes on the upper class. Problem is, it relies on the same trust Reagan put to the higher ups. Reagan trusted that the higher ups would create jobs with their tax cuts, and Christie is hoping that the higher ups will cut administrators before teachers with these municipal aid cuts, which as we all know, the “paraprofessionals” will keep their job, while teachers are cut and class size explodes.

If Reagan and Christie had attached more strings to their actions, then they could have made more sense. If Reagan had made his tax cuts conditional on job creation, and if Christie had put meaningful caps on administrative positions and salaries, it could have made sense.

The moral of the story is, you can’t use a hatchet where you need a scalpel!!!