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Thursday, May 01, 2014

The National Debt

I think the only time the USA had as massive a debt as today was immediately after World War II.

At that time, we had:

(1) enormous growth of the economy, for we financed and re-built the nations in our sphere of influence which had been devastated by the war;

(2) we had a progressive taxation, which reached a maximum of 80% (or more?) for the extremely high income groups, keeping in mind that taxation was partially offset by the augmented return on capital for these groups;

(3) the government used various approaches to keep inflation under control, somewhat reminiscent of what the Fed is doing today.

Today we do not have anything remotely similar to the enormous rate of economic growth now nor in the future, as far as we can see.

Today we have reduced taxation even on the extremely wealthy to low rates.

Today we have the spectacle of the government having put in place various procedure by which enormously wealthy corporations (who were treated like individuals originally to limit liability for shareholders, but now who are finding that status as individual being extended by our government to that of "super individual") may end up paying no taxes whatever:

Bloomberg View
Matt Levine writing on Energy Future Holdings' bankruptcy Apple did a $12 billion bond deal to avoid taxes, and Pfizer is working on a $98.7 billion merger to avoid taxes, and both of those things have come in for some criticism. But Energy Future actively chose not to avoid taxes. It could have avoided taxes.

In a brief summary, there is no politically feasible approach today.

None. Let that sink in.

If we go to Austerity and slash spendings with gusto with nothing else - and Austerity will saunter in on its own two legs in the future if we continue to dither - we will destroy the lives of millions. However, in the past this approach has been done and continues to this day in places like Greece.
Those destroyed are mute.
Soon afterwards, the party of modern capitalism continues.

So the economic conditions are not set on Boom!, we cannot increase taxes, we cannot even collect taxes from the richest corporations, we cannot slash benefits willy-nilly....

We shall do something eventually.

That is why I say that this continuing crisis will be balanced upon our backs. As the politicians continue to do nothing, the most grisly and unfortunate outcomes will overwhelm us due to our inaction.


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