January 25: Chutes & ladders

25 January 2010 | 326 Comments » | pablo

Behold the wailing about the Guv’s ‘10-’11 budget that calls for a less than 1% increase.  Every special interest is revving up its whine.  Brace your ears for the caterwauling!

Get over it, kids.  Everyone spent too much in the Big Run-Up that preceded the Great Recession.  The bubbleized U.S. economy got overheated.  Flush and greedy, we spent our home equity money and pseudo stock profits on cruises, condo’s, and more stocks, bonds, and gold.  Federal and state governments and authorities dramatically overspent the seemingly infinite tsunamis of taxes pouring in from banks and brokerages.

It all got brought up short by risky financial shenanigans and risky Clinton-Bush public policy (hey, every American deserves a home for nothing down, Fanny and Freddy).  Now we’re trying to prop up where we topped out, with serial TARP.

The economy rises legitimately when new innovations (PCs, the internet, nanotechnology) fuel efficiency, productivity, performance, and more innovation.  It rises falsely when the fuel is military-protected oil prices, home equity checkwriting, and mythical stock market profits.

It stands to reason that almost all families, government, and public services need to dial down.   The economic “top” we hit in 2008 was a fiction.  Trying to get back there based on fiscal and tax policy is foolish and reckless.  Propped up prosperity is a governmental Ponzi scheme, one that willmake Madoff look downright pristin.

Hey, everyone.  Get real.  Accept the economic chute.  Start afresh, from a lower more realistic rung on the GDP ladder.  My friend Floyd Rayburn reminds me of this good idea:  every state should pass a constitutional amendment that it can not spend more in any year than it actually raised in taxes the previous year.  The resulting pain would be intense but shortlived.

Ask Japan about the long term pain of utter financial collapse.  Theirs happened nearly 20 years ago…and they have not yet recovered.  Their stock market is below where it was in 1990.

Guv — stick to your budget guns.