Another phony debt ceiling crisis is inevitable, as are familiar progressive arguments favoring greater government spending.
Since 1980, the American left has disparaged the Laffer Curve, a tax theory which postulates that some tax-rate reductions will stimulate additional economic activity, thereby increasing Treasury receipts.
Arthur Laffer asserts, and history confirms, that rate reductions aren’t tax "cuts," but, often, revenue drivers.
The left is fond of quoting then-presidential candidate George H.W. Bush, who branded Laffer’s theory "voodoo economics" before accepting the vice-presidential nomination on a ticket headed by Ronald Reagan.
President Reagan’s Laffer-inspired, supply-side economic success launched Bush’s presidency, subsequently lost to an anti-Laffer, recessionary tax increase which permitted his opponent’s campaign catchphrase: "It’s the economy, stupid."
Missing or ignoring that irony, many people who ridicule the Laffer Curve embrace Keynesian economics, a leap-of-faith economic scheme that has been discredited by history. The Keynesian model is stubbornly revisited in President Barack Obama’s speeches urging additional billions in spending, omitting that, as promised, his first trillion-dollar plus stimulus (with interest) failed to hold unemployment below 8 percent.
The president’s Keynesian fantasy posits that more deficit spending – another stimulus – will improve economic growth, jobs and tax revenues.
In the circular reasoning that substitutes for logic among Keynesians, Obama’s first stimulus failed only because it wasn’t large enough, so "let’s do it again."
You see? Heads they win, tails they win.
But, if nearly $7 trillion in new debt in less than five years – a sixty percent increase in the national debt — wasn’t sufficient stimulus, what is?
The fundamental difference between the Laffer and Keynesian approaches is that Laffer’s allows taxpayers to keep more of their money to spend or invest as they wish, and Keynes’ encourages greater government confiscation of taxpayer assets to be squandered by politicians and bureaucrats.
To embrace Keynesian doctrine one must accept that the same officials and functionaries who lose billions annually running the Post Office and Amtrak and pay out additional billions in benefits to illegal aliens know how to spend our money better than we do.
Listen to the experts: Pacific Investment Management Company, the world’s largest bond manager, employs more than 1,400 highly experienced professional investment analysts and degreed economists managing many billions of dollars in client assets.
The Federal Reserve once hired PIMCO to manage $500 billion in distressed mortgages.
At one time PIMCO directed some of their clients’ assets into Keynesian-style pump-primed investments: politically-favored, government-subsidized projects, industries and businesses.
But, in a later analysis entitled "Saying No to Keynes and Fiscal Folly," PIMCO’s experts aligned with a sensible American public opposed to Keynesian government spending by a two-to-one margin.
Unshakable, Keynesian progressives tell us that spending and debt aren’t problems, that Standard & Poor’s downgrade of American debt was "political."
For the truth, look across the Atlantic.
Several years ago, we learned that Greece, a Keynesian poster child, had overspent and needed a bailout.
The European Central Bank and the International Monetary Fund (partially funded by American taxpayers) "took care" of Greece’s problem. Since then there have been bailouts for Ireland, Portugal — and more for Greece.
Additionally, the European Central Bank began buying Spanish and Italian bonds. European commercial banks (and some American banks) own bonds from all these financially-troubled nations, so, to avoid a banking crisis, the ECB began purchasing toxic bonds from banks, too.
It can’t end well.
Europe’s problem is that too much government spending has resulted in too much government debt which their economies cannot service. Oppressively high taxes remove assets from the productive elements of European economies, too, so, not coincidentally, unemployment is high in the failing countries.
Because of immoderate spending, most of the twenty-two interrelated nations using the euro are economically fragile, and the future of the currency is threatened.
The same things are happening here. Americans are witnessing the failures of progressive governance – higher taxes, government profligacy, monetary madness and policy failures that have ruined lives, increased joblessness, burdened and overregulated job-creating businesses, accelerated inflation, frozen capital and caused economic stagnation – and the same hubris that insists on making the same mistakes over and over.
Intoxicated by false Keynesian promises, too many American politicians advocate ever-bigger government and more government spending, but ignore the exhaustion of European-style socialism and the existential problems of Greece, Portugal, Italy, Spain and Ireland.
One suspects that their interests are more personal and political than public.