New Paradigm in Econ Byrne & Derbin Rational analysis of current economic conditions

August 23, 2009

2009: Deficit Spending Gone Wild

Perfecting the Art of the Chinese Fire Drill: The Obama Era continues with massive fireworks – err, spending

Spending run amok…

For younger readers, you may have to ask someone older to explain what the meaning is of a Chinese fire drill. I can tell you what one looks like: it is the absolute fiscal mess coming out of our nation’s capitol, aka, the Beltway. The British sacking Washington D.C. during the War of 1812 was a small campfire compared to the fiscal insanity now going on. Never before have so few done so much to wreck an economy for so many, to paraphrase Winston Churchill. Dolley Madison, where are you now when we really need you?

The term trillions of dollars has now replaced billions of dollars. Not very long ago, a few million dollars would have required an explanation. Now, it is several billion for which there is often no explanation or perhaps, several often conflicting explanations, depending upon which government official is speaking at the time. No sense asking your Congressional representative, it has become abundantly clear that they never bother to read the bills they have legislated into the law of the land. This is the new meaning of political illiteracy.

The deficits of the previous presidential administration were ridiculed during the recent political campaign and were promised to be expunged by significant tax increase, but on the rich of course – since they have few votes. Now it’s apparent that a 100% tax on incomes above $250,000 would only fund for around nine months the huge increases in spending already passed not counting those soon to come. Not to worry, though, the middle class will help to share the burden to avoid financially destructive deficits.

incdistribution

The Middle Class: Not as deep of pockets as you might think

Remember who the middle class is…

The median (average) income is around $48,000.

http://www.census.gov/hhes/www/income/histinc/h06ar.html  

That is the middle of the middle twenty percent of the income distribution. The bottom threshold of the middle income class so defined is around $39,000 http://pubdb3.census.gov/macro/032008/hhinc/new05_000.htm. But even using the middle of the middle class, for a household to earn $48,000 a year with two members employed, each would have to average a compensation rate of $12 per hour. This assumes a full-time job for each, at 2,000 hours per year, or approximately 8 hours per day, five days per week for 50 weeks. Given the rising unemployment rate and additional forced reductions in hours, the ability of the middle class to earn such compensation may not be there for some time to come. $12 per hour is not exactly rolling in the dough. It should be noted non-wage compensation is around 30% of total compensation (or another $4.50 tacked on to the $12 per hour in money or wage compensation) according to recent reports by the US Labor Department http://www.bls.gov/news.release/ecec.t01.htm.

…and what about the Greedy Geezers?

What about the seniors in this drama? These huge forecasted deficits would be even larger if they did not include huge cuts to Medicare. This sounds more like a bait and switch scheme than a more inclusive health care policy.

Government officials, elected and appointed, should have the same health care as non-governmentally employed citizens, and should have to pay the same taxes without the huge tax exempt expenditures. Why are they given special treatment? They should get in line with the rest of us.

These policies are not a New Deal reincarnated, or a Fair Deal, except for the anointed receiving bailouts and windfall not deserved. You know…the investment bankers (TARP), the auto firms (bailouts, bankruptcy and clunkers), the community activists (stimulus package), etc.

What a big oak tree, coming from such a small acorn!

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