In a recent Financial Times article entitled The Coming Crises of Governments, the Times makes an incredible number of outrageous propaganda statements that I feel need to be highlighted.
The Times writes:
This week’s US debt deal, along with the prospect of debate on fiscal solutions in the run-up to the 2012 elections, provides some room for optimism. But America’s fiscal problems have deep roots.
The debt deal provides room for optimism? How so? The Times does not elaborate. Of course, any rational person can immediately recognize that if more debt didn’t solve our economic problems the first time, it is highly unlikely to solve them in the future.
The recession of 2007-09 stemmed from the unprecedented bust in the housing market, driven by reduced lending standards and propelled by congressional pressures on private lenders and the reckless expansions of Fannie Mae and Freddie Mac. It is, however, important to recognise that this mistake is now understood and will not be repeated.
The fact that congress pressured private lenders and recklessly expanded Fannie and Freddie is certainly one contributing cause of the housing crisis, but the primary factor that the Times leaves out is the artificially low interest rates created by Fed monetary policy that created the ability for such lending operations to exist in the first place. There is no mention of the Fed’s reckless monetary policies anywhere in the article.
Further, to claim that these mistakes will not be repeated, while at the same time acknowledging the Fed and congress are creating more debt, seems a bit presumptuous. ’This time we will get it right’ – but they have never gotten it right previously, so what makes the Times think they will get it right this time?
In the aftermath of the debt ceiling agreement there will be calls for further stimulus for America’s economy. This would be a grave mistake. In the financial turmoil of 2008, bail-outs by the US and other governments were unfortunate, but necessary. However, the subsequent $800bn American stimulus package was largely a waste of money that sharply enlarged the fiscal hole now facing our economy.
While I agree that further stimulus will cause more damage, and that previous stimulus was a complete waste of money, the “unfortunate, but necessary” argument is pure propaganda. If the previous bailouts did not accomplish an economic recovery, then clearly they were not necessary at all. The debt needs to be liquidated. Propping up zombie banks with tax payer money hasn’t solved anything.
The Times then goes on to call for a VAT tax:
The structure of marginal income-tax rates should then be lowered. Marginal rates should particularly not increase where they are already high, such as at upper incomes. The bulk of any extra revenue needed to make up the difference should then be raised via a broad-based, flat-rate expenditure tax, such as a value added tax. A rate of 10 per cent, with few exemptions, would raise about 5 per cent of gross domestic product.
Yeah, because a massively destructive VAT tax is just what the economy needs to begin creating productive private sector jobs.
The clown who wrote this article is a Harvard economics professor.
Clearly people who are paying the outrageous cost of a Harvard economics education are getting ripped off.