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The Causes of the Recession and Government Deficits : A Reply to a LawPundit Posting and Our Rebuttal

By Andis Kaulins

The LawPundit received the following email reply from Brian Riedl, author of a WSJ op-ed, to our posting Income Inequality is the Cancer of the American Economy : WSJ Errs in Trying to Exculpate Bush Tax Cuts as a Major Cause of Federal Deficits - our rebuttal - directed primarily at the Heritage Foundation and not the op-ed author - is found below under each point raised in the reply.



>1) My op-ed is about federal spending.
>Your graph consists of total spending by *all* levels of government
>(including state and local).
>Oops.


In fact, your op-ed uses the term "federal spending" only once, and that only in the last sentence of the article !  Oops. The Title of your Article is "The Bush Tax Cuts and the Deficit Myth: Runaway government spending, not declining tax revenues, is the reason the U.S. faces dramatic budget shortfalls for years to come." Oops. If you meant to restrict that phrase to federal spending and your entire article to federal spending, that is what you should have written. If you title your article "government spending" then I am going to use figures on that. Income inequality is a cancer at all levels of government. You chose to use some federal government figures. Fine. This does not change the arguments.

Riedl replied to our posting as follows:

>2) My paper says that by 2020,
> the rising deficit will be caused by above-average spending
>rather than below-average revenues.
>The graph upon which you base your rebuttal doesn't >even go past 2010.
>Oops again.

Our LawPundit rebuttal:

Yes, I try to concentrate on known facts, i.e. what is actually happening and what has happened. Your tea-leaf-reading projections 10 years in advance of the present have little relevance to the causes of the present deficit situation and to the role of the Bush tax cuts in creating that deficit.

It is always possible -- depending on one's political persuasion -- to construct future budget and economic projections of all kinds. The fact is, nobody knows for sure, otherwise you could just make wagers about the next 10 years at your local betting shop and rake in the cash, when and if you are right, which is uncertain. The current financial crisis has caused trillions of dollars of losses in the stock market, in real estate, in income and similar losses suffered by people and institutions relying on projections just like yours that were false. Oops.

Riedl replied to our posting as follows:

>3) My budgetary source is the Congressional Budget Office.
>Yours is a graph from some
>obscure website (which, again you don't use even correctly).

Our LawPundit rebuttal:

I am not sure what your definition of "obscure" is. The website I used comes up 3rd in Google if you plug in the term "federal spending". I use the website correctly, reproducing one graph accurately, and the graphs available at http://www.usgovernmentspending.com/ are in fact outstanding, using official government figures as their sources. Quite the contrary, if you plug in the search phrase "federal spending" at the website of the Congressional Budget Office you get more or less useless garble as possible results, typical for the government, which compiles federal spending data but has little idea what they should do with it. Oops.

Riedl replied to our posting as follows:

>4) My paper doesn't discuss income equality because....
>its not about income inequality.
> Its a budget analysis of how much current federal policies cost.

>Are you also going to criticize me for not including my 2010 NFL picks in the column?

>Try again.

>Brian Riedl
>Heritage Foundation


Funny. You yourself write in your article: "First, the wars, tax cuts and the prescription drug program were implemented in the early 2000s, yet by 2007 the deficit stood at only $161 billion. How could these stable policies have suddenly caused trillion-dollar deficits beginning in 2009? Obviously what happened was collapsing revenues from the recession along with stimulus spending."

"Collapsing revenues", my friend, have EVERYTHING to do with income, INCOME.

Government revenues are dependent on INCOME. If the income equation is faulty, the house ultimately comes tumbling down, and it did so in this financial crisis. The fact that you do not write about income inequality indicates that either you or the Heritage Foundation do not fully understand the long-term causes of the recession or the long-term underlying reasons for current government deficits, and that conclusion was the entire point of my original posting.

Try again.
Recall that I am a political centrist and by no means against private capital accumulation. However, taxation has to be sensible because it is the political and economic system that creates, protects and sustains wealth. The profiting individuals themselves are to a large degree fungible in the system. That is the whole theory of the "American way of life": no matter who you are, you can make it in this system, if you play by the system's rules.

Taxation by the system which enables the wealth has to be such that it sustains the system that does that enabling. When it does not, the system collapses.

In Europe, countries such as Greece labor under a similar problem -- the system enables great wealth, indeed there is great wealth in Greece, but the Greek government is incapable of taking its fair share of wealth from those who have been enabled to accumulate that wealth by the system. The result of widespread tax evasion is that gigantic government deficits are created. Income inequality and maldistribution of wealth by false taxation then kill the golden goose.

The Obama Administration is now in the position of trying to revive that same golden goose in the United States, where income structures and taxation are totally out of whack. The formula is simple: if the system enables you to have geat wealth, you have to give back, a lot, to keep that system intact.

All this irrelevant discussion about runaway federal spending is just a smoke screen for the real problem, and that problem is income inequality (in the U.S.A., exacerbated by idiotic tax cuts).

Andis Kaulins
J.D. Stanford University Law School, 1971

P.S. You mention the NFL. Look for the Detroit Lions to be a vastly improved team this season.

Full post as published by LawPundit on July 24, 2010 (boomark / email).