A Prosperity Easy to Destroy (excellent read!!!)

[웃 910]

G**Damn was this superbly written. Spot on. Perfection. Who is this guy and has he written any books?

*ignore the date. If you don't read history you are doomed to repeat it!

A Prosperity Easy to Destroy

By Robert E. Rubin

Published: February 11, 2001

Instead, the fiscal discipline that was so central to the remarkable economic conditions of the past eight years is the best path for both our short-term and long-term economic well-being. A brief look back can provide very useful guidance for going forward.In 1992, the unemployment rate was over 7 percent, the fiscal deficit was $290 billion and projected by the Congressional Budget Office to grow to over $500 billion in 2001 from there, the federal debt had quadrupled over the preceding 12 years and was projected to double again by 2001, and the prevailing view was that economic conditions would remain mediocre well into the future.

The economic transformation that followed included massive job creation, rising incomes, low inflation, unemployment now at 4.2 percent, and today's large current and projected surpluses. Many factors contributed to this transformation, including globalization, new technologies, vast corporate restructuring, and our flexible labor and capital markets. But I think there is no doubt that key and indispensable to this was the restoration of fiscal discipline, beginning with the deficit reduction program of 1993.

Just how dramatic a change in economic policy this was is evidenced by the vituperativeness of the opposition, with strident predictions of vast increases in unemployment and recession.

Instead, fiscal discipline contributed greatly to lower interest rates and, very, very importantly, restoration of confidence by consumers and business after deficits had come to symbolize a much broader set of concerns about our ability to manage our affairs. The result was increased demand; increased investment, especially in the new technologies; increased productivity; and sustained growth in gross domestic product, jobs and incomes.

We are now in the process of unwinding the excesses that, in my view, inevitably develop after an extended period of good times. To minimize the difficulty and duration of that unwinding and to best realize our very favorable longer-term prospects, we should continue with our hard-won fiscal discipline and not adopt a greatly outsized tax cut that seriously threatens the federal government's fiscal soundness.

There is broad agreement amongst virtually all mainstream economists that a tax cut this year is unlikely to provide meaningful economic stimulus to deal with whatever adverse circumstances may occur this year. Moreover, if a tax cut is desired for short-term stimulative purposes, the vast preponderance of the one proposed -- which affects later years -- is largely irrelevant. Instead, a front-end-loaded, moderate tax cut, or even a special rebate aimed at working people with the highest propensity to spend, would maximize current economic impact. The point would be to achieve increased short-term demand without causing a level of fiscal deterioration that would, on balance, damage confidence.

The serious threat of the proposed tax cut to fiscal soundness becomes apparent when you look at the numbers a little more closely. The surplus of $5.6 trillion as projected by the C.B.O. is roughly $2.1 trillion after deducting Social Security and Medicare surpluses -- as many members of Congress in both parties have advocated -- and making realistic adjustments to better represent future spending on current discretionary programs and tax revenues. Since the proposed tax cut would cost $2 trillion, or $2.2 trillion if an alternative minimum tax adjustment is included, it would entirely use up the remaining surplus, with no additional debt reduction. And that leaves nothing for special programs that already have broad support, like a prescription drug benefit or a greater increase in defense spending for a missile defense system, or other purposes or additional tax cuts, all of which are almost sure to happen this year or over the next few years. These spending increases and the additional tax cuts could well cost between $500 billion and $1 trillion, leading to a deficit under this analysis of the C.B.O. projections.

Moreover, five-year budget forecasts, to say nothing of 10-year forecasts, are highly unreliable -- just look at the forecasts that were made five or 10 years ago. Thus, even if you favored a very large tax cut as the preferred use for available surplus -- which I emphatically do not -- even a moderate degree of prudence would suggest waiting a few years to see whether or not the projected surpluses are actually occurring, meanwhile paying down debt. That would also be in plenty of time to deal with any concerns about the uses that might be made of the surplus after the debt is retired. The suggestion that tax cuts could be rescinded if projected surpluses don't materialize seems unlikely politically.

The political impetus in Washington is toward tax cuts and spending. Real progress has been made over the past decade toward a political mindset of discipline, but that is always highly vulnerable, and a very large tax cut is a significant step back to the political mindset that produced the deficits and quadrupling of the debt from 1980 to 1992.

The imperative for maintaining our fiscal discipline and not taking a risk of losing the current opportunity to retire the publicly held debt of the federal government is increased by the importance of putting the federal government in the best possible position to meet the Social Security and Medicare requirements of future generations, when the federal budget is projected to be in deficit again.

All of this is independent of the question of how best to use the surplus available on a fiscally sound basis. My own preference would be to divide this between debt reduction, a more moderate tax cut predominantly favoring middle-income and lower-income people, and special initiatives in important areas like education and health care. Others have different views. But we should all agree that it would be profoundly unwise to seriously risk the hard-won fiscal discipline that has brought so many benefits to our nation.

We have had a remarkable eight years after a far more difficult period, including a recession in 1990. We should learn from experience and stay with a landmark change in strategy that worked, not take the path that experience suggests poses a real threat to our economic well-being.

Robert E. Rubin was secretary of the treasury from 1995 to 1999.http://www.nytimes.c...nted=all&src=pm

Edited October 18, 2011 by Lord Infamous

[scandal 951]

G**Damn was this superbly written. Spot on. Perfection. Who is this guy and has he written any books?

.....

Robert E. Rubin was secretary of the treasury from 1995 to 1999.

But of course, you knew that, didn't you?

[웃 910]

But of course, you knew that, didn't you?

Yes I did...Well, I read the last line but never heard of him before. Great article, huh? Or was it just me.

OH NOOEES....Messed up the article severely....MODS please fix! Whoops

http://www.nytimes.com/2001/02/11/opinion/a-prosperity-easy-to-destroy.html?pagewanted=all&src=pm

Edited October 18, 2011 by Lord Infamous