The right eloquence needs no bell to call the people together and no constable to keep them. ~ Emerson

Monday, January 5, 2009

Out the Door

I still remember an Accounting 101 instructor joking with my class long ago over an easy way to remember which sides of a ledger that debits and credits belonged respectively by relating them to our classroom’s topography. Debits, he explained, belonged on the side of the ledger nearest the windows and credits on the side nearest the door.

At the time, I remember musing over whether any of our budding business careers might wind up doomed should any future employers place us in an office with the door and windows on the opposite sides to those of our classroom. (The potential problems presented by a cubicle’s topography never even occurred to me.)

As I watch the current debate over President-elect Obama’s proposed stimulus package, I wonder anew if the classroom for Political Science 101 happened to have both its door and windows on the same side. Nobody in Washington appears able to tell the difference between a debit and a credit.

The New York Times contains a page one story today that begins –

“President-elect Barack Obama plans to include about $300 billion in tax cuts for workers and businesses in his economic recovery program, advisers said Sunday, as his team seeks to win over Congressional skeptics worried that he was too focused on government spending.”

In addition to a substantial middle-class tax cut, Obama is backing off his campaign promise to raise taxes on the wealthiest Americans. He also now plans to let President Bush’s tax cuts for these same taxpayers expire in 2010, rather than try to repeal them sooner.

According to the article, Obama and his advisors hope that playing up tax cuts will allow them to frame his plan “as a balanced, pragmatic approach.”

This spin may well work but its success depends on the apparently valid assumption that Congress forgot there are two sides to a ledger long ago.

Spending increases and tax cuts do not “balance” each other from anything other than an partisan ideological/political perspective. From a simple accounting/business standpoint, both lead to increased red ink in the ledger.

Conservatives vexed by escalating deficits are quick to catch a paradoxical duality between Obama’s proposed spending versus his pledge to rein in the federal budget. “It's going to be interesting to see which Obama takes over,” says David Williams, vice- president of policy for Citizens Against Government Waste. “Is it the one who believes that government spending is the way to get us out of this mess? Or is it the one that wants to get rid of earmarks?”

Yet those same conservatives, especially Republicans, continue to extol tax cuts, despite them having the same (immediate) economic outcome. As New York Times columnist Paul Krugman pointed out Sunday, tax cuts never face the same costs versus benefits justification consistently required of spending increases.

Obama’s policy shifts represent less a contradiction in terms than a change in direction. In light of the current financial crisis, he has chosen to prioritize stimulating the economy, particularly in the form of job creation, over budget restraint.

Beyond his aforementioned tax proposals, Obama wants to give employers a tax credit for each job created and use other incentives to deter them from cutting jobs. Still other tax breaks are under consideration to fuel capital investment.

Krugman maintains this is the only way to proceed, arguing the recent collapse in financial markets disproves the assertions of Milton Friedman and other monetarists and reinforces the contention of John Maynard Keynes that fiscal policy is the only effective tool of government under depression conditions.

Congressional Democratic leaders already warn a stimulus package will not be ready by Obama’s inauguration, principally due to hostility from deficit hawks. Obama’s new direction may not please them but at least he can explain/justify his change in direction. Republicans ought to take the same cynicism they stockpile for spending and apply a little self-reflection over their regard for tax cuts as a panacea.

If not, politicians will amply demonstrate, once again, that the only two-sided construct they understand is the one split down the middle by the Congressional aisle. In that case, the topography of the House and Senate chambers are irrelevant and any chance for fiscal restraint in the next four years is already through the windows and out the door in an attempt to balance an ideological ledger.

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