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DEBT: Adam Smith is only half-right

Letter by Richard Champion, Federal Way on July 29, 2011 at 12:21 pm with 20 Comments »
July 29, 2011 2:04 pm

Re: “Raising debt ceiling just the first step on road to fiscal health” (Viewpoint, 7-28).

As is typical for him, Rep. Adam Smith mixed both Republican and Democratic talking points in his near-constant aim to appear centrist. Unfortunately, many of those right-wing points are plainly absurd.

You cannot find an economist not funded by the Heritage Foundation who will state, as he did, “that getting our deficit under control is critical . . . to helping our economy right now.”

The problem facing our economy right now is demand. Consumer spending accounts for 70 percent of our economy, and large corporations are sitting on nearly $2 trillion. They’re not sitting on that money because of policy “uncertainty,” as Smith put, but because the poor and middle class can’t afford their widgets. They are the real “job creators,” not Wall Street investors.

Smith seems to believe in the “confidence fairy.” If that were to exist, federal bond rates wouldn’t be under 3 percent. He also seems to believe in contractionary expansion. Contractionary economic policies always lead to contraction. To believe otherwise is to believe in fairy tales.

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  1. How many of us, as individuals, would be able to afford home, a car, or college, if we were required to be debt free, and to live only on our income?

    How many of us could pay off our current debts within 10 years without increasing our incomes?

  2. LarryFine says:

    Ouch…

    “The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies.
    Over the past 5 years, our federal debt has increased by $3.5 trillion to $8.6 trillion.That is “trillion” with a “T.” That is money that we have borrowed from the Social Security trust fund, borrowed from China and Japan, borrowed from American taxpayers. And over the next 5 years, between now and 2011, the President’s budget will increase the debt by almost another $3.5 trillion.
    Numbers that large are sometimes hard to understand. Some people may wonder why they matter. Here is why: This year, the Federal Government will spend $220 billion on interest. That is more money to pay interest on our national debt than we’ll spend on Medicaid and the State Children’s Health Insurance Program. That is more money to pay interest on our debt this year than we will spend on education, homeland security, transportation, and veterans benefits combined. It is more money in one year than we are likely to spend to rebuild the devastated gulf coast in a way that honors the best of America.
    And the cost of our debt is one of the fastest growing expenses in the Federal budget. This rising debt is a hidden domestic enemy, robbing our cities and States of critical investments in infrastructure like bridges, ports, and levees; robbing our families and our children of critical investments in education and health care reform; robbing our seniors of the retirement and health security they have counted on.
    Every dollar we pay in interest is a dollar that is not going to investment in America’s priorities.”

    Senator Barack Obama
    Senate Floor Speech on Public Debt
    March 16, 2006

  3. aislander says:

    I read the Adam Smith (quel nom ironique) column and was struck by how platitudinous it was, completely devoid of specific remedies for the very real problems he acknowledged…

  4. aislander says:

    The comment after Adam Smith’s name was from Charles-Louis de Secondat, baron de La Brède et de Montesquieu. I’m not so pretentious as to post in French…

  5. theglovesRoff says:

    Nice find LarryFine.

    The hypocrisy never ceases to amaze me. If you follow Obama’s 2.5 years as Dear Leader, you will see that he is doing things 180 degrees out of phase from what he complained about when he was a senator for 5 minutes. Which means, it is all politics with this clown.

    But, hey, He was the “one”……

  6. It sounds like Richard Champion believes in the “demand fairy.”

    News flash to Mr. Champion: there are thousands of corporations in the country which have nothing to do with “Wall Street investors.” Their CEOs and other executives are quoted in the papers daily stating that uncertainty most definitely does affect their decisions. Uncertainty regarding proposed laws pertaining to taxes, tariffs, regulations, hiring, firing, health care and other benefits, etc. are all items which are taken into consideration by businessmen.

    I think Rep. Adam Smith is not much more than an empty suit, but he seems to know a little more than Mr. Champion.

    Also, xring: I could.

  7. Bugme,
    Really?

  8. xring:

    Yes, I could pay off my current debts in ten years or less without increasing my income.

    It’s not that I make a lot of money. I have very little debt.

  9. championrd says:

    Bugme, could it be that those unnamed CEOs have a personal and/or ideological agenda? The reason why big business, especially banks, want to keep interest rates, and therefore inflation rates, flat is so that they don’t take a haircut on the immensely overvalued mortgages they hold. Many pushed the idea that tax uncertainty is prohibiting job growth. Well, Obama has only lowered taxes, nearly 20 different small business tax cuts, with the largest being extending the Bush tax cuts. Yet, job growth has been terribly meek. CEO’s trumpeted the need to keep taxes low on “job creators” not for the sake of certainty, but for their own bank accounts. If you were owned a bakery, you’re not going to hire another baker unless you need to meet the demand of those buying your bread. The only thing a few percentage points on your taxes only affects is how large your bank account is. It is a personal agenda. For the same reason they crow about any potential tariffs, which haven’t increased by the way, because they worry that will hurt their quarterly profits, even if it drove them to move businesses back to the US. As I say, the main reason CEO’s raise the red flag when it comes to ‘uncertainty’ is because their own selfish self-interests.

  10. aislander says:

    Self-interest is something one can depend on. It is what gets you good service at Starbucks. The kindness of strangers is something that cannot be depended upon. It is what gets you indifferent service at the DMV…

  11. Mr. Champion, those CEOs are not unnamed. They all have names which are given in the articles and interviews they give daily.

    I’m sure they do have a personal or ideological agenda. Is it possible you have a personal or ideological agenda? I do. We all do. President Obama most certainly does. Show me someone without a personal or ideological agenda and you’ll show me a dead man.

    You seem to be hung up on big banks but my main point was that there are other non-bank companies who are not hiring or investing due to the uncertainty you insist doesn’t exist.

  12. championrd says:

    Uncertainty is an important matter when it comes to mid and long-term investment. But the largest uncertainty is what the economy will look like in 6 months, a year, 5 years. The essential principle of business is supply and demand. Uncertainty affects how you plan to meet that future demand by making investments now to prepare for it. The idea being that, as you say, if you don’t know what taxes, tariffs, regulations, health care, etc. will be in the future you can’t make the necessary cost-benefit analysis now. But its obvious to see that the greatest uncertainty for the future is what the demand will be like in the future as businesses don’t know if they if people will have money to buy their widgets in the future just like they don’t now. If the economy was running smoothly but large possible changes were on the docket, it’d be a different case. But that’s just not the situation we find ourselves in. People can’t afford to “consume” now and we don’t know when they will be. Its a demand problem now and in the future.

  13. Roncella says:

    Adam Smith, is much like a flag blowing in the wind with his opinions. Look at how he votes and at how many votes he is absent from voting.
    In the last session he voted,

    48 Progressive (Far Left)

    15 Conservative

    48 Missing—Absent—at roll call. ( source: Google )

    Whats the reason for so many missing votes ?

    This is what we are paying his wages for, very disappointing……wake up You Democrats you keep electing these do nothings year and year.

  14. geeterpontiac says:

    Don’t forget, voting records can be very misleading. It is extremely important to know not only which bills he voted on, what they did, and the vote totals.

    It is a common practice for politicians to vote in opposition to their party if there are sufficient votes to pass a bill without their help. It is a tactic that increases their appeal to independents by enabling them to claim they are middle of the road, or, that they are principled, or their own person. Nothing is further from the truth with Smith.

    Voters need to examine the record and see if a politician goes against their own party on a close vote.

    Anyone looking at Smith’s record will not find that. Sure, he voted what we might call Conservative a few times. But, those were occasions where his vote meant nothing in terms of passing a bill.

    Simply put, it was posturing. And, that is something Smith is very very good at. Lots of talk, but no walk.

    The same thing is true with the votes he was not present for. It enables him to avoid having to run on his record.

    But, he is always there and voting radical left when his vote is needed.

  15. LarryFine says:

    … and probably the biggest uncertainty is caused by a massive take over of the private sector with a plan that we had “to pass to find out what’s in it”… “word”… a plan that we are forced to purchase and fined if we don’t.
    Which covers at least ten million more people without adding a single new doctor, but provides for 16,000 new IRS agents, that was written by a committee whose chairman says he doesn’t understand it, passed by a Congress that didn’t read it but exempted themselves from it, and signed by a President who smokes, with funding administered by a treasury chief who didn’t pay his taxes, for which we’ll be taxed for four years before any benefits take effect, by a government which has already bankrupted Social Security and Medicare, all to be overseen by a surgeon general who is obese, and financed by a country that’s broke!!!!!

    KOOKY…

  16. championrd says:

    He did vote to extend the Patriot Act just a few months ago. He voted to for the pivotal banking deregulation Gramm–Leach–Bliley Act. I think its fair to say he’s about as much an “establishment Democrat” as they get.

  17. geeterpontiac says:

    No LarryFine, it isn’t the least bit “KOOKY”, it is criminal.

    It is worth remembering the words from Mario Puzo’s book, “The Godfather” to Tom the Jewish kid who wanted to join the gang.

    It went something like, “No, I am going to send you to Harvard and you will be a lawyer. You can steal more money with a brief case than with a gun”

    That is what our Congress is all about today. The corruption is out of pervasive, deep rooted, and the longer they have been there, the less they care about us or the country.

  18. geeterpontiac says:

    Sorry for the typo. I meant to say,” the corruption is out of control, pervasive, “

  19. LarryFine says:

    championrd invokes the classic deflection of an ideologue… when their ideology fails, claim the guy they elected and rabidly supported wasn’t actually ideologically pure.

  20. davehill90 says:

    You don’t think the debt matters? Can’t find an economist outside of Heritage that thinks so? Sure.. like we can’t find anyone who doesn’t go along with climate change, etc. It’s all about the mob mentality in pure democracy. We are a democratic republic for good reason.. and the ‘fairness’ is only insured by preserving the inequality

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