Reply from Congressman Emanuel Cleaver concerning OrphanWorksActof 2008

[Matthew Copple]

On 8/13/08 12:39 AM, "Jeffrey Watts" <jeffrey.w.watts at gmail.com> wrote:

> On Tue, Aug 12, 2008 at 5:10 PM, Jon Pruente <jdpruente at gmail.com> wrote:
> 
>> 
>> Fuel costs aren't tied to the tax rate, but rather the value of the
>> dollar (through equity adjustments) and market rates.  Food costs have
>> been historically low due to govt sponsored subsidies that prevented
>> the market from raising prices in reaction to economic conditions.
>> Now the prices go up and people scream bloody murder at the correction
>> in prices that were artificially low.  How is that related to the tax
>> cuts?
>> 
> 
> Fuel costs are DIRECTLY affected by the value of the US dollar.  The US
> dollar has been plummeting in recent years due to the increasing debt load
> of the US government and the subsequent devaluation of US Treasury bonds.
> The tax breaks dramatically increased that debt load, and therefore
> contribute to the devaluation of the US dollar.
> 
> The dropping dollar increases fuel costs (as oil is traded in dollars),
> which not only affects costs of basic goods (as they must be shipped) but
> also dramatically increases the cost of cereal food products such as wheat,
> corn, soybean, etc as farmers are planting corn in droves to be used in
> ethanol production, which due to the high fuel costs is now very lucrative.
> 
> So yes, the tax breaks and poor fiscal management of the GOP and Bush have
> directly lead to higher fuel prices and basic goods costs.  Yes, speculation
> and increasing demand also contribute, but the poor financial footing the US
> government has right now is a major problem, one that will only get worse as
> we spend spend spend and yet are foolish enough to want lower taxes.  Can't
> have both.

Confidence in a currency is not as simple as saying "More debt, bad, less
debt, good." If it were, currency trading would not be nearly as profitable
(or pregnant with risk) as it currently is for its participants.

There are dozens of major streams of economic thought, and currency traders
tend to fall into all of them. They tend to follow those ideas when they
make decisions about whether to buy or sell currency. It is those decisions
that makes the dollar "high" or "low."

There are a lot of things weighing on the currency right now, and most of
them are out of the control of the government. The war certainly weighs in,
as a nation's political standing has an effect on its economic standing. But
I think there are some more fundamental issues effecting the currency, and
therefore, even if we had never gone to Iraq or Afghanistan, we would still
be in this situation today.

It is ethnocentric (and dumb) to give George Bush (or any politician) credit
for tanking the currency. People invest money where they see the highest,
most predictable returns. Thirty years ago, the greenback, the yen, and the
pound were the only currencies with substantial trading power, because the
American, Japanese, and British economies were the only economies with
substantial growing power. Today, however, the EU has allowed the Europeans
to combine into a super-economy, and developing countries of thirty years
ago (the Asian Tigers, China, Indonesia, several South American economies,
some African economies) are now established in their own right. That
economic power means that companies doing business overseas need to have
access to their currencies, and investors can look to instruments
denominated in many currencies, rather than just the pound, dollar, or yen,
to make returns. Because other nations are becoming as prosperous as we are
(a GOOD thing), their currencies become more attractive, and the limited
supply of money has to come from somewhere -- our dollar.

While ethanol and the "low dollar" are contributing to price spikes, they
are not the sole cause (and in fact, are a minor contributor). The major
contributor to higher prices of commodities is greater demand. As consumers
in Russia (which was bankrupt a decade ago) and China get more affluent,
they want refrigerators, larger homes, cars, and more food on the table.
They have more money, so they are willing to pay more for those commodities.
But it isn't just those two (admittedly giant) economies; it is also many
smaller economies, from Brazil to Viet Nam, that are benefitting and
contributing to demand growth.

This is a GOOD thing. It hurts us in the beginning, because we are used to
lower prices, but eventually, supply will rise to meet demand, and prices
will stabilize again. More importantly, higher incomes overseas translate to
greater demand for American products overseas, increasing export
opportunities and creating jobs.

> 
> 
>> You still haven't answered what I asked: How did the tax cuts (that
>> have brought more revenue to the treasury) ruined the economy and done
>> anything to the war?
>> 
> 
> Tax cuts while spending billions on a war is something this country has
> never done before.  You must either cut expenditures or raise taxes, should
> you choose to engage in warfare.  This is common sense, and the failure of
> our government, lead by the GOP, to do this has lead to our historically
> high national debt and the devaluation of the US dollar.
> 
> 

Prove it. I think you'll find we've managed to fight most of our wars
without burdening taxpayers with extra taxes. The Revolutionary War was paid
entirely out of tariffs. The Wars of 1812 and Mexico were fought without tax
increases, as was the Barbary War. I believe you will also find it true for
the Spanish-American War, the colonial wars of the early 20th century, the
Korean and much of the Viet Nam war, as well as more recent actions such as
Kosovo (which we have now occupied for over ten years), the first Gulf War,
and Grenada.

Saying "Tax cuts while spending billions..." gives you an out, I suppose,
since we didn't spend billions on the Barbary War, for instance. As a
percentage of Federal income, however, we spent more on our 19th century
wars than we have in the 21st century.

The amount we have spent on the war is trivial compared to spending on
Social Security, Medicare, and other non-discretionary spending. The war is
expensive, and certainly contributes its fair share to the budget deficit,
but it alone is not a reason to raise taxes. Regrettably, our social welfare
spending is going to force us to do so, whether we want to or not.

Now, I am not arguing for or against social welfare. I am simply saying that
if we want it, we'll have to pay for it, and it will cost far more than a
foreign adventure in Afghanistan.

>> And how is that a part of the tax cuts? I'm not arguing good vs bad on
>> Bush as a whole, but the tax cuts.  Govt spending is the real bad
>> issue right now.  That's where the debt and deficit come from, read
>> the facts.
>> 
> 
> Of course you aren't, because people that voted for him now want to pretend
> that they didn't.  The GOP put us in the hole by cutting taxes and
> increasing spending.  Unfortunately given the challenges this country faces
> I don't feel that we can get ourselves out of it quickly.  The levers of
> power are manipulated by government largesse, and until there's a balanced
> budget amendment to compel Congress and the President to be fiscally
> responsible that won't happen.
> 
> But at least with the Democrats in power we won't keep up the tax breaks for
> the wealthy.  Trickle-down economics is bunk.  Taxes need to go up, spending
> needs to go down.  Operating at a deficit can no longer be allowed to
> continue.

Democrats love tax cuts as much as the next man. Obama's platform is full of
them, and no matter which party is in charge, the only folks who will vote
for a tax increase are those who have signed electoral suicide pacts.

"Trickle-down economics" is bunk, because it doesn't exist. It is a
political phrase, like "supply side economics," "the Great Society," "the
Square Deal," or "the New Deal." It is mouthed by uneducated bumpkins who
prefer to jawbone ideology rather than talk real economic theory.

We can begin the conversation by admitting that the Federal deficit is a
straw man. 

Every MBA learns that debt is a legitimate financial tool for business
growth. Some businesses (Microsoft) have such a commanding lead in their
market that they are cash-rich; most companies, however, are not so
fortunate. In order to expand in good times, and sometimes to maintain the
business in bad times, they need debt. Few Americans could own homes, or go
to college, without taking on some debt. Many older Americans rely on the
credit markets for income -- they buy the debt of others (bonds, commercial
paper) and use the interest for income.

If debt is a legitimate financial tool for businesses and consumers (and I
assure you that it is), then why is it not a legitimate tool for government?

The answer is because political office-holders say so. There is no economic
reason why a government cannot borrow money, as long as it pays it back (and
the U.S. Government has never defaulted on its debt). The interest generated
brings benefits to creditors, the majority of which are individuals like you
and I, through our 401(k), 403(b), pension funds, IRAs, 529s, and mutual
funds. I am happy for government debt, because it takes some of the
volatility out of my retirement portfolios.

Government debt has to be balanced against national economic activity, but
the fact is that as a percentage of our economy, it is very small right now,
no matter how large the numbers look. A nation such as Mexico cannot handle
the amount of debt that the US can, just as someone making $17,000 a year
cannot handle the same amount of debt as someone with $200,000 in income.

If you believe all the kaka flying out of Washington about "balanced
budgets" and whatnot, then you are a fool. Now, like everyone else, I get
distressed by foolish spending, but the fact is that the amount wrapped up
in "Bridges to Nowhere" and research projects on the sex lives of Monarch
butterflies pales in comparison to what we spend on Medicare and Social
Security. "Earmarks" and "balanced budget" talk points are designed
specifically to take your eye off the real ball, which is the failure of our
national leadership to take a hard look at our entitlements and how they are
to be paid for in the future. It is much easier to sponsor an amendment that
will never pass, or rail on someone for a piece of pork, than it is to
explain that we have to make hard economic choices if we are to maintain our
social safety net.

I am certain that the drive to privatize social security by Bush a couple of
years ago, or Clinton's universal health care proposal, will elicit a wide
variety of opinions. But no matter how you feel about the individual
programs, the fact that both Presidents, and substantial numbers of
Congresspersons, felt it was important to discuss was a GOOD thing. We need
more discussion.

Matthew Copple

> 
> Jeffrey.