Friday, September 16, 2005

Hurricane Katrina and Deficit Spending

While listening to the radio this morning, I briefly heard a comment by Republican Senator Trent Lott who's own house was destroyed by Hurricane Katrina. The comment went something like, Being a fiscal conservative ends with a natural disaster. I don't remember the exact wording however.

Anyway, it looks like hundreds of billions of dollars will be added to the national deficit recovering from Katrina. Even fiscal conservatives, who had been preaching "limited government on domestic affairs," are admitting that this recovery is beyond what just the "private market" can accomplish.

We may be paying for some miss guided fiscal conservatism of past years. If more money had been spent on the levies over, say the past 25 years, much of this clean up bill could have been avoided. Those old phrases like, "an ounce of prevention is worth a pound of cure," and "hindsight is better than foresight" apply.

It is important to invest in America's domestic needs. Many of these investments, like levies, transportation and even preventative health care for low income people are often more likely to come from government than private enterprise.

Still, private enterprise plays an important role also. Cutting through red tape carrying out many of the tasks after governments have provided the funding. Subcontractors versus government employees, for instance. Also there is a role for private markets and investments, charities and "thousand points of light," to quote George Bush Senior. It's just that government plays an important role and deserves respect.

As for the deficit, I would guess that being a fiscal conservative is not easy. It seems like even most conservatives cave in to the continual bombardment that nature and circumstances throw at the lives of their constituents.

Politicians talk "low taxes" and "less government" while delivering lots of government services to their constituents. Just put it on the credit card, and there seems to be no consequence. High deficits don't even push up interest rates! The past few years have enjoyed, or suffered depending on how one views this, from low interest rates. Last year, I read that housing prices went up, here in Bellingham, by 23 percent. That's good news for many home owners cashing in on the flood of money that low interest rates create. It is bad news for folks trying to save money the old fashioned way in bank deposits.

Where does all this money come from? It's a mystery to me.

Republicans often say that tax cuts create more, rather than less, revenue for the government. It's counter intuitive. They say that economic stimulation created by tax cuts creates so much business activity that total tax collection goes up rather than down.

Here is an important question.

Would this mechanism of tax cutting ones way to more government revenue actually work if the government couldn't run a deficit? If every tax cut had to be matched with an equal amount of spending cuts, would the tax cut actually stimulate the economy?

That's an important question. It seems like the Bush tax cuts have stimulated things because the government could also continue to spend lots of money. Both the record spending and tax cuts combined can stimulate the economy so much that one does see a slight increase in overall revenue collection by the government. If the spending had to be cut, along with the tax cuts, it seems like that revenue increase would not be there. Possibly those kind of drastic cuts to eliminate the deficit would also bring on a recession.

Who knows. but that is a good question for economists to ponder.

So, here we go sinking farther into debt, but maybe it doesn't matter.

One thing I do know. Hurricanes, and life in general, put a lot of things on our government's "to do" list.

By the way, in case folks are wondering, I am back from my 5 week long bicycle tour. More news about that later.

1 comment:

Blue Cross of California said...

Preventative health care would come in great use especially in a situation such as hurricane katrina.