♠ Posted by Emmanuel in Cheneynomics at 6/08/2010 12:03:00 AMAs I've written time and time again, US Treasury Secretary Tim Geithner apparently believes that "deficits still don't matter." The most recent restatement of this belief was at the G20 where, despite the UK's newfound resolve to deal with its spiralling fiscal deficits, the US basically said the time wasn't right yet to drop massive fiscal stimulus. While the new Conservative-Liberal Democrat coalition in power here in Blighty is being honest with the people in biting the bullet, the Yanks keep insisting that they continue on their fiscally and morally bankrupt path. But before we get to that, here is the new Chancellor George Osborne:
Mr Osborne sees the next few days as crucial to turning Britain’s rhetoric in favour of sound public finances into action. He was delighted by a change of tone at the G20 meeting of finance ministers in South Korea, which ditched the mantra of fiscal stimulus as a route to economic recovery.However, Osborne and the rest of the fiscally sane people from other G20 members were challenged by, you guessed it, Tim "Deficits Still Don't Matter" Geithner at the gathering:
“We’ve achieved a significant success in getting G20 endorsement for the British government’s position,” he told journalists. He was particularly pleased that the G20 communiqué welcomed “the recent announcements by some countries to reduce their deficits in 2010 and strengthen their fiscal framework and institutions”.
G20 officials said the US had been the most concerned about the new austerity drive and feared for the momentum for global growth. It had called in the meeting for China to revalue the renminbi and for Germany to boost domestic demand, officials said.Now, I am exceedingly used to hearing these "deficits don't matter"-style arguments from armchair and/or mathlexic theorists and have spent time debunking these even if they refloat similar lines of argument out of wilful ignorance over and over. What can I say? It's an archetypical American disease. Recently, however, USA Today (of all publications) had an article making an interesting observation using US personal income data that finds proceeds from government benefits are at an all-time high while private sector wages are at an all-time low [see chart]. While this trend was not entirely unknown to me as I am one of those bloggingheads who actually bother to look at the data, the presentation sure made a scary impression. In plain language Cheneynomics specialists might even understand (I hope), the simple explanation is that infinite expansion of the public sector at the expense of the private sector cannot continue since the former relies on revenues from the latter for funding:
In a letter to the rest of the G20, Tim Geithner, US Treasury secretary, argued: “Concerns about growth as Europe makes needed policy adjustments threaten to undercut the momentum of the recovery”. Ministers from many countries stressed the need for structural reforms to boost the potential for private sector growth
In private, G20 officials said that the US had been the country most concerned about the new austerity drive and feared for the momentum for global growth. In the meetings it had been frank in the meeting in calling for China to revalue the renminbi and for Germany to boost domestic demand, officials said.
Mr Geithner, himself, was open about his fears in his letter to the G20. “Concerns about growth as Europe makes needed policy adjustments threaten to undercut the momentum of the recovery,” he wrote, adding that fiscal tightening won’t “succeed unless we are able to strengthen confidence in the global recovery.”
The trend is not sustainable, says University of Michigan economist Donald Grimes. Reason: The federal government depends on private wages to generate income taxes to pay for its ever-more-expensive programs. Government-generated income is taxed at lower rates or not at all, he says. "This is really important," Grimes says...Repeat after me, Cheneynomic acolytes: an ever-ballooning fiscal tab combined with ever-declining fiscal collection cannot continue forever. The last piece of today's puzzle is the coup de grace. Last week's US employment report showed 411,000 fine new jobs via hiring temps for the decennial census and a negligible amount in the private sector. This report is entirely consistent with trends noted above and in the title. Friends, I tell it to you straight unlike others who like to indulge in creative writing--if current trends continue, pretty soon government will be the only thing left in America.
Economist David Henderson of the conservative Hoover Institution says a shift from private wages to government benefits saps the economy of dynamism. "People are paid for being rather than for producing," he says.
Europe's fiscal woes are a drop in the bucket compared to those of America. And, unlike a certain North American country, most EU countries are doing something about their fiscal situations instead of blabbering at the G20 about how deficits still don't matter. The real sick man of the world economy is decked out in red, white, and blue. Like all degenerates, there are ways of putting him out of his misery and I will explain how to in short order.