OC Political

A right-of-center blog covering local, statewide, and national politics

Fix It, Episode II

Posted by Newsletter Reprint on March 20, 2012

This just recently came across the wire from the office of Congressman John Campbell:

Tuesday, March 20, 2012

Fix It, Episode II: In the second “episode” of our saga on fixing our problems and bringing America a new period of growth and optimism, I will address an issue that none of you will be surprised to see me tackle – the debt and deficit. Since I was first elected to the California State Assembly in 2000, trying to get government to tax, spend and waste less has been a major priority for me. As such, you have heard a lot from me on this issue. So, I will not repeat much of what I have said incessantly for years so that I don’t become electronic Ambien for you.

Instead, let me put this problem/opportunity in the context of the larger issue we are talking about. Implementing a plan to gradually fix our deficits and reduce our debt is a necessary but not sufficient condition for growth. Fixing the deficit will not in and of itself free the economy for sustained prosperity. There are other things we have to do that I will write about in future episodes. Suffice it to say, fixing the deficit is not a sufficient condition. But, it is a necessary one. If we don’t do it, we will certainly bring on a crisis which will plunge us into a long and deep recession. By definition, that means negative growth such that fixing health care and energy and other areas are unlikely to rescue us from the economic collapse of a debt crisis. I have described how and why this will occur in the past, but for a contemporary example one need only look at Greece.

The Greek example is instructive in another way. Because they waited until a crisis was upon them to deal with their deficits, they have had to fix a deficit the size of ours, in relative terms, in just one year. That required huge tax increases and spending cuts all at once. That shocked an already fragile economy and they now have a GDP contraction larger than anything we experienced even in 2008/2009. This is why trying to balance a budget deficit that has grown as large as ours too quickly is actually a bad idea and can retard growth rather than enable it. We need to immediately implement a plan to balance our budget, but that plan should do the balancing over 5 to 10 years. This will give markets the confidence that the problem is solved, but not shock the economy by pulling too much out of it too quickly.

Over the next 2 weeks, Republicans in the House will pass a budget that reduces the deficit from $1.2 trillion this year to $800 billion next year, and roughly $200 billion by the end of the decade. That should do the trick because economic growth (which cannot now be projected very high) will probably make up that other $200 billion and get us surpluses. The conservative Republican Study Committee will propose another budget which will balance even without more growth within 10 years. But unfortunately, the Republican budget will pass with few, if any, Democratic votes and will never be taken up in the Senate. And, the Study Committee budget will fail because all Democrats and a number of Republicans will oppose it.

Not only does the President’s budget never balance, it actually worsens the deficit more than any budget proposed by anyone to date. The Senate Democrats have not even proposed a budget in 3 years and will not likely do so this year. The only bipartisan solution that is out there is the Simpson-Bowles report released in late 2010. That plan moves the budget towards balance at a slightly slower pace than the Republican budget and does so in a different fashion.

Whether it is the Republican budget (so-called Paul Ryan budget) or Simpson-Bowles, there are many ways to get this done over time. In my opinion, we need to start with one of these and build a bipartisan solution from there that will balance over 10 years, including growth. As unlikely as that may seem in today’s political climate, it can be done both politically and economically. And, it must be done. I wish I could tell you that this can happen before the election, but we all know that is not true. However, the groundwork can be laid this year to get right on it after the election. You can be assured that this member of Congress will be laying some of that groundwork.

Unrelated Tidbit: During the writing I’m doing in our “Fix It” saga, the world moves on. I can’t observe all of it without a comment or two. Here’s one for this week. Isn’t it interesting that President Obama has rejected the Keystone pipeline, oil in Alaska, shale oil in the Dakotas and California, Gulf of Mexico and other offshore oil – all the time saying that this additional supply will not really affect gasoline prices. But yet, last week, he made further comments that he might release the US Strategic Petroleum Reserve because the additional supply will lower gas prices. Huh? So, a temporary, one-time, small supply increase will lower prices, but a permanent, enormous and consistent supply increase will have no effect? Maybe Harvard College needs some new economics professors. Or, perhaps Mr. Obama was not paying attention in class that week……..

Next week: Episode III. (Just pretend it’s Mad Men or something)

Until next time, I remain respectfully,

Congressman John Campbell Member of Congress

One Response to “Fix It, Episode II”

  1. met00 said

    When I bought my home I went into debt. Debt against future income. As long as I was on an upwardly mobile path I would be able to pay off my debt and have an asset to show for it. So, debt, is not evil. Debt is a way of managing budget for the future so that you can benefit today from future income (the benefit of having a roof over my head now, against income and interest on that for my future).

    When money is cheap it is a good time to borrow against future earnings. So, if I can borrow at 4% now then that is better than borrowing at 8% later.

    The question is, when you borrow, what you do with the money. If you invest that money into something that will pay dividends down the road, then that is good borrowing and good debt. If you borrow against purchasing “toys” then that would be bad debt.

    So, not all debt is bad, but what the debt is built for is what makes debt “good” or “bad”.

    Along with debt comes another part of the puzzle and that is income. Remember where I stated that debt was fine if you had the income to cover it? Well, what happens when you cut income? Clearly if you had debt before and the n cut income, then you would have to cut expenses. But you must also ask why you had the cut in income and what you must do to increase income if income has dropped.

    I always find it amazing that there is a short term memory loss as to why income dropped. What was promised when the method of getting income was changed (that it would actually make income increase) and that after it failed to achieve the announced goals, no one wants to revert to what was generating income before, but insists that the only way to generate income is to double down on a policy of generating income that has already failed and shows no reason for it to not continue to fail.

    So, why don’t we also have a conversation on the income drop and how to increase income since the promise that was made, that if we cut income income would grow, was clearly not factual. Yes, we must hold the line on costs, but NOW is the time we should be borrowing, and looking at ways to increase income by prudent investing in the future.

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