I was struck by a recent editorial from a prominent California pollster, Mark Baldassare, talking about the fact that only 23 per cent of California's voters participated in the last election. I'll quote a little bit of it: "The special election voters were not a representative group of Californians. Their vote choices cannot be relied upon as accurate indicators of the fiscal preferences of all of the people. Generally speaking, those most likely to vote in state elections tend to be older, affluent, and college-educated." After a bit of pondering, it came to me - those are the people paying the bill. Maybe there is hope.
For a long time, we have been told that nobody has to pay the bill.
First the ideological philosopher economists of the Right (notably Art Laffer) told us that by reducing tax rates we would stimulate economic activity and a lower tax rate applied to a larger economy would generate more tax revenues. Reagan did it, and it worked, so subsequent Republicans have adopted the central principle that we should go further and further up the curve, not acknowledging that there is a point of diminishing returns. The George Bush administration's deficits came from excessive spending, but also from reduced tax rates that lowered everybody's income taxes and greatly reduced the inheritance tax. With the 2008 elections, that movement has run its course.
Now come the ideological philosopher economists of the Left (notably Paul Krugman), who feed us the neo-Keynsian notion that in a recession the government has to replace the spending that has disappeared from the private economy, and that unending trillion dollar deficits will cause no real harm so long as they are dictated by good social objectives such as infrastructure investments, universal health care, and environmental purity. From all indicators, this myth will have a shorter shelf life than the prior myth.
As a reminder, we have also exempted everybody from the Sales Tax, so long as they buy on the Internet. (Actually, you are supposed to add it to your state income tax return, but human nature prevails.)
There are two potential outcomes:
1. The crotchety old voters of California represent the first wave of a new era of responsibility in which the public demands that government live within its means. This means higher taxes as well as less spending.
2. The irresistible laws of economics will prevail in the form of high inflation as Mr. Bernanke's printing press works overtime. The "unseen hand" will tax everybody and everything.
My advice - pray for the first; plan for the second.
This week's YouTube offers an introduction to San Francisco Mayor Gavin Newsom, an announced candidate for Governor. In fairness, it was made at a point where he was having alcohol problems, admitted an affair with his campaign manager's wife, and fumbled a number of other ethics issues.
Bill Bowen - 5/29/09