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Driving Off A Cliff In Medium Slow Motion.

As expected, in reaction to the S & P downgrade, the stock market is taking a dive this Monday morning. In the midst of all this, I try to find some positive economic news to brighten my mood.

It’s not there.

The only thing I see is stupid piled on top of stupid.

First bit of stupid – Democratic Congress, in order to look less like the big spenders that they are, they calculated that by not passing a budget last year they would not lose so badly in the 2010 elections. Not only did it not work, they lost anyway, but they look like chickens for not doing so.

Next bit of stupid – President Obama. He had a perfectly good jumping-off point to start tackling the debt when the Bowles – Simpson Commission report came out last November. Bowles – Simpson had some good recommendations in tit – tax reform, entitlement reform etc, but, for reasons that I can’t even begin to comprehend, the President dropped it, his own commission, like a ton of hot bricks. It went completely off the radar, allowing the Tea Party Republicans to plan various strategies and ultimately ambush the process.

Finally, a good portion of stupid wrests in the Tea Party camp. On the one hand, yes, you have brought a new seriousness to the table when it comes to cutting spending. But your unthinking inflexibility is your undoing. If it’s cuts you want – Obama and the Democrats DID offer a plan with even more cuts in it, twice as many in fact, yet you turned it down because it had some tax hikes in it. So you end up with yet another Commission that will of course make some good recommendations, but will get completely ignored by everyone.

As for the automatic trigger that’s going to magically make things happen if the Commissions recommendations are not followed?

Uhm, anyone remember Gramm-Rudman-Hollings Act of 1985? That was supposed to balance the budget, and it also had automatic triggers in it. What happens when Congress faces a trigger forced budget cut they don’t like???? They ignore it of course! It may be law that something must be cut, but, who’s going to enforce it? There is no police force that can do anything if Congress ignores its own edicts, which is why it is free to do so, and often does!

What I find amazingly stupid about the Tea Party is their insistence on cutting government right at the start of a double dip in the recession, if you believe the recession ended in the first place. And before someone accuses me of being a blind devotee of Keynesian economics… No. I don’t subscribe to any school of economics… Because the economy doesn’t either. They all are relevant, yet, as far as solutions to X or Y based on a single economic model, what works one time will not necessarily work the next. But I can tell you what WON’T work… cutting more government jobs in the middle of an already stagnant jobs market! You may not like government jobs, but the are, never-the-less JOBS! Seeing that the private sector is not doing much in the way of hiring, you’re just going to end up expanding the roles of the unemployed, causing an up-tick in the cost of unemployment benefits (something you hate BTW), and cause the recession to worsen.

Oh, and one last thing – On the tax cuts. I’m sorry, but since “the rich” are not investing in growing businesses and hiring at the moment (I don’t blame them, right now in this stagnant economy that looks like a foolish investment) raising the tax rates from 3.5 to 3,9 is not going to make much of a difference anyway. They will continue to hoard their money or shuffle it off over seas… It’s what I’d do… If I had any money at all.