Fact A balanced budget means that government expenditures must be equal to its revenues. Moreover, it implies that the government’s borrowing should be curbed because selling of treasury bonds enables it to spend over and above its revenue. This myth is ironic. Living within one’s means does not require that person or business to balance income versus expenses. Most of us sign in on a mortgage when buying our homes, take student loans, finance the purchase of a new car or incur some other form of debt to enable investments and other capital intensive purchases. Businesses sell stocks and bonds to support growth, investments and expenses exceeding their current income. In short, most people and businesses use leverage to facilitate growth, investments and expenses. They all balance their budget eventually, after loans are fully paid. Except they do so over a long period of time rather than within a single year as proposed by the Congressional Republicans’ balanced budget amendment.A cyclically balanced budget was first proposed by the biblical Joseph who argued that government should create a budget (food) surplus in (the next seven) boom years to cover for a budget deficit in (the next seven) lean years. He applied the Keynesian economic model (thousands of years before Keynes was born) of an active government fiscal policy designed to smooth and level economic cycles by providing restrains (in the form of higher taxes and spending cuts) in boom years, while growing government expenditures and lowering taxes during recessions.Joseph was proved right. He saved Egypt (including his own brothers) from mass starvation.
Myth There is plenty of proof that the Keynesian economic model does not work. Obama tried it with the failing stimulus; Japan applied it during the 90’s but still lost the decade to anemic growth; Roosevelt implemented it during the Great Depression, but it took more than a decade to finally spawn real economic growth.
Fact Jumping out of an airplane while the parachute opens, but only partially, may lead to serious injury short of death. Witnessing this tragedy, some may argue that parachutes are useless. Some others may counter by saying that the parachutist would have been killed had he jumped without it.Truth is, parachutes work when they operate to their full extent. The same is true with Keynesian economics. During the Great Depression Roosevelt’s policies were able to stop the down spiral of the US economy. The American way of life was saved, but it was still in bad shape. Following Roosevelt’s ascent to power the economy changed course. It embarked on a positive trajectory until 1937. Then, fiscal conservatives were able to shape the agenda and force a reduction in government spending. The inevitable outcome turned out to be an economic contraction and a second dip in economic activity. World War II lifted the US out of the Great Depression thanks to massive government spending supported by a massive budget deficit (emphasis on massive).History has demonstrated that the Keynesian model proved right when implemented to its full extent.Japan’s lost decade can be characterized by government’s half measures. When economic activity seemed to converge on a positive trajectory, the Japanese government pulled back, bringing progress to a standstill once again. They kept playing the same music throughout the anemic decade.Most objective economists agree that the US government’s (including the Federal Reserves’) economic programs saved the US from another Great Depression. TARP was a great success. The lowest ever tax rates during the past three years have helped lift the US economy out of its negative GDP growth. Other stimuli were not highly successful due to typical government inefficiencies, but they did save thousands of teachers’, police’s and firefighters’ jobs. The Feds’ double-phased Quantitative Easing was helpful in stabilizing the financial system and lifting the stock market. Overall, government spending during the Great Recession was high; it contributed to a pull from the brink of another Great Depression. It has been insufficient. Unemployment is still high. The deficit has soared to a level unparalleled in history, giving birth to those claiming that Keynesian policies do not work—the Tea Party. The parachute opened half way only because fiscal conservatives were able to dominate the economic agenda. They were successful in changing the topic from job growth to deficit reduction. They were intent on repeating the mistakes of 1937.Myth Obama is a liberal Marxist
FactObama’s track record is one of a person who has saved big business from massive failures. He saved the auto industry, the big banks, and AIG. Although TARP was initiated under his watch, his government’s ownership of these companies has never intended to assume permanency or operational control. In fact, most of the TARP money has been repaid and capitalism has been revitalized thanks to it. Charging a president with communist tendencies may be more appropriate to someone who tries to control inflationary pressures, not through reduction in government spending, but rather via price, wage and rent control. These administrative measures represent a great departure from the free market forces of supply and demand. These are measures taken by communist s and socialists. These measures were taken by Richard Nixon, a Republican president.Obama caved in to the Tea Party demands in his attempt to forestall a US government default on its debt. He sided with most of the conservative agenda. He did not raise taxes; he agreed to severe budget cuts. These facts make him more conservative than most members of his Democratic Party.
MythSupply Side Economics is what America needs nowFactMost economists agree that the major US companies are sitting on piles of cash, not willing to invest, hire, or use it for growing their business. There is lack of consumers’ demand required to justify any form of expansion. It’s not the supply side that one needs to worry about these days. It’s the weakness presented by the demand side that prevents economic growth in the US. The Supply Side concept is that lower tax rates would provide strong incentives to earn more income, and as a consequence tax revenues would go up. The theory works when marginal taxes are very high. The idea does not work when the marginal tax rate is as low as it is now. There are historical proofs to that fact. Tax cuts in 1980 and in 2000 did not work as advertised. The 1980 tax cut did, however, raise more tax revenue from the highest tax bracket, but the theory failed at the lower ones. The 2000 tax cut reduced revenue in all brackets.The writer is currently a talk show host at Paltalk News Network (PNN). He served as an intelligence expert for the Israeli government and was a professor at Northwestern University. He is the author of Fundamentals of Voice Quality Engineering in Wireless Networks, and more recently, 72 Virgins. Both books can be purchased at