Thursday, January 17, 2013

Old Dog

The usually brilliant cartoon from Daryl Cagle reaches higher levels.

I think this cartoon does double time.  One statement it makes is gun control and the other is the need for fiscal responsibility.

In January, social security taxes increased by 2%.  Other tax increases are going to follow.  My point is our income will go down. If our incomes go down so will spending and prices will follow.  So spending will not curtail.  (If you are a micro-economist you believe that a change in price will change the quantity demanded.)

A change in government spending will also change incentives.  I want to see the debt eliminated or greatly reduced, but it must come from a change in business investment that creates new jobs.  Just austerity will not remove the debt.  For example, Walmart recently told the press that they plan to create 100,000 jobs by hiring vets and buying American made products.  What I believe the country needs is a new industry that creates new jobs and new complementary goods.  Perhaps this new industry would be like the Internet that gave birth to digital downloads, iTunes, Facebook, and all of the products complementary.

In this week's economist, there's an article, "Keynes, Planes, and Automobiles" the point is made that government spending has to provide consumers with an income effect.  For example, if I normally pay $500 per month for heating but government spending on new infrastructure reduces that bill to $100 will give me $400 to spend or invest to fuel growth.  Spending which gives an income effect and investment which increases new industries will help eliminate the debt.

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