The New Republic has an article today (August 23, 2011) by Richard A. Posner, a federal appeals judge on the Seventh Circuit Court of Appeals. He contends that America is not living at the end of a prolonged recession but has entered a depression. He suggests that the term depression better conveys the severity of the economic problems and the difficulty in finding a solution.
The short term problem, Posner suggests, is that the economy is growing slower than population. Thus, per capita income is declining. The large number of unemployed and under-employed is a related problem, associated with indebted consumers not wanting to spend, the reluctance of banks to issue loans, and hesitancy by businesses to borrow and to hire.
Posner assigns central blame to the Bush administration and the Federal Reserve. He also blames the Obama administration for poor leadership, poor management, incredibly complex health care legislation, and an inability to communicate to the public about the economy. Thus the stimulus legislation of February, 2009, was ineffective and has discredited deficit spending as the path to a solution.
Posner notes that half the public pays no income tax and that a small tax proportional to income should be levied on everyone. Since reduced spending and higher taxes both take money out of the economy, Posner suggests phasing in these changes over a period of years. "But it’s not clear that we have enough years," he notes. A post-depression economy might grow at 4% a year, but public debt has been growing at 17% a year; even reduced to 7% a year, debt spirals out of control.
This is a quandary, and Posner does not see a way out of it. He hopes others find a workable path.
Summarized from: http://www.tnr.com/article/economy/94055/posner-recession-depressions-entitlements
The short term problem, Posner suggests, is that the economy is growing slower than population. Thus, per capita income is declining. The large number of unemployed and under-employed is a related problem, associated with indebted consumers not wanting to spend, the reluctance of banks to issue loans, and hesitancy by businesses to borrow and to hire.
Posner assigns central blame to the Bush administration and the Federal Reserve. He also blames the Obama administration for poor leadership, poor management, incredibly complex health care legislation, and an inability to communicate to the public about the economy. Thus the stimulus legislation of February, 2009, was ineffective and has discredited deficit spending as the path to a solution.
Posner claims that the national debt, though huge, is presently manageable. The annual growth in debt is 17 percent with 18 percent predicted for 2012. Such rates, "if they continue will bankrupt the federal government." He adds that even financial recovery and higher tax revenues alone are insufficient because of explosive growth in entitlement payments, particularly Social Security and Medicare. Medicaid will grow enormously as a consequence of the new health care law. Posner addresses Social Security by suggesting raising age for eligibility and aggressive means testing. He recommends that Medicare be means tested and that co-pays be increased for "expensive treatments of marginal efficacy." Posner suggests Congressman Ryan’s plan to convert Medicare to a private program of medical insurance, as well as urging a research program into expensive and debilitating geriatric illnesses such as blindness and dementia.
Posner notes that half the public pays no income tax and that a small tax proportional to income should be levied on everyone. Since reduced spending and higher taxes both take money out of the economy, Posner suggests phasing in these changes over a period of years. "But it’s not clear that we have enough years," he notes. A post-depression economy might grow at 4% a year, but public debt has been growing at 17% a year; even reduced to 7% a year, debt spirals out of control.
This is a quandary, and Posner does not see a way out of it. He hopes others find a workable path.
Summarized from: http://www.tnr.com/article/economy/94055/posner-recession-depressions-entitlements
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