The Core Issue – The Supply Side Trickle Down Myth

Some ask me why I think there is a bigger than even chance that we all go over the fiscal cliff.  For me it the core reason that I quit being a Republican ten years ago.  It is simply that the current Republican Party, not the one of Eisenhower, Goldwater, and Nixon, but the current one that is wrapped in myth and folly,  has a belief in a model that creates deficits and moves the wealth to the upper class.  It was great for them for a while, they squirrelled away a lot of money and either sent the money offshore or tried to privatize public services and get the rest of the country to pay fees and tolls to them forever.  What few talk about in this debate is that the issue is more than taxation of income, it is the also the growing pile of cash that the top oversees.

 In essence, for the Republicans to negotiate would be for them to give up their religion and die.

It is a fact that growing deficits will increase economic activity in the medium term, look at the 1980 to 1994 increase in GNP and Deficits (see the POLITICAL TALK 2008 section Tab on the left side of our Home Page).  The problem is that the Deficits accumulate and at some point our U.S. T-Bonds are going to drop in value, and guess what, that is the asset area where pension fund advisers and the public is being drawn.

The Republicans say that Entitlements are the problem, Social Security and Medicare.  The Simpson-Bowles plan lays out how a way to address those issues . The simple fact is that Social Security is not part of the federal budget, it only has become an issue because the federal government has borrowed money from it all these years to finance it’s follies and only given IOU’s in return.  Medicare was and is a cost but ObamaCare has introduced efficiency directives on buying services and in fact everywhere that those directives have been applied, costs have gone down.  What needs to happen now is to apply those directives as a model to all areas of health service buying and management. 

And one final piece to the argument.  This country has the premise of Commonwealth at its core.  Think on what that term means.

As to the markets, yesterday the S&P rallied into the 1424 sweet spot and backed off.