Tuesday, April 6, 2010

Paul Volcker: Right and Wrong

Paul Volcker is a smart guy, who got duped into being a stool pigeon for the Obama administration under the guise of having influence on fiscal policy. Among other things, this makes him a great target for liberal media elements, who delight in distorting his speeches into supporting their agenda.

For example, consider a speech today, in which Volcker made the otherwise innocuous observation that "at the end of the day", if the country is going broke and needs money, they must increase taxes to get it, and may need to explore other taxation schemes to fund every increasing entitlement programs and special-interest drags on the economy (such as cap-and-tax and other proposed programs). Simple, truthful, and direct... but probably not such a good idea.

Reuters US wrote this up as: Volcker advises raising taxes, implementing Europe-style VAT. Their report could be the poster child for liberal media distortion, since Volcker was basically advising the exact opposite (ie: control spending so we don't go broke), but Volcker could do better to not enable them too. As a respected financial adviser, it's clear your words are going to be distorted to support the liberal agenda by the media, and you should plan for that.

Even more so, though, I disagree with the statement itself. At the end of the day, the US should default on its debt and take the opportunity to fix the Constitution to prevent out-of-control spending in the future, rather than run up tax rates to 100% before defaulting. I would much rather deal with the pain and turmoil in a "quick" reorganization and restructuring, rather than prolonging the inevitable collapse with a massive tax burden the whole time. The only way to try to avert an eventual collapse is to make a stand now, hard-cap the amount of taxes, credibly commit to not raising them ever, and implementing harsh automatic corrections when the government creates policies which cause its spending to exceed its income, now or in the future. To acknowledge/promote that continued reckless spending will eventually inevitably be "rewarded" with higher taxes is a betrayal of the financial future of the country, and counter-productive to fixing the very real problem we're facing.

On the narrow scope of the facts of the matter, Volcker may be right; in the greater picture, though, he couldn't be more wrong.

Edit: Drudge Report's headline ("OBAMA MAN: RAISE TAXES, START EUROPEAN-STYLE VAT") begs the question: do two wrongs make a right? On the one hand, Volcker didn't really state or imply that we should be doing that; on the other hand, in the linked article from the liberal news outlet Reuters, the writer added the strong liberal skew and implication. I guess, in essence, Drudge's headline is correct, if "Obama Man" is the liberal news reporter who misrepresented Volcker's statements, although I doubt that's what he was going for. Shameful reporting on both sides, I guess; the eventual implied sentiment (ie: Obama's policies will necessitate raising taxes and exploring new taxation methods) is correct enough, but there's plenty of distortion and editorializing along the way.

1 comment:

  1. You’re saying we need taxes to offset the cost of a cap-and-trade system? If we create a market for people who produce gases that will incur costs on everyone else to trade the cost of that potential damage with someone doing something to eliminate the damage, then that means we need a separate unrelated tax?

    I also reject any claims that the country’s going broke. Any perceived risk of devaluation of the dollar or out-and-out default would be priced in the bond market causing Treasury yields to be higher than other long-term debt.

    The country’s running a deficit partly because people want the government to do something about “jobs”. Part of that something is fiscal stimulus, i.e. borrowing money. This would be easier if we hadn’t been borrowing money for no reason for the past eight years. (BTW, I think getting a job is about 95% going out and finding out what needs are out there and finding a way to fill the needs, and maybe it’s 5% related what the government does.)

    I am optimistic that Obama will help bring the deficit back to where it was at the end of the Clinton administration. Obama agrees with Volcker in this respect.

    If the media did misrepresent Volcker’s comments, it’s a shame. When the time comes to dial back the fiscal stimulus, I would rather see spending cut than taxes increased.