US Austerity Coming Says Obama – How it Will Affect You

by Darwin on June 28, 2010

US Austerity is on the way?  I couldn’t help but notice the irony in recent headlines touting Obama’s ambitions to get serious about deficits while he’s simultaneously preaching to the G-20 and the Eurozone especially, how they need to keep spending in order to prevent a global economic slowdown.  While there are prominent economists on either side of the argument (Cut Spending and get deficits under control vs. further Stimulus spending to spur economic activity), the administration ALWAYS seems to err on the side of increased spending.  The various bailouts, stimulus packages and tax credits have all been a complete sham – every one of them.  From the New Home Buyer Tax Credit which essentially paid people to do something they were going to do anyway, to bailouts to homebuilders, automakers and out of control state budgets, the answer has consistently been “Spend Now and we’ll worry about it later”.

Now, Obama’s talking about getting tough and says there will be some difficult choices next year (after mid-term elections of course).

  • The Case for Austerity – the thinking here is that nations most in debt (US being a usual suspect) should reduce their deficits in order to convey market confidence and flexibility for future crisis should they occur.  Since most government spending is a complete waste, but cutting out unnecessary government expenditures, money expended is done so more efficiently, which is favorable to markets.
  • The Case Against Austerity - The fear is that by cutting spending now instead of spending more on stimulus, economies will sink back into another recession, perhaps even a Depression.

Here’s my take on what sort of austerity measures the US SHOULD embark on vs. the ones that we WILL embark on under this administration:

Austerity Measures the US SHOULD TAKE

  • Cut government expenditures across the board. Set reasonable targets, announce cuts and competent Department heads will easily identify waste and cut it.  The government is full of waste, but there is no incentive to root it out.  Incompetence is rewarded.
  • Terminate public sector unions. There is no reason the public should be held hostage to union demands.  A typical union job is already compensated at an above-market rate, there is above-market job security, benefits are more generous than equivalent private sector jobs and pensions are breaking both municipalities and the federal government.  First, cease new hires, then start to privatize these jobs.  They don’t have to be “lost” jobs, they should be private sector jobs where the free market governs wages and benefits, not the taxpayer.
  • Revisit the Healthcare Bill. Realizing no politician is going to take back something that was already given away (because it’s “free” right?), it’s completely evident that this disaster of a bill is nowhere near revenue neutral, it’s front-loaded and it’s going to destroy the American economy from 2020 onward.  While Michael Moore loved pointing out how great it was in Canada and France, now those countries are reigning in their programs since they’re unsustainable.  We should do it now before it is underway and no political will exists to pull it back.  Improved healthcare delivery is a noble cause; adequate incentive and burden must be shared though.  The way is is structured now is sure to bankrupt the country within a generation.
  • Stop the Bailouts, Stimulus and Pandering Handouts. Virtually every dollar spent since the financial crisis has been a complete waste.  That’s the subject of an entire post for each wasted bucket of billions of dollars, but the evidence is irrefutable by rational, analytical analysis.  We’ve pissed away over a Trillion dollars on everything from housing bailouts for deadbeats to giveaways to the weakest companies that should have been allowed to fail.

Austerity Measures the US WILL TAKE

  • Raise Taxes on Corporations and “The Rich”…Again – Obama has already declared war on capitalism.  The few that have “made it” to the big time in America can be milked year after year.  It’s just another few percent after all.  With half of Americans paying no federal tax already, it’s easy to just continue to burden the top few million earners further.  You give up a portion of those votes for millions more that benefit from this money grab.  Tax capital gains further, the top couple income tiers, health insurance, add in some fees here and surcharges there (all taxes by another name) to be funded by the same people being targeted in 2010.
  • VAT – A European value added tax is just around the corner, well, right after that next election.  See, the VAT isn’t as despised as a tax you see on your paycheck or tax return, because it’s insidious, invisible, pervasive.  It’s another backdoor tax to usurp tax dollars and redistribute it to growing the government further.
  • Unions will get more sweetheart deals – Just like unions got a sweetheart deal in the Healthcare reform bill (outrageous pandering with no logic), there will surely be more incentive for anyone that’s marginally considering the unionization drive to jump on that bandwagon and then start having money directed to union dues which automatically go to the party.  Card Check, deferrals on healthcare premiums, you name it.
  • Evil “Big Business” – Since we’ve now seen several industries vilified under the administration – from Wall Street to Health Care to Big Oil, there are a few industries left that yet to be fleeced.  Perhaps a “windfall tax” on mining companies like Australia is mulling over?  Perhaps some extra “surcharges” and taxes on other successful companies?  Apple’s looking a little too profitable…but wait, they’re trendy.  OK, maybe Microsoft.  Maybe hit the pharmas again.  Big tobacco has been noticeably out of the news lately.  Surely, there are some more big bad corporations to fleece in the next cycle.

The bottom line is markets will eventually force the US to start to make some tough decisions.  Now that the G-20 has virtually (ex-Canada) unilaterally agreed to start enacting tough cuts, we’re going to see those currencies start to strengthen while the US continues to print dollars.  As our currency plummets and our yields rise, debt service will become overly burdensome and we’ll need to start cutting in order to retain any semblance or market legitimacy.  That’s when the fun will begin.

For insight into the various EU Austerity Measures take a read on the country by country breakdown (some “measures” are actually quite comical).

How Do You Envision US Austerity?

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