Archive for April, 2010
PAYGO was introduced during President George H.W. Bush’s administration to prevent the government (congress) from spending money it doesn’t have. It forced fiscal discipline during the Clinton administration, but had some drawbacks. President George W. Bush let the bill expire in 2002 after being handed a budget surplus from President Clinton. The government has since created deep tax cuts, entered into wars, and borrowed money for huge stimulus packages after the financial system collapsed. The U.S. national debt is now almost $13 trillion and we need to do something about it!
Over leveraging the nation is not good as it weakens our country and as a result may cost us our AAA rating. We’re basically debasing our currency and putting the stability of the nation at risk. If this trend continues we may be called the Republic of China instead of the United States of America. The “money well” could also run dry as investor may not want to own a piece of the U.S. federal government, especially if we lose our AAA rating. The interest expense alone is a big percentage of the government’s budget and over 50% is now being paid to non U.S. citizens, which is a big change in recent years.
It’s time to bring back PAYGO (pay-as-you-go), but with an improvement. President Clinton had to operate under this law and while it produced budget surpluses, it also prevented certain programs from happening… possibly healthcare reform, Medicare Part D, No Child Left Behind, the Stimulus Acts and other important programs. If we needed these programs is a debate for another day, but let’s at least force congress to be fiscally disciplined like PAYGO, but let’s also leave some room in case important programs are needed and instead of being PAYGO or bust, what about PAYGO 80/20?
“The PAYGO or pay-as-you-go rule compels new spending or tax changes to not add to the federal deficit. New proposals must either be “budget neutral” or offset with savings derived from existing funds. The goal of this is to require those in control of the budget to engage in the diligence of prioritizing expenses and exercising fiscal restraint.” [Source]
PAYGO 80/20 could potentially make the government prioritize old, current, and new programs on both the 80 side and the 20 side of the new equation. This could mean that the government must offset of minimum of 80% of new spending or it could mean that 80% of the budget must be covered by revenue 100% of the time and 20% of the budget could be open for important new laws and reforms. The basic idea in whatever form it takes would make the government fiscally responsible, but allow for compromises in critical situations instead of allowing congress to spend at will like it is able to do today.
The budget deficit in 2010 is estimated to be $1.5/$1.7 trillion. That means we need to spend an additional $1.5 trillion dollars than the government is going to take in with tax revenue, in other words we need to borrow it and expand the national debt further in order to pay for all the government expenses in 2010.
80/20 might not be correct, but the fact is that President Clinton wanted to introduce some important programs and was not able to do so. Let’s improve upon PAYGO and give some room for only the highest priority programs to fall outside of the strict PAYGO boundaries in order to allow the government some flexibility in case it is truly needed. Maybe it’s PAYGO 95/5 or PAYGO 2.0, but let’s fix this debt crisis!
Have you ever noticed all the extra taxes at the end of your phone bill? Well, part of those fess go towards $800 million in funding to subsidize low-income telephone programs in about 20 states and growing. Don’t beleive it, read about it…
Is this fair or not?
Is the telephone a necessity for the modern society we live in?
Is cellular service now a right for every American like healthcare?
We would love to get your opinion on the subject. Please post comments below.
There is concern among many that inflation will skyrocket post recession after the financial system meltdown of 2008. A high inflation rate can be detrimental to the growth of the economy. Instead the ideal situation would be an inflation flat that is stable at about 2%. Those who are concerned inflation may have not realized how this time in history is very different from times past. What’s so different you ask? Technology and primarily the Internet.
“Inflation is a general rise in prices across the economy. The inflation rate is a measure of the average change over a period, usually 12 months. There are two main measures. The consumer prices index (CPI) was adopted as the Government’s preferred measure in 2003 and is used by the Bank of England for the purpose of inflation targeting. The target is 2%, which would mean that prices overall are 2% higher than in the same month last year.” [Source]
Econ 101 tells us that the FED tries to balance unemployment and inflation by influencing interest rates; lower interest rates to decrease employment and raise interest rates to combat inflation. But what if the Internet and transparency of information actually helps the FED on the inflation side of the equation? That might mean it could become easier for economies to maintain low unemployment while keeping inflation under control. Only time will tell, but economies all over the world are becoming much more diverse and the Internet might have more benefits than first anticipated.
Well let’s not speculate any longer because this topic has actually been studied. In 2005, Myung Hoon Yi and Changkyu Choi released an article titled, The effect of the Internet on inflation: Panel data evidence, via the Journal of Policy Modeling. Their hypothesis says, “the Internet improves productivity and thus will reduce inflation is tested by pooled OLS and random effects model using cross-country panel data from 1991 to 2000.”
Here’s what they found: “After controlling for money growth rate, unemployment rate and oil price, we found that the Internet significantly reduces the inflation rate. We found that when the ratio of the Internet users to total population increases by 1%, the inflation drops by 0.04264% point to 0.13193% point.” How could this be? Simple, just look at the airline industry where you could easily make an argument that ticket prices are cheaper today in many cases than they were 20 or 25 years ago. The Internet makes it easy to compare prices all over the world putting a constant pressure on companies to keep prices low through efficiencies. So maybe we ought to be more worried about deflation. Maybe we ought to put more healthcare prices on the Internet.
Really just about any product or service can be surveyed for price on the Internet. Amazon, the world’s dominant online retailer by far, allows merchants to compete on price and compete directly against them. You can literally compare bird cage prices instantly and just about anything else you can imagine.
What’s the bottom line to all of this? Well, don’t listen to the Bear’s when they try to spread the fear of inflation. As we recover from this recession, economists need to re-think founding principles and formulas to account for technology and the tremendous power of the Internet.