Tuesday, May 30, 2006

a letter i wrote to the editor of AR DemGaz but they said it was too long

Subject: Editorial ''Thanks, Professor''
Comment: The editorial criticizing Paul Krugman Saturday seemed like
it contained a little misguided bias. Your optimistic cheerleading is
just the type of delusional rhetoric Mr. Krugman often cites out of
the Bush White House. Let me offer your readers some additional facts
about our economy that you failed to mention.

The value of the U.S. dollar has declined by over 30% since Bush took
office. The Bush economic experiment which is rooted in supply-side
economic theory has taken our $200 billion government surplus and run
it into a $400 billion deficit. That government surplus was an anchor
for the value of our dollar and provided some much needed cushion for
our baby boomer's entitlement liabilities. Now why does does this
matter if I am not traveling to Europe?

Inflation: 1. undue expansion or increase of the currency of a
country esp. by the issuing of paper money not redeemed in specie. 2.
a substantial rise of prices caused by an undue expansion in paper
money or bank credit.

I think that speaks for itself. Contrary to what Vice President
Cheney says, deficits do matter. This is the dirty little secret
behind the Bush economic policy. The foreign exchange market, the
largest in the world, has adjusted the purchasing power of our dollar
to acount for this massive expansion of money to cover the cost of the
war in Iraq, the tax cuts, the increase in the size of government
through the creation of a Homeland Security Department.

When you have to borrow money to cover the cost of a tax cut you are
creating money that wouldn't otherwise be in the economy. The foreign
exchange market discounts and adjusts the dollar lower to compensate
for the increased supply. This inturn drives up the prices of
commodities like food and energy. We all know how the rising costs of
food and energy are affecting our own monthly budget, but remember
inflation hits some peoples's discretionary income much differently
than others. The middle class is in effect subsadizing the tax cut
for the wealthy through the weak dollar and subsequent inflation that
occurs because it hits their budget so much harder. This is one
reason why real wages have been declining in the Bush economy.

The Bush Administration will point to increased tax receipts as proof
his policies are working but just like your 401k, adjusted for
inflation those extra tax receipts and rate of return don't compensate
for what you lost in purchasing power. Sure the Dow is at 11,000 but
priced against euros, pounds, gold or a basket of commodities it's
more like 8000. Still 30% below where it was 6 years ago. This year
the Dow is up about 5% after this correction, which by the by was
triggered by a sell-off in the dollar the very day Congress voted to
extend the tax cuts, and the dollar is down 7%. If you earn a nominal
return of 5% but lose 7% in purchasing power your real return is
negative.

I am not against tax cuts per se, but they are not without a cost.
There is no free lunch. Ponder this; Warren Buffet, one of the
richest men in the country and the greatest investor of all time, is
against the tax cuts and short the dollar.

1 comment:

the kid said...

What a rag of a paper...blindly supporting the policies of BushCo...