It may be that the cumulative hospitality of my genial hosts in the U.S. government, as I await the positive demonstration of the exceptionalism of the U.S. justice system, is clouding my vision. But I believe I see, amid the inexorably advancing Florida crabgrass that is a central part of my enfolding ecosystem here, the green shoots of positive movement in a couple of key national-policy areas.
I have never had any insight into who is really doing what in and around the U.S. Treasury. But the two greatest domestic-policy soft points in the Obama record to date are that, after 15 months, the administration has given no hint of how it proposes to avoid or absorb trillion-dollar annual money-supply increases for a decade, without either massive devaluation or tax increases that will hobble or strangle economic growth, or both; and energy-environment policy.
As was predicted here and elsewhere, Federal Reserve chairman Ben Bernanke, after the proverbial decent interval following his reconfirmation in office and the principal hearings into the 2008 economic debacle, is calling for deficit reduction. It is not his place to tell the administration how to do this, but it is a reasonable supposition that if nothing happens, he will become steadily more helpfully explicit.
The 81-year-old Paul Volcker, who, following the power-dive of the Greenspan-Rubin infallibility, has been excavated by the Stiglitz-Krugman economic Left as the conquering lion of 20 percent interest rates 30 years ago, has been bruiting alternatives. He has allegedly suggested taxes on financial transactions and gasoline sales. This is unambiguously good news. The budgetary estimates for the health-care bill are a fairy tale of underestimation and everyone knows it. Over 40 percent of the population pays no federal income taxes, and most of those receive income supplements, and about 5 percent of the population provides around 60 percent of federal personal-income-tax revenue.
One of the first rules of economics is not to increase taxes (income taxes especially) when trying to exit a recession. These taxes Paul Volcker envisions would reduce the numbers of needless, overpaid financial-services providers who accelerate the velocity of money but don’t really create much wealth; and would reduce gasoline consumption and oil imports. So much of economics is psychology: A great deal would be accomplished by just showing a road map to non-stagflationary deficit reduction.