How to Reduce the U.S. Budget Deficit After The Economy Has Been Sacked By Texas Oilmen and Wall Street Bankers

One way to get out of a mortgage that’s ‘underwater’ is to burn the mortgaged house to the ground.  However, even if you don’t end up in jail, you end up with nowhere to live and you run the risk of burning out your neighbors as well.  On top of that, you’ll still end up owing the money because a mortgage is a contract with a bank, not a house.  Burning your house to the ground is exactly what trying to balance the national deficit by cuts alone is!  (Maybe a better metaphor is:  taking an axe to a great sequoia tree.)  Trying to balance the national budget deficit < http://en.wikipedia.org/wiki/Deficit > by cutting without raising revenue is a fool’s errand because there’s not enough to cut without creating an army of very poor very sick and homeless people without a future!  It is quite likely such cuts could cause an immediate ‘double dip recession’ like that when FDR was cowed into cutting spending < http://open.salon.com/blog/steve_klingaman/2010/03/03/double_dip_will_we_repeat_1937 >. 

The way to reduce (or even eliminate) the deficit is ‘balance’!  Let me show you how.

The ‘balance’ which I’m suggesting, involves balancing cuts with revenue raising.   There are four parts.

First, the cost of everything thing the federal government spends our taxes on must be laid out in plain sight.  Where these things involve activities the government just can’t stand to show the world, these costs can be itemized under code names.  However, if the government cannot be honest about how much it actually spends on secret endeavors, then the whole effort fails at the start and the economy is simply on its way to collapse.

Second, every field of economic activity in our society must be scrutinized to see where revenue can be raised without hurting the general public or economy.  This scrutiny should result in a range of quantitative models which can be simulated to show various cuts balanced with new taxation would affect the economy.

Third, cutting by the rounds:  For a number of rounds, a cut amount is decided and applied to every activity and expenditure currently performed by the government.  No program is exempt and every program takes the same ‘hit’!  (This eliminates the politicking and posturing.)   Again, if this can’t be done honestly and forthrightly, then the whole effort fails.

Fourth, for each round, after cutting all government projects by a chosen amount, a tax equal to the amount of the cut is applied to a range of economic activities or transactions. Let’s say we decide to cut a $1 million from every program or agency in the government at round 1.  Then a $1 million tax increase is distributed over everything from payrolls to stock market transactions to estate taxes to executive pay and bonuses and tax loopholes and corporate taxes.  No income generator is spared.  (After a certain number of rounds, tax loopholes simply evaporate.)

Fifth, repeat First-Fourth until the deficit reduction target is obtained.

This is balanced deficit reduction!   Cuts across all government programs are balanced against each other so that no part of the government is favored.  And then the cuts are balanced with increases in revenue so that neither cuts nor increases in revenue are favored. 

This approach provides two engines working in parallel to perturb the economic dynamical system.  The goal is to alter the trajectory the system is on until it wanders into a volume of phase space where it can orbit in a sustainable way that benefits the whole American population rather than a few against many as plans, such as the Paul Ryan economic plan <http://open.salon.com/blog/paul_j_orourke/2011/04/08/paul_ryan_young_gun_--_same_old_bullets , http://www.economist.com/blogs/freeexchange/2011/04/americas_budget> does by reducing the deficit by cutting only those things that poor and working class Americans (i.e., the politically powerless) depend upon.  

This balanced approach will also quickly put the brakes on all the reckless arbitrariness in cutting as some project or program ‘dear and near’ to everyone will be cut on each round of cuts.    

I hope President Obama reads this (or hears about it from one of his aids) and requires a rigorous technical implementation of this plan.  What has been missing from the budgetary process, so far, has been technical rigor.  Where are the computer simulations, mathematical proofs, and round table discussions between the best and brightest mathematical economists in the country, if not the world?  This effort should be like our space program of the 1960s, a serious scientific and engineering undertaking.

That’s it for tonight, and a good night to you all and all our ships at sea.