I want my Armageddon now!

Mr. President is on TV, says the failed to balance its budget over the last decade, confounding once again budget deficits with accumulated debt.

We all know the refrain: In 2000, there were budget surpluses as far as projections went.

Of course, those surpluses were minuscule compared to the outstanding stock of national debt: The debt was at about $6 trillion compared to about a $100 billion budget surplus.

Regardless, I fail to see how the government taking in more from its citizens than it needs to finance government expenditures is a good thing.

The problem that is facing the U.S. is unprecedented growth in the size of the Federal Government.

The lack of confidence in the future of the U.S. economy comes from the shadow the Federal Government casts upon every part of the private economy.

As such, not yielding to the President petulant demand that the U.S. government be allowed to borrow more and more would signal to the rest of the world that there are people serious about diminishing that shadow.

Mr. President constantly implies that borrowing more to pay current debts is a good idea. The rest of us know better: Paying one credit card bill using another credit card rarely results in eternal bliss.

When making the minimum payments on your cards becomes impossible without borrowing more, you have a problem.

That is the same problem the Federal Government is facing right now.

If Mr. President is serious about this issue, he and his pals in the Senate and the House would take serious actions to reduce spending today in return for a relaxation of the government's borrowing constraint.

Keep in mind that Warren Buffett does not have to make one more extra dollar to live comfortably many lifetimes over and as such can easily find ways to avoid additional income tax burden. You and I do not have that luxury. I'd rather Mr. Buffett make a boatload of money and pay 20% tax on it than him pay accountants a boatload of money to avoid a 70% tax rate.

Mr. President claims not allowing the Federal Government to grow without bounds will cause Armageddon. I welcome it.

Can the government raise tax revenue any time it wants?

We really have no idea what Mr. President and other Democrats are proposing, but from what I can discern, they seem to think that any time the government increases the tax rate that applies to a certain income bracket, the government will collect more tax revenue from those who fall in to that bracket.

This is idiotic for many reasons, but some people are convinced by that higher tax rates equate higher tax revenues.

I am going to guess that these would be the same sort of people who think a business would always make more money by charging more for the products it sells.

In my experience, no amount of logical argument convinces these people, but then, there are those who know some economics, but are not confident enough in their understanding. First, note the following fact and file it away: Total tax revenues as share of GDP have remained relatively flat in the post World War II era as shown in the following graph, prepared by the American Thinker:

Of course, if people were robots who kept doing the same thing regardless of tax rates, Mr. President would have a point. Higher tax rates would result in higher revenue for the government. But, that isn't so: People respond to incentives, i.e. rewards and penalties. The reward of work is not work itself: It is the money you earn by giving up the time during which you could be doing other things. Of course, money, in and of itself is worthless (this includes gold as well). The money you get to keep after you earn it by working determines the kinds of things you can do with the time left over from exchanging your time with someone else for money.

The government, in essence, is an authority that sells you a work permit: You get to work and make money, so long as you pay the price of making money to the government. We call that price "taxes," but they are essentially a price you pay to be able to earn the resources to do things you like with your free time.

In that sense, the government in a well functioning economy has a monopoly over the right to make money: You cannot make money without paying the price to the one authority that can forcibly take it from you.

Of course, the higher the price you have to pay to be able to make money, the lower the reward to working. After all, by working, you are taking time away from things that are more fun and enjoyable (otherwise, you would not have to be compensated for work ;-)

As a monopolist, the government faces a downward sloping demand curve for the "work permits": The higher the price, the fewer permits are sold. Whether this causes less tax revenue depends on how sensitive people are to the price of work.

Mr. President and his people seem to think people are not sensitive to tax rates at all: That is, they think incomes will remain the same, no matter what games government plays with tax rates.

In a world with multiple safety nets, however, people would be expected to even more sensitive to price of work: After all, you can still guarantee the benefits of money without having to exert effort to make it.

What is the alternative?

The alternative is to stop worrying about "the rich" and concentrate instead on policy that give the incentive to everyone to produce more. After all, even if rates do not change, if people produce more, there will be more tax revenues.

Simplifying the tax code, eliminating multiple brackets, exclusions, inclusions, deductions, exemptions, credits etc and settling on a competitive flat rate would lead people to focus not on trying to figure out the tax code to keep more of their money to actually producing stuff that people want.

Removing inflationary expectations by committing to reduced government spending would lengthen people's planning horizons and spur optimism, rather than the current rational expectation that whatever measly sum you can make will get wiped out by higher taxes or higher inflation or both.

CBS's debt limit primer is misleading

Looking at Google News this morning, I noticed The debt limit fight: A primer which sounded interesting, so I checked it out.

The "primer" is written by a Brian Montopoli. Mr. Montopoli seems to want to convince you that arguing over whether to allow politicians to keep borrowing in our name is pointless. First, he asserts The battle over a deal to raise the debt ceiling … It centers on an unfamiliar concept … (emphasis mine)

Really? I guess Mr. Montopoli can borrow as much as he wants and when he has to make payments on his debt, he can borrow some more, ad infinitum.

A limit on how much we can borrow is a very familiar concept to those of us who live in the real world.

Mr. Montopoli goes on to assert:

The idea that there is a legal limit on how much money the government can borrow may seem strange: After all, there is no limit on how much debt you can put on your credit card, so long as you can get someone to loan you the cash. And no other advanced economy has such an arbitrary limit, which White House economic adviser Austan Goolsbee has called a "weird construct."

True, I can put as much as I want on my credit card so long as I do not hit my limit.

But, Mr. Montopoli's argument here is more deceptive than it at first appears.

I have no problem with Mr. Obama, Mr. Reid and Ms. Pelosi and the gang putting as much as they want on their own credit cards.

If they want to take a second mortgage on their own houses, and pay the college tuition of promising illegal aliens, that's their business.

However, by using the government to borrow the money, they are saying to us we'd like to transfer money into the pockets of these individuals over here, but we don't have enough money in the Treasury to do that, so instead, we'll borrow in your name and we'll keep borrowing in your name as much as we want not subject to any limit you, the taxpayer who is ultimately responsible to pay the debt we created, might want to impose.

And, Mr. Montopoli is all for that. 'cause, y'know, the idea that responsible adults might put a limit on the credit card of their college age children is a weird and outdated concept.

Left to their own devices, politicians, like grown children at a party school, have no incentive to spend less. They can always find an interest group whose votes they can purchase by transferring, directly or indirectly, money into their pockets out of the pockets of responsible, hard-working tax payers.

Mr. Montopoli reveals the most beautiful gem in the final paragraph:

Mr. Obama has dodged questions on the issue, saying, "I don't think we should even get to the constitutional issue." The administration has signaled it is unlikely to assert its 14th Amendment right to act unilaterally, though such a move would not be unthinkable in the absence of a deal.

where, in one fell swoop, he has declared that the executive branch has a 14th Amendment right to sidestep the limit on its borrowing placed there by the legislative branch.

If you are wondering, here is what the 14th Amendment says:

Section 4.

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any state shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

Section 5.

The Congress shall have power to enforce, by appropriate legislation, the provisions of this article.

Again, emphasis is mine.

First, saying "you cannot borrow any more" does not question at all the validity of any existing public debt of the United States, authorized by law. Notice how Mr. Montopoli omits that pesky authorized by law bit from his quotation.

Second, the constitution clearly gives the Congress to enforce these provisions. Not the president.

I am sure there are lawyers who might argue otherwise, but to the rest of us, the meaning of these sentences rendered in straightforward English, is clear.

If the Congress does not allow the president to go on another borrowing binge, then payments on the public debt of the U.S., i.e. coupon payments on treasuries, must still be made, and the administration must figure out how to allocate the rest of the resources of the U.S. government to other expenditures of the U.S. government.