Flawed Theory - "Starve the Beast"

[zipity]

The republican theory "Starve the Beast" is designed to control spending by cutting taxes until it creates a fiscal crisis that would force the government to cut spending. This theory is flawed. Starving the beast in fact has the exact opposite effect as has been seen over the last 10 years. Reagan once said "if you've got a kid that's extravagant, you can lecture him all you want about his extravagance. Or you can cut his allowance and achieve the same end much quicker." The thing that Reagan didn't allow for was that the parent had already given the kid a credit card so when they cut his allowance he just continued to spend putting everything on credit. The US government is like that kid with a credit card and he's running up a HUGE debt. Republicans now want to solve the problem by not increasing the debt ceiling. That's like the kids parents deciding to control the kids spending by not paying the bill on the credit card they signed for and gave him. Again flawed thinking, all the parents will do is have their own credit rating destroyed. It's time to sit down with the kid, take his credit card away and tie his allowance to specific chores.

Raising taxes is politically difficult for politicians where cutting taxes is easy. However starving the beast is irresponsible and dangerous because it gives the impression of discounting services. Have you ever heard a first time home buyer talk about their new home "and I only had to put down 10%". Same with our current system. A new budget is enacted and then in a separate bill taxes are cut. We pay for 60% of the approved spending and put 40% on the credit card. Yes we're starving the beast BUT we're not controlling the beast.

So here's a different way of handling it. Take away the credit card. We don't need a balance budget amendment, we need an amendment that takes away congresses ability to borrow. How would that help? Imagine if Bush had announced a war tax to pay for the Iraq war, do you think the war would have lasted as long? Suppose that to pass the prescription drug benefit congress had to enact a new payroll tax to pay for it, do you think it still would have passed by the 1 vote it did?

As I've said, starving the beast is flawed logic, controlling the beast is the way to go. Disallow borrowing, tie tax increases to spending and you will force politicians to stake their political career on every vote they cast.

[jkapp]

The republican theory "Starve the Beast" is designed to control spending by cutting taxes until it creates a fiscal crisis that would force the government to cut spending. This theory is flawed. Starving the beast in fact has the exact opposite effect as has been seen over the last 10 years. Reagan once said "if you've got a kid that's extravagant, you can lecture him all you want about his extravagance. Or you can cut his allowance and achieve the same end much quicker." The thing that Reagan didn't allow for was that the parent had already given the kid a credit card so when they cut his allowance he just continued to spend putting everything on credit. The US >>government is like that kid with a credit card and he's running up a HUGE debt. Republicans now want to solve the problem by not increasing the debt ceiling. That's like the kids parents deciding to control the kids spending by not paying the bill on the credit card they signed for and gave him. Again flawed thinking, all the parents will do is have their own credit rating destroyed. It's time to sit down with the kid, take his credit card away and tie his allowance to specific chore.

Nope...flawed analogy. The parents are deciding not to up the limit on the credit card so the kid can't keep charging more shit. They already have the credit maxed out, and now they have to figure out how to pay for it without using more credit because THAT is just adding fuel to the wildfire.

But apparently, the Dems wish to keep adding fuel until the entire country burns down...no thanks!

[ChiTownVenture]

Jul 29, 2011 8:31:13 GMT -5 jkapp said:

The republican theory "Starve the Beast" is designed to control spending by cutting taxes until it creates a fiscal crisis that would force the government to cut spending. This theory is flawed. Starving the beast in fact has the exact opposite effect as has been seen over the last 10 years. Reagan once said "if you've got a kid that's extravagant, you can lecture him all you want about his extravagance. Or you can cut his allowance and achieve the same end much quicker." The thing that Reagan didn't allow for was that the parent had already given the kid a credit card so when they cut his allowance he just continued to spend putting everything on credit. The US >>government is like that kid with a credit card and he's running up a HUGE debt. Republicans now want to solve the problem by not increasing the debt ceiling. That's like the kids parents deciding to control the kids spending by not paying the bill on the credit card they signed for and gave him. Again flawed thinking, all the parents will do is have their own credit rating destroyed. It's time to sit down with the kid, take his credit card away and tie his allowance to specific chore.

Nope...flawed analogy. The parents are deciding not to up the limit on the credit card so the kid can't keep charging more shit. They already have the credit maxed out, and now they have to figure out how to pay for it without using more credit because THAT is just adding fuel to the wildfire.

But apparently, the Dems wish to keep adding fuel until the entire country burns down...no thanks!

I think the flaw is that the parent and the kid are the same person. Otherwise I agree with the OP.

[jkapp]

Jul 29, 2011 8:32:41 GMT -5 @toughtimes said:

I also agree with you because many people don't comprehend that the money has already been SPENT. We are talking about settling a bill, not spending money going forward. It is as you say, analogous to "saving" money by running out of a restaurant without paying the tab, refusing to pay workers or ignoring a credit card bill.

Of course, in real life you would reap penalties rates on the cards and a trip to the police station or small claims court if you did this. The government will face skyrocketing interest rates as capital holders make other investment choices.

Except raising the debt ceiling is not settling a bill, its adding to it. You cannot pay a debt with more debt...only idiots in government think that actually works - which is why our debt is so bad

[rockon]

Your analogy of the credit card is very flawed. If my kid had maxed their credit card out on stupid spending I would start by making him cut up the credit card ( balance the budget first) Then I would set up a systematic plan for paying of the outstanding debt (before say buying a new car or repaving his driveway or hiring someone else to mow his lawn.) This is not what some are advocating that our government do and it's very difficult to understand any other logical way of addressing our problem.

[jkapp]

Jul 29, 2011 8:41:57 GMT -5 @toughtimes said:

No, I stick by my assertion that it is settling the existing bill. The obligations such as payments on treasuries already exist and the second that the government defaults millions of dollars of principal and interest will be wiped from the books of financial companies and private households world-wide. Many sophisticated investors will find other ways to invest, following China's example of divesting of our paper in favor of investment in natural resources. Capital flows will also flee for foreign currencies. Like any walking bankrupt, we will only be able to borrow under usurious terms.

Which would be the proper consequences of our outrageous spending habits...settling a debt by taking on more debt while still spending frivolously just delays that same outcome and will make the consequences that much more severe.

[jkapp]

Jul 29, 2011 8:47:59 GMT -5 @toughtimes said:

Then you would look at taxes being raised and programs being cut while the debt continues to grow...a perverse result under any political scenario. Talk about cutting your nose to spite your face.

Except that's what the Dems "plan" sounds like...except they would never allow their vote-buying programs to be cut. So what we'll get is raised taxes, continued spending, and higher debt. Not exactly a path to prosperity...just business as usual - mortaging the future for the benefit of today.

[zipity]

I think the flaw is that the parent and the kid are the same person. Otherwise I agree with the OP.

The taxpayer is the parent, the kid are the idiots in Washington.

If my kid had maxed their credit card out on stupid spending I would start by making him cut up the credit card ( balance the budget first) Then I would set up a systematic plan for paying of the outstanding debt (before say buying a new car or repaving his driveway or hiring someone else to mow his lawn.)

So you believe that congress should balance the budget before paying any more bills? Don't pay bond holders, government workers, contractors, military, corporations providing services. Sorry I don't buy it, in your example you would go to your credit card company (remember you signed for the card) and tell them that you couldn't pay the bill and wanted to setup a payment plan. They'd fine you and raise the interest rate on your card and report you to the credit rating agencies.

This is not what some are advocating that our government do and it's very difficult to understand any other logical way of addressing our problem.

Not paying people we already owe is simply not right. Not paying the credit card company is not addressing you kid's spending problem. I do agree with cutting up the credit card, as I suggested in the OP an amendment to keep them from borrowing money. If they want to spend it they have to raise money to pay for it.

Which would be the proper consequences of our outrageous spending habits...

I disagree, you are going to spank the American taxpayer and people worldwide because of the outrageous spending habits in Congress. You're punishing the parent instead of the kid.

Then you would look at taxes being raised and programs being cut while the debt continues to grow...a perverse result under any political scenario.

More like you would include a plan for funding programs before signing those programs into law. Yes you have to continue borrowing because of unfunded legislation that has already been approved. Moving forward however you would have to borrow less as more legislation matched tax increases with spending. There is now way congress should be allowed to submit a budget where revenues don't match spend. You don't need a balanced budget amendment, you simply need to tell congress that they can't assume any more borrowing to pay for new budgets.

[zipity]

except they would never allow their vote-buying programs to be cut.

You mean like the way pubs promise their base to keep spending on defense? There's nothing wrong with spending money on things that the voters (pub or dem) want, what's wrong is not having the guts to present them with the bill.

and higher debt

The debt doesn't increase if you revenue matches your spend. Starving the beast by cutting taxes, allowing borrowing and later hoping for spending cuts has gotten us to where we are today.

[zipity]

I expect that Obama will pull out the 14th amendment, authorize the debt ceiling increase and tell the pubs to take him to court. That will take at least a couple of years to straighten out.

[jkapp]

Jul 29, 2011 9:16:26 GMT -5 zipity said:

Starving the beast by cutting taxes, allowing borrowing and later hoping for spending cuts has gotten us to where we are today.

And I can bet you that is exactly the type of plan that will come up for vote and get signed by the president...except for the cutting taxes part.

[floridayankee]

Jul 29, 2011 9:39:01 GMT -5 @toughtimes said:

God, what a nightmare. And to think I thought the recession would be over in a year or two as well.

It might have been if government would have just stayed out of the way. Apparently we didn't learn from Japan's lost decade.

If my kid had maxed their credit card out on stupid spending I would start by making him cut up the credit card ( balance the budget first) Then I would set up a systematic plan for paying of the outstanding debt (before say buying a new car or repaving his driveway or hiring someone else to mow his lawn.)

So you believe that congress should balance the budget before paying any more bills?

The bills are part of the budget, are they not? I say they need to pay the bills before forking out cash for a study on gay men's penis sizes.

Then you would look at taxes being raised and programs being cut while the debt continues to grow...a perverse result under any political scenario.

More like you would include a plan for funding programs before signing those programs into law.

Didn't the dems do that by pushing through paygo? Apparently this legislation isn't worth the paper it's written on.

[AgeOfEnlightenmentSCP]

I actually agree with you on this. It hasn't worked. The theory is that if we deprive the government of money, it will HAVE TO shrink- but as we've seen, it doesn't- it just goes into debt. Because promising tax breaks is easy, but cutting spending- as we've seen is so difficult that it's never actually happened. Ever.

But a big cut is coming- a 42% cut in fact. Because once our creditors cut us off, that's it. So, this minor change the conservative members of the GOP are pushing is nothing. If the TEA Party caucus is unsuccessful, we'll get much bigger, and more immediate cuts-- overnight.

[zipity]

...except for the cutting taxes part.

My concern is cutting the deficit and debt, raising taxes in lue of borrowing will cut the deficit without raising the debt. You want to go after the whole bunch tomorrow to get them to reduce the size of the budget SO they can reduce taxes, I'm with you.

The bills are part of the budget, are they not?

I was talking about bills in terms of what we already owe, not bills as in legislation. BUT I am in agreement with what you are saying, we should pay our debts and then discuss all components of the budget, including gay men's penis sizes. (is that really in the budget?)

Didn't the dems do that by pushing through paygo?

I thought paygo focused on supplemental legislations, and I agree with it. I'd like to see it applied to the budget, if it's not.

[zipity]

But a big cut is coming- a 42% cut in fact. Because once our creditors cut us off, that's it. So, this minor change the conservative members of the GOP are pushing is nothing.

The problem with what's going on now is that eventually we will have to pay the bills we owe. We can raise taxes to do it, but that's not likely OR we can borrow money. If we default that borrowed money is going to cost a lot more than if we don't default. The cuts that the house bill and the senate bill talk about are over 10 years. In the case of the senate bill, I think they are talking about $2.3 trillion over 10 years, that's $230 billion/year. No subtract from that the cost of the extra interest we will pay due to the default. (the following example includes my numbers, your mileage may vary) Lets round the deficit to $1.6 trillion, every additional 1% in interest we pay on money borrowed, to pay for debts we already owe, will cost us an additional $16 billion dollars, 2 points = $32 billion. According to credit card agreements I've seen, a 13% interest rate can jump to 29% if you're late on a payment. I'm not saying the US credit rate will jump 16 points but the $230 billion savings/year in the Senate bill will get completely wiped out with a 14 point jump. Even 14 points is still unrealistic, until now the US has always been a good customer, how about a 4% rise in rates. That's spending $64 billion dollars just so the Tea Party can have their 15 minutes of fame and a paragraph in the history books. Doesn't make sense to me.

[jkapp]

Jul 29, 2011 11:07:19 GMT -5 zipity said:

But a big cut is coming- a 42% cut in fact. Because once our creditors cut us off, that's it. So, this minor change the conservative members of the GOP are pushing is nothing.

The problem with what's going on now is that eventually we will have to pay the bills we owe. We can raise taxes to do it, but that's not likely OR we can borrow money. If we default that borrowed money is going to cost a lot more than if we don't default. The cuts that the house bill and the senate bill talk about are over 10 years. In the case of the senate bill, I think they are talking about $2.3 trillion over 10 years, that's $230 billion/year. No subtract from that the cost of the extra interest we will pay due to the default. (the following example includes my numbers, your mileage may vary) Lets round the deficit to $1.6 trillion, every additional 1% in interest we pay on money borrowed, to pay for debts we already owe, will cost us an additional $16 billion dollars, 2 points = $32 billion. According to credit card agreements I've seen, a 13% interest rate can jump to 29% if you're late on a payment. I'm not saying the US credit rate will jump 16 points but the $230 billion savings/year in the Senate bill will get completely wiped out with a 14 point jump. Even 14 points is still unrealistic, until now the US has always been a good customer, how about a 4% rise in rates. That's spending $64 billion dollars just so the Tea Party can have their 15 minutes of fame and a paragraph in the history books. Doesn't make sense to me.

What doesn't make sense to me is borrowing money to help pay off our debts...that's like borrowing money from a HELOC to pay off a credit card, and then keep using the credit card.

This will never result in the debt going down...and for whatever reason people keep arguing against the debt going down???

Without cuts, REAL cuts, raising the debt ceiling will not help us. And so far we haven't seen any real cuts...and if a plan passes that raises the debt ceiling and those cuts never happen, those interest rates will be going up anyway - and on a LARGER debt amount.

Cuts first...then we can talk about extending credit for a little more wiggle room. And a short term plan can do this by keeping the debt in the politician's pig faces...

If someone is having debt problems, you don't set up a plan to meet every few years to go over their budgets and spending because they have not proven to be trustworthy in sticking to a plan yet. You meet every month, or every few months, and go over the plan and how successful the person is at sticking to a budget.

I can guarantee you if a long term plan is put into place it will quickly be forgotten and our problems will only get worse...I guarantee that!!! It's the nature of our idiots in office...

[AgeOfEnlightenmentSCP]

Jul 29, 2011 11:07:19 GMT -5 zipity said:

But a big cut is coming- a 42% cut in fact. Because once our creditors cut us off, that's it. So, this minor change the conservative members of the GOP are pushing is nothing.

The problem with what's going on now is that eventually we will have to pay the bills we owe. We can raise taxes to do it, but that's not likely OR we can borrow money. If we default that borrowed money is going to cost a lot more than if we don't default. The cuts that the house bill and the senate bill talk about are over 10 years. In the case of the senate bill, I think they are talking about $2.3 trillion over 10 years, that's $230 billion/year. No subtract from that the cost of the extra interest we will pay due to the default. (the following example includes my numbers, your mileage may vary) Lets round the deficit to $1.6 trillion, every additional 1% in interest we pay on money borrowed, to pay for debts we already owe, will cost us an additional $16 billion dollars, 2 points = $32 billion. According to credit card agreements I've seen, a 13% interest rate can jump to 29% if you're late on a payment. I'm not saying the US credit rate will jump 16 points but the $230 billion savings/year in the Senate bill will get completely wiped out with a 14 point jump. Even 14 points is still unrealistic, until now the US has always been a good customer, how about a 4% rise in rates. That's spending $64 billion dollars just so the Tea Party can have their 15 minutes of fame and a paragraph in the history books. Doesn't make sense to me.

Default is optimistic. You give our politicians too much credit. They won't have the integrity to default-- they'll try to print their way out of it first, and the dollar will collapse. THEN we'll default.

[AgeOfEnlightenmentSCP]

The situation we're in right now is like a couple with 5 credit cards asking for a 6th to make the payments on the first 5. We're not facing a downgrade in our credit rating because a small conservative contingent in the GOP is complicating obtaining that 6th credit card, we're facing a downgrade because we are asking for the 6th credit card. Want to instill confidence in our ability to repay debt, we will have to demonstrate spending discipline. We don't tax too little, we spend too much.

[fairlycrazy23]

Jul 29, 2011 8:26:01 GMT -5 zipity said:

We don't need a balance budget amendment, we need an amendment that takes away congresses ability to borrow.

Wouldn't a balanced budget amendment and a no-borrowing amendment basically be the same thing?

And about our ability to sell US securities being cut off because nobody wants to buy them, well we will still sale them to SS and we will still sell them the FED. Well, actually not SS anymore because they are now in the red, So FED will have crank the presses up just that much more.

[verrip1]

Jul 29, 2011 8:26:01 GMT -5 zipity said:

...
Raising taxes is politically difficult for politicians where cutting taxes is easy.
...

Flawed premises mean flawed conclusions. I find it hard to believe that fingers can type something so patently ridiculous without twitching in their own form of laughter.

Imagine trying to pass a tax cut today. Easy? Of course it's not. Today, passing a tax increase is a very possible outcome, whereas passing a tax decrease today is absolutely, positively impossible.

Here we have a time when federal spending may actually get cut a little in real terms, and the statists are whining about how we've been cutting spending/taxes forever. Bilge.

As to whether starve the beast will work, that's academic. It will never be tried in real life. Statists will see to that.

[skweet]

I will agree with the analogy as stated, and amended, in general terms. I will even agree that "starve the beast" may be flawed, but it is because of a huge curve ball set by the Pres..I mean kid. We cut the allowance, he maxed out the card, and he wants a higher limit and higher allowance to make the interest payments on the card. We parents want to give him a higher limit if Mom and Dad can agree whether we should give him a little more allowance, or force him to cut his spending habits in exchange for the higher limit. During our discussion he says that he is calls his banker and tells him that if we don't agree, he won't get paid. Wait a second, you allowance more than covers your debt payments, we are just trying to decide if you continue your Cell phone contract, your country club membership, your weekly trips to the tanning salon your etc, etc. If you don't pay banker you'll never be able to borrow at a reasonable price again, for a long time. That's right, he would reply, Mom and Dad YOU are ruining my financial credit, by not making this decision. I can not be expected to stop paying my phone bill, I agreed to pay it every month. If I stop paying it, then I won't have a phone, so my bank CANNOT possibly be paid.
Let's tell our kid, to re prioritize the bank first, and tell the banker that they have priority.

[rockon]

Lets keep in perspective that the spending has been increased by 23-30% (depending on who's numbers you believe) above where they were at when Bush left office. So just rolling the spending back to the insanely high number it was already at with Bush would take care of a good portion of the deficit in question. The ironic thing is that most of the liberals were screaming about the high spending then but are defending it now.

[jkapp]

Jul 29, 2011 12:56:42 GMT -5 rockon said:

Lets keep in perspective that the spending has been increased by 23-30% (depending on who's numbers you believe) above where they were at when Bush left office. So just rolling the spending back to the insanely high number it was already at with Bush would take care of a good portion of the deficit in question. The ironic thing is that most of the liberals were screaming about the high spending then but are defending it now.

I keep asking whatever happened to those deficit hawks on the left that seemed to be everywhere during Bush's presidency. I could actually agree with them on something...but apparently it was all just a show and they didn't really care about spending and increasing deficits - they just didn't like when Bush spent and increased deficits. Now that Obama is spending so much it's HAS to stay! The future of the world depends on it!!!!!!

[floridayankee]

Jul 29, 2011 10:40:32 GMT -5 AgeOfEnlightenmentSCP said:

I actually agree with you on this. It hasn't worked. The theory is that if we deprive the government of money, it will HAVE TO shrink- but as we've seen, it doesn't- it just goes into debt.

Actually, the theory works if you leave the debt ceiling in place rather than raising it to accommodate that additional debt.

[BeenThere...DoneThat...]

...how about test the theory on the entitlement ranks? ...cut their checks at 50% and include a 50% IOU, to be assessed again, and means tested, for the following month... then repeat that process month to month until we can force more reform to those programs...

...most people realize that half is better than nothing... and the ones that don't or won't are another story...

[BeenThere...DoneThat...]

Jul 29, 2011 14:02:17 GMT -5 @toughtimes said:

Well, we're going to see what happens when the US defaults. It looks unavoidable now.

...oh ye of little faith... I might hear the printing presses humming even now...

[skweet]

Jul 29, 2011 14:02:17 GMT -5 @toughtimes said:

Well, we're going to see what happens when the US defaults. It looks unavoidable now.

It is unavoidable. Obama said that if a bill was not passed that we WOULD default, even though our cash flow more than covers our debt service. How can we possibly default? We have to place stakeholders above debt holders. No logical business operator would ever risk their credit for the sake of stakeholders, right? Even in bankruptcy the debt-holders are paid first, the stakeholders second and the share holders last, RIGHT? Oh wait, Obama says that we WOULD default, and he threw-out order of payment standards during the Auto bailout days, and we can only assume that he will make the illogical decision to, unnecessarily, default in this situation. We are not AAA credit as long as he is CEO.

[BeenThere...DoneThat...]

Jul 29, 2011 14:36:42 GMT -5 skweet said:

Jul 29, 2011 14:02:17 GMT -5 @toughtimes said:

Well, we're going to see what happens when the US defaults. It looks unavoidable now.

It is unavoidable. Obama said that if a bill was not passed that we WOULD default, even though our cash flow more than covers our debt service. How can we possibly default? We have to place stakeholders above debt holders. No logical business operator would ever risk their credit for the sake of stakeholders, right? Even in bankruptcy the debt-holders are paid first, the stakeholders second and the share holders last, RIGHT? Oh wait, Obama says that we WOULD default, and he threw-out order of payment standards during the Auto bailout days, and we can only assume that he will make the illogical decision to, unnecessarily, default in this situation. We are not AAA credit as long as he is CEO.

...another good point...

[djAdvocate]

Jul 29, 2011 8:31:13 GMT -5 jkapp said:

The republican theory "Starve the Beast" is designed to control spending by cutting taxes until it creates a fiscal crisis that would force the government to cut spending. This theory is flawed. Starving the beast in fact has the exact opposite effect as has been seen over the last 10 years. Reagan once said "if you've got a kid that's extravagant, you can lecture him all you want about his extravagance. Or you can cut his allowance and achieve the same end much quicker." The thing that Reagan didn't allow for was that the parent had already given the kid a credit card so when they cut his allowance he just continued to spend putting everything on credit. The US >>government is like that kid with a credit card and he's running up a HUGE debt. Republicans now want to solve the problem by not increasing the debt ceiling. That's like the kids parents deciding to control the kids spending by not paying the bill on the credit card they signed for and gave him. Again flawed thinking, all the parents will do is have their own credit rating destroyed. It's time to sit down with the kid, take his credit card away and tie his allowance to specific chore.

Nope...flawed analogy. The parents are deciding not to up the limit on the credit card so the kid can't keep charging more shit. They already have the credit maxed out, and now they have to figure out how to pay for it without using more credit because THAT is just adding fuel to the wildfire.

But apparently, the Dems wish to keep adding fuel until the entire country burns down...no thanks!

one problem with your analogy: keeping the economy from tanking is not "shit".

[djAdvocate]

Jul 29, 2011 14:36:42 GMT -5 skweet said:

Jul 29, 2011 14:02:17 GMT -5 @toughtimes said:

Well, we're going to see what happens when the US defaults. It looks unavoidable now.

It is unavoidable. Obama said that if a bill was not passed that we WOULD default, even though our cash flow more than covers our debt service.

people keep saying this, as if it were the most crucial thing. but it isn't. the most crucial thing is meeting your commitment to the people that draw a pension from you. at a minimum, it is co-equal with interest payments. so then it becomes a cash flow issue.

one of the companies i run received $2,000 this week. we have payroll today. i can guarantee you it is more than $2k.

it doesn't matter SHIT whether you can service your debt on paper. what matters is whether you have the cash flow to do it (assuming you have no credit).