Harvard economist Greg Mankiw has a great analogy of how the current plans by the Administration to "reduce" the deficit work: Imagine you have a friend who has a budget problem. Every month he spends more than he earns. His credit card bills are piling up. He is clearly on an unsustainable path. Then one day he comes to you with an idea.
Friend: I am going to take off a few days from work and fly down to Bermuda for a quick vacation.
You: But isn’t that expensive? Won’t that just add to your growing debts?
Friend: Yes, it is expensive. But my plan is deficit-neutral. I have decided to give up that half-caf, extra shot caramel macchiato I order at Starbucks twice every day. I really don’t need that expensive drink. And if I give it up for the next three years, it will pay for my Bermuda trip.
You: Well, then, how are you going to solve the problem of your growing debts?
Friend: I am going to figure that out as soon as I return from Bermuda.
You: But in light of your budget problem, maybe you should give up Starbucks and skip the Bermuda vacation. Giving up Starbucks could be the easiest way to start balancing your budget.
Friend: You really aren’t any fun, are you?
He concludes "Even if you believe that the spending cuts and tax increases in the bill make it deficit-neutral, the legislation will still make solving the problem of the fiscal imbalance harder, because it will use up some of the easier ways to close the shortfall"
As we have said previously, the explosion in government spending to fund the Administration’s proposed health care takeover won’t be deficit neutral. It will – without a doubt – add to our mountain of unsustainable debt. But, even if you live in the same fantasy world where the Administration seems to live, and believe it will be deficit neutral, this is NOT in any way, shape, or form, a policy that will improve our financial situation. To say we’ll increase spending and taxes, and then hope for the best, is pure folly.
The ONLY way forward is to dramatically cut government spending, and simultaneously reduce the taxes that are crippling our economy.