Greg Mankiw could be asking a Question which he might not want answered. His implication suggests that healthcare reform must help reduce the long-term fiscal deficit. It is a very slippery slope, this one; and could be too easily turned to favored economic elements. What if the Bush Tax Cuts had to be revenue productive, or canceled for the year? What if those wonderful Business Tax Exemptions were treated in like manner? How much chagrin would Conservatives undergo, if Tax law was based upon fiscal neutrality, and the federal government absolutely had Tax rates based upon elimination of fiscal debt? It is sad that Conservatives can come up with fiscal neutrality only after a 20-point deficit in Tax revenues. He who was associated with the most Spendthrift administration in history should not throw stones at the Glass house created by Conservatives; the last time I reviewed the material, Clinton was still paying off the national debt up to leaving Office.
I ran across this article through the writing of Gavin Kennedy. I have always believed in Adam Smith’s Invisible Hand, but not in the manner most cited; reread the previous paragraph, and ask whether the fiscal deficit as described is not a failure of a universal turn to that Invisible Hand. The award of Tax benefits without universal application negates the operation of the market, and the dysfunction of fiscal balance comes from the loss of guidance from that Hand. Here is a hopeful greater clarity to the Point: You first accept a situation in economic run by market forces. You then introduce an unequal Tax impact on such operation, thereby altering the payment schedule to the elements of that production. Will not this interference both alter the revenue generation of the Tax, but also the economic performance of the activity? It is very easy destroy economic function, when you have introduced both Debt and Debt Service in addition to additional tax to any element in the economic matrix; all of which have been introduced by the skewed favoritism of the Tax policy. Many Economists praise the glory of Tax reductions, but would deny the decisiveness of revenue neutrality of the Tax impact on all components in the economic process–not just Business interests.
One can find the lasting impact of distortionate economic policy impact, and the long-term outcome from the policy. Everything We do has down-the-road implications, and those effects clearly are not what We desire. The Stimulus is a case in point. Everyone is trying to figure out what throwing a half-trillion dollars into the system will do to long-term payment schedules, while trying to ignore the fact that the Stimulus shows no stimulus effects. Now, We are talking about Doubling Down, and gambling that something which had no observable impact, will generate vast reward if We spend twice as much or more. It is going to be a long year! lgl