Parlor Games – Taxes and spending matter less than we think

“In any dispute the intensity of feeling is inversely proportional to the value of the issues at stake.” – Wallace Stanley Sayre

Does increasing or lowering taxes impact the economy?  What about government spending?  If so, by how much?  Listening to either party one would think there was clear evidence that supports their argument, but there isn’t.  The only thing that is clear is historically the US economy has both prospered and floundered under every conceivable tax rate and government spending combination.  We’ve seen great growth and deep recessions under tax cutting as well as tax raising regimes.  Not something that most members of Congress will ever admit to.

As much as Presidents and Congresses like to believe they are able to significantly impact our economy, the bulk of the evidence points to the idea that they too are mostly just along for the roller coaster ride that is the economic cycle.  For if governments were able to “stimulate growth” or “avoid recession” shouldn’t there be at least one example of a western country successfully taming the economic cycle in the past 200 years of modern nation states and economies? We’ve seen western governments controlled by capitalists, socialists, communists, dictators and everything in between.  We’ve seen governments formed from coalitions that span a wide political spectrum and those directed by a single person.  They’ve increased and reduced corporate taxes, individual taxes, tariffs, benefits and investments.  None of them, not a single one, has shown any concrete proof of being able to consistently increase a countries immunity from the economic cycle.

Contrary to popular opinion, our political leaders on both sides are not idiots.  Most of them are quite intelligent and are likely trying to do what they honestly feel is best for the country.  The same inherent desire to come together in the face of dire enemies (9/11, Pearl Harbor, etc), leaves them free to argue so vehemently about domestic fiscal policy.  If there was even a shred of concrete evidence that the outcome of the latest taxes vs spending debate would significantly impact job creation or growth, there would be no debate as the way forward would be clear.

Domestic fiscal debate is little more than a modern day parlor game in which the merits of inherently opinion driven policies are incessantly debated with increasing vigor precisely because of how little is at stake.

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