Scene: Jordan and former colleague, whose views lean far right, are at dinner. Conversation started Entry 146. (More about author and the general content of the Blog, Entry #1.)

Jordan: “Wow, this is a great dessert. We should skip the entrée and go straight for dessert.”

Steve: “Not a chance. We’ve spent too much time training the staff on how to customize the salad.”

Jordan: “Alright, back to the topic at hand.”

Steve: “You agreed that government and households could have the same economic behavior…but then said the timing for the behavior was 180 degrees apart. Tell me why.”

Jordan: “Use Greece as an example. Germany clamped down on spending by the Greek government.”

Steve: “As they should have. Spending was out of control.”

Jordan: “Hold on. Think about the restrictions that were forced on Greece. Banking. No withdrawals…well, very limited withdrawals.”

Steve: “So, why is that a problem?”

Jordan: “Where was the money going to come from to help grow the economy? People had no money. Even if they have savings, they could not access the account because of the banking restrictions. Businesses that exported could not buy goods from other countries so their export business dried up…and Greece needed foreign currency.”

Steve: “So government can’t spend any more because they were to pay down the debt. I’m beginning to see the box they were in. There’s no money and no way to start the economy.”

Jordan: “You’ve got it. Not so hard to understand, is it?”

Steve: “But no one…and I mean not one of the people I listen to or read has put the situation in such understandable terms. Why?”

Jordan: “You’re a good example why we all need to get news from multiple sources. Why haven’t your sources explained it? Ideology and politics. Lots of credible economists have made the point that someone has to spend for the economy to grow.”

Steve: “What you said earlier. Your spending is my income, right? As much as it troubles me to say this, I see why government has to spend more in a recession…and especially a depression. This really pains me but I even understand the extra spending might increase the deficit.”

Jordan: “I’m loving this conversation.”

Steve: “Don’t slobber all over yourself yet. What about savings? You said the government should act like a household. When does the government save?”

Jordan: “When the economy is stronger. If the economy is in a growth mode…and has been for a while…it’s OK to raise taxes a bit and start to pay down the deficit.”

Steve: “I knew there was a trick. Raising taxes. We need to cut taxes…except for Greece, where they needed to raise taxes. Those slackards weren’t paying.”

Jordan: “Ok, what side do you want to take? Raise taxes and lower the deficit or…”

Steve: “Cut taxes and lower the deficit. That’s the only fair way.”

Jordan: “What Kool-Aid have you been drinking? Or maybe just too much wine.”

Steve: “You better hope it’s not the wine. I’m driving, remember? What’s wrong with lower taxes and reducing the deficit? That’s good economic policy.”

Jordan: “The math just doesn’t work is what’s wrong.  Voodoo economics.”

Steve: “The tax rate is too high. It’s a disincentive to work.”

Jordan: “I admit that at some point the tax rate becomes a disincentive.”

Steve: “I knew I was right.”

Jordan: “A maximum marginal tax rate of say 50% or more might be a disincentive to the very wealthy. A maximum rate of 75% would expand the field. But I’m talking about a marginal rate of much less than 50%.”

Steve: “Your argument is weak. We need a tax cut.”

Jordan: “We’ve gotten somewhat sidetracked. But I want you to do one thing. Find some empirical evidence where a significant cut to a reasonable maximum marginal tax rate reduced the deficit.”

Steve: “That’s not a fair request.”

Jordan: “You’re right. It’s not a fair request.”

Steve: “See another trick.”

Jordan: “No trick. But the request is not fair because you cannot find any credible data. You need to put your political ideology aside and solve the problem.”

Steve: “Are you saying there is only one solution…yours or whoever you believe in?”

Jordan: “What I’m saying is if you want to solve an economic problem – Greece, for example – you need to understand what drives the economy.”

Steve: “And you think it’s not just politics.”

Jordan: “It’s the same problem you face when trying to find oil and gas reserves. You need to understand what rocks and what formations are most likely to hold oil and gas.”

Steve: “You meaning wishing for oil and gas won’t do?”

Jordan: “I’m glad you haven’t lost your sense of humor. No wishing won’t do.  No Great Carnac, whether exploring for oil or fixing the economy.”

Steve: “Back to Greece. Why do you think Germany…I mean the EC…put such harsh restrictions on Greece? Didn’t they understand what was likely to happen?”

Jordan: “You were right when you said Germany. Greece was not acting the way Mother Merkel thought Greece should act. You must behave like mother says. Down two, over four. Be good and Mother Merkel will give you a little treat.”

Jordan: “But the kid said, ‘You know what Mother Merkel? I’m not like you.”

Steve: “And then the people of Greece told Mother Merkel to shove it and started a revolution. You think the revolution in Greece motivated the Revenge Revolution in the US?”

Jordan: “The revolution in Greece certainly opened eyes, especially to the younger crowd. But I think the US was headed for a revolution anyway.”

Steve: “Without Greece? Why’s that?”

Jordan: “People in the US were faced with the same underlying cause of all revolutions – inequality.”

Waiter: “Gentlemen, may I get you anything else?”

Steve: “No thanks. The salad and dessert were great…and so was the wine. I’ve just had my fill of economics for the evening. No more.”

Jordan: “I’ll take the check.”

Ebook format of recent series of entries on Federal Budget.  15 05 23 Do They Really Understand Entries #121-#130