Thursday, December 7, 2023

#341 / Budget Lessons From Sherlock Holmes

That's not Sherlock Holmes in the picture. It's Peter Coy, a New York Times' columnist who writes about economics, business, and finance. Coy's column on October 2, 2023, was titled, "Sherlock Holmes Could Teach Washington About Budgeting." In fact, that is the hard copy version of the headline on Coy's column. Online, which is where you'll find it when you click that link (The Times' paywall permitting, of course), Coy's column bears this title: "There Is Only One Way to Fix the National Budget."

Well, don't keep us in suspense, Peter. What is that "one way"?

Here is Coy's prescription: 

There is really only one way out of this jam. Spoiler alert: It’s not reducing funding for the Corporation for Public Broadcasting. It’s also not increasing the economy’s growth rate. That’s a good goal, but as we can see, the red ink has poured out over the past year even though the economy has been at or near full employment. 
The solution is more tax revenue. Namely, more effective collection of taxes from people and companies that aren’t paying what they owe, coupled with higher tax rates on corporations and individuals. And not just on the very rich. The financing problem is big enough that taxes will have to go up on a sizable chunk of people in the top half of the income distribution (emphasis added).

In other words, in the most productive and successful economy in the history of the world, we don't have to run up debts that we will all have to pay off (paying interest to those who have the money to loan us). Instead, we can simply "pay as we go." That is, let us be clear, a viable way to run the economy if we are willing to tax those who have the ability to pay. There is evidence, in fact, that this is a prescription that works. I put some of that evidence into a blog posting, here, not so long ago. 

Coy brings Sherlock Holmes into the discussion by quoting him to this effect: "When you have eliminated all which is impossible, then whatever remains, however improbable, must be the truth." 

Getting the money we need by raising taxes? Is that "improbable"? Maybe. Is it "impossible"?  Not at all!

There is a popular expression that ties in nicely with Coy's observations: 

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