Making The Pie Smaller

by Dr. Carl Tarkanian
December 7, 2003

Often it is said that one of the goals of the type of economics practiced by conservatives is to "make the pie larger" or as President Bush might say, "make the pie taller." The idea is that if the economy produces more income for eveyone, then everyone has to contribute less because a a smaller percentage of a "large" (or, if you prefer, a "tall") pie is equivalent to a larger percentage of a smaller pie. Make sense?

For the last three years, the pie has neither gotten larger or taller. The pie has shriveled up. We were aiming for a nice, big homebaked apple pie, with a thin flaky crust and lots of ice cream piled on top and what we have instead is the equivalent of one of those Hostess fried pies that comes in the paper wrapper.

The thing is, though, that's not such a bad thing.

Sure, the knee jerk reaction is to think that a robust economy is a good thing, but I can give you several reasons why it's not. First, when the economy is strong, there's only one way for it to go and that's down. People tend to get comfortable, even fat and lazy, when the economy is doing well, as they did during the eight years President Clinton was in office.

A slow economy helps people to reevaluate their priorities. Is eating more important than paying the rent? Can the kids wait to see the doctor until next month? Is it really so cold outside that we need to turn on the heat? Who needs 200 channels of cable TV when you can three or four channels with an antenna?

President Bush has helped us to appreciate what we had. Most of us thought the good times would continue. In a way, most of us took for granted the luxuries of life, things like jobs and health insurance, food and rent. Now, we know that those things can disappear in a few short years.

The President believes strongly in "tough love." Those who suffer through adversity a little become stronger for it. That's why I believe the economic adversitiy that is affecting so many people has a silver lining. I give President Bush credit where credit is due for slowing down the runaway economy and helping Americans realize what they had and what they lost and what they can have again some day, if they're lucky.

The pie may not be getting any larger - or taller - anytime soon, but you know what? If you're real, real hungry, those little fried Hostess pies aren't so bad.

• $455 Billion and Rising (July 17, 2003)
• The Credit Card Economy (June 19, 2003)
• Dow Skyrockets By 11 Points (May 29, 2003)
• Unemployment Rising, Good News For Taxpayers (May 15, 2003)
• Budget Deficit Could Hit $1 Gadzillion (April 23, 2003)
• Iraq's Oil Will Solve Deficit Problem (March 7, 2003)
• Deficit Schmeficit (February 26, 2003)
• Washing The Yacht With Tax Savings (January 8, 2003)
• Bring Back The Trickle (January 3, 2003)

by Dr. Carl Tarkanian
July 17, 2003

This week, it was announced that our federal deficit for the year will be somewhere in the neighborhood of $455 billion. For those of you who need me to spell that out for you, that's $450,000,000,000. A lot of zeros!

It sounds bad, but really it's not. Budget deficits are something Republican presidents have grown accustomed to over the last 20 years or so. I wouldn't even be surprised if next year's deficit is even higher.

It's important to understand why the budget deficit has grown.

First, the war in Iraq is going to cost $150,000,000,000 in this year alone. That's about 1/3 of the deficit right there. This was what the political experts like to call an "unforeseen expense." Kind of like when your air conditioner breaks down in the summer. You didn't expect to have to pay to fix it, but you know you have to do it. In this case, we all know the war in Iraq was needed because of all the "weapons of mass destruction" that were over there and the fact that they were on the verge of attacking us again, like they did on 9/11. So, in my book, this was $150,000,000,000 well spent.

Second, there was a pretty major tax cut. You may have heard about it. You might have even benefitted from it. Then again, you might not have since some of the benefits have yet to "trickle down" from the wealthy to the less wealthy. The tax cut accounts for another big chunk of the budget deficit.

Third, you probably know that next year is an election year, and President Bush has to take some time out of running the country to mount his re-election campaign. This means staging photo opportunities on aircraft carriers, giving inspirational speeches to the troops, and flying to Africa to show he cares about black people. It's hard to focus on running an economy when you're schedule is booked up solid. That's easy to understand.

The reason I don't worry about the high budget deficits is that inevitably there will be another Democratic president. Hopefully, it won't be for awhile, but when it comes (probably 2008 or 2016), the budget will get balanced again. You can always count on the Democrats to balance the checkbook.

My advice is to simply ignore the rising deficit. After all, your share of it probably isn't that large.

by Dr. Carl Tarkanian
June 19, 2003

As our nation's budget deficit escalates, I have often been asked what effect this debt has on our economy.

I like to personalize the deficit problem, so people can understand it easier.

The example I usually give is to imagine that you make $2000 a month. After you've paid your bills, you have about $250 left over. Let's say you want to buy a TV set that costs $500. You can either save for a couple of months and buy the TV set with cash or you can use a credit card to make the purchase. Human nature being what it is, you can guess which decision most people would make under those circumstances.

Of course, if you do this often enough, you no longer have $250 left over after paying your bills each month because you have to pay interest on your credit card debt and plus make a payment to reduce the debt each month.

The federal deficit works on the same principles. President Bush wants to give us all -- well, most all of us -- some kind of tax cut. The problem is that he doesn't have the $250 left over at the end of the month to give us the cut. Actually, he needs a little more than $250 for the kind of cut he has proposed. He needs more like $300 billion.

Nonetheless, the same "credit card economy" principles apply -- charge now, pay later -- just on a larger scale. President Bush just charges $300 billion on the government's tab and the debt gets paid off over time.

Some people get into trouble with credit card debt. I've heard of people charging up $100,000 or more on their personal cards, debts they can never pay off. Some financial advisors even counsel against credit card debt.

I, however, say it's the American way. Why wait for tomorrow for something you want today? Why let a little thing like a $300 billion shortfall take away a tax cut that thousands of wealthy contributors are counting on? Chances are, some of those people might turn around and make campaign contributions as a way of saying "thanks."

Plus, the government isn't like the ordinary person who gets carried away and overpays for the sake of instant gratification. Sure, they may pay $1000 for a hammer every once in awhile or they may hire companies like Halliburton and Bechtel for billions of dollars without receiving competing bids, but all in all, the government is a pretty good credit risk.

I'm sure this is exactly what President Bush is depending on as he runs up the government's credit line for this latest round of tax cuts. Either it's that or it's the possibility that the bill is going to be someone else's problem after 2004.

by Dr. Carl Tarkanian
May 29, 2003

I have no doubt that my liberal friends are eating their words this morning.

President Bush signs his new $330 billion tax bill into law and all of a sudden the Dow Jones increases by 11 points. It was a pretty dramatic occurrence. For a few tense minutes, it looked like the gains might top out at 5 or 6 but as the closing bell neared, it became more apparent that we were in for a whopper of a day.

The 1/100th of a percent gain in the index shows that the economy is well on its way to recovery. Sure, it's still 4,000 points behind where it was when Bill Clinton left office, but if Bush is elected for another 4 year term and then Cheney is elected for two 4 year terms, I am confident that we can see the index gain another 200 or 300 points.

Of course, the continued economic recovery will depend on curtailing spending, which admittedly will be difficult with our war debt high and other wars on the horizon. But, even if the Dow only stays even or drops by another 1,000 points, I feel that today was a turning point, a day that President Bush can look back on with the pride of knowing that he recaptured 11 of the 4,000 points that have been lost since he took office.

All it took was perserverance, faith in God, and a $330 billion tax cut.

by Dr. Carl Tarkanian
May 15, 2003

You have probably seen the news that the unemployment rate has risen to 6%. No since the end of the first Bush presidency has the unemployment rate been so high.

You have probably also heard that the President is touting a new tax act, which will dramatically cut taxes for American taxpayers. This bold, new tax initiative has been assailed by left-wing critics as nothing more than a tax giveaway for the wealthy. In fact, they couldn't be more wrong.

I can identify roughly 10 million Americans who will directly benefit from the President's tax proposals, and these are not the elite taxpayers but the lowest of the low - the bottom dwellers, if you will. I am, of course, speaking about the unemployed.

If you figure there are about 140 million workers in the United States and 6% are unemployed, then that's about 10 million unemployed "workers." Because they are unemployed, they will pay absolutely no income taxes for the year. They will not have to contribute to the nation's war efforts or finance Halliburton's reconstruction of Iraq or build a new bomb or chip in on the "Star Wars" program or fund the "faith-based" initiatives that President Bush wants. In short, these people get a free ride on our collective back.

I know there are some who will say that I'm being unfair by claiming that the unemployed workers are the true benefactors of President Bush's tax cuts but it's true. Over 2.7 million jobs have been lost since President Bush took office. That translates to 2.7 million lucky Americans who will not have to pay taxes this year.

If not for President Bush's "compassionate conservatism," these down-on-their-luckers would to go to work each day and contribute their fair share of the cost of keeping our country great. I certainly hope that when the next election comes around, the unemployed sector of the population - which should be 5 or 6 million strong by then - will remember who they have to thank for their "tax cut" and vote accordingly at the polls.

by Dr. Carl Tarkanian
April 23, 2003

With the war with Iraq on the horizon, President Bush and his advisors have begun to weigh the cost of rebuilding the country they have yet to destroy. Costs could quickly escalate into the hundreds of billion dollars.

Coupled with the costs of maintaining the domestic economy and the trillions of dollars of tax cuts the President has promised his supporters, the deficit could hit a new high by the end of the year: $1 gadzillion.

The Congressional Budget Office expressed concern that the deficit could reach such new highs. One source inside the CBO commented to me that: "Our computers can't even process numbers that big. Our adding machine tapes only have room to calculate hundreds of trillions. We'll probably have to order new machines. It's Y2K all over again. A gadzillion is a very large number."

President Bush should take this news with a grain of salt. The important thing is not to be concerned about the avalanche of debt being accumulated during his term but to focus on tax cuts. John Snow, the railroad exec that the President Bush appointed as Treasury Secretary after Paul O'Neill quit the job earlier in the year, described the tax package as "sure to bring about lots of growth and new jobs."

That's the beauty of economics and tax cuts. A simple little tweak of the tax laws can turn things around overnight. Even if the country goes to war with North Korea, which would possibly take the debt level up to 19 or 20 figures in size, cutting taxes on dividends will work as a nice offset to help the American people make ends meet.

One anonymous source from the Halliburton company mentioned to me the other day that with all the war profits the company is expected to generate, the tax cut couldn't come at a better time. Sometimes, it pays to have a former CEO serving as Vice President.

I'm sure that what's good for Halliburton and corporate America will be good for the common taxpayer getting his taxes done at H&R Block. That's why as long as the tax cuts are on the table, I sleep well at night, even as the deficit and debt figures skyrocket to the moon.

by Dr. Carl Tarkanian
March 7, 2003

President Bush's proposed new round of tax cuts and the rest of his budget is projected by the Congressional Budget Office to produce a string of federal deficits over the coming decade totaling $1.82 trillion. The CBO also projects that President Bush's deficits for 2003 and 2004 will break the previous record deficits set in 1992 when his dad was the President. That's a lot of red ink.

It's not all bad news though.

With Gulf War II on the horizon, the U.S. is poised to seize control of the Iraqi oil fields. Nothing, my friends, cures a deficit faster than oil.

Once a U.S. appointed interim government is designated to govern Iraq, deals can be more readily struck with the major American oil companies. The price of crude oil is likely to plummet, meaning enormous profits for the oil companies. So go the fortunes of the oil companies, so goes the economy.

The oil companies reap the spoils of war, profits soar, and the government benefits by increased tax revenues. The increased revenues allow the government to combat the high deficits, resulting in monetary stability.

Cynics will complain that war should never be fought for oil, but I beg to differ. Oil is integral to our economy. We cannot afford to have to rely on "foreign sources" of oil anymore. That's why we must take Iraq's oil and make it our oil. Once it's ours, it's no longer "foreign."

Bush, Cheney, and Condi Rice, with deep ties to the oil industry, know the importance of seizing a new oil supply. While there's been lots of talk about "weapons of mass destruction" and "liberating" the Iraqi people, most of that's just window dressing. That's why it really doesn't matter what the U.N. decides to do. We're going in because we need the oil.

Over the coming months, you'll notice gas prices leveling off at the pump, probably around $2.00 to $2.50 per gallon. With the new supply of crude, prices should remain stable at this level for the forseeable future, which is good news for the consumer, good news for the oil companies who will realize even greater profits, and good news for President Bush and the country, which will be able to eliminate those pesky deficits.

by Dr. Carl Tarkanian
February 26, 2003

Everybody's talking about the deficit, like it's of importance. It's really not. I'll tell you why.

First of all, understand that the deficit is the amount the government spends in excess of the amount the government takes in in revenue. It's kind of like when you get your paycheck every month. If you spend more than you make, you have a deficit. It's a problem, because you probably had to charge a credit card and now you have something called a debt.

The deficit is the excess spending. The debt is the result of the deficit. President Clinton was real good about not running deficits. President Bush is still learning. But, again, it's not that big of a deal.

Why not? Let's take you or me, for example. If we run a deficit, we build up debt, like credit card debt. Eventually, the debt has to be repaid. That's why deficits for us are bad things.

The U.S. government is different. If it runs a deficit, President Bush picks up the phone and tells the mint to print up a fresh batch of bills. The money is printed up and the debt is repaid. It's like magic! Print money and repay the debt. That's the solution.

I know, you're thinking that maybe printing up a bunch a new money is a bad way to manage finances. I would agree that for you or me, printing up money would be a very bad thing, something for which we would be incarcerated. But, the government can get away with it. Sure, a little inflation may result. The dollar may be devalued a little, but it just means that you'll pay a little bit more for everything.

Next time one of your liberal friends makes a big deal about the deficit or the debt, you just remind him that the problem can be taken care of with a little green and black ink, some paper, some plates, and a printing press. Then, sit back and enjoy the dumbfounded look on his face.

by Dr. Carl Tarkanian
January 8, 2003

The President has unveiled his new "economic growth and jobs" proposal, and it is indeed something to be excited about. The income tax rate reductions will go in place much earlier than scheduled, providing tax relief for everyone, not just the wealthy. At last, we have a economic plan that cuts across class lines.

The centerpiece of the plan is, of course, the abolition of the tax on corporate dividends. The abolition of this tax has been a long time coming but will be worth the wait. If former President Clinton had been more focused in his approach to the economy, he would have done away with the dividend tax long ago. Instead, he littered his tax bills with things like child care and "earned income" credits which help the needy but don't mean much to the average taxpayer.

The liberals claim that the elimination of the tax on dividends will be a boon to the wealthy. It is true that the majority of American stocks are concentrated in the hands of a relatively small number of wealthy individuals and that this group will reap the direct benefits of the dividend tax repeal. However, these taxpayers can be expected to reinvest their tax savings in the economy, which has the effect of expanding the economy. Economic expansion eventually helps those who are not receiving the benefits of the plan by providing jobs and opportunities for the rest of us. For every yacht purchased in 2003 with these tax savings, there will be at least two or three people hired to wash and maintain that yacht.

Congress will be under pressure to abandon the President's plan in favor of one which provides direct benefits for the average American. This would be pure folly. After all, there's a reason why some Americans are wealthy and others are not. The wealthy know what to do with their money and how to prosper. They've proven it by the mere fact that they are wealthy. The average American would more likely go out and buy food or clothing with the tax savings, and conservative economics have shown us that these types of expenditures do not help the economy in the long run.

For these reason, it would be good for all Americans if the President's proposal became law. If it does, we will all sleep better knowing that more and more of the nation's wealth has become concentrated in the hands of those who know best how to use it for the benefit of the rest of us.

by Dr. Carl Tarkanian
January 3, 2003

With all the talk about how sour the economy has turned in the past two years since George W. Bush became President, it's time we focused on the be-all, end-all cure for our fiscal ills: supply-side economics. It's tried and true with no downside.

Here's the formula: First, cut taxes. This puts dollars in the hands of those who will spend them. Ideally, the more affluent taxpayers should receive the largest tax cuts because they are most likely to spend the most. This is not to deny the benefits of the tax cuts to the less wealthy, as I'll explain below. Second, watch the economy blossom like an American Beauty rose, as all those tax cut dollars flow back into the system. Third, continue collecting taxes -- albeit at a lower rate -- on the income generated by the expanded economy: a smaller and fairer percentage of a larger pie.

Some critics claim that supply-side economics is biased against middle and lower income taxpayers. Those critics, however, overlook the "trickle down" effect, as Ronald Reagan so eloquently described it. The more dollars we put into the hands of the nation's wealthiest taxpayers, the more those taxpayers will "trickle" on the middle and lower class taxpayers. Everyone wins with supply-side economics.

Our President has blunted the force of skeptics who seek to escalate what he terms "class warfare" by casting his proposed tax cuts as favorable to the wealthy. President Bush: "That's just not the way I think." Although the President was born of wealth and privilege, don't think for a minute that he doesn't fully understand and empathize with the plight of the unfortunate middle and lower classes. He is, after all, a self-described "humble man."

As an economics professor and advisor to those who have advised past Republican Presidents Reagan and Bush, I can speak from first-hand knowledge concerning the "trickle down" effect of supply-side economics. During the 80s, I felt that trickle. You probably did too. Weren't you better off in the 80s? Didn't your stock portfolio grow in value? That wasn't coincidence. That was the trickle, plain and simple.

So, my new year's challenge to the Republican Congress and our President is this: bring back the trickle. Save the economy before it's too late. Ignore the naysayers and cut taxes, not for everyone, but for those who will trickle on the rest of us. It may sound like "tough love" to those not receiving direct benefits of the cut, but it's really smart economic sense.