New American Paradigm

National Debt Growing Too Large to Ignore

Yesterday we played "whose to blame" on our current deficit problems.  Not to get all partisan, but the correct answer is Bush and Congressional Republicans.  Congratulations, collect your free cookie at participating Subway's (note, none are actually participating to my knowledge.)

Today I just wanted to point out how dire the situation is.

To keep the debt from wrecking the economy, the U.S. would need to raise annual federal income taxes an average of $11,000 in 2019 for all families that pay them, an increase of about 55%. "The revenues needed are far too big to raise from high earners," says Alan Auerbach, an economist at the University of California at Berkeley. "The government will have to go where the money is, to the middle class." The most likely levy: a European-style value-added tax (VAT) that would substantially raise the price of everything from autos to restaurant meals.

Americans Saving More, Investing Less

We've mentioned before the marked increase in personal savings before.  This is, of course, a very good thing.  Low personal savings are unhealthy in the long term, so it's only natural that this trend reverse.  Usually though, there are opportunities for investment and that's eventually what brings economies out from under recession.  People start businesses, buy equipment, or otherwise develop the infrastructure necessary for making money.  Otherwise they supply capital in the form of stocks or bonds so that others can do so on their behalf.

Unfortunately, that does not appear to be happening now.  Paul Krugman notes:

That saving ought to be translated into investment, but the investment demand is not there. Housing is flat on its back because it was overbuilt; housing bubbles collapsed not only in the United States, but across much of Europe. Many businesses cannot get access to capital because of the breakdown of the financial system. But even those that do have access to capital don't want to invest because consumer demand is not there. Between the housing bust and the sudden decision of consumers to save, after all, we have a world with lots of excess capacity. The GDP report that just came out says that business-fixed investment, non-residential fixed investment, essentially business investment, is falling at a 40 percent annual rate.

Re-Use of Closed Auto Dealers

Over the next few months I expect a question will emerge in communities across the country as GM and Chrysler announce they'll cut a total of 2000 dealerships with Ford surely to follow suit in the near future.  What do we do with the land they once occupied?

This is a question my town, Gig Harbor Washington, has been wrestling with over the last couple years after the Ford and Chevrolet dealerships closed.  You don't realize just how much land these sites take up until you see them closed and the buildings demolished.  It's a question the Daily Green attempts to answer in this article outlining the opportunities and problems.

One critical issue is that the closures will almost certainly be concentrated in the suburbs and exurbs.  The sites were once attractive for the cheap land and access to eager consumers dependent on cars.  But as we've noted before, the days of sprawl are over and it's unlikely the manufacturers will let their more productive urban dealerships go.  Unfortunately, many small communities sought out car dealers hungry for the sales tax they provide and now, with already distressed budgets, could be looking at gaping holes in their economy.  So the trick will be resisting the easy fix and allowing or even encouraging more sprawling development.

The Tea Party/Libertarian Connection

Nate Silver at FiveThirtyEight has done some interesting statistical analysis indicating that the April 15th tax day "Tea Parties" may have been more about (small "L") libertarian backlash than a broader Republican based movement.

Nate draws the connection between per capita contributions to libertarian Republican Presidential candidate Ron Paul and attendance at Tea Party events. Campaign contributions are a strong indicator of not only support, but of enthusiasm. 

To account for uneven attendance reporting, Nate measured per capita attendance by region dividing the US into 11 regions. 

The result seems fairly clear: