Here is Byron's comment reflecting on what I have been stressing but using percentages.
Let's say you did the Paul Ryan plan and cut an enormous amount out of it. You know, the economy is dependent on government expenditures. The government is representing 25% of the gdp right now. and taxes are 16%. there's a 9% gap. If the government really did cut the budget deficit, there's a possibility that we could go into a recession. so, you're walking a fine line here.
I used to couch this as 'cost-benefit' analysis back in 2009 and 2010. Each time we talk about our economic reports, especially when they do 'better than expected' we MUST realize the costs involved. They get brushed aside by Wall Street, all giddy like. Take retail sales the past 3 months (including today's report) - does anyone mention there was a 2% payroll tax holiday that boosted every worker's income as of Jan 1? And cost $110 Billion? Nope. But that is just one of many examples.
Larger picture... 25% of our nation's GDP is now coming directly from government - which is nothing more than transfer payments + borrowing. That's not entrepreneurial private sector business or wealth creation. That does not represent 'healthy' in any shape or form. (and yes some of it is needed i.e. infrastructure) Unfortunately, we've become addicted to our drug dealer Uncle Sam, as our multinationals and "free trade" agreements have carved out much of the private sector the past few decades - so there is no real easy path away from continued government stimulus. I fear the dependence has become so great, that unless the Fed is engineering a bubble that can create jobs (ala housing) we will just head back to another recession as the 'real economy' is exposed. Quite a conundrum.
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