MPJ) — Did you know America is

 We’re completely bankrupt!  The coffers at

Security are empty!  And, in case you didn’t click on those links, they’re to PolitiFact articles showing

statements to be nonsense.

That’s not to say America doesn’t face financial challenge.  We’re spending significantly more money than we’re receiving in tax revenue.  Expenditures in the long-term are also going to rise, and rise significantly, while tax revenues in this economic climate are going to suffer until further notice.  This means two things:  1.  We must increase overall revenue by both raising taxes and increasing the efficiency of our spending and  2.  We must grow the tax base by growing the overall economy.

Unfortunately, Republicans refuse to raise taxes to a level that can actually sustain the government, and Democrats are unwilling to stand up and make sure our resources are allocated in the most beneficial way possible.  Although I think MSNBC’s Dylan Ratigan hit the point more succinctly in a rant this week on this show, saying Republicans refuse to do anything, and Democrats refuse to do anything beyond their own term in office.  We cannot continue this ridiculous trend, and we must put forward a new strategy.  And here it is in three (not so easy) steps.

1.  Use taxes exclusively as a means to fund the government, and stop using it as a political football disguised as a “job creator/killer.”

Taxes are going to have to go up, folks.  This is simply because the government is not bringing in enough revenue.  Making things worse, the favorite mantra of Republicans in Congress, that America doesn’t have a “taxing problem,” it has a “spending problem,”  completely ignores the fact that we, in fact, have both.

Here’s the thing.  As you can see by this graph, we had budget surpluses set to end out the 1990s under Bill Clinton’s economic policies.  However, once we entered the Bush era, with his massive tax cuts in 2001 and 2003, the deficits immediately returned.  And this flies in the face of what we call “prevailing wisdom.”

Back in April, Rep. Dennis Kucinich (D-Ohio) said that the biggest cause of current deficits were the Bush tax cuts.  PolitiFact said that was true.  This was around the same time, two of Kucinich’s Midwestern colleagues took up the opposite end of the argument, and got knocked around for it.  Rep. Joe Walsh (R-Illinois) said that every time we’ve cut taxes, revenues have increased and the economy has grown.  That’s false.  While in November of last year, Rep. Mike Pence (R-Indiana) said that raising taxes actually reduces revenue.  False again.

It’s time we cast aside these fiduciary fallacies where less is more, and more is less (literally), and get back to reality.  A reality even President Ronald Reagan understood, despite the fact his legacy is that of a tax cutter, and not a hiker.  Though Reagan is most famous for his big tax cut in his first term, Reagan overall raised various taxes 11 times.

So let’s stop all this tax demagoguery, and get back to responsibly funding the government.  We’re all going to have to pay the bill in the end.  So lets get to paying it now instead of the bill plus extra interest later.

2.  Spending is going to increase anyway, so we may as well get the most possible out of each dollar.

Spending is going to increase.  This is guaranteed.  It doesn’t matter what Republicans or Democrats do because the spending that’s going to truly increase isn’t up to them.  It’s up to Social Security, Medicare, Medicaid, and the flood of retiring baby boomers that just started reaching that magic age of 65 (my mother being among the first) this year, and becoming eligible for those programs.

The biggest population boom in our nation’s history is reaching retirement age at a time when health care costs are skyrocketing, and after decades of raiding the Social Security fund purposes other than Social Security.  This doesn’t mean we should kill these programs in manners like those proposed by our very own Rep. Paul Ryan (R-Wisconsin).  The solution is to get health care spending, across the board (not just for seniors) down.  That’s going to be tackled in further depth in the next How to Fix America.  But it needs to be done, and that’s going to take some doing.

But the spending we can control needs to be streamlined, and each dollar needs to be maximized.  That means less spending on defense, where the benefits of that spending end up heavily overseas (by means of both overseas-based contractors and the overseas nature of military conflict), and less spending on incarceration (specifically for minor offenses, that just takes otherwise productive people out of the workforce, and locks them up at next to no benefit for the rest of us).

That means less spending on administration and bureaucracy, and instead focusing on streamlining administration.  Some areas of the government are far ahead of  the private sector when it comes to administration costs, for example (oddly), Medicare.  But the federal government is also far behind the private sector in administration costs in some areas, like theUS Postal Service.

I’m not proposing a Six Sigma approach to government (largely because this is a fatally flawed methodology that has destroyed a number of private employers, such as Circuit City and Sears, and even its founding corporation, Motorola).  However, a “lean” approach to spending must be employed.

And there’s a second side to that coin.  Increasing spending on the most effective sectors of government expenditures.  One of the most cost-effective areas to increase spending in the US is on infrastructure (which will be tackled in the fourth installment of How to Fix America) and education (which was tackled in the first installment).

3.  Switch from a supply-side focused economic policy to a demand-focused policy.

If you really want to fix the government’s balance sheet, fix the economy.

For the last thirty years, we have focused most of our effort on the “supply” side of the supply-demand dichotomy.  Here’s the problem with that…supply doesn’t drive the economy.  Demand does.  And that’s what we’re having a problem understanding now, despite this being a core teaching in pretty much any Economics 101 course in college.

What we’re seeing right now is corporations doing extremely well on paper.  They’re sitting on a pile of cash while their P&L sheets show their continued profitability, and yet we wonder why they’re not hiring.  I’ll tell you why they’re not hiring.  They have no reason to.

With demand as low as it is right now, and continuing to decrease, corporations don’t have any incentive to increase supply.  So they’re just going to sit there and horde their cash (also in part due to their reluctance to invest further in the financial markets due to increasing market volatility) and wait for people to start wanting to buy their products again.  Yet, if you increase demand, the supply will follow.  If there’s one thing we’ve learned over the past couple hundred years of our capitalist system, it’s that if there’s a buck to be made, nobody’s going to leave it on the table.

This is a case for more direct government spending, even going so far as another Works Progress Administration style program.  These programs will fix the demand problem that we have.  When we invest taxpayer money in putting people to work (specifically doing productive things, not digging holes to fill back up, mind you), it has a demonstrated trickle-up effect.

The companies that are put to work see the first benefit.  Road construction companies, engineering firms, etc get the money first.  They then spend it on raw materials and equipment such as concrete, rebar, cable, computers, backhoes, cranes, etc.  They also spend it on labor.  The people they hire also need things and now have the ability to purchase them.  They can now make purchases from the basic (housing, groceries, utilities) to the common (televisions, computers, chairs, couches).  That money then moves to the next step, as those televisions, backhoes, concrete, and groceries get produced, and that money keeps moving, effectively, through the economy.

No, it can’t go on forever.  But it’s not supposed to.  Just like your car’s engine can’t run on its starter motor forever, but it requires it to get the thing started.  And that’s how this should be viewed, as a starter motor for our economy.  Use government spending to force the engine of our economy to turn until it can fire and run on its own.  It’s worked before, and it will work again.

That’s, honestly, the only thing that will dig us out of the economic morass we find ourselves in.  And that’s going to be the best way to fix our nation’s finances.  Fix the economy, fix our fiscal priorities, fix our government’s balance sheets.  Plain and simple.

Related:

How to Fix America Part I: The Crumbling Education System

The post How to Fix America Part II: Fix Our Nation’s Finances appeared first on The Midwest Guy.