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Monetary Miscalculation

The criticism that Ken Nesmith (“Monetary Musings,” Feb. 18) levels at the economists who signed on to the letter that is the subject of his column, that it is a “piece seems designed more to generate headlines and sway public opinion than it does to honestly analyze the economics of the tax cut,” seems much more applicable to his column, in light of what he has to say about federal budget spending.

After mentioning that the largest single item is defense, he quickly moves on to attack “pork-barrel spending,” leaving readers with the impression that the budget consists largely of these two items. Nothing could be farther from the truth. The record pork-barrel spending that he decries amounts to less than 1 percent of federal budget spending, which is currently a little over $2 trillion.

Indeed, even the claim that the largest single item is defense is seen to be false on perusing the federal budget, summary tables of which are available at . The biggest single item is Social Security at $456 billion in 2002, and the social programs of Medicare and Medicaid together were another $368 billion in 2002. In comparison, the DOD’s budget was $328 billion, with homeland security chipping in a paltry $12 billion. Faced with those figures, it is hard to argue, as Nesmith does, that the chief priority of government is military expansion.

And all this is even ignoring Nesmith’s assertion that a 10 to 20 percent rise in the stock market is a good thing for all Americans. That can be debated, but more importantly, is that the best use that can be made of the $300-odd billion that is involved in eliminating the dividend tax? And by the way, 10 to 20 percent sounds like a lot; U.S. stock market capitalization is on the order of $10 trillion. If a $300 billion tax cut (cost spread over five years) can produce a $1-$2 trillion dollar impact “in the shortest of short terms,” as Nesmith seems to be saying, it’s not that hard a stretch then to imagine that the government can “by the redistribution, create more than they've taken in the first place.”

Arvind Sankar G