I’m mystified, though, why some Republicans are willing to walk into such a trap. If you were playing chess against someone, and that person kept pleading with you to make a certain move, wouldn’t you be a tad bit suspicious that they weren’t trying to help you win?

When I talk to the Republicans who are open to tax hikes, they sometimes admit that their party will suffer at the polls, but they say it’s the right thing to do because of red ink.

I suppose that’s a noble sentiment, though I find that most GOPers who are open to tax hikes also tend to be big spenders, so I question their sincerity (with Senator Coburn being an obvious exception).

But even if we assume that all of them are genuinely motivated by a desire to control deficits and debt, shouldn’t they be asked to provide some evidence that higher taxes are an effective way of fixing the fiscal policy mess?

I’m not trying to score debating points. This is a serious question.

European nations, for instance, have been raising taxes for decades, almost always saying that higher taxes were necessary to balance budgets and control red ink. Yet that obviously hasn’t worked. Europe’s now in the middle of a fiscal crisis.

So why do some people think we should mimic the French and the Greeks?

But we don’t need to look overseas for examples. Look at what’s happened in Illinois, where politicians recently imposed a giant tax hike.

The Wall Street Journal opined this morning on the results. Here are the key passages.

Run up spending and debt, raise taxes in the naming of balancing the budget, but then watch as deficits rise and your credit-rating falls anyway. That’s been the sad pattern in Europe, and now it’s hitting that mecca of tax-and-spend government known as Illinois. …Moody’s downgraded Illinois state debt to A2 from A1, the lowest among the 50 states. That’s worse even than California. …This wasn’t supposed to happen. Only a year ago, Governor Pat Quinn and his fellow Democrats raised individual income taxes by 67% and the corporate tax rate by 46%. They did it to raise $7 billion in revenue, as the Governor put it, to “get Illinois back on fiscal sound footing” and improve the state’s credit rating. So much for that. …And—no surprise—in part because the tax increases have caused companies to leave Illinois, the state budget office confesses that as of this month the state still has $6.8 billion in unpaid bills and unaddressed obligations.

In other words, higher taxes led to fiscal deterioration in Illinois, just as tax increases in Europe have been followed by bad outcomes.

Whenever any politician argues in favor of a higher tax burden, just keep these two points in mind.

1. Higher taxes encourage more government spending.

2. Higher taxes don’t raise as much money as politicians claim.

The combination of these two factors explains why higher taxes make things worse rather than better. And they explain why Europe is in trouble and why Illinois is in trouble.

The relevant issue is whether the crowd in Washington should copy those failed examples. As this video explains, higher taxes are not the solution.

Heck, I’ve already explained that more than 100 percent of America’s long-fun fiscal challenge is government spending. So why reward politicians for overspending by letting them confiscate more of our income?

(Reuters) – Standard & Poor’s downgraded the credit ratings of nine euro- zone countries, stripping France and Austria of their coveted triple-A status but not EU paymaster Germany, in a Black Friday the 13th for the troubled single currency area.

“Today’s rating actions are primarily driven by our assessment that the policy initiatives that have been taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone,” the U.S.-based ratings agency said in a statement.

In a potentially more ominous setback, negotiations on a debt swap by private creditors seen as crucial to avert a Greek default that would rock Europe and the world economy broke up without agreement in Athens, although officials said more talks are likely next week.

If Greece cannot persuade banks and insurers to accept voluntary losses on their bond holdings, a second international rescue package for the euro zone’s most heavily indebted state will unravel, raising the prospect of bankruptcy in late March, when it has to redeem 14.4 billion euros in maturing debt.

S&P cut the ratings of Italy, Spain, Portugal and Cyprus by two notches and the standings of France, Austria, Malta, Slovakia and Slovenia by one notch each.

The move puts highly indebted Italy on the same BBB+ level as Kazakhstan and pushes Portugal into junk status.

Read more at Reuters.

The formal request gives both chambers 15 days to vote on whether to approve of the $1.2 trillion hike. The House plans to vote on this request on Jan. 18, a spokeswoman for House Majority Leader Eric Cantor (R-Va.) said.

In a letter to House and Senate leaders sent Thursday, the president informed the Congress that the federal government had come within $100 billion of the existing limit and that another increase is “required to meet existing commitments.” The boost will be the third and final increase to the ceiling under the debt-limit deal struck in August, and is intended to cover the government’s borrowing through the 2012 elections.

The United States reached the $15.194 trillion debt limit on Jan. 4, according to Treasury statements. Since that time, Treasury has employed the “extraordinary measure” of tapping into its Exchange Stabilization Fund to avoid exceeding the limit.

Read more at The Hill.

On Feb. 13, 2011, Mr. Lew appeared on CNN’s State of the Union with Candy Crowley and said of Mr. Obama’s proposed budget:

Our budget will get us, over the next several years, to the point where we can look the American people in the eye and say we’re not adding to the debt anymore; we’re spending money that we have each year, and then we can work on bringing down our national debt.

Mr. Lew’s statement was deemed “false” by the nonpartisan, Pulitzer Prize-winning PolitiFact.com.

“The contention that ‘we will not be adding more to the national debt’ after the middle of the decade seems incorrect on its face,” reported PolitiFact.  “So what is the administration thinking?”

On interest payments alone, Mr. Obama’s budget would have accrued $884 billion, and in the end, Mr. Obama’s budget was considered so misguided that it was unanimously rejected by the U.S. Senate in a 97-0 vote.

Still, Mr. Lew’s false statement did not escape scrutiny and came under intense fire when he received the following grilling at the hands of Sen. Jeff Sessions (R-AL):

Look for Republicans and Hill watchers to comb Jack Lew’s past statements and decisions for more falsities in the days ahead.

SPRINGFIELD — Illinois, unable to solve its long-running financial problems, was given the lowest credit rating of any state in the country by Moody’s Investors Service on Friday, a move that will increase costs to taxpayers.

A second agency, Standard & Poor’s, left its Illinois rating unchanged but warned of a negative outlook that could lead to a downgrade in the future. A day earlier, Fitch Ratings also left the rating unchanged and declared a stable outlook.

Lower credit ratings generally mean the state winds up paying more interest when it borrows money by selling bonds.

Both Moody’s and S&P said they are troubled by Illinois’ failure to balance its budget and strengthen government pension systems, although a tax increase and other measures have helped.

Moody’s cited “weak management practices” and a recent legislative session that “took no steps to implement lasting solutions.”

Moody’s now rates Illinois “A2,” below any other state. Only one state, California, qualifies for the next-highest rating. All the rest are ranked higher.

Standard & Poor’s flip-flops the states in its ratings. California is worst, with Illinois a notch above.

Read more at The Chicago Sun-Times.

In his December 29^th column in the New York Times, Keynes Was Right, he continues to make the case that the only reason we haven’t come roaring out of the Great Recession is because we spent too little.

Krugman cites the downturn of 1937 when FDR’s government programs were curtailed and unemployment rose. He says that unlike in that fateful year we should instead redouble our efforts and spend more to prime the economic pump. Austerity is insanity he says. We must spend more as Keynes would have advised, deficits (and inflation) be damned.

Build pyramids as Keynes said we should. So what if the they do not contribute, and probably detract, from the quality of the economy. It is the quantity of economic activity that we are interested in not quality. Get people employed doing whatever. This is the road to prosperity!

Interestingly the Chinese employed this philosophy over the past 3 years by building the modern equivalent of pyramids all over their country. Through various means money was poured into the hinterlands from central managing authorities to regional managing authorities, to local managing authorities. The result has been the creation of a vast archipelago of empty cities.

I’m not kidding. There are cities with no one in them, completely constructed and rotting away empty. As I have said before, it takes some serious economic incompetence to create cities where no one lives, in a country of 1.3 billion people.

But this is Krugman’s prescription for economic success. In relative terms the size of the Chinese stimulus in 2008 was twice as large as the American one and happened over half the time. That should have done the trick right Mr. Krugman? Or perhaps the Chinese did not spend enough?

Krugman doesn’t seem to understand one of the fundamental lessons every good stock broker learns in his or her first year on the job. Trees do not grow to the sky. Everything reverts to the mean, including economies.

The further an economy is pushed beyond it’s natural trajectory (via stimulus etc) which in a healthy economy is determined by the creativity, ingenuity, and shrewdness of its individual participants, the worse the pain when the economy reverts back to it’s natural state.

Stimulus is like steroids for the economy. One can inject only so much until the patient either falls over from the unnatural weight and physical stress to the system or goes insane.

When are we supposed to go back to some semblance of an economy based on reality Mr. Krugman? It appears that his response is – never.

I fear an entire globe going into a fit of economic “roid rage” at the same time. Yet this will be the end result if we continue to follow the Krugman/Keynesian line of economic reasoning. We must stop now.

Communicating and visualizing a “trillion” of anything is difficult.  So let’s put a “trillion” in perspective.  According to CNBC.com:

This stack of cash - in $1 bills - would measure 67,866 miles, stretching approximately 2.72 times around the Earth’s equator.

If denominated in $100 bills, $1 trillion would be enough to fill 4.5 Olympic-sized swimming pools, with a total volume of 398,000 cubic feet. For comparison, there is only about $625 billion worth of $100 bills currently in circulation, according to the US Treasury bulletin, which would fill about 2.8 Olympic swimming pools.

With Occupy Wall Street’s “redistribution” rhetoric running rampant, perhaps another way to illustrate the enormity of America’s trillions of new debt is this: even if the government were to confiscate the net worth of the entire Forbes 400 list of richest Americans–people who create hundreds of thousands of jobs, as well as spin-off jobs and businesses–their combined $1.5 trillion of wealth would barely cover the forthcoming $1.2 trillion debt-ceiling increase.

Still, despite the vastness of the nation’s debt crisis, as recently as this morning, New York Times columnist Paul Krugman dismissed “debt worriers” as being unduly influenced by “people who get their economic analysis from the likes of the Heritage Foundation.”

In his piece titled “Nobody Understands Debt” (except, presumably, Mr. Krugman), Mr. Krugman explains that “the allegedly urgent issue of reducing the budget deficit” reveals a level of economic ignorance and “misplaced focus.”   At the close of his article, Mr. Krugman begrudgingly acknowledges that the nation’s trillions in debt matter.

So yes, debt matters. But right now, other things matter more. We need more, not less, government spending to get us out of our unemployment trap. And the wrongheaded, ill-informed obsession with debt is standing in the way.

Perhaps Mr. Krugman would do well to walk around planet Earth 44.6 times (the length of our national debt in $1 bills) or go rustle up another 10 lists worth of Forbes 400 wealth creators (the equivalent of $15 trillion) to get a better sense of what all those patriotic “debt worriers” are so concerned about.