IMF Cuts 2011 Global Growth Prospects - WSJ.com

CREDIT CARD MENTALITY: IMF Cuts 2011 Global Growth Prospects - WSJ.com: "What is the IMF not saying?

Clearly the IMF doesn't want to address the 'entitlement, credit card mentality' of the developed countries. It also doesn't want to confront or address the economic-utility function.

In terms of the entitlement, credit card mentality, the analogy would appear to be the family that thinks its income is sufficient to provide its living standard but is supplementing its income with credit card borrowing. Eventually, if the income doesn't go up a lot or the lifestyle go way down, the family has to go bankrupt. Is there any indication that overspending and overtaxed countries have any hope of either cutting back entitlements or growing their economies? Evidence of a positive outcome would appear to be lacking - they want to raise taxes and, at best, effect the most modest curbs on unions salaries and benefits.

In terms of economic utility, much of the world raises lots of direct and indirect taxes that hold down wages payable to workers - thus the workers have less spendable income on one hand (some say it costs an employer 4-5 $ or euros for every $ or euro paid in salary). Then the governments have sales and VAT taxes which raise the economic costs of goods.

Thus, the economic wherewithall goes down and the economic costs go up - totally shifting the utility function. An example is Portugal where with taxes a car costs about twice what the same vehicle would cost in the US. However salaries are much less. As a result, fewer cars are sold - and, with people changing their cars much less often, the total revenue to the government is substantially less, the economic activity is substantially less than it would be with less up front taxes. But, the government can wean itself from what will now be a 23% VAT on top of an approximate 20% special car tax.

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