Archive for category Centrally Managed Economy
“Stimulus or Sedative?” Thomas Sowell Never Disappoints
Posted by Tom in Business, Centrally Managed Economy, Democrats, Economics, Financial Crisis, Government Regulation, Monetary Policy on March 9, 2010
Sowell opens his succinct RCP post with an Abe Lincoln story: President Lincoln asked an audience how many legs a dog has, if you call the tail a leg? Some shouted “Five” but Lincoln corrected them saying that the answer was four. “The fact that you call a tail a leg does not make it a leg!”
The professor uses that tale to drive home the truth about the “stimulus” and the “jobs bill.” The idea behind stimulus, for example, is to get investors to invest, lenders to lend, and employers to employ. Prime the pump, put a little bit of water in to get the well flowing. That little bit of water, the government money, was never meant to restore the economy by itself, but to get the private business sector going. What has happened?
- After the Bush-started stimulus in 2008–business spending fell by 28%.
- Durable goods spending fell by 22%.
- Four months after the TARP billions–large TARP banks made 23% fewer loans.
- The velocity of money fell faster than at any time in the last half century.
- The WSJ reports the “sharpest decline in lending since 1942.”
Why would banks lend when, “from the White House to Capitol Hill, politicians are coming up with all sorts of bright ideas for borrowers not to have to pay back what they borrowed…” Why would investors invest when a substantial number of the consumers are unemployed? Why would employers employ when faced with higher taxes and more Obamacare mandates? In short, the outlook is uncertain and certainly more big government than private sector oriented.
Sowell points out that none of this is new: during the Great Depression of the 1930s, money velocity, lending, investing and employment were all lower than they were in the 1920s. The anti-buisness rhetoric and anti-business policies did not inspire any more confidence then than they do now. “In an atmosphere where nobody knows what the federal government is going to come up with next, people tend to hang on to their money until they have some idea of what the rules of the game are going to be.”
Economists have estimated that Roosevelt’s New Deal prolonged the depression by several years, how long will Barack Hussein Obama, Reid and Pelosi prolong our current difficulties?
Tom Motherway
Redistribution–Obama’s Supplemental Poverty Measure
Posted by Tom in Centrally Managed Economy, Government Regulation, Statism, Welfare on March 8, 2010
Robert Rector highlights Obama’s New “Poverty” Measurement in today’s NRO post; as you may guess it has nothing to do with actual poverty.
“The current poverty measure counts absolute purchasing power— how much steak and potatoes you can buy. The new measure will count comparative purchasing power — how much steak and potatoes you can buy relative to other people. As the nation becomes wealthier, the poverty standards will increase in proportion. In other words, Obama will employ a statistical trick to ensure that “the poor will always be with you,” no matter how much better off they get in absolute terms.”
“The weird new poverty measure will produce very odd results. For example, if the real income of every single American were to magically triple over night, the new poverty measure would show there had been no drop in “poverty,” because the poverty income threshold would also triple. Under the Obama system, poverty can be reduced only if the incomes of the “poor” are rising faster than the incomes of everyone else.”
“The government’s own data show that the typical American defined as poor (according to the traditional, pre-Obama poverty measure) has two color televisions, cable or satellite service, a VCR or DVD player, and a stereo. He also has a car, air conditioning, a refrig erator, a stove, a clothes washer and dryer, and a microwave. He is able to obtain medical care. His home is in good repair and is not overcrowded. By his own report, his family is not hungry, and he had suf ficient funds in the past year to meet his family’s essential needs. While this individual’s life is not opulent, it is far from the stark images conveyed by the mainstream media and liberal politicians.”
So the “poor” will always be with us no matter how rich they become. Why do this you may ask? Obama’s stated objective is to exercise what he would call a primary function of government: redistribution of wealth. Doing this creates dependency on government and dependency creates voters for the re-distributor.
Of course, there’s a downside. Redistribution by definition removes capital from reinvestment opportunities. As a direct consequence the wealth of society is lowered. The standard of living goes down proportionately. Ultimately, there will be no more wealth to re-distribute. What’s left is a permanent underclass, dependent only upon other dependents!
I fear Obama is the ultimate Communist. Tzars. Government control of major industries. Promotion of public employee unionism. Create major new welfare programs when existing programs are near bankruptcy. And now, a redefinition of “poverty” from absolute terms to relative terms.
I’m reminded of Orwell’s Animal Farm, “while all of us are equal, some are more equal than others!”
Tom Motherway
the Spending Limitations Amendment would eventually put us on a sustainable path
Posted by Tom in Centrally Managed Economy, Congress, Constitution, Deficit, Financial Crisis, Financial Policy, Monetary Policy, National Debt, Nationalized Health Care, Statism on March 6, 2010
Even without any more stimulus, bailouts, Obamacare, or cap and trade the US is on a course to bankruptcy. Consider:
- In the past five years federal spending has increased 42% to nearly 25% of the economy, the highest level since World War II.
- The deficit has exploded from $318 Billion in 2005 to $1.4 Trillion, a 400+% increase, equal to the entire accumulation of debt from George Washington to Bill Clinton.
As James Antle points out in his American Spectator article, Amending the Spending, “this will be remembered as a golden era of fiscal responsibility compared to what is to come.” Again I emphasize, this is even without Obamacare, added stimulus, bailouts, etc. With demographic certitude, as baby boomers retire, social security, medicare, and medicaid as we know them will be bankrupt. THE PUBLIC DEBT WILL EXCEED 110% OF THE ECONOMY IN 2026 AND CLIMB PAST 200% BY 2040! Again, this is without Obamacare, added stimulus, bailouts, etc.!
Three congressmen, Mike Pence (R-Ind.), Jeb Hensarling (R-Texas) and John Campbell (R-Calif.) have proposed a constitutional amendment to cap federal spending at 20% of the U.S. economy. The limit would be waived only when an official declaration of war is in effect or by two-thirds majorities of both houses of Congress. 20% is the historic average share of the economy consumed by the federal government.
The backers admit that Republicans are just as spendthrift as Democrats. They are not naive about getting it passed, 5000 amendments have been offered and only 27 enacted! But the mood of the country seems to be shifting to a serious concern for the current fiscal insanity.
If they’re correct, and the amendment has some legs, the country can get off the current unsustainable course and onto a path that’s fiscally sustainable.
Tom Motherway
What’s Obama Up To?
Posted by Tom in Centrally Managed Economy, Deficit, Democrats, Economics, Financial Crisis, Individual Freedom, National Character, National Debt, Nationalized Health Care, State Finances, Statism, Taxation on March 5, 2010
On paper Obama appears to be a smart guy and reasonably well informed. I suspect he knows:
- We face $1.4 Trillion annual deficits for the next decade.
- Our current national debt is $12.3 Trillion and will grow by $1 Trillion a year.
- Estimated unfunded liabilities from social security and medicare are $107 Trillion.
- States with aggregate deficits of $350 Billion, debt of $1.9 Trillion, and unfunded liabilities of $1.4 Trillion are asking for federal handouts.
- Unemployment is 9+% with private sector growth stalled.
Why then would he promote a radical takeover of healthcare with 10 year costs of $2.3 Trillion that adds $1.86 Trillion to the deficit over the next 20 years, that creates employment taxes and mandates, each discouraging private sector employment, and that fails to solve the demographically certain failure of medicare, social security and medicaid? We’ve proven our inability to handle two, no three if you include medicaid, major entitlements, why add another? And why would he risk his party’s control of Congress and his own ability to govern to attain this goal that a majority of Americans don’t want?
Obama is smart enough to know that Obamacare will exacerbate the financial straights of the United States. It’s uncertainty will decrease private sector employment. It’s taxes will decrease private capital for investment. It will cede financial and technological leadership to other countries. In short, we will be worse off tomorrow than we are today. Why would he risk that…want that?
It is clear that he knowingly intends to drive us further to the brink. It is also clear that given his apparent intelligence he has an end-game in mind. Take our admitted crisis, you know the “never-let-a-crisis-go-to-waste” kind, explode it into a gigantic, off-the-clff catastrophe, then come up with a one-of-a-kind, popular solution that involves “shared pain” and if we are all lucky, someday “shared gain.” Call it a Cloward-Piven Strategy on steroids. (See: Cloward-Piven Strategy: Is It Obama’s? and references cited therein.)
As Larry Kudlow said in NRO, One Giant Government Leap Backwards,” One of the most galling features of this plan is a taxpayer-subsidized government-insurance entitlement for people earning up to 400 percent above the poverty line, or nearly $100,000 for a family of four. In other words, a middle-class health-care entitlement that will add millions of people to the federal dole. It’s all too reminiscent of the political dictum of the old New Dealer Harry Hopkins: tax and tax, spend and spend, elect and elect.”
So will Obama’s “Fiscal Responsibility and Reform Commission” turn out to be the VAT Commission with a European 12% sales tax on top of the income tax, excise tax, etc. And those on top of the various state sales, income and property taxes? All this to finance BIG GOVERNMENT? If so, we will then all have the advantage of being “in the same boat,” “equal,” and “happy” in an ever declining country and economy.
So for the literarily inclined, Obama wants us on Hayek’s Road to Serfdom where we will encounter Orwell’s Animal Farm with 1984’s Big Brother in control. As Obama recently said in response to a push-back, “we won the election.” And win the next election and the next, he aims to do with the creation of more and more dependency on him and less and less individual responsibility.
I won’t be around to witness the outcome but I hope the next generation will become informed and engaged, lest our grandchildren and great-grandchildren suffer horrible consequences.
Tom Motherway
President Obama Lies to Take Over Healthcare
Posted by Tom in Centrally Managed Economy, Deficit, National Debt, Nationalized Health Care on March 4, 2010
Yesterday, Barack Hussein Obama flanked by doctor props in white coats, urged passage of his Obamacare. (Teleprompter first, now props, what next?) He offered the following points in support of Obamacare:
- “my proposal would bring down the costs of healthcare for millions–families, businesses and the federal government.”
- it is “fully paid for.”
- it “brings down our deficit by up to $1 trillion over the next two decades.”
Despite the president saying that everything about healthcare has been said what hasn’t been said or heard, as stated euphemistically in today’s WSJ, is that there is not one shred of honesty in what Obama is saying about the true cost of Obamacare. In short, HE LIES!
Paul Ryan is the white knight truth teller here:
- 10 years of payments for 6 years of benefits–true 10 year normalized cost is $2.3 Trillion, not the $950 Billion sold by Obama.
- double counting $52 Billion in social security taxes as offsets, even though they are reserved for social security–aren’t we obligated to pay social security?
- double counting $72 Billion from the long-term care insurance program and counts them as offsets even though they are obligated to pay for long-term care. Democratic Senate Budget Chair, Kent Conrad, said this was a Ponzi scheme that would make Bernie Madoff proud!
- $500 Billion raided from Medicare to go as an offset when the chief actuary of Medicare says that this will cause 20% of Medicare providers to go out of business or stop seeing Medicare patients!
- “doc fix” $371 Billion is taken out of Medicare, used as an offset, then put back into a separate bill which the CBO does not count against Obamacare.
- cost curve is bent up not down, the chief Medicare actuary says Obamacare increases costs by $222 billion.
- Obamacare raises the deficit by $460 Billion for the first 10 years and $1.4 Trillion for the second 10 years; total added deficit for two decades is $1.860 Trillion.
These points were clearly made to Obama by Paul Ryan and the chief Medicare actuary. (see: Obama Can’t Answer Paul Ryan, and Paul Ryan LIVE–Ya gotta love this guy.)
Yet Obama stood up yesterday with doc props, gimmicks, double counting, and “doc fix” subterfuge, and LIED TO THE AMERICAN PEOPLE. Shame on him.
Tom Motherway
Tale of Two States & Health Care
Posted by Tom in Centrally Managed Economy, Democrats, Economics, Government Regulation, National Character, State Finances, Statism on March 2, 2010
Yesterday’s WSJ editorially gave us a snapshot of ObamaCare (Back to the ObamaCare Future) using the sad story of Mitt Romney’s Massachusetts venture into state controlled healthcare. Of course Romney is now out burnishing his “conservative” credentials (read RINO) and the medical dictator job has devolved to Governor Deval Patrick.
What has happened? Costs have exploded–$47 M over budget. Spending has jumped 6.7% per year in a non inflation environment. Massachusetts insurance premiums are the highest in the nation having climbed at a 30% annual rate. Per capita health spending is 27% higher than the national average. Romney like Obama sold his healthcare as a way to control spending!
So Governor Patrick is proposing hard price controls on all Massachusetts healthcare. Regulators will cap insurance premiums; despite the fact that insurers pay out $1.12 in benefits for every $1.00 in premiums, a medical loss ration of 112%! He’s also filed a bill that will give regulators the power to review rates of hospitals and physicians; those that are deemed too high “shall be presumptively disapproved.”
Get the picture? OBAMACARE!
But there was also a positive state healthcare story in the same paper same edition. Governor Mitch Daniels of Indiana penned an op-ed, Hoosiers and Health Savings Accounts, relating his quest five years ago for a consumer-directed heath insurance option for state employees. He got Indiana’s HSA enacted. For those choosing this option, each has his own health savings account supplemented with a high deductible (catastrophic) insurance policy; the state deposits $2,750 per year into these accounts which grow with interest.
What happened? First year some 4% of employees signed up; this year over 70% of the 30,000 employees signed up; there is $30M of employee money in these accounts growing with interest. These employees will save more than $8M compared to those who stayed with the traditional insurance. Indiana will save at least $20M this year since total costs have been reduced by 11% solely due to the HSA option. HSA participants ran up only $65 in medical costs for every $100 in costs incurred by the employees in traditional plans.
Indiana’s 70% HSA participation rate compares to a national rate of only 2%. Why? Public employee unions have rejected the HSA plans. As we know, Obama, being the puppet of the public employee unions he is, has denounced high-deductible HSA related insurance as “not real insurance.” (See: Where’s the Consumer) Obama doesn’t want consumer driven healthcare. He wants to control this 16% of the American economy. He wants to control your healthcare, make your decisions for you. You aren’t smart enough to do it yourself. But, don’t try to tell that to the Hoosiers!
Get the picture? OBAMACARE!
Tom Motherway
“You Can’t Borrow Against the Future…You Don’t Have One”
Posted by Tom in Centrally Managed Economy, Deficit, Democrats, Nationalized Health Care, Statism, Welfare on February 27, 2010
I can’t say it any better than Mark Steyn does in today’s NRO post, When Responsibility Doesn’t Pay. Here are a few lines as a tease to the whole article–a must read if there ever was one!
“While Barack Obama was making his latest pitch for a brand-new, even-more-unsustainable entitlement at the health-care “summit,” thousands of Greeks took to the streets to riot. An enterprising cable network might have shown the two scenes on a continuous split-screen — because they’re part of the same story. It’s just that Greece is a little further along in the plot: They’re at the point where the canoe is about to plunge over the falls. America is farther upstream and can still pull for shore, but has decided instead that what it needs to do is catch up with the Greek canoe. Chapter One (the introduction of unsustainable entitlements) leads eventually to Chapter Twenty (total societal collapse): The Greeks are at Chapter Seventeen or Eighteen.”
“What’s happening in the developed world today isn’t so very hard to understand: The 20th-century Bismarckian welfare state has run out of people to stick it to. In America, the feckless, insatiable boobs in Washington, Sacramento, Albany, and elsewhere are screwing over our kids and grandkids. In Europe, they’ve reached the next stage in social-democratic evolution: There are no kids or grandkids to screw over. The United States has a fertility rate of around 2.1 — or just over two kids per couple. Greece has a fertility rate of about 1.3: Ten grandparents have six kids have four grandkids — ie, the family tree is upside down. Demographers call 1.3 “lowest-low” fertility — the point from which no society has ever recovered. And, compared to Spain and Italy, Greece has the least worst fertility rate in Mediterranean Europe.”
“So you can’t borrow against the future because, in the most basic sense, you don’t have one. Greeks in the public sector retire at 58, which sounds great. But, when ten grandparents have four grandchildren, who pays for you to spend the last third of your adult life loafing around?”
Click on the link above and read on….you’ll see that California is further along in the chapters!
Obamanomics Will Lead To Our Demise
Posted by Tom in Business, Centrally Managed Economy, Democrats, Economics, Government Regulation, Taxation on February 24, 2010
I don’t know whether to laugh or cry to see the dynamic trio, Obama-Reid-Pelosi, ramming Obamacare down our throats at the small price tag of $950 Billion, oh yes and price controls on private insurers, expensive mandates on employers, and the government take over of 16% of the U.S. economy. Employers are not hiring, not investing, and not borrowing. At the very time jobs are needed businesses face health care uncertainty, higher taxes, falling consumer sentiment and high unemployment. Why invest if there aren’t going to be any consumers around to consume? Consumption is three quarters of the economy!
The only jobs the non-stimulus stimulus has created are government jobs–that would be the non-productive jobs that are a drag rather than a stimulus to the economy.
Speaking of economy, Robert Robb pens a dynamite article in Real Clear Politics today, The Chief Economic Worry About Democrats. With syllogistic logic he points out the elites lack of appreciation of investment capital and its function in the economy. Liberals assume a given level of economic output, a dangerously false assumption. Output doesn’t just happen it depends on investment capital. The government cannot supply that capital but can only redistribute what it takes by way of taxes. What it takes in taxes is withdrawn from private productive investment.
“Producers have to produce before consumers can consume. But producers cannot produce ex nihilo. Investment capital provides the financial bridge between production and consumption….In reality, however, the affluent provide most of the country’s investment capital. They are the ones with discretionary income. What the rich do with their money is very important economically.
“The Democrats want to raise taxes on the affluent and on corporations (which are repositories of investment capital). The numbers, and their effect on investment capital, are staggering..So, between Obama’s budget and the health care plan, that’s a shrinkage in the nation’s investment capital pool of up to $1.9 trillion over the next decade. But that’s only the beginning of the effects. Between Obama’s increased income tax rates, the income tax surcharge in the House health care plan, and state income taxes, the highest marginal income tax rate in most states will approach or exceed 50 percent. That will hugely discourage savings and investment by the affluent.”
“This tax-the-rich approach is justified as a matter of social justice. The government needs money, goes Democratic thinking, and it is fairer to get it from the rich than the middle class or the poor. Democrats also tend to believe that large disparities in income and large accumulations of wealth are evils to be ameliorated in their own right. The rich already pay a higher percentage of federal income taxes than they make in income. And the true social justice question shouldn’t be whether income or wealth disparities are increasing, but whether the lot of the poor is improving. Concentrating on the latter question leads to entirely different policy choices than concentrating on disparities.” (emphasis added)
Robb’s back to Adam Smith basics is brilliant, thus I’ve perhaps over quoted in this post. What I suggest is a read of the whole article and selected comments following the article which are displayed by clicking on “COMMENTS” at the end of the article.
Tom Motherway
Greece…A Prelude!
Posted by Tom in Centrally Managed Economy, Congress, Deficit, Democrats, Economics, Financial Crisis, National Debt on February 13, 2010
“Beware of Greeks bearing gifts,” sang Virgil. I fear Greece is today’s Cassandra of mythology, so beautiful that Apollo granted her the gift of prophecy yet, when she did not return his love, cursed her so that no one would ever believe her. Some gift!
John Mauldin’s Weekly E-Letter, which I highly recommend, treats the Greek debt crisis and its causes and consequences. He starts by positing the oft neglected truism of our path-dependent world. Namely, the choices you have made in the past restrict, sometimes drastically, the choices you now have before you. The “if only(s)” and “if I’da(s)” have occurred to all of us as we confront a new situation often forcing a choice of the lesser of two evils.
John traces the creation of the Euro noting the weak Euro nations like Greece got a bit of a pass and an uptick in the translation of the national currency. The local currency overvaluation meant that Greek consumers could buy products previously out of their reach. The government could borrow at lower rates. Spend they did and borrow the government did so that deficits ballooned. National debt is now 254 Billion Euros; Greece needs to borrow 64 Billion, 30 in the next few months.
Other European nations have pledged support, “but!” Germany is calling the shots but so far there is no checkbook out. Imposition of “austerity” conditions, severe ones, portend depression, serious recession, and inflation for generations. The unionized socialist nation will be little tolerant of “austerity.” Strikes have already ensued and are likely to get worse.
For Germany and France a contagion conundrum gets worse. Behind Greece standing in line are Portugal, Italy, Ireland and Spain, the lot known as PIIGS in financial markets. The solvent nations of Europe cannot afford to rescue all the laggards. Moral hazard raises its ugly head once again. Sound familiar?
Then there is the fear of collapse of the banking system. The BIS reports that the largest holders of Greek debt are the French, Swiss and German banks. This is another banking crisis in the making. And it is not just a write down of Greek debt but a mark-to-market of sovereign debt! It’s likely the accounting rules will be rewritten to soften that blow. As you would guess, money is flying out of Greece and the tax avoidance, already 30% of the economy, is accelerating.
As John points out: this is not just a Greek problem. Debt and out of control deficits are a problem all over the developed world. The US is one of the worst with Obama deficits, Obama debt and the unrecognized and never discussed unfunded liabilities. And Obama wants to ADD TO THE DEFICIT with his Obamacare proposal. He has a tin ear to reform of Medicare and Social Security first.
John Muldin concludes: “We are in the fullness of time approaching the End Game. …choices that have been made over the last decades will yield a Greek situation, where there are no good choices. And the longer the hard choices are put off, the more difficult they will become.”
Obama, Reid, Pelosi, the Democratic leftist hear but don’t listen and those of the pseudo-intellectual elite who listen don’t believe. Cassandra, your prophecies are tragic indeed. More so by the immorality toward our grandchildren and unborn great grandchildren.
Tom Motherway
“Irony?”… Give Me a Break!
Posted by Tom in Centrally Managed Economy, Economics, Government Regulation, Statism on February 10, 2010
“The irony is, is that on the left we are perceived as being in the pockets of big business; and then on the business side, we are perceived as being anti-business,” Obama said in a Feb. 9 interview in the Oval Office with Bloomberg BusinessWeek, which will appear on newsstands tomorrow. This from Bloomberg.com, here.
Not an irony at all, Mr. President. You are in Wall Street’s pocket, just check out the Wall Street political contributions. And, you make deals with rent-seeking big business, just witness the drug price deals you made with big pharma. So the perception of the left, as you call it, is correct.
As to your pursuing a “fundamentally business-friendly agenda” and being a “fierce advocate” of the free market, all I can say is, Bull Shit! If you call your Obamacare, free market, or Cap-N-Trade, business friendly, I think you are hopelessly ignorant.
Perhaps you think the EPA’s proposed regulation of carbon dioxide is business friendly to those businesses in international competition. Or, your recent appointment of autocrat Craig Becker to the NLRB helpful to the US economy. How about your stimulus of liberal democratic interests, auto company bailouts and takeovers, or union card-check proposal? No, Mr. President, a free-market advocate you are not!
You are a big government statist. Please remember that distinction! I know this is hard since you have never held a real job, but please try!
Tom Motherway