Archive for category Fiscal Policy
Basic Political Divide: Faith in Government Spending to Create Prosperity
Posted by Tom in Economics, Fiscal Policy, Stimulus/Bailout on May 22, 2011
An interesting post today by John in Power Line, “REPENT! THE END OF KEYNESIAN ECONOMICS IS AT HAND!” His point is that given today’s doomsday prediction it is only right that it be applied to the Keynes multiplier effect. Instead of positive as Obama and his fellow leftists advocate, it’s really negative. Obama’s stimulus, coupled with his other leftists policies of government control, taxation, and redistribution, is a complete failure. A couple of charts illustrate:
A couple of take aways: “The most basic division between our political parties is their relative faith, or lack thereof, in the efficacy of federal spending.” “The reality is that inefficient government spending destroys jobs.” The final chart offers the evidence:
Cartoon View on the Fed’s Obsession With Deflation
Posted by Tom in Economics, Fed, Financial Crisis, Financial Policy, Fiscal Policy, Monetary Policy on February 26, 2011
Ireland Exports Its Future……Will America?
Posted by Tom in Banks, Entitlements, Financial Policy, Fiscal Policy, Welfare on February 24, 2011
Irish Remedy for Hard Times: Leaving, reads a page one headline in today’s WSJ. Another Potato Famine? No, but almost as bad, and familiar a story: One of the EU’s peripheral favorites, Ireland got “free lunch” benefits and used them to attract industry including that dependent on low taxes and favorable treaties. This promoted a boom accompanied by social welfare benefits. The real estate boom followed then turned into a bubble and burst leaving banks saddled with bad debt. Rather than let shareholders take the losses due them, the government stepped in and, yes, guaranteed the underwater banks. If this sounds familiar it’s because it is.
“However, by 2008, as Ireland’s banking crisis triggered a deep recession and unemployment soared to 13%, the tide turned again. Ireland’s Central Statistics Office predicts that 100,000 people will emigrate over the next two years, more than twice the number that left in 2009 and 2010. That comes to about 1,000 per week, and exceeds the last peak in emigration in 1989 when 44,000 people moved away.”
“And while demographic data on emigrants is scarce, many of those leaving are believed to be well-educated professionals—precisely the people Ireland needs to lead a recovery. “In a modern, knowledge-based economy, dense, diverse cities full of highly-skilled people are a critical competitive advantage,” says Mr. McHale. “If the most enterprising people leave, you undermine that advantage.”
So in essence, Ireland exports its future. Some argue the austerity necessary to right the financial ship is to blame. But without it, there is no hope of recovery at all. No, the EU “free lunch” and government policies are the cause and the remedy is painful but necessary. The Celtic Tiger is brought low; it now occupies as unenviable position as one of the EU’s PIGS! Again, there is no such thing as a free lunch.
Could it happen here? Certainly the continuing welfare state with its ongoing deficits and unsustainable debt build up could drive us to a sustained depression. But would our “best and brightest” leave for greener pastures, exacerbating the situation? Would they vote with their feet? Is Atlas Shrugged feasible?
I don’t profess to know the answer. I suspect some would and that other countries and industries would welcome this young talent that was once our future. As Asia grows its appetite for entrepreneurial talent will grow.
While solutions to our unsustainable welfare system may seem painful now, they will be exponentially more painful later. We simply can’t continue kicking the can down the road. That road has a big “dead end” sign posted right in front of our eyes.
Time For A Little Humor…….Aw WTF!
Posted by Tom in Budgets, Deficit, Fiscal Policy, Humor, National Debt, Politics, Presidency on February 23, 2011
Sorry but I couldn’t resist!
Democracy and Openness Return to the House
Posted by Tom in Budgets, Centrally Managed Economy, Congress, Fiscal Policy, Law, Morality & Religion in the Public Square, National Character, Obama Budget & State of the Nation, Taxation on February 18, 2011
Kim Strassel applauds the heated open debates raging in the House of Representatives in today’s WSJ, Congress Finally Earns Its Pay. The scene was the continuing resolution for funding the balance of 2011, and the subject was John Boehner’s bill, now up for debate. 600 amendments were thrown at it.
“Chaos,” “a headache,” “turmoil,” “craziness,” “confused,” “wild,” “uncontrolled” are just a few of the words the Washington press corps has used to describe the ensuing late-night debates. There’s a far better word for what happened: democracy. It has been eons since the nation’s elected representatives have had to study harder, debate with such earnestness, or commit themselves so publicly. Yes, it is messy. Yes, it is unpredictable. But as this Presidents Day approaches, it’s a fabulous thing to behold.”
Exercising their foremost and ancient power, descended from England, the power of the purse our elected representatives did their jobs. “There were amendments to prohibit funds for the mortgage-modification program (Darrell Issa, R., Calif.), for wasteful broadband grants (Jim Matheson, D., Utah), for further TSA full-body scanning machines (Rush Holt, D., N.J.), for the salaries of State Department envoys tasked with shutting Guantanamo Bay (Tim Huelskamp, R., Kan.). And amendments designed to cut off funding for IRS agents enforcing ObamaCare.”
Contrast this with the Pelosi-Reid-Obama RAILROAD. Bills drafted in back rooms by power brokers, put to a vote without reading or debate. Democrats offered amendments last night, something Republicans could not do under Pelosi. One such Democrat amendment was to continue funding road signs bragging about the stimulus. Republicans disagreed with one another, unheard of among Democrats in Pelosi’s House. Boehner even lost a major defense project for his own district, the second engine for the F-35 Joint Strike Fighter. Again, unheard of under Pelosi.
I received an email this afternoon announcing the results of a heated two hour part of that debate on an issue of concern to me, my taxpayer dollars going to fund abortions indirectly by grants to Planned Parenthood. “And today, the U.S. House of Representatives — by an
overwhelming majority vote of 240 to 185 — voted to DEFUND PLANNED PARENTHOOD!” Not exactly what you think of when you list the proper functions of government!
One might have asked long ago, why do our hard earned dollars pay for a lot of non-governmental functions. Things like NPR, ACORN and the National Endowment for the Arts. The point is that now, at least, our representatives are asking and as Kim Strassel concludes, “Long may that last.”
Fear Mongering Is No Substitute For Leadership
Posted by Tom in Deficit, Entitlements, Fiscal Policy, Social Security on February 4, 2011
As Charles Blahous notes in his “Slash” op-ed in yesterday’s WSJ, during the State of the Union address “Mr. Obama mentioned Social Security only long enough to issue vague warnings against “putting at risk current retirees” and “slashing benefits for future generations.”
As has been recently reported, this year alone Social Security is projected to collect $45 Billion less in payroll taxes than it pays out in benefits. This deficit is projected to continue each year until the fund is exhausted in 2037. Our president is not unaware of this. In fact, in that same speech he failed to mention the bipartisan reforms proposed by his own Commission of Fiscal Responsibility and Reform.
It’s worthwhile to review the history of Social Security a fairly concise summary of which is offered by Wikipedia. It is interesting to see the twists and turns the history has taken. It has been a political football with over-promising and mistaken formulae.
Indeed, the formula which Blahous criticizes was inserted in the law to correct an over-indexing mistake which increased payments at double the rate of inflation. “Since 1977, Social Security has employed a formula that links a retiree’s initial benefit payment to growth in the national average wage index. Since wages tend to grow faster than prices, this formula pays younger cohorts greater benefits (in inflation-adjusted terms) than those paid to earlier retirees.”
“The rationale behind this is to provide the same replacement rate (i.e., benefits as a percentage of pre-retirement earnings) for “similarly situated” workers of different generations. In other words, if a typical worker’s benefit today is 50% of his previous wage earnings, then that worker’s grandson, assuming he occupies the same relative position in the national wage distribution, will also get a benefit equal to 50% of his own earnings.”
“What this means practically is that today’s medium-wage retiree receives a benefit just below $18,000 at the normal retirement age. But benefits scheduled for a medium-wage retiree of 2050 would equal nearly $29,000 in today’s dollars.”
“To slow the growth of tax burdens, therefore, the benefit formula must grow more slowly. Current wage- indexing doesn’t create benefit equity across generations. Rather, it ensures that each successive generation must pay higher taxes to get the same replacement rate.”
“Most responsible reform proposals recognize that the benefit formula needs to change. Under the proposal put forward by the commission’s co-chairs, Alan Simpson and Erskine Bowles, for example, the medium-wage worker of 2050 would get a benefit somewhat over $24,000 (in today’s dollars) at normal retirement age. This amount is not as much as the current system is promising, but still offers far more purchasing power than today’s retirees possess.”
Blahous points out that none of the reform proposals would “slash” benefits. For the President to imply such is demagoguery, typical of the class-war rhetoric he’s wont to fall back upon. And this when courageous leadership is the order of the day.
Obamacare’s Medicaid Crutch Is Bankrupting the States
Posted by Tom in Budgets, Centrally Managed Economy, Constitution, Entitlements, Federalism, Fiscal Policy, National Character, State Finances, Welfare on February 4, 2011
To buttress the shaky fiscal credentials of Obamacare Congress increased the eligibility for Medicaid to 133% of the poverty line adding 25% to the rolls; it sent the bill for this to the states. So those new Medicaid entitlees would not have their healthcare welfare charged against Obamacare. George Melloan exposes this neat little trick in his op-ed in today’s WSJ, The States Can’t Afford Obamacare.
States unlike the federal government are required to balance their budgets. One of the largest cost items in those budgets is Medicaid. This is a federal welfare program which requires state administration and state budgetary contribution. The fed dictates the program which like all fed handouts is rife with fraud and abuse.
In the recent Florida Obamacare case, the 26 states argued that Medicaid was unconstitutional as a coercive control over state budgets; in other words a violation of federalism which forces states to implement and pay for federal welfare. Judge Vinson did not buy the argument stating that the states could merely refuse to implement Medicaid. In short the federal government was not forcing the states to implement Medicaid, AT LEAST NOT IN THE LEGAL SENSE OF THE TERM.
And therein lies the rub! If a state withdraws from Medicaid, the federal government continues to tax its residents. Those taxes that would have otherwise gone in part to pay the state’s Medicaid bill will now go to pay the Medicaid bills for other states. In this hard economic sense, Medicaid is an unfunded federal mandate. This is economic compulsion at its best. And this is undoubtedly a breakdown of our federal system.
To review the bidding, the Obama-Reid-Pelosi triumvirate enacted a new, intrusive and unsustainable federal welfare program, Obamacare, by increasing the size of an existant unsustainable federal welfare program, Medicaid. In the process the three exploded the states budget obligations, exacerbating the states budget deficits. This case of robbing Peter to pay Paul has driven both closer to bankruptcy.
It is good to keep in mind that these federal farces, these piles of money, promote overuse, fraud and abuse. There is little justification for this welfare largess, other than to addict voters to their source, in this case the liberal, leftist Democrats.
Kudos For New York’s Cuomo
Posted by Tom in Budgets, California, Democrats, Fiscal Policy, Nevada, State Finances on February 3, 2011
Applaud conservative, fiscally responsible ideas in public office whenever and wherever you find them; and today’s kudos go to Democratic Mario Cuomo, the governor of New York. According to today’s WSJ editorial, he has exposed the fraud of “baseline budgeting.” (See: Cuomo’s Lesson for House Republicans.)
“The budget that Mr. Cuomo unveiled this week closes a gaping deficit with major budget reductions, calling for spending cuts in state hiring, education, health care, aid to universities and payments to cities. The plan would balance the Empire State’s $135 billion budget without a dime of new taxes or borrowing. Remarkably, if his budget passed, the state would spend $3.5 billion less than it did last year.”
“These cuts are impressive on their own, but Mr. Cuomo’s real conceptual breakthrough is to expose the rigged-game of “baseline budgeting.” This is a gambit by which spending increases automatically each year even before a Governor submits his budget. The “baseline” grows each year due to spending formulas that legislatures build into the law even before they take a single vote.”
Guess what? The United States, the State of California, the State of Nevada and many others use baseline budgeting! That’s right. The budgets are in deficit before they are submitted. Most if not all of those less than adequate, so-called public services have automatic ups built into their continuation.
Courageous political leaders proposing a zero-based look at these bureaucracies are accused by the left leaning media of “cutting” education, healthcare, tree-hugging or whatever. But with government growth at most levels out of control, cut they must.
As the Journal editorial points out, the Republicans should sieze the opportunity in Congress to start the budgetary reform. And soon.
Obama’s State of Union, Abysmal!
Posted by Tom in Business, Corporate Welfare, Economics, Fiscal Policy, Subsidies, Tariffs, Taxation on January 27, 2011
Beware America. Our president plans more “investments” in such things as bullet trains and green shingles! He fails to address the serious spending levels he’s driven up in the past two years, and he’s appointed GE’s CEO Jeff Immelt to head his jobs council.
His darling objects of “investments” are silly misallocations of capital. Bullet trains are not feasible, uneconomic, and if implemented would run into slower moving freight trains. Now freight trains are feasible and economic. There is a demand for freight trains, a private demand. This unlike the lack of demand for passenger trains, witness Amtrack, kept on life support by the taxpayers.
Photovoltaic shingles are another silly boondoggle. These like their wind farm cousins are darlings of the environmental liberals. They are economically unsustainable. They require taxpayer and ratepayer subsidies and mandates and they still don’t make economic sense. In short they are the green energy equivalent of ethanol and you are paying for them.
Underlying the president’s thinking is the simple belief that government can allocate capital better than the private market. There are many of us who think that is foolish, who realize that the government generally speaking wastes money. But knowing that the government will waste almost everything it touches presents an opportunity to clever business people.
One such, is Jeff Immelt, CEO of GE, now the head of the president’s jobs council. Economists have a term for businesses that seek to gain competitive advantage by subsidies, restrictions, and protective tariffs. They are called “rent seekers.” GE has been and continues to be expert at rent seeking. Whether in wind turbines, rail, healthcare, or finance GE is well represented in Washington.
Yesterday’s WSJ opinion piece, The Great Misallocators, sets our the common bond between Obama’s big government and Immelt’s big business. “Less laudable is Mr. Immelt’s habit of inviting government to be his business partner and promoter. In his 2008 letter to shareholders, the CEO declared that the financial crisis and election of Mr. Obama meant that the U.S. economy had been fundamentally “reset.”
“His key line: “The interaction between government and business will change forever. In a reset economy, the government will be a regulator; and also an industry policy champion, a financier, and a key partner.”
So instead of allowing you to decide what to invest in, the president will tax you now and your children and grandchildren later to pay for the enormous government debt. He will run that tax money through a federal bureaucracy which has grown dramatically during his term. And he will “invest” what little remains in bullet trains and green shingles and such. These that would not be seriously considered on an economic, stand alone basis.
And while the rent seekers may temporarily profit, in the long run they will lose whatever competitive culture they had and replace it with slothful government dependency. Sadly though, in the end America will be the loser.
Uncle Milty’s Wisdom and the Hidden Cost of Government
Posted by Tom in Deficit, Entitlements, Fiscal Policy, Government Regulation, National Debt, Taxation, Welfare on January 23, 2011
As sure as we have unintended consequences of legislation and regulation we have hidden cost thereof and indeed of basic government. This was brought home last week in a WSJ op-ed by Dick Armey and Matt Kibbe, What Congress Should Cut. They lead with Milton Friedman’s wise observation:
“Milton Friedman correctly argued in 1999 that the “real cost of government—the total tax burden—equals what government spends plus the cost to the public of complying with government mandates and regulations and of calculating, paying, and taking measures to avoid taxes.” He added, “Anything that reduces that real cost—lower government spending, elimination of costly regulations on individuals or businesses, simplification of explicit taxes—is a tax reform.”
Just think of that simple observation and put it alongside with the runaway regulatory environment wrought by Obama. The EPA plans to regulate the breath you exhale from one end or the other! The FCC likewise with your freedom of email and web based speech. HHS with Obamacare favors and penalties for both unions and states, not to mention individuals. Financial services regulators do overburdened with Dodd-Frank that they can’t get new rules out quickly enough.
Top these administrative dictates off with Obamacare, Financial Regulation, Cap and Trade proposals, and the ongoing Fannie-Freddie mess and its aftermath, and you have the perfect storm for explosive government costs. Obama’s feint at regulatory restraint a couple of days ago, was just that, nice sounding words with little substance when it comes to the important issues restraining growth.
So Friedman’s maxim bears analysis. Think of the man hours, expensive man hours, spent, no wasted, in compliance, or workarounds to obviate compliance. How much better could the time be spent. How much better could the dollars thus spent be invested in potentially productive endeavors! The same is true for paying or not paying taxes under our complex tax structure. What a needless waste of time and money, both of which could be put to better use.
The article goes on to suggest candidates for elimination and they are numerous: The discretionary spending binge since 2007. Obamacare. Fannie/Freddie subsidies. Farm subsidies like Ethanol. And eventually, no soon, a serious reform of Medicare, Medicaid, and Social Security. All of these are a cancer some slowly, some rapidly bankrupting the nation.
The call is to wake up; time is rapidly running out.