Night of the Living Government!

Friday, December 31, AD 2010

In keeping with the mini-Zombie theme I have started here at TAC, we have the above Klavan on the Culture episode from 2009.  Hmmm, Zombies as metaphor for out of control government spending.  Actually I do not think it is apt.  After all, a horde of ravenous Zombies might eat a few brains, but they would quickly be dispatched to the nether regions since, if Hollywood can be trusted, Zombies are notoriously poor combatants, moving slowly, clumsily, and giving away their positions with incessant growling.  When confronting zombies, the only thing we have to fear is fear itself!  (Plus running out of ammo.) 

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3 Responses to Night of the Living Government!

  • The.Perfect.Metaphor.

    That pretty much explains it all in four minutes, ten seconds: outstanding!

    No! Wait! That is racist, socially unjust(?), and treasonous!!!


  • I’d rather have my brains eaten by a real zombie, than have my income devoured by a government zombie

  • Yep – zombies….the undead who do not work or produce anything but have to live off the flesh of the living. Yep – that pretty much sums up the Democrats and the liberals!

$13 Trillion of Debt…Nothing to Show For It

Friday, August 27, AD 2010

Recently a Senator made the following statement:

“We have managed to acquire $13 trillion of debt on our balance sheet” and, “in my view we have nothing to show for it.”

What right wing Republican made that statement?  Well actually it was Democrat Senator Michael Bennet of Colorado.

Of course Bennet’s rhetoric is completely belied by his drunken sailor voting record when it comes to spending.  However his statement is still interesting for two reasons:

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7 Responses to $13 Trillion of Debt…Nothing to Show For It

  • One economist after another says that public expenditure is an inefficient means of manipulating aggregate demand unless you have slack in the economy a good deal more severe than we have seen or says that the characteristics of the economy have changed in the last 70 years and it no longer has the practical effect it once did. The economic numbers produced by the Bureau of Economic Analysis and the Bureau of Labor Statistics indicate the stabilization of production levels last year occurred too quickly after the stimulus was enacted to be attributable to it. Japan went up to its eyeballs in debt over a period of 13 years to no discernable effect. Yet, not too many weeks ago, I see Joseph Stiglitz on television saying the stimulus was ‘not big enough’. You begin to wonder if there is not some hidden agenda there.

  • One other thing, Treasury issues held by the public are approaching $9 tn. The bulk of the remainder are held by the Social Security Administration as parking places for payroll tax revenue. The Federal Reserve holds about $0.9 tn.

  • Point of Information,

    The $4 trillion held by SS and Medicare trust funds is not sitting in a vault or in an FDIC-insured checking account. It’s US, nonmarket debt paper. It may as well be Confederate dollars.

    Once SS/Medicare tax receipts (cash paid by you) fall below the benefits cash pay-outs, the guvmint will need to tax you to repay to SS/Medicare the UST debt paper and they pay benefits.

    Plus, the guvimnt will need to tax somebody to just pay the interest on the other $9 trillion.

    Whence the fit hits the shan.

    PS: The $.9 trillion held by FRB – they printed that money. It’s called monetization of the debt.

    PPS: Does the debt figure include $1.6 trillion FNM/FRE directly owe and $6 trillion they indirectly guaranty?

  • The debt figure would not include loan guarantees, no. The federal government’s liabilities with regard to Fannie Mae and Freddie Mac are not the face value of the outstanding mortgage-backed securities but the future losses due to defaults.

    The Federal Reserve always maintains a stack of U.S. Treasury securities with which to trade. While I think this stack has increased some in the last two years, the large run up in the Federal Reserve’s balance sheet has been from the purchase of Fannie Mae and Freddie Mac debt. It made sense to increase the size of the monetary base given the increase in demand for real balances, which is why prices have been fairly stable in the last two years, rather than declining at a 9% rate, which is what they did during the period running from 1929 to 1933.

  • Will Rogers said, “It ain’t what you don’t know that gets you into trouble, it’s what you know that ain’t so.”

  • Point of clarification,

    “The $4 trillion held by SS and Medicare trust funds is not sitting in a vault or in an FDIC-insured checking account.”

    That’s true, as far as it goes.
    – If it were sitting in a vault, that’d be deflationary, which would be bad.
    – If it were sitting in a checking or savings account, that would suggest it was being invested somewhere and generating a positive return. I wouldn’t have a problem with this, but I think a lot of folks would get the willies if the Federal Government held $4T in stocks and corp bonds as a matter of course.

    Obviously, the Federal Government spends its FICA and Medicare tax receipts pretty much the moment it receives them. The non-marketable bonds are an IOU.

    If the Federal Government does its job well, its efforts (which cost money to perform) will continue to create an environment in which the private economy grows, which eventually provides the taxes to honor those IOUs without increasing the individual tax burden.

    If the Federal Government does a bad job, they’ll honor the IOUs via higher taxes and additional deficit spending.

California Nightmaring

Thursday, August 12, AD 2010

In a remarkably good article here at newgeography, Joel Kotkin details how California has been transformed from the Golden State to the state most likely to go bankrupt.  He sums up his argument as follows:

What went so wrong? The answer lies in a change in the nature of progressive politics in California. During the second half of the twentieth century, the state shifted from an older progressivism, which emphasized infrastructure investment and business growth, to a newer version, which views the private sector much the way the Huns viewed a city—as something to be sacked and plundered. The result is two separate California realities: a lucrative one for the wealthy and for government workers, who are largely insulated from economic decline; and a grim one for the private-sector middle and working classes, who are fleeing the state.

Kotkin notes that government spending was completely out of control prior to the present Great Recession:

Between 2003 and 2007, California state and local government spending grew 31 percent, even as the state’s population grew just 5 percent. The overall tax burden as a percentage of state income, once middling among the states, has risen to the sixth-highest in the nation, says the Tax Foundation. Since 1990, according to an analysis by California Lutheran University, the state’s share of overall U.S. employment has dropped a remarkable 10 percent. When the state economy has done well, it has usually been the result of asset inflation—first during the dot-com bubble of the late 1990s, and then during the housing boom, which was responsible for nearly half of all jobs created earlier in this decade.

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2 Responses to California Nightmaring

  • Truth.

    Sadly, the DNC propaganda apparatchnik/MSM will not cover the truth.

    It seems the geniuses and college professors that rule us are out to destroy the racist, unjust private economy, or they are really clueless.

  • All you have to do is look at the Bell Ca public officials or the state employees who work like crazy on thier last year in order to pad their lifetime retirement benefits. There are plenty of areas to point at when it comes to waste and fraud.

    I just wish the common sense would come back … It’s gone!

Illinois is Broke

Wednesday, July 7, AD 2010

Long time readers of this blog know that I reside in the Land of Lincoln.  Illinois now has the distinction of perhaps being in the worst fiscal mess of any state in the Union, as this recent article by Josh Barro for Real Clear Markets indictates:

If you go to Sacramento this week, don’t be surprised to hear champagne corks popping and chants of “We’re #2! We’re #2!” The cause for celebration? Illinois has overtaken California as the worst credit risk among American states.

As of Monday, the credit default swap spread for Illinois general obligation bonds climbed to 313 basis points for a five-year contract — meaning a bondholder must pay over 3% of the bond’s face value per year to be insured against default.

That’s a higher price than for all but seven sovereign entities tracked by CMA, and slightly higher than California, whose five-year CDS spread sits at 293. Investors rate Illinois’s debt as slightly riskier than Iceland’s or Latvia’s, but not quite as big a gamble as Iraq’s.
Despite this environment, Illinois chose to issue an additional $300 million in taxable Build America Bonds last week. Unsurprisingly, the markets were not keen and demanded a high price: the new 25-year bonds were sold with a yield of 7.1%, a spread of 297 basis points over 30-year treasuries. Illinois’ last long term issues, in April, had spreads of 205 and 210 basis points, meaning investors were already nervous about Illinois and are growing moreso.
This issuance provides further evidence that the ratings agencies haven’t fully appreciated the dire nature of state finances, at least in states like California and Illinois. While Illinois carries a Moody’s rating of A1, six notches above junk status, the markets put Illinois’s debt close to the borderline between junk and investment grade.

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11 Responses to Illinois is Broke

  • Very good post and (depressingly) spot-on article there. However, it is my understanding that switching to a defined-contribution retirement plan wouldn’t necessarily save the State as much money as people think because that would require the State to start paying into Social Security for those employees who currently do not receive it, as well as matching those contributions. In other words, skipping payments would no longer be an option.

    The problem really started back in the 1970s when the Illinois Supreme Court stupidly ruled that the constitutional guarantee that pensions were a “contractual” benefit that could never be taken away or diminished applied ONLY to the immediate payments being made to individuals, and NOT to the state’s yearly contribution to the fund. As long as current pensioners kept getting their checks, the state didn’t have to pay into those funds.

  • My preference Elaine would be to offer state employment with no pensions to new hires. I think we would have no end of applicants for the jobs. The cost of state employment is only one portion of the fiscal disaster which is Illinois, but it is an important part. Of course this situation will ultimately rectify itself, either by needed fiscal reforms being taken, or the state government simply collapsing and reforms being undertaken in the midst of an extreme crisis. From what I know of Illinois politics, I think the collapse scenario is most likely.

  • But! This is impossible. Barracks, Quis Ut deus, is from Illinois!!!

    How could this be?

    Genius liberals have run Illinois even since before 5,000 dead Chicagoans elected JFK. That’s like 50 years!

    Not to worry!

    Obama, Bawney Fwank, and Chris Dodd have the solution! DERIVATIVES!!!!! They’re going to outlaw credit default (derivative) swaps! “Happy days are here again . . . ”

    No wait!! End Wall Street and bankers’ pay packages!!!
    No wait!!! Raise taxes on the evil rich!!!!
    No wait!!!! Take over health care!!!!
    No wait!!!!! Destroy the coal industry!!!
    No wait!!!!!! Cap and tax the cost of gasoline and home heating oil (save the snail darter!) up to $10 a gallon!!!!!
    No wait!!!!!!! Add a VAT!!!!!
    No wait!!!!!!!! Add 15,000,000 people to the public teats and the demagogue voter bloc!!!!

    Enlightened rule, Baby! Saintly social justice, brothers and sisters!

    “You want freedom? You gonna haf’ta kill some crackers. And, they babies . . . ”

    Amen!!! Halleluiah!!!

    You’re finished, stick a fork in yourselves.

    Thanks to all pro-abortion catholics! Thanks for ruining our country!

  • Just another example of government corrupted by those who serve Mammon. Constitutional restraints are designed to severely limit the power of government over the money supply and the people. Once those limits are ignored then there are no limits placed by any system of checks and balances and men who lack virtue will flood the halls of government to engorge themselves on the excess and victimize and enslave the people.

    The problem is and has always been that money, which is the lifeblood of the natural pricing system, should never be arbitrarily manipulated by monopoly power. The Constitution, the supreme law of the land, gives the power to coin money to Congress only. Congress transferred that power to a private monopoly enforced by the coercive (threat of violence and seizure) power of government. The Constitution does not permit Congress to do this and it does not permit Congress to print money either.

    Before anyone goes nuts and accuses me of advocating that we all carry metal around with us – that is not necessary. Congress can print, or use digital tech, money so long as it is backed by a fixed quantity of precious metal. Now I know it doesn’t have to be precious metal; however, that has traditionally been the best medium. Obviously God designed our world with a natural tendency to use precious metal as money. This would limit the ability of Congress to charge all the spending it wills (a potentially infinite desire) to the private bank, which creates the money out of nothing, backed by nothing and at no expense to the bank. This allows them to spend, spend and spend with no need for thrift, prudence or accountability. Obviously the states and commonwealths feed off the same beast.

    If you want them to have restraint and want them to have limited power then we need to cut them off from an endless supply of easy and depreciating money.

    Men of honor, character and virtue will go to government to actually serve the common good, because the temptation to serve themselves or re-engineer society (always an expensive proposition) will be curbed.

    Illinois and California are not doing anything different than Congress, they are merely less noticed by the rest of us (at least those of us who don’t live in those states). Of course, all but four states are in similar trouble to one degree or another, most due to mandatory federal programs. Four states went bankrupt in 1847 because President Polk wouldn’t bail them out. They recovered. California can recover, so can a corrupt cesspool like Illinois – just cut off the free money and watch the rascals run. Then honest men, who will do the right thing can clean up the mess.

    The prohibition against usury, properly understood, is not against interest. Interest is a rent payment for the use of a borrowed asset. The price is set by the actions of borrowers and lenders and the natural market will set it fairly. Usury is the collection of interest on something that has no value,and it usually involves force and violence.

    We are using over two-thirds of current revenue to service debt, which for the most part is fiat money that came at no cost to the Fed. Legitimate bond issues to Americans and foreigners excepted. This is usury, this is immoral and this is one of the things that sparked the wrath of our Lord when He walked the earth. We should listen to Him.

    Oh, one more thing. The consideration of defined-benefit vs. defined contribution. Since government is meant to serve and most government employees need make no significant sacrifice, they should NEVER get either a DB or a DC. Military personnel excepted, all soldiers, sailors, airmen and marines deserve DB pensions. Congressional critters and bureaucrats don’t.

    However, in the private world, those decisions are made by employers, shareholders, owners and employees. I’d recommend the DB, but I would never trust Wall Street or a bank with it.

  • “Genius liberals have run Illinois ever since before 5,000 dead Chicagoans elected JFK.”

    Not quite. Illinois has not always been a “blue” state. Well into the 1960s and 70s it was a “swing” state whose electoral votes could go to either party. Only in the last 18-20 years has Illinois consistently voted Democratic in presidential elections. The main reason for that (I think) is that the suburban Chicago “collar” counties, which used to be safe GOP territory, are going increasingly Democrat. On the state level Republicans controlled the governor’s mansion for most of the 1950s (after Adlai Stevenson lost his bid for president), for a good chunk of the 1970s, and for all of the ’80s and ’90s.

    As for those dead Chicagoans who allegedly elected JFK, Chicago blogger Tom Roeser has a different take on that: he says that Mayor Daley, Sr.’s real reason for cranking out a huge Democratic vote in 1960 was NOT to elect JFK — that was merely icing on the cake — but to insure the defeat of popular Republican state’s attorney Benjamin Adamowski. Adamowski had vowed to aggressively pursue public corruption cases, and had made no secret of his desire to eventually run against Daley for mayor, so Daley, naturally, regarded him as a mortal threat. Whether this is true or not I don’t know since I wasn’t even born at the time, but it sounds plausible to me.

    More in a few minutes.

  • “Since government is meant to serve and most government employees need make no significant sacrifice, they should NEVER get either a DB or a DC.”

    Eh, I dunno about that. I may be a bit prejudiced being a state employee myself, but at the professional levels (jobs requiring college or postgraduate degrees, professional licenses or significant skills) state employees often make less, sometimes a lot less, than they could in comparable private sector jobs. Some of them do make considerable financial sacrifices because, believe it or not, they believe in what they do and want to contribute to the public good. On the other hand, for less skilled jobs — custodians, nurses aides, data inputters, etc. — state employees do tend to make more than they would in the private sector.

    As for my situation, I’ll save you the trouble of filing a FOIA request to the Illinois Comptroller and tell you exactly how much I make: $35,000 per year. And that’s after 25 + years total in the workforce, with a bachelor’s degree, 22 of those years in the private sector. My current pay is only slightly higher than what my best private sector job paid. Why did I take this job — well, basically, because it had decent insurance, regular hours, and didn’t require a 60-mile commute every day.

    All that being said, I honestly don’t expect to receive any of my state pension or Social Security seeing as how both funds will probably be broke long before I’m 65. I resigned myself long ago to having to work until I’m too old, sick, or dead to continue. I do have a small annunity fund left over from a former job, but that’s tanked pretty severely in the last few years.

  • Elaine’s Rant, Final Chapter:

    Given what I said above, I wouldn’t be all that upset if the state abolished DB in favor of DC or just scrapped the whole thing. Most tail-end Baby Boomers and Gen Xers have pretty low expectations regarding retirement anyway so it wouldn’t be much of a shock to them. However, it would be totally unjust to take away benefits already promised to those who earned them fair and square. I also that ELECTED officials should not draw pensions for their service because public office is not supposed to be a lifetime career or source of security anyway.

    “This is usury, this is immoral and this is one of the things that sparked the wrath of our Lord when He walked the earth.”

    Recently I caught a snippet of one of Fr. John Corapi’s talks on EWTN radio, and he suggested a very interesting idea I think it’s worth reflecting upon here: bad leadership is one of the ways God punishes us for our sins. That’s what happened to Old Testament Israel, when they insisted on having earthly kings just like the pagan nations around them did. God, through the prophet Samuel, warned them that they’d live to regret it, but they didn’t listen.

    How many of us have been dreading the prospect of God’s judgment upon our country because of our acceptance of abortion and other evils, and our continuing to elect public officials who countenance these things? Well, I guess it’s already here… not in the form of fire and brimstone, lightning bolts from heaven, locust plagues, etc. but in the form of crumbling infrastructure, fading job prospects, vanishing retirement security, high taxes, etc. I wonder if the embarrassment of Blago and his legacy of fiscal ruin are the way God has chosen to punish Illinois for inflicting the Abortion President upon the nation?

  • Elaine,

    The problem is not necessarily with your job, mission or vocation – it is with your employer. The government has little need for actual employees. Most functions of government can and should be performed by other authorities or the natural market. In the areas where government is called to be the provider of a particular need, then it can usually contract that out. Some instances this is not the case as in the military, although, some private military has been effective, Executive Outcomes comes to mind.

    I don’t know what your particular job is and I don’t care to comment about you personally on here so I suggest you refrain from telling me. It is likely that your job can be performed by you better and probably with better compensation if it was private. Just because it is private does not mean it is selfish – many private jobs provide for the common good. For example some of the teachers in Catholic schools make much less than their government school counterparts and they generally do a better job – although I’d rather see sisters and nuns doing the job. Also note that private charities do a better job, more efficiently and with far less corruption than say, the United Way or the Red Cross.

    Is private better than government? Generally yes. It isn’t that abuse won’t occur – as long as people are involved there will always be abuse, the difference is that it isn’t codified, perpetuated and encouraged. That tends to happen when government is involved – the temptation is too strong for most.

    In any event, the issue of savings regarding the government jobs, and for that matter private jobs, is that it is incumbent upon the worker. Relying on the employer is rarely a good idea. The problem is the government channels funds to certain savings vehicles at the expense of others for the benefit of certain companies and the detriment of others. If they left it alone and didn’t depreciate the currency, then everyone of us could save for retirement (whatever that is) ourselves with great success.

    Of course, we are in this situation for the reasons you and Fr. Corapi pointed out, what I find sad is that we needed our bank accounts, pensions and home equity hit before we actually paid attention. We need to remember what we’ve been taught about serving two masters.

    In any event work is not given to us to earn money, although I admit that I do like that part, work is a gift given to us for our sanctity. So if we have to work until we drop dead, assuming we work well and to the good, then I suppose it is time-off in Purgatory. At least I hope so. 😉

  • “Usury is the collection of interest on something that has no value, and it usually involves force and violence.”

    This may explain why Dante, in the Inferno, placed usurers in the same circle of Hell as sodomites and blasphemers — he regarded these offenses as acts of violence against God (blasphemy), against nature (sodomy), and against art (usury), the “child” of nature and thereby the “grandchild” of God. “Art” as Dante defined it meant human labor of any kind, and he believed usury subverted the will of God that man should earn a living through honest work. (That whole topic could be fodder for another post 🙂

  • If you think this is sad, this can be omen of what the minions of Illinois ruuning the Adminstration have been doing in the White House along with the Senators and Representatives. If the national spending continues, especially with cap and trade and the health bill kicking in, and billion dollar loans to Brazil company for deep water drilling ( only they banned it in US or are trying be fore court stepped in ) and over 99 weeks of extended unemployment benefits ) and older workers taking Social Security earlier because they cn not find work the video could say the USA with interest on our debt at over one trillion and climbing is BROKE and can not meet their interest payments or social security and medicare payments.

  • Recently the bishops of Nigeria endorsed a campaign of public prayer against corruption and composed the following prayer to be said at public liturgies. With just a few tweaks it would fit right into the Land of Lincoln:

    “Father in heaven, You always provide for all your creatures, so that all may live as you have willed. You have blessed our country of Nigeria (State of Illinois) with rich human and natural recourses to be used in honour and glory and for the well being of every Nigerian (Illinoisan).

    “We are deeply sorry for the wrong use of these your gifts and blessings through acts of injustice, bribery and corruption, as a result of which many of our people are hungry, sick, ignorant, and defenceless. Father, you alone can heal us and our nation (state) of this sickness.

    “We beg you, touch our lives and the lives of our leaders and people so that we may all realise the evil of bribery and corruption and work hard to eliminate it. Raise up for us God-fearing people and leaders who care for us and who will lead us in the path of peace, prosperity and progress. We ask this through Jesus Christ our Lord. Amen. Most Sacred Heart of Jesus, Have mercy on us.”

    The one major rewrite I would suggest in an Illinois version of this prayer would be to change “many of our people are hungry, sick, ignorant and defenceless” to “many of our people are without needed services and unable to support their families.”

    I think just about anyone would agree that the poor leadership in Illinois has had that effect — whether you are liberal and think the problem is social services not being adequately funded, or you are conservative and think the problem is overtaxation, bloated public payrolls, and other factors that discourage or drive away private employers. Either way, we need help.

Being Broke Can Sometimes Cure Stupidity

Friday, May 28, AD 2010

One of the few good things about hard economic times is that it affords us an excellent opportunity to regret the money that was wasted in good economic times (That timeshare in Honolulu sounded so good!) and also requires us, through bleak necessity, to amend our spending in the future.  Mark Steyn has a brilliant column on the likely impact of being broke on government spending.

How did the Western world reach this point? Well, as my correspondent put it, we assumed that we were rich enough that we could afford to be stupid. In any advanced society, there will be a certain number of dysfunctional citizens either unable or unwilling to do what is necessary to support themselves and their dependents. What to do about such people? Ignore the problem? Attempt to fix it? The former nags at the liberal guilt complex, while the latter is way too much like hard work: the modern progressive has no urge to emulate those Victorian social reformers who tramped the streets of English provincial cities looking for fallen women to rescue. All he wants to do is ensure that the fallen women don’t fall anywhere near him.

So the easiest “solution” to the problem is to throw public money at it. You know how it is when you’re at the mall and someone rattles a collection box under your nose and you’re not sure where it’s going but it’s probably for Darfur or Rwanda or Hoogivsastan. Whatever. You’re dropping a buck or two in the tin for the privilege of not having to think about it. For the more ideologically committed, there’s always the awareness-raising rock concert: it’s something to do with Bono and debt forgiveness, whatever that means, but let’s face it, going to the park for eight hours of celebrity caterwauling beats having to wrap your head around Afro-Marxist economics. The modern welfare state operates on the same principle: since the Second World War, the hard-working middle classes have transferred historically unprecedented amounts of money to the unproductive sector in order not to have to think about it. But so what? We were rich enough that we could afford to be stupid.

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One Response to Being Broke Can Sometimes Cure Stupidity

  • per Steyn: “The green jobs, the gay parades, the jihadist welfare queens, the Greek public sector unions, all have to be paid for by a shrinking base of contributing workers whose children and grandchildren will lead poorer and meaner lives because of the fecklessness of government.”

    You know, I agree with Steyn’s premise but I’m always perplexed re: How can people miss the Elephant in the Room?? I mean, absolutely no one wants to say that the “shrinking base” is due to the fact that virtually 100% of the population has contracepted or aborted their kids out of existence for the last 40 years, Catholics included. The economic mess we’re in now is only a symptom of that fact. I guess its just too painful to admit..

Are We All Greeks Now?

Thursday, May 13, AD 2010

Hattip to Ed Morrissey at Hot AirAnother fine econ 101 video from the Center for Freedom and Prosperity.   Government debt is rapidly becoming the major issue of our time, both here and abroad.  The welfare states erected throughout the world have always had a resemblance to Ponzi schemes,  and all Ponzi schemes ultimately collapse, which is what is happening around the globe.  Robert Samuelson nailed it this week in the Washington Post:

What we’re seeing in Greece is the death spiral of the welfare state. This isn’t Greece’s problem alone, and that’s why its crisis has rattled global stock markets and threatens economic recovery. Virtually every advanced nation, including the United States, faces the same prospect. Aging populations have been promised huge health and retirement benefits, which countries haven’t fully covered with taxes. The reckoning has arrived in Greece, but it awaits most wealthy societies.

Americans dislike the term “welfare state” and substitute the bland word “entitlements.” The vocabulary doesn’t alter the reality. Countries cannot overspend and overborrow forever. By delaying hard decisions about spending and taxes, governments maneuver themselves into a cul de sac. To be sure, Greece’s plight is usually described as a European crisis — especially for the euro, the common money used by 16 countries — and this is true. But only up to a point.

Euro coins and notes were introduced in 2002. The currency clearly hasn’t lived up to its promises. It was supposed to lubricate faster economic growth by eliminating the cost and confusion of constantly converting between national currencies. More important, it would promote political unity. With a common currency, people would feel “European.” Their identities as Germans, Italians and Spaniards would gradually blend into a continental identity.

None of this has happened. Economic growth in the “euro area” (the countries using the currency) averaged 2.1 percent from 1992 to 2001 and 1.7 percent from 2002 to 2008. Multiple currencies were never a big obstacle to growth; high taxes, pervasive regulations and generous subsidies were. As for political unity, the euro is now dividing Europeans. The Greeks are rioting. The countries making $145 billion of loans to Greece — particularly the Germans — resent the costs of the rescue. A single currency could no more subsume national identities than drinking Coke could make people American. If other euro countries (Portugal, Spain, Italy) suffer Greece’s fate — lose market confidence and can’t borrow at plausible rates — there would be a wider crisis.

But the central cause is not the euro, even if it has meant Greece can’t depreciate its own currency to ease the economic pain. Budget deficits and debt are the real problems; and these stem from all the welfare benefits (unemployment insurance, old-age assistance, health insurance) provided by modern governments.

Countries everywhere already have high budget deficits, aggravated by the recession. Greece is exceptional only by degree. In 2009, its budget deficit was 13.6 percent of its gross domestic product (a measure of its economy); its debt, the accumulation of past deficits, was 115 percent of GDP. Spain’s deficit was 11.2 percent of GDP, its debt 56.2 percent; Portugal’s figures were 9.4 percent and 76.8 percent. Comparable figures for the United States — calculated slightly differently — were 9.9 percent and 53 percent.

There are no hard rules as to what’s excessive, but financial markets — the banks and investors that buy government bonds — are obviously worried. Aging populations make the outlook worse. In Greece, the 65-and-over population is projected to go from 18 percent of the total in 2005 to 25 percent in 2030. For Spain, the increase is from 17 percent to 25 percent.

The welfare state’s death spiral is this: Almost anything governments might do with their budgets threatens to make matters worse by slowing the economy or triggering a recession. By allowing deficits to balloon, they risk a financial crisis as investors one day — no one knows when — doubt governments’ ability to service their debts and, as with Greece, refuse to lend except at exorbitant rates. Cutting welfare benefits or raising taxes all would, at least temporarily, weaken the economy. Perversely, that would make paying the remaining benefits harder.

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25 Responses to Are We All Greeks Now?

  • The problem is not ‘the welfare state’, but a welfare state incorporating perverse incentives, a welfare state not subject to constraints as to its size (relative to the productive economy), public and private consumption financed through borrowing from abroad, and public sector borrowing at times and in circumstances where it is simply inappropriate. Congress and the Administration could fix these problems. They just don’t feel like it.

  • I suppose the term welfare state is a big murky. I regard Greece as such a state, but not the US, though because the term is a loose one it is hard to know where to draw the line. But it is rather difficut for true welfare states (in the narrow sense of the term) to be fiscally responsible in the long run. This is precisely because cradle to grave security diminishes the otherwise organic incentives that are necessary to generate the productivity required to deliver such security. The smaller and more homogeneous the society the more likely it can work, at least for a while, but there will inevitably be serious costs in overall standard of living, very little economic or social mobility, and eventually a serious brain/brawn/character drain absent mettalic curtains.

  • You are conflating two phenomena: 1. the inclination of the government to balance its books and 2. the effect of the relative size of the public sector and what it rewards and what it does not on the economic dynamism of the country in question.

    Bar in exceptional circumstances (and Greece is likely now in such circumstances), the government can balance its books if it so chooses. It chooses not to in part out of habit, in part in thrall to Keynesian notions of the utility of public sector borrowing which (per many economists) apply only when their is exceptional slack in the economy, and in part as a consequence of patron-client politics.

    You might say that fiscal responsibility is difficult in circumstances where so many incomes are politically determined. You might also posit that particular tax and benefit configurations induce demographic implosion. These are different arguments than one which says that annual improvements in per capita income of 1.4% as opposed to 2% render common provision unsustainable.

  • I do understand the two concepts, but they are not so easily disentangled. My point is that the second phenomenon makes the first very difficult in the long run, though not necessarily impossible under certain conditions that probably cannot exist in the US.

  • The per capita income of the United States was, in 1960, about 40% of what it is today. Prior to 1960, the U.S. Government balanced its budget bar in exceptional circumstances (which circumstances were regrettably common during the period running from 1929 to 1955, but that’s another story). Enhanced affluence has not improved the government’s ability to balance its budget, quite the contrary. The United States has also been on a lower growth trajectory than other occidental countries, as has Switzerland. Neither country is given more than its peers to state intervention, but both are on the technologial frontier, meaning improvements in output have to be driven by innovation as well as application.

    Think about applying your hypothesis on a micro scale. You have ten men selected at random from urban neighborhoods at age 23. You are going to find that at age 46 they have quite a range of incomes because of how their skill sets developed over the years. They will likely have quite a range of relative debt loads as well, but that is (bar at the bottom of the scale) going to be derived from their ability and willingness to defer gratification (and various accidents), not their quantum of human capital.

  • Art,
    I’m not suggesting that the US’s deficit is predominantly caused by welfare spending as such — I do recognize that lack of discipline, but then again I’ve never suggested that the US is a welfare state. My point is that welfare states invite serious long term fiscal problems because (i) paying for cradle to grave security requires high tax rates that discourage the work and investment that produce the tax base upon which those rates are applied and (ii) cradle to grave security is a pretty good option compared to work, which increases the need for more spending while simultaneously decreasing the number of workers paying taxes. The ensuing fiscal challenges can presumably be met by living with substantially lower standards of living and greatly reduced economic and social mobility, but most people don’t really want to live with these things, so politicians respond by deficit spending. Now of course you can say then the problem is still one of lack of discipline in such a case, and you’d be right. But one cannot say that welfare state spending does not increase the pressure to deficit spend. And it does so more than most other types of spending because of the perverse incentives that cannot be eliminated, at least in a true welfare state. The bottom line is that cradle to grave security is an expensive proposition in a modern society, and raising the revenue necessary to pay for it encounters both political and economic difficulties.

  • The Scandanavian countries are net lenders despite their larger welfare states. And they have great economic growth. Yes, they have higher taxes but they also have better incentives. They have low corporate tax rates. They use school vouchers. The American tax and welfare system is the world’s most complex yet we have little to show for it.

  • Donald,

    Thank you for sharing that enlightening video clip.

    My opinion of Sweden has increased.

    I’m also now going to add to my video-roll of viewing.


    He advises the U.S. not to increase taxes for a poorly efficient public sector.

    Sweden owes the vast majority of it’s high level of living standard to “free markets, de-regulation, lowering of progressive tax rates, and privatization of many formerly government owned sectors of the economy”.


    And Obama wants us to be more like Europe.

    What a maroon.

  • “Are we all Greeks now?”

    Let’s just say not yet, but we can taste the souvlaki.

  • The problem is not ‘the welfare state’, but a welfare state incorporating perverse incentives…-Art Deco

    No “welfare” scheme can escape “incorporating perverse incentives.” Making “welfare” a State function only adds to the number and intractability of its perverse incentives. This is especially so in any State based on a principle of equal rights.

  • RR,
    First, I acknowledge that our patchwork welfare system is inefficient, likely more inefficent than those employed by other western nations. For that reason I have long favored replacing all transfer payments, including social security, with a negative income tax. My instinct (and that is all it is) is that the additional costs associated with the work disincentive caused by such a program would be overwhelmed by the savings permitted by gutting the existing myriad of programs.

    Regarding Sweden, (I think Don’s video addressed other issues), which incentives exactly are you talking about?

  • Micha is correct. A true welfare state necessarily diminishes the incentive to work or engage in entrepreneurship by rewarding doing nothing, especially if the safety net is more generous than bare subsistence. Without necessity, no invention, as they say. As workers gravitate to participate in the safety net, program costs increase necessitating tax rate increases that add to the discouragement of workers and investors.

    Unlike many conservatives, I do not oppose income or wealth redistribution entirely. While I favor private action, I think government can have a significant role. But government policy must be carefully crafted to strike a balance between assisting the truly needy, especially children and the disabled, and avoiding the enablement of able-bodied adults to avoid work. Crafting such policy necessarily requires imperfect compromises given the competing considerations. All too often liberals have an excessively rosy understanding of human nature. People will take advantage of any system you give them. The capacity for rationalization is not limited to Greek protestors. Indeed, in this very forum I’ve read orthodox Catholic posters insist that it is morally acceptable to walk away from an upside down mortgage even if one can make the payments — because the lender never should have given you the loan, you see. People are self-interested, and while generous welfare programs may be well-motivated they will encourage perverse behavior. Moreover, government assistance inevitably becomes perceived as entitlements that can be relied on as opposed to charity that is uncertain.

  • Mike, I was talking about exactly the things that the video that Don posted talks about. The Scandinavian welfare states are more efficient. Freer trade. Lower corporate taxes. School vouchers. VAT.

    I too would like to see all transfer payments replaced with something like a negative income tax.

  • Restrained Radical,

    You comment here often so why not add a pic to your ID?

  • Charity creates perverse incentives. Perverse incentives can’t be avoided if you want to help the needy but they can be minimized. I have an idea for a welfare system: If you’re able to work, the government can offer $5/hour make-work jobs picking up trash, watering plants, or even just running around in circles.

  • restrainedradical:

    Yes it does, but government charity is far more pernicious in creating such incentives than is private charity. The former is viewed as a legal entitlement whereas the latter as voluntary. The latter cannot be counted on and is understood as a gift that has not been earned.

    “Workfare” proposals have been around forever, but never seem to secure traction. I seem to recall that there are some reasonable and sound explanations for this, but cannot recall what they might be.

  • If you’re able to work, the government can offer $5/hour make-work jobs picking up trash, watering plants, or even just running around in circles

    As someone currently employed by the government, I can honestly say that some public sector employment is nothing more than a thinly-disguised version of this. What some people would do without it, I don’t know. Starvation is not an acceptable answer.

  • I should hasten to add that during my time working for large corporations, I saw plenty of “make work” jobs. Those employees were perhaps in a more precarious situation than their civil service counterparts, but it was a similar type of job nonetheless.

  • “What some people would do without it, I don’t know. Starvation is not an acceptable answer.”

    Repair my roof? Cut my lawn? Wallpaper my kitchen? Paint my garage? Clean my gutters? I’d pay more than $5 per hour.

  • …government policy must be carefully crafted to strike a balance between assisting the truly needy, especially children and the disabled, and avoiding the enablement of able-bodied adults to avoid work. Crafting such policy necessarily requires imperfect compromises given the competing considerations.Mike Petrik

    Ahh, but in a State founded the principle that all men are created equal in the sight of the law making such distinctions between people leads to the creation of legions of bureaucrats trapped into robotically following rulebooks of every growing size, complexity, and loopholes inevitably spawned by such complexity. The “imperfect compromises” ultimately lead to “the enablement of able-bodied adults to avoid work” and some of “the truly needy” being denied State assistance.

    Alas, the attempt to “strike a balance” within a State welfare scheme in a nation founded on a principle of equal, individual rights is thus doomed to be the pursuit of an illusion. In America, that has become a very costly pursuit and the costs are not only borne by the nation in mere dollars and cents.

    Perhaps a welfare State in a nation of culturally and ethnically homogenous people that has a class system is less encumbered by the consequences of the necessary imperfect compromises required by a State welfare scheme. Homogeneity of the populace in a welfare State has been discussed elsewhere. Less commented upon is that in a class system, the bureaucrat who is of the upper class can deny or approve the lower class supplicant based on consideration of individual circumstances with no or very circumscribed possibilities for appealing the decision.

    P.S. There is no such thing as “government charity.”

  • Micha,
    I don’t think that the Declaration’s claim that all men are created equal is particularly at fault here, though I do agree that the 14th Amendment’s equal protection clause has very gradually given rise to a culture that seems to demand equal treatment in every way under every circumstances, even though court decisions, while imperfect and not completely consistent, do not demand anything like this. That said, I do agree with your general point that equal protection reasoning, and equal protection psychology, permeates and paralyzes bureaucracies. And I acknowledge that this makes the compromises I describe somewhat more difficult, but improvements can be made. The Clinton Administration’s welfare reform was certainly a step in the right direction, and was not derailed by equal protection obsessions. And it is worth noting that benefits are far more available to mothers with children than single men, which is a terrific example of well-intended rules with perverse incentives.
    I have no brief on the use of the word “charity” to describe transfer payments. I normally don’t prefer the word for the reason you suggest, but it can certainly be justified on the ground that it is the expression of the will of the people to voluntarily tax themselves to provide for others in need, even if imperfectly. The government is acting as the agent of its citizens, nothing more. I understand that this view of government action does not sit well with libertarians, but I’m not a libertarian.

  • There are mixed economies, and there are mixed economies.

    I was once involved in local politics and in that capacity a careful student of the New York State Statistical Yearbook. It has been a while, but working from memory here and bits and pieces of data I have seen in recent years, I will draw up a back of the envelope grocery list:

    –School vouchers
    (for primary and secondary eduction)… 4.5% of GDP

    –Medical Insurance (for acute care,
    structured per Milton Friedman) … 6.0% of GDP

    –L/T Care Insurance (nursing homes,
    group homes, asylums, &c., structured
    similarly to the above) … 2.0% of GDP

    –Unemployment compensation … 1.5% of GDP

    –Remittances to those with a
    negative income tax liability
    (structured per M. Friedman) … 3.5% of GDP

    –Child Protective & Foster Care … 0.5% of GDP

    –Miscellaneous (public defender,
    legal aid society, public service
    jobs & clinics on Indian
    reservations, disaster relief,
    refugee resettlement, deficits
    of mass transit systems). … 0.5% of GDP

    –Intergovernmental transfers to
    impecunious states and localities
    (net) … 1.0% of GDP

    That amounts to 20.5% of domestic product and covers the waterfront (from my perspective, not the President’s). Prior to 1914, the ratio of public expenditure to domestic product in occidental countries was, if I am not mistaken, around 0.10, and some portion of that was devoted to the common provision of the day, most typically manifest in public agencies (schools, asylums, city hospitals, sanitariums, orphanages, veterans’ hospitals, poor houses, &c.). Here in New York, public expenditure apart from welfare, education, and law enforcement typically amounts to about 5.5% of domestic product, I think. Law enforcement at one time amounted to about 2% of domestic product; it is now more than that and money well spent, but other occidental countries may be able to get by with less for similar results. The United States spends about 5% of domestic product on the military and espionage services. I think the global mean might be around 2.5%. Provision of gas, electricity, and water are properly undertaken by public agencies or regulated monopolies and might amount to 2% of domestic product.

    In other words, a welfare state with a baseline of public services can generally be had with a ratio of public expenditure to domestic product of 0.33 (in peacetime and barring a banking crisis), give or take some portion dependent upon local circumstances.

    By way of contrast, at the time Margaret Thatcher took office in 1979, the ratio of public expenditure to domestic product was about 0.43; the output of state-owned industry amounted to 10% of domestic product; and about a third of all metropolitan households were living in public housing. All told, the state sector amounted to about 55% of domestic product.

    Borrowing from abroad (and note that Greece’s balance of payments deficit on current account is running at 14% of domestic product) is not sustainable; routinized public sector borrowing is not (after a generation or two) sustainable. Demographic implosion makes for an unsustainable society as well as an unsustainable state. All of these are phenomena distinct from maintaining a vigorous ethic of common provision.

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Why the Fiscal Lunacy?

Monday, April 19, AD 2010

One of my favorite living historians is Victor Davis Hanson.  I have read every book he has written and most of his articles.  Trained as a classicist and historian of antiquity, he has written on a broad range of topics, from the hoplites of ancient Greece, ancient Greek agriculture, a searching examination of the Peloponnesian War, the farming crisis of the 80’s, the history of warfare and culture, the teaching of the classics and the debacle of our non-policy on immigration, and I have been astonished at how skillfully this man writes and with what intelligence, and very dry humor, he cuts to the essence of whatever subject he addresses.  He moonlights as a pundit on current events and in that capacity I have found a recent column of his intriguing on the question of just why the Obama administration is hellbent on compiling such huge annual deficits.  Here is a portion of the column:

We are going to pile up another $3 trillion in national debt in just the first two years of the Obama administration. If the annual deficit should sink below $1.5 trillion, it will be called fiscal sobriety.

Why, when we owe $12 trillion, would the Obama administration set out budgets that will ensure our collective debt climbs to $20 trillion? Why are we borrowing more money, when Medicare, Social Security, the Postal Service, Amtrak, etc. are all insolvent as it is?

What is the logic behind something so clearly unhinged?

I present seven alternative reasons — some overlapping — why the present government is hell-bent on doubling the national debt in eight years. Either one, or all, or some, or none, of the below explain Obama’s peculiar frenzied spending.

1) Absolutely moral and necessary?

The country is in need of massive more entitlements for our destitute and near to poor. Government is not big, but indeed too small to meet its moral obligations. Deficits are merely record-keeping. Throwing trillions into the economy will also help us all recover, by getting us moving again and inflating the currency. And we can pay the interest easily over the next 50 years. Just think another World War II era — all the time.

So big spending and borrowing are genuine efforts of true believers to make us safe, secure, and happy.

2) “Gorge the beast”

The spending per se is not so important, as the idea of deficits in general will ensure higher taxes. Nationalized health care, cap and trade, new initiatives in education, more stimulus — all that and more is less important than the fact that huge defects will require huge new taxes, primarily from the upper-classes. I see no reason why the total bite from state income, federal income, payroll, and health care taxes cannot soon in theory climb to 70% of some incomes (e.g., 10% state, 15.3% FICA, 40% federal, 3-5% health care). In other words, “redistributive change” is the primary goal. This aim is premised on the notion that income is a construct, if not unfairly calibrated, then at least capriciously determined — requiring the more intelligent in the technocracy to even out things and ensure an equality of result. After all, why should the leisured hedge-funder make all that more after taxes than the more noble waitress?

So big spending and borrowing mean big deficits, and that means taxing the greedy and giving their ill-gotten gains to the needy.

3) Big Brother?

Or does rampant borrowing for government spending reflect our despair over the inability of millions to know what is best for themselves? For democracy to work, all of us must fully participate. But because of endemic racism, sexism, class bias, and historical prejudices, millions of Americans do not have access to adequate education and enlightenment. Therefore, a particular technocratic class, with requisite skill and singular humanity, has taken it upon themselves to ensure everyone gets a fair shake — if only government at last has the adequate resources to fix things. If it proves problematic for one to register and vote, then there will be a program to make 100% participation possible. If some of us are too heavy and too chair-bound, we can be taught what and how to eat. If some of us do not study, we can adjust academic standards accordingly. In one does something unwise, like buying a plasma TV rather than a catastrophic health care plan, then we still can ensure he is covered. In other words, an all-knowing, all-powerful, all-moral guardian class requires resources to finish the promise of participatory America. After all, why would we allow the concrete contractor to “keep” 70% of his income only to blow it on worthless things like jet skis or a Hummer in his garage or a fountain in his yard — when a far wiser, more ethical someone like Van Jones could far more logically put that now wasted capital to use for the betterment of the far more needy?

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11 Responses to Why the Fiscal Lunacy?

  • The rationale for the “stimulus” is rooted in Keynesian economics. The problem with this one as opposed to previous ones is rather than using the stimulus to kick start a stalled economy, combined with Obama’s other policies such as Gov’t takeover of major parts of the economy such as Fannie & Freddie, AIG, GM etc, health care reform, Cap & Trade etc. together they are going to have the opposite effect. The Federal Gov’t now owns 80% of the mortgages in the US. So it is a double whammy. There is, and will be will be no “recovery”.

    The current “recovery” is a dead cat bounce. Bernanke and Geithner’s pronouncements that the “recession” is over is the equivalent of Neville Chamberlain’s “Peace for our time” speech right before Germany invaded Poland. We are in the eye of a hurricane right now and the second half is going to be worse than the first because the Fed is out of bullets. The next shoe will be the collapse of the dollar (brought about on purpose) and the introduction of a regional (Amero) or international currency (SDR’s). Anything denominated in dollars will be bought out out for pennies on the dollar.

    Obama is just a tool of the gang that surrounds him to tank the economy on purpose to bring about the NWO. Obama isn’t smart enough to think this stuff up on his own, but then the same could be said for Bush who lost it with me after telling America to “go shopping” after 9-11. In reality, this has all slowly been taking place since the end of WW 1. We’re just lucky enough to be there for the climax.

  • Given that 53 cents of every dollar of income taxes goes to support current and past military misadventures, I think that VDH needs to reexamine the real cause of America’s fiscal insolvency.

    It’s also worth pointing out that Obama, whatever else he is doing, is set to lower the deficit from Bush’s time in office.

  • “It’s also worth pointing out that Obama, whatever else he is doing, is set to lower the deficit from Bush’s time in office.”


  • Given that 53 cents of every dollar of income taxes goes to support current and past military misadventures

    Why not go one better and use Maryland sales tax revenue as your denominator?

    I was not aware that any portion of my New York State income tax payments were devoted to ‘past and present military adventures’. (Though I rather do like the idea of Gov. Patterson calling out the National Guard to arrest the state legislature and stuff them in the Albany County Jail, now that you mention it).

    About 5% of Gross Domestic Product is devoted to military expenditure. (A decade ago, the proportion was about 3.5%). Prior to the recent federal spending binge, about 14% of all public expenditure was devoted to the military. If you wish to apportion debt service costs among other other sorts of expenditure, perhaps 16% of public expenditure was so devoted. That would be, ahem, the sum of costs for maintaining the military, not the costs attributable to ‘past and present military adventures’. (Unless it be your contention that military expenditure itself is illegitimate).

  • We must live in the United States of Topsy Turvy Land. The projected deficit for 2010 (Obama’s second year in office) which was three times as large as Bush’s last deficit *may* turn out to be only 2.5 times as Bush’s last deficit and somehow we’re to consider Obama to have fixed Bush’s mismanagement? Nevermind that Obama’s own budget initiatives project ever increasing deficits YoY.

  • So wj’s citation was an assertion made by the Obama administration that still leaves the deficit higher than it was when Bush was in office.

    Next time you might want to read the sources before linking to them.

  • As I understand it, Obama inherited the 1.3 trillion dollar deficit from the Bush administration, and so it is misleading to attribute the ballooning deficit to his policies alone, which is all I intended to say. If you look at the CBO forecast (and I acknowledge that many deny the accuracy of the CBO), Obama’s budget *will* lower deficit’s longterm. Of course, I am not a supporter of Obama, and it is not terribly important to me whether is is moderately more or less fiscally insane than Bush; but it is fair to point out that the current deficit problem is not *entirely* due to his own recklessness.

    Art Deco: what about this analysis is wrong:

  • That figure includes the Pentagon budget request of $717 billion, plus an estimated $200 billion in supplemental funding (called “overseas contingency funding” in euphemistic White House-speak), to fund the wars in Afghanistan and Iraq, some $40 billion or more in “black box” intelligence agency funding, $94 billion in non-DOD military spending (that would include stuff like military activies funded through NASA, military spending by the State Department, etc., miilitary-related activities within the Dept. of Homeland Security, etc.), $123 billion in veterans benefits and health care spending, and $400 billion in interest on debt raised to pay for prior wars and the standing military during peacetime (whatever that is!).

    What is wrong is that this fellow pads the payroll in various ways by adding the budgets of the intelligence services, the space program, veterans hospitals, and the federal police; and pads it further by attributing the entire charge for service on the federal debt to military expenditure, as if there were no domestic expenditure whatsoever. He then further manipulates his figures by expressing these charges as a ratio of federal income tax revenue, even though north of 40% of public expenditure is by state and local governments and most federal expenditure is financed out of Social Security taxes and bond sales. But you knew that.

  • Thank you gentlemen. This thread, thus far, is a classic example of what robust combox debate should be!

  • One thing I like very much about VDH is that he is not only a professor, but a farmer. He and his brother run a California raisin farm that has been in the family for 4 generations. So his great store of academic learning is balanced by the fact that he is familiar with the ordinary, down-to-earth concerns of farming folk.

    The difference between military spending and spending on social programs is that I see defense spending as a legitimate function of the federal government. Obamacare is another matter entirely. I certainly think provision should be made for those unable to obtain healthcare for themselves. I don’t believe the federal government should be in the business of providing it for all of us, whether we want it or not.

Fiscal Health Care Reform: The Publics Option

Friday, December 11, AD 2009

Nancy Pelosi, Harry Reid, and Barack Obama continue to spend, spend, spend away money we don’t have.  With the public option now firmly established in the current Senate version of the health care bill, Election 2010 comes to mind.

Kick the bums out.

I love democracy.

(Biretta Tip: Glenn Foden of NewsBusters)

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13 Responses to Fiscal Health Care Reform: The Publics Option

  • Give me an alternative to Republicans, and I’ll happily comply. Let’s not forget that the borrow-and-spend mantra was begun by Mr Reagan, and continued by both Bushes, especially the last one.

    Lucky thing for the GOP that in our political system, you might be in last place, but you’re never more than one election from ascendancy.

  • Borrow and spend began with Reagan Todd only if Reagan’s name is spelled Franklin Delano Roosevelt. Roosevelt’s Depression deficits, not including World War II, peaked at 5.4% of gdp. Obama’s deficit this year was 7.2% gdp. During Reagan and the first Bush the deficits averaged 4.3% gdp. Both parties have done a lousy job since the onset of the Great Depression of balancing tax receipts and spending, with the exception of Eisenhower and for a few of the Clinton years due to the bubble, and we are all going to be paying a high price for this for a very, very long time.

  • Running a deficit during a war of national mobilization, a banking crisis, or an economic depression is not unreasonable. During nearly all of Mr. Roosevelt’s tenure, the country was either producing below capacity (and had latent unemployment of such a level that public expenditure might actually be ‘stimulating’) or engaged in a war global in scope. Please note, the Roosevelt Administration did make a serious attempt to balance the federal budget in 1937.

    What has been troublesome has been the inability (since 1960) of the political class to balance the federal budget over the course of any one of the seven business cycles which have run their course since that time. We have had a few balanced budgets near business cycle peaks.

    It is not that difficult to manage. You have to fix your expenditure stream at where your revenue stream would be if the economy were producing at mean capacity. They do not do it because they just don’t feel like it.

  • Let’s not forget that the borrow-and-spend mantra was begun by Mr Reagan, and continued by both Bushes, especially the last one.

    Todd, you are of an age to recall that during a period of economic expansion lasting ten years and featuring improvements in real domestic product a mean of 4% per annum, the administration and Congress balanced the budget just once. Name the political party which had majorities in the upper and lower chamber of Congress during that entire period, and held the presidency for eight of those ten years.

  • When was the last time anyone heard of Congress raising our debt limit to aproximately 2 Trillion dollars. With our debt cost apprroaching 50% of our national income, and the new health bill
    and more stimulus spending to come..some thoughs..the
    government takes money from someone, it has none of its own, and giving money to others has to come from those who work for a living. When those who work for a living realize that if they didn’t and then the government would care for them, then what is their incentive to work and that is the begining of any nation to fail..the fact is that you can not mutiple wealth by spending it and dividing it.

  • I should have added that Medicare’s chief actuary states that Medicare under the proposed bill would spend 35.8 Trillion from 2010 to 2019. Wonder where the money is going to come from?

  • “Name the political party …”

    I would love to see national politics turned on its head, and some degree of sanity restored to foreign and economic policies.

    That either major party will effect that change is a vain hope. Given an alternative to an incompetent, lawless GOP, I’d prefer to hold my nose and take my chances with the current status quo. If nothing else, seeing the Republicans whine in defeat is more entertaining than the alternative.

    Seriously, I do think 2010 and 2012 will be an outlet for much anger if the job market doesn’t perk up. The feds borrowing money isn’t news; it’s been SOP for the last three decades. But unemployment is a crusher right now. The federal deficit? That’s just a useful tool for partisans. As of right now, it still means nothing, and either party is as much to blame as the other.

    Now let’s get back to Obama’s one-child policy.

  • I do not think it will be all that amusing if the U.S. Treasury suffers a failed bond sale. When the ratio of public debt to domestic product comes to exceed 0.9, the willingness of participants in the bond market to buy your scraps of paper diminishes considerably. And that won’t mean ‘nothing’.

    Quite a number of us have had occasion to assess what causes you to hold your nose.

  • Excellent research, Art. With the change in topic to Catholics behaving badly, I’ll accept your concession on my point that major party politics are bad news for economic good sense. I’m really curious about one point. Stocks are up forty-some percent and the Christmas bonuses for bankers are rolling through the economy. Just what is it that the GOP would have done differently? Mr Bush and the Fed starting the bailout to the tune of a third of a trillion last Fall. Would Mr McCain have ended all that?

    Now can we please get back to the secret Muslim/socialist takeover?

  • Stocks are up forty-some percent and the Christmas bonuses for bankers are rolling through the economy. Just what is it that the GOP would have done differently?

    I am not making any concessions, Todd.

    Counter-factual speculation is usually idle.

    Barney Frank was one of the obstacles to implementing debt-for-equity swaps to recapitalize the bulge bracket banks and in general casino bankers like Robert Rubin have more intimate relations with the elites of the Democratic Party; however, it is true that debt-for-equity swaps for these institutions and for Fannie Mae and Freddie Mac were also rejected for obscure reasons by Mr. Paulson and his camarilla.

    I have a suspicion a Republican Congress and Administration would have told the United Auto Workers to pound sand. They’d have had to accept a pre-packaged legislated re-organization or the corporations would have had to trudge through the standard proceedings of the U.S. Bankruptcy Court, not to mention the ministrations of the Pension Benefit Guaranty Corporation. It would have been a good deal less sweet for General Motors’ legatees.

    As for the stimulus, by what accounts have appeared in the newspapers, it appears to have been an omnibus of programs Democratic members of Congress have had on their wish lists for some years. A Republican Congress and Administration would likely have preferred a legislated tax cut.

    There is quite a bit of dispute between economists as to the actual value of the multipliers associated with public expenditure in these circumstances, which is to say a dispute about the degree to which public spending crowds out private spending (one macroeconomist who has written on the subject has said recently that crowding out vitiates the effect of public spending so long as unemployment rates are below 12%). A suspension of payroll tax collections could have been implemented rapidly and would have dispensed a disproportionate share of its largesse to the segment of the population with the highest propensity to consumption, thus having the most impact toward the goal of maintaining aggregate demand. There was the anxiety that the demand for real balances was so intense last year that such would simply be added to people’s stock of cash reserves. The results of monetary policy innovation since then indicate that that concern was misplaced. I do not think the Republican caucus would have favored a payroll tax cut over an income tax cut.

    I think the Republicans, given a free hand, might have put the kibosh on scheduled increases in the minimum wage. The labor market would be in less parlous condition for a’ that.

    The Republicans likely would not have pissed away valuable time on a tar baby like Mr. Obama’s medical insurance proposal.

    I have no clue about what sort of mortgage modification plan might have been drawn up by a Republican Administration.

    So, we did not get debt-for-equity swaps, we got fleeced by the United Auto Workers, the Democratic Party got to do $787 bn in favors for their friends, we priced a good many low wage workers out of the market, we were saddled with a means-tested mortgage modification program that encouraged people to restrict their earnings, and we have had no action as yet on a revised architecture for the banking system or a general plan for working out underwater mortgages because Congress has wasted so much time debating a non-acute problem. It is possible that a Republican Congress and Administration could have done a worse job. It is also possible that I am Marie of Roumania.

  • “It is possible that a Republican Congress and Administration could have done a worse job. It is also possible that I am Marie of Roumania.”

    Ouch! Give it up Todd! You are batting way out of your league with Art. (When it comes to economics, so would I if I tangled with Art!)

  • No, president is can solve these problems. There is more going on behind the scene that we can’t see. Why don’t movie stars like Oprah and Jolie and many other people in the US try to help but stand and watch our country go down and stand before the camera with six kids from all around the world. Im sorry Oprah im black and I may just have to mail her. Why do people from out of the country get free education but not homeless vets? Or just homeless people?. And Obama is making it worse sending troops because he just gonna piss off those people and that’s the last thing we need here in America along with a race war. America is fake, why would anyone believe any presedent. Denmark, France are happy countries with healthcare but they pay a lot in taxes, not many people want to do that in America. America is not use to change. Change is easier for an eastern countries philosophy speaking.

  • “I am not making any concessions, Todd.”

    Then on the next thread we find ourselves conversing, I suggest you stick to your expertise, as Donald terms it, and set aside the desperate historical research.

Spending Spree

Tuesday, September 8, AD 2009

Broke Uncle Sam


Hattip to Instapundit.  John Steele Gordon has a first rate article here detailing how we landed in the debt morass our nation is now bogged down in.    His last sentence is a completely accurate assessment of our options: ” Only necessity will force Congress to control long-term spending on its own.  And unless the body politic forces the needed changes, that necessity in the form of overwhelming debt is inescapable.”

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Concord Coalition: 14.4 Trillion Dollar Deficit

Friday, August 28, AD 2009

14.4 trillion

In this earlier post I reported that the Obama administration is predicting a 9 trillion dollar deficit over the next ten years.  Now, the non-partisan Concord Coalition is predicting here a 14. 4 trillion dollar deficit over the next 10 years.

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Remember that 7 trillion deficit? Make that 9 trillion.

Friday, August 21, AD 2009

Obama Ink

As Obama goes on vacation, the Administration saw fit late Friday afternoon to release the news that the projected deficit was going up over the next ten years from 7 trillion to 9 trillion.  No doubt the Congressional Budget Office will have even more dire numbers, as the administration has consistently put the best face on the increasingly dire deficit numbers.  As I have constantly warned on this blog, our economy is about to hit a debt wall that will lead to a horrendous economy for years to come.  Fiscal lunacy, simple fiscal lunacy.  Some of my prior posts on the process by which we are careening towards national bankruptcy are below.

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9 Responses to Remember that 7 trillion deficit? Make that 9 trillion.

  • Banking crises are expensive to resolve. S.H. Hanke last fall noted that resolution of recent crises had resulted in public sector commitments ranging in size from a sum equal to 16% of annual domestic product (Korea) to a sum equal to 52% of domestic product (Argentina). Please note that by 1940 the ratio of public debt to annual domestic product was 0.52 and by 1945 it was 1.19. The difference is that we had large pools of accessible private savings in 1945. We also had as President Harry Truman, who may have been more devoted to fiscal balance than anyone who has occupied the office since 1933, and he in 1945-47 faced a Republican Congress led by men of late Victorian upbringing. We have been in worse shape before; regrettably for us, both the populace and the political class were once of a higher calibre.

  • As much of an admirer of Truman as we might be, Bill Clinton was probably more devoted to fiscal balance, considering the mess he inherited from Reagan-Bush, and what he was able to accomplish, thanks largely to a peaceful decade after Gulf War I.

    It’s cute how the deficit is packaged, regardless of the party in control. Try asking someone, “How much do we owe, and what will the payments be?” Lots of people can answer the first about their house or car. Very few the latter question. Try asking either populace or the political class (oxymoron?) the question on the fed budget.

  • “As much of an admirer of Truman as we might be, Bill Clinton was probably more devoted to fiscal balance, considering the mess he inherited from Reagan-Bush, and what he was able to accomplish, thanks largely to a peaceful decade after Gulf War I.”

    Well Todd you got one point right. Clinton came in after the Cold War and he ignored the rising jihadist threat and thus there were no wars on his watch. He was basically a typical spend through the roof Democrat, but he was saved from his own instincts by the GOP taking control of Congress in 1994, largely due to his botched attempt to saddle the country with ClintonCare. Plus the tech bubble generated ever-increasing amounts of revenue throughout the 90s. Bubba had better fiscal fortune than any president since Calvin Coolidge.

  • Here is good article from 98 on Bill Clinton and the budget:

  • Todd,

    Deficits as a ratio of domestic product were abnormally large in the years running from 1981-93. The tax cut legislation implemented in 1981-84 is partially responsible for this, as was the recession in 1981-82, as was the increase in military expenditure implemented from 1979-85. The Democratic Party had control of Congress for half that time, however, and was never without organizational leverage through control of the House Budget and Appropriations Committees through the whole twelve years. Both the administration and Congress agreed on proportionate reductions in military expenditure and tax increases after 1988. That, the antagonism of the Republican Congress after 1994, and eight years of unchecked economic growth allowed the deficit to be extinguished in 1999. The previous surplus budget was in the fiscal year concluding in 1969, also at the close of a period of unchecked and abnormally high economic growth.

    It is forgotten that Pres. Truman and Congress faced in 1945-47 the most difficult economic situation of any which arose during the period running from 1938 to 2008. Output was declining at a rate of 10% per year in 1946 and the Army and Navy disgorged some 9 million men as the country demobilized. If I am not mistaken, the nominal value of the outstanding public debt actually declined during Truman’s eight years in office, something it has not done since.

  • …President Harry Truman, who may have been more devoted to fiscal balance than anyone who has occupied the office since 1933…


  • What this tells me is that we can expect inflation in a big way. Good grief. Can you even imagine a number like 9 Trillion and the taxes that will be levied to meet it. Not only that but the government never gets their numbers right. I’m looking to secure what money I have in things that will hold value. This morning I’m looking at gold and silver spot prices with the widget and thinking that I might very well see a buying opportunity shortly. Of course I can’t help but wonder if this admin is capable of what FDR did by confiscating gold and making it illegal to own back in his presidency.

    The fact that our government continues to refuse to give numbers and access to those numbers by it’s citizens on the gold reserves our nation holds is my opinion is telling me we may see the precious metals move in a big way in the coming year.

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Government Funded Health Care Open Thread

Friday, July 24, AD 2009

In light of Zach’s stellar posting which generated over 240 comments ranging from anarchism to Oscar Romero and which inspired a posting by Michael Denton.  These comments, although informative to a certain extent, may have detracted from the original intent of the posting.  Henceforth in regards to said activities being done on Zach’s posting concerning Representative Chris Smith, I am starting a new tradition here at American Catholic, the open thread.

So feel free to comment to your hearts delight that isn’t related to any other postings on this website.

The comments policy is still in place so don’t forget to treat each other as brothers and sisters in Christ.


Marxist Health Care

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12 Responses to Government Funded Health Care Open Thread

  • I do not oppose a health care bill that extends coverage beyond the narrow concerns protected under Medicaid, Medicare, and SSI. I object to bloated bills that have not been read. I object to rushing to publish a bill, any bill, for purely political reasons. I object to “stealth” measures to hide within larger bills truly controversial legislation like FOCA. I object to the blackmail that this process creates, diminishing debate and deliberation to little more than key points, without the detail necessary to analyze the effects. Most of all, I object to a President, ANY President, telling the legislature what kind of legislation to pass, what it should do and say, and when it shall be completed. This is bullying and strikes as the core of the Separation of Powers.

    In the instant debate, I am THRILLED to see this rush to cobble together a bill delayed. Now, maybe, we can come up with something that specifically addresses the issues as hand without delving into issues that should be addressed as separate bills.

  • G-Veg,

    I agree to most of your points except the need for government run health care. Which both violates subsidiarity and distributism.

  • I forget who pointed out. Appropos of your cartoon, it appears the right has an unhealthy obsession with anal penetration, specifically anal rape.

  • M.Z.,

    What gnostic class can I take to follow your line of thinking?

  • Tito,

    I love you, man, but you are better than a post with that cartoon as its header.

  • Frankly, the cartoon was a lot more innocuous than M.Z.’s rather inflammatory response to it.

  • Why does it violate subsidiarity?

  • The principle of subsidiarity is that matters should be handled at the most local level as possible and if it cannot adequately at that level be taken care of, it can move up to the next point. The problem is, I think most Democrats will argue, is that the states do not have the resources to address the matter sufficiently because it is fixing a regional problem within a intricately more complicated problem. So, I don’t think one can simply say it violates subsidiarity as if that is some obvious objective fact that cannot, rightly or wrongly, be disputed.

    All Democratic proposals aside. I have read criticism after criticism, but I have read very little by way of solutions to the problem. I have seen what I think are credible starting-points amending parts of the system, but nothing comprehensively to address the whole of health care in America, while restraining the government. If this were really a serious problem, I’d almost expect a solution. The closest thing I’ve seen is the Patients Choice Act which has earned about every stripe of Republican criticism and has incorporated by and large waves of Democratic ideas.

    I think the *structure* of the health care markets is deeply flawed and I don’t see them re-structuring unless it is via the legislative process. I’m sure we won’t agree on details. But it seems opposition to Democratic health care proposals almost always opposition (indirectly) to reform, which ends up not happening — to the total chagrin of the people who need it the most.

  • Eric,

    Were the Federal Government to provide a straightforward and unrestricted subsidy to state, county, and municipal government determined according to a formula taking into account population and per capita income, the principal structural impediment to state authorities acting as medical insurers would be removed. Why not leave general income redistribution, macroeconomic stabilization (e.g. unemployment compensation), and public works implicated in moving people and goods across state lines to the center and other services to the periphery?

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  • Eric,
    I have read very little by way of solutions to the problem.

    have you checked out the Republican proposals? John McCain’s policy is a great starting point. I believe it’s the brainchild of an actual physician.

    Here’s the key points without getting into the nitty gritty:

    1. Tort Reform – liability insurance and payouts for exorbitant claims account for 20% of healthcare costs.

    2. Equal Access – eliminate preferential tax treatment of employer sponsored plans vs. private plans. Accomplished by eliminating the employer’s deduction, and giving a tax credit to all Americans with which to purchase health care as they see fit.

    3. Open Market – allow individuals and employers to purchase any plan authorized by any state.

    4. Encourage Health savings and catastrophic INSURANCE coverage instead of pre-paid health care.

    These actions will drive down the cost of health care while maintaining the motivators for continued advancement and excellence.

    Now, you can never again say haven’t heard any alternatives.

"Federal Budget on an Unsustainable Path"

Friday, July 17, AD 2009

Federal Debt Projections

As regular readers of this blog know, I have been sounding the tocsin regarding government spending since the Bailout Swindle of 2008.  Here is one of my posts in which I list other posts I have written on the subject.

Yesterday the Director of the Congressional Budget Office had a chilling post on his blog which you may view here.  He states in part:

“Under current law, the federal budget is on an unsustainable path, because federal debt will continue to grow much faster than the economy over the long run. Although great uncertainty surrounds long-term fiscal projections, rising costs for health care and the aging of the population will cause federal spending to increase rapidly under any plausible scenario for current law. Unless revenues increase just as rapidly, the rise in spending will produce growing budget deficits. Large budget deficits would reduce national saving, leading to more borrowing from abroad and less domestic investment, which in turn would depress economic growth in the United States. Over time, accumulating debt would cause substantial harm to the economy. The following chart shows our projection of federal debt relative to GDP under the two scenarios we modeled.” 

His chart is at the top of this post.

Keeping deficits and debt from reaching these levels would require increasing revenues significantly as a share of GDP, decreasing projected spending sharply, or some combination of the two.

He concludes on this somber note:

The current recession and policy responses have little effect on long-term projections of noninterest spending and revenues. But CBO estimates that in fiscal years 2009 and 2010, the federal government will record its largest budget deficits as a share of GDP since shortly after World War II. As a result of those deficits, federal debt held by the public will soar from 41 percent of GDP at the end of fiscal year 2008 to 60 percent at the end of fiscal year 2010. This higher debt results in permanently higher spending to pay interest on that debt. Federal interest payments already amount to more than 1 percent of GDP; unless current law changes, that share would rise to 2.5 percent by 2020.

This is fiscal madness.  We have the wealth and the ability to solve this problem by spending cuts, and minor tax increases if, and only if, combined with meaningful and deep spending cuts.  What we lack is the political will.  We are destroying the future prosperity of our kids because of current political cowardice, folly and inertia.

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17 Responses to "Federal Budget on an Unsustainable Path"

  • I read something about this last week. The CBO predicted that our national debt would equal 82% of our GDP by 2019 and insisted that the U.S. could not continue course as is with its fiscal policies.

    I think the solution to this problem is complex. But first is going to require a second glance at the way our government functions.

    I think our Congressman who work only 130-190 days out of the year max — currently making north of $170,000 — is pretty much ludicrous. I, say, lower their salaries to something more reasonable (since it is tax-payer funded) and in fact, every time, we run a budget deficit in a fiscal year, have an automatic 15% pay cut and let this happen continuously until they get things in order.

    I also don’t think Congress should be taking vacations and trips at the rate they are, on tax-payer expense. Allegedly, a U.S. Senator took his family on a vacation for four days that cost $22,000 roughly on the tax-payer’s tab. I see no reason as to why making a six-figure salary cannot pay for his own family vacation when it is expected that the ordinary American citizen making much less is expected to do the same.

    At the more obvious level, I think there should be constant renewal and evaluation of social programs. More than likely, many social programs need massive reform or need to be disbanded all together. Whereas others, I think, largely can be consolidated or passed off to state levels.

    The most obvious problem is our spending habits and our spending priorities. I think we’re funneling money to a number of things not worth the dollar.

    In terms of government revenue to deal with the problem that’s a debate over taxes and borrowing, of which, I’m sure we can all agree on the latter — don’t borrow so much money that we’ll never be able to pay it off for over a century. And, of course, the question of revenue is intimately tied up to the question of spending habits.

    We’re on a crash course…

  • Nothing like a little bit of history.
    After the Revolution in France, the country was running short of money. So the government kept printing it. So much so that the floor holding the currency collapsed.
    What we are doing is like the farmer whose up-to-date grandson persuaded him to take the gold out of his mattress and put in the bank, using checks to draw on the money.
    Came the day when the grandson told his grandfather he had run out of money. “You need money? I’ll write you a check”.
    The Chinese government does not have to invade the U.S. It has just to present the Treasury Bills.

  • This problem cuts across ideological lines. The CBO is mostly right. By now everyone should know the major culprits and the solutions, but no one wants to accept the political suicide they represent: cutting and/or delaying entitlement benefits while increasing payroll taxes, and cutting the defense budget. Other tax increases need to be on the table, although there is a ton of room for discussion about what form(s) they would take. There’s no other way around this one.

  • Donald still won’t answer the question – how much of the fiscal deterioration is due to economic factors and automatic stabilizers, to the effects of Bush-era discretionary policy (tax cuts and Iraq, both far bigger in magnitude than the stimulus), and to the Obama stimulus? If you actually run the numbers, you will see that the latter is small scale. Bottom line: the deficit a percent of GDP is highest in 60 years because the recession is the worst in 60 years. Which begs a question: are you proposing procyclical policies in the midst of a recession?

  • Why does it matter how much of the deficit is “Bush’s fault” versus how much is “Obama’s fault”? Are the effects of the deficit different depending on the party of the person responsible for them?

  • To MM it matters, apparently. Why stop at Bush? Why not go back to Reagan while you’re at it, MM? And then maybe you can go all the way back to FDR who took the greatest liberties with the Constitution and began the project of expanding the federal government into the Leviathan it is today. And maybe along the way back here you can stop at JFK and LBJ. Don’t just pretend that our fiscal situation is the sudden product of the last Republican president.

  • Actually, j.christian, it is first and foremost the result of the recession, and second that of the Bush administration. Taking 1999 as a starting point (you can go back to Reagan if you like, but that won’t do you any favors) and you get: economy 37 percent, Bush policies 33 percent, Bush policies that Obama kept 11 percent, and new Obama policies 10 percent.

    You can fault Obama with not doing anything to stop the fiscal deterioration, but not really for building it up. But is it wise to engage in procylical fiscal tightening during a recession? I can’t think of a reputable economist who would say so.

  • As I recall, there were a fair number of economists signing letters saying that blowing a trillion dollars or so on a random spending wish list and calling it “stimulus” was not a good idea. (Others, of course, thought it was swell — including you.) That significant portions of the deficit result from carried over Bush policies or from the economy does not indicate that Obama’s wild spending spree is therefore okay or responsible. Especially as he seems intend on digging further before he’s done.

    That there were no wonderful options for those serious about fiscal responsibility in the last few elections certainly does not change the fact that Obama has had an absolutely terrible first year in office from a fiscal perspective, and shows every sign of getting worse.

  • Tony, Obama has taken a budget on fire and dumped gasoline on it. Judging from his tanking numbers the entire country is beginning to understand this and to react to it. The days of blaming Bush for the budget are at an end as a political tactic with any utility for supporters of Obama. This situation needs to be addressed now and if the Democrats are perceived as not only not doing anything to solve this budget nightmare, but actively making the problem much worse, your party will be in the political wilderness for a generation. Tony, if I were you instead of spending time making futile “so’s your old man” defenses of Obama, I would be contacting anyone I knew with any heft in the Democrat party and telling them electoral disaster looms unless they act to address this budgetary meltdown now.

  • MM does not site a source for his pie chart. Just out of curiousity, does the refusal to implement debt-for-equity swaps to recapitalise Fannie Mae, Freddie Mac, and the megabanks count as a Bush policy, an Obama policy, or a Bush policy retained by Obama? To which administration do you attribute Mr. Geithner’s handiwork, if that is what it can be called? (He is a discretionary terminable-at-will appointee of the Obama Administration; he was not before).

  • MM, that pie chart “analysis” is laughable. So Obama inherits policies and Bush doesn’t? Attribute everything new since 1999 to the *deficit* and none of it to the structural budget, eh? Because we didn’t need any of it, of course. And only a Republican would’ve, say, created a DHS in response to 9/11. Yeah, right.

    I think a better “analysis” would be to blame Teddy Roosevelt for the deficit. After all, the forerunner to the Commerce Dept. started under his administration, and I don’t think we need it, so let’s say 100% of its budget counts against the deficit.

    See how we can play that game endlessly?

  • get back to me when you guys learn some basic economics. start with the definition of automatic stabilizer. it’s crap like this that makes me question the very notion of democracy, and the universal franchise!

  • MM,

    I have a graduate degree in economics. How about you?

    I understand perfectly well what the cyclical component of the budget deficit is! And you’re not understanding that the very size of the federal budget is never questioned in your analysis.

  • Tony, I suspect your disenchantment with democracy and the universal franchise will only widen after 2010. You do not want to do anything about the budget meltdown because all of your most cherished political goals require a vast incease in federal spending and the size of the federal government, the impact on the economy be hanged. Most Americans, you know, those people whose company you avoid, disagree with you.

  • When all else fails, throw rocks!

  • A hint. Never admit to having studied economics. It is not the dismal science. It is not a science at all but a political program.

    Why is it that women are better at economics than men? Which is to say at running a household? Likewise at investments?

  • “What we lack is the political will. We are destroying the future prosperity of our kids because of current political cowardice, folly and inertia”.

    Sounds like our Catholic bishops. What was the reading yesterday from Jeremiah about neglectful shepherds?

8 Responses to California R.I.P.

You Mean Running Up Trillions in New Debt May Not Be Good Politics?

Tuesday, June 16, AD 2009

Obama Broke

The Washington Post reported Sunday here, hattip to Instapundit, that the White House is getting nervous about the political fallout from the unprecedented spend-and-borrow binge upon which  Obama has placed the country.

“Results from a Gallup survey released last week show that although more than six in 10 Americans approve of Obama’s overall job performance, fewer than half say they approve of how he is handling the deficit and controlling federal spending. The poll also shows a decline from the previous month in the percentage of Americans who approve of Obama’s handling of the economy, although a majority still does.”

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15 Responses to You Mean Running Up Trillions in New Debt May Not Be Good Politics?

  • There you go again. Donald, do you understand the difference between a cyclical and a structural deficit? Are you aware that the vast majority of the increase in the deficit right now is cyclical?

    Let me ask you: how much of the fiscal turnarond since the last surplus is due to Obama’s discretionary spending? I’m talking from 2001 to 2012, so it captures the medium-term fiscal plans of the Obama administration. Well, 37 percent is the business cycle. 33 percent is discretionary policy under Bush – chiefly tax cuts and war spending. 11 percent comes from the continuing cost of Bush era programs that Obama has kept up (there’s your war again). Obama’s stimulus bill accounts for only 7 percent, and his proposed spending health, education, and energy account for a another 3 percent. []

    As fiscal expert (and hawk) Alan Auerbach notes, the worst charge you can levy against Obama is that he is not making a concerted effort to fix the sustainability problems left by the Bush administration.

    And these numbers may actually over-estimate the impact of Obama on the budget. As TNR’s Jonathan Chait points out, the Center on Budget and Policy Priorities crunched the numbers, and found that Obama’s budget would reduce the budget by $900 billion over ten years compared with keeping current policies in place []

    But you are right about one thing, Donald– Obama is getting blamed for this because people like you (and I include most political pundits here) simply do not understand the basic fiscal math.

  • Tony, your frantic efforts to provide cover for the completely insane spending policies of the Obama administration indicates to me that the Left in this country will soon be in full melt-down mode by the Fall as the country fully awakens to the disaster of the course on which Obama has embarked the nation. As Robert Samuelson has noted:

    “Let’s see. From 2010 to 2019, Obama projects annual deficits totaling $7.1 trillion; that’s atop the $1.8 trillion deficit for 2009. By 2019, the ratio of publicly held federal debt to gross domestic product (GDP, or the economy) would reach 70 percent, up from 41 percent in 2008. That would be the highest since 1950 (80 percent). The Congressional Budget Office, using less optimistic economic forecasts, raises these estimates. The 2010-19 deficits would total $9.3 trillion; the debt-to-GDP ratio in 2019 would be 82 percent.

    But wait: Even these totals may be understated. By various estimates, Obama’s health plan might cost $1.2 trillion over a decade; Obama has budgeted only $635 billion. Next, the huge deficits occur despite a pronounced squeeze of defense spending. From 2008 to 2019, total federal spending would rise 75 percent, but defense spending would increase only 17 percent. Unless foreign threats recede, military spending and deficits might both grow.

    Except from crabby Republicans, these astonishing numbers have received little attention — a tribute to Obama’s Zen-like capacity to discourage serious criticism. Everyone’s fixated on the present economic crisis, which explains and justifies big deficits (lost revenue, anti-recession spending) for a few years. Hardly anyone notes that huge deficits continue indefinitely.”

    Contrary to your final statement, people are beginning to understand the basic fiscal math. That is Obama’s problem and yours.

  • the Center on Budget and Policy Priorities crunched the numbers

    That is a small advocacy group which is an auxilliary of the Democratic Congressional Caucus. Their number should not be cited as authoritative.

  • Donald,

    Answer this question: how much of the increase in the deficit over these years is caused by (i) the economy; (ii) the inherited legacy of the Bush years (tax cuts, war, medicare part D); (iii) new policies of the Obama administration? Tell me.

    There’s something else. One reason why the deficit look so high going out is that Obama has gotten rid of all the fiscal gimmicry that made the deficit look artificially low under Bush.

    Here’s Chait: “In recent years, Congress and the president have relied on a series of budget gimmicks to mask the size of the deficit. For instance, they would assume that certain tax breaks would expire starting a year in the future, but routinely extend them a year at a time. According to the Congressional Budget Office’s numbers, Obama’s budget–compared to continuing current policies–would make the deficit $900 billion lower over the next decade.”

    Another issue — you do understand that high deficits does not mean unsustainable deficits, right?

  • Tony, the matterhorn of new debt is all a deliberate policy choice of Obama and all completely unnecessary. He could still attempt to change course. A good start would be to repeal the stimulus package.

  • According to the Congressional Budget Office’s numbers, Obama’s budget–compared to continuing current policies–would make the deficit $900 billion lower over the next decade.”

    So the gimmick-ditching explains $90bn per year. And the rest?

    The stimulus wouldn’t have been remotely as bad had more than 20% of it actually been devoted to infrastructure improvements. Instead, it was an election lottery splurge.

  • IT is a scandal. THe real scandal is that both Republicans democrats did not heed Bush’s call to so something about Social Security. I think it is the height of folly not to take care of that first.

    What is driving the future deficts is not really Bush Spending that in many ways were a samll structural deficit. And it is not Medicare D. It is going to to be the other parts of medicare and such.

    Heck balming anyone for that is ort of silly unless we want to blame Johnson.

  • Not to fear, Obama’s soon to be on Rushmore. (Okay, at least near there.) So all is well.

  • Answer this question: how much of the increase in the deficit over these years is caused by (i) the economy; (ii) the inherited legacy of the Bush years (tax cuts, war, medicare part D); (iii) new policies of the Obama administration? Tell me.

    You may be correct on the factual point. The trouble with your discussion is that the numbers your citing are derived from projections for which the methodology employed is very much a black box. Jonathan Chait is an opinion journalist making use of the product of the Center on Budget and Policy Priorities. The Center on Budget and Policy Priorities appears to have bulked up considerably in the last 25 years (I believe they once employed about 15 people) and unlike other such agencies (e.g. The Century Foundation) does generally employ properly credentialed individuals. Have a look at their site. I think you will look in vain for a refereed academic paper or for a working paper composed in a similar format and idiom. It is a cottage manufactory of press releases and Congressional testimony. Most of their fellows have been recruited from the Democratic legislative staff either of the U.S. Congress or of one or another state legislature. Others were hired off the research staffs of public employee unions. Asking these characters who is responsible for what is very much like asking Democratic members of Congress. That does not mean that they are wrong; however, consulting this source is not an optimal use of your time (or Mr. McClarey’s).

    One problem he only alludes to tangentially and you do not allude to has been the determination of Mr. Geithner (and Mr. Paulson, and various other rogues) to socialize as much as possible the cost of righting the banking system and to effect industrial restructurings so as to serve the interests of Democratic constituency groups. The higher the ratio of public debt to domestic product the more we are in danger of a currency crisis. Given that the propensity to public expenditure tends to explode during banking crises, it is simply awful timing to be attempting to effect what will without a doubt be a notable increase in the baseline of economic activity accounted for by the government’s purchase of goods and services. However, in Washington, in Albany, and in Sacramento, our politicians seem incapable of putting aside for even eighteen months their rancid ambitions and crappy little games to address a national crisis. Joseph Nocera is right, “worst political class, ever”.

  • THe real scandal is that both Republicans democrats did not heed Bush’s call to so something about Social Security.

    Adjusting tax rates, benefit levels, and the retirement age will right Social Security. It is not that difficult; it is that they are too irresponsible and poltroonish to do it.

    More salient, given our current circumstances, is the failure of Congress to heed the recommendations of Gregory Mankiw (the Chairman of Mr. Bush’s Council of Economic Advisors) to address the dodgy accounting practices and undercapitalization of Fannie Mae and Freddie Mac. The individual most responsible for this resistance was Barney Frank.

  • A number of points:

    * There is indeed a long-term fiscal sustainbility problem, but it has nothing to do with social secuity. The beltway talking heads just don’t get this — social security is fine, nearly all of the sustainablity comes from medicare.

    * Medicare is unsustainable because of escalating costs. See Peter Orczag’s editorical in today’s Financial Times. But here’s the rub: medicare costs are out of control because healthcare costs in general are out of control. In fact, medicare does a better than of keeping costs down than its private alternatives, but it’s still not enough. A great fallacy here is that because it’s on the government balance sheet, the sky is falling, but when it’s on the household balance sheet, we don’t have to worry about it. Much of the reason for stagnating median wages is the huge rise in healthcare costs – workers are sacrificing wages for this. So this has nothing to do with Johnson and medicare specifically, it has to do with costs.

    * Yes, the governance problems that led to the undercapitalization of the GSEs was a problem, but it had nothing to do with the financial crisis, which erupted in the private securitization markets. That’s where the vast majority of the credit losses lie, and for a very good reason — subprime loans (those things that triggered the crisis) were nearly all in the private sector.

    * I actually don’t know much about the Center on Budget and Policy Priorities, but their analysis certainly raises no red flags. And if you don’t believe them, then you are at the baase-case scenario whereby Obama contributyed about 10 percent of the deficit, instead of actually reducing it on net. Jon Chait tried to delve into the differing methodologies – it’s all rather technical– one big issue is whetther the tax credits that get renewed pretty much every year, long before Obama, should get pinned on Obama.

  • Yes, the governance problems that led to the undercapitalization of the GSEs was a problem, but it had nothing to do with the financial crisis, which erupted in the private securitization markets. That’s where the vast majority of the credit losses lie, and for a very good reason — subprime loans (those things that triggered the crisis) were nearly all in the private sector.

    Rubbish. The mortgage portfolios of Fannie and Freddie constituted half of the secondary mortgage market and their bond issues constituted about two-thirds of all securitized receivables. The threat to the solvency of institutions comes not merely from subprime and alt-A loans (16% of the total) but from the prime loans of borrowers under water and out of work. It was not until August of 2008 that the national economy began to contract and a disagreeable condition in credit markets turned into a crisis precisely at the time a conservatorship had to be imposed on Fannie and Freddie. A trillion dollars worth of illiquid Fannie and Freddie issues are on the books of depository institutions in this country, and a trillion dollars worth of Fannie and Freddie issues were sold abroad, much of it ending up in the portfolios of sovereign wealth funds in the Far East. It is Fannie and Freddie issues that will (alas) be added to the national debt. It is Fannie and Freddie’s deficits that are being financed to the tune of tens of billions of dollars every quarter.

    Once more with feeling: it is a suboptimal use of your time to consult the work product of the Center on Budget and Policy Priorities, whether you believe them or not. There is so much literature out there from more credible venues, though it might not be sufficiently topical for your purposes. I cannot figure how Jonathan Chait is supposed to produce a ‘rather technical’ discussion when his source is not producing much in the way of technical discussions.

  • Much of the reason for stagnating median wages is the huge rise in healthcare costs – workers are sacrificing wages for this. So this has nothing to do with Johnson and medicare specifically, it has to do with costs.

    You mean the escalation of costs has nothing to do with the socialization of costs. Okey doke.

  • Art Deco — I’m sorry, but your analysis of the subprime crisis could not be more off. The GSEs had a major balance sheet expansion in the 1990s, but this had largely stopped during the “subprime years” of 2004-07. If you look at data from the Fed:

    More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.

    Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.

    Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that’s being lambasted by conservative critics.


    During those years, it was the private investment banks gobbling up securitzied subprime loans, not the GSEs — the GSEs held only a quarter of subprime loans sold on the secondary market.

    Another way to look at it is to see where the bodies are buried – the GSEs account for a tiny proportion (certainly less than 10 percent) of estimated credit losses out there.

    Today, of course, it’s a different story — the private securization market is dead, and the GSEs basically are the market.

  • Subprime loans constituted about 8% of all outstanding mortgage debt as of 2007. It has been a modest part of the overall problem.


Friday, June 5, AD 2009

Household Debt

Hattip to Daniel Indiviglio at the Atlantic.  USA Today is reporting that the share of the Federal debt for each American household is $546, 668 with private average debt of 121, 953.  Of course these numbers do not include the average household share of liabilities incurred by states and local levels of government.  Does anyone believe that we will ever climb out of this debt abyss except through the terrible remedies of hyper-inflation or debt repudiation?  As I have often stated on this blog the debt that we are amassing is fiscal lunacy and our economy will soon smash into a brick wall of government debt.

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3 Responses to $668,621

  • It certainly is insanity Don.

    I can’t for the life of me believe that the administration thinks it can create this debt and then unload it 4-8 years later on Obama’s successor to pick up the pieces. A debt of this size I imagine would come to roost within a few years.

    Unless this is exactly what he wants… everyone and everything indebted, thereby creating a nation where the average citizen is completely dependent upon government for his sustenance.

    Bankruptcies in every sector of the economy would be much preferable. This debt load needs to be liquidated with real assets sold off. Monetizing the debt via money creation will carry a real and dreadful hyperinflation.

    This is why I lean in favor of commodity standards in currencies. None of this would be possible if money were pegged to real things. As long as we are on a fiat currency we’ll be stuck in the boom-bust fantasy land.

    If only I had enough fiat money to buy gold!

  • Read the history of Weimar Germany.

  • I think the fellow at USA Today misplaced a decimal point. There are (I think) around 114 million households in the United States. If I am not mistaken, the ratio of the federal public debt (a stock datum) to annual domestic product (a flow datum) stood at 1.19 in 1945. I do not believe it has as yet ever been higher. That would translate to $17 trillion at the present time, or about $150,000 per person.

    One question of interest is the effect of structural surpluses on economic performance over periods of time exceeding one business cycle. Fiscal stimulus through tax rebates, tax cuts, or public expenditure has been a policy tool for containing economic contractions. In said circumstance, you would be speaking of manipulating aggregate demand over a time frame of a year or two. There would certainly be transition costs in making the necessary adjustments in baseline of taxation and expenditure in order to run budget surpluses as a matter of course, but would economic performance thereafter be diminished as against a hypothetical situation where the budget was balanced over the course of the business cycle as against the reality of the last five decades, where we run a deficit nine years out of ten?

    Consider the following parameters: population stasis, complete price stability, and rates of improvement in real income near historical means (about 1.3% per annum). Recall also that the United States government paid off the whole of the national debt during the period running from 1792 to 1835. A commitment to run a budget surplus of 2% of domestic product per annum (2.4% during years of expansion and balanced during recession years) would allow for the liquidation of a debt of 119% of domestic product over that sort of time frame. Of course it would require that our politicians be very different sorts than in fact they are.