The Actual Fiscal Cliff

Wednesday, January 2, AD 2013

 

Well the so-called Fiscal Cliff was avoided through the mechanism that I predicted back in November:

 

What will happen I suspect is that the fiscal cliff will be avoided through taxes increasing on “the rich”, that will produce revenue that amounts to a rounding error in today’s federal budget, with completely illusory spending cuts.  In short, the can will be kicked down the road.  Unfortunately for the nation, the end of the road is almost here.

 

85 Republicans in the House voted for the Fiscal Cliff deal, and 151 voted against it.  The Deal passed courtesy of 172 Democrat votes in the House.

The main  terms of the agreement are as follows:

1.  The Bush tax cuts were made permanent for single filers below 400,000 and married filers below 450,000.

2.  The Alternative Minimum Tax has been permanently fixed by adjusting it for inflation.

(I would note that these portions of the deal should be considered as victories for the GOP.  Permanently extending the Bush tax cuts for 98% of the population takes away from Democrats the opportunity to use this as a stick against Republicans.  The Republicans have fought for a permanent inflation fix to the the Alternative Minimum Tax since it was first proposed in 1969.)

3.  Yet another showdown over mandated spending cuts was set up for two months down the road.

4.  The tax increases on those earning over 400,000 for single filers and 450,000 for married couple will bring in an estimated 35 billion a year.

5.  Capital gains tax will go from 15-20 percent on those earning 400,000 for single filers and 450,000 for married couples.

6.  The Estate Tax goes from 35%-40%.  (The estate tax only applies to estates over five million dollars.)

7.  Factoring in the estate tax increase and the capital gains tax increase estimated additional taxes come to 60 billion a year.  For comparison purposes the deficit last year was 1.2 trillion dollars.

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3 Responses to The Actual Fiscal Cliff

  • Folks,

    I am not trying to change the subject of this post, but I cannot resist asking: how much of the revenue from this fiscal crisis bill, if any, will go into making our country energy independent, thereby relieving us of the burden to get involved in wars of foreign adventurism to secure the steady supply of mineral slime from lands of Islamic fascism?

    We could build hundreds and hundreds of passively safe new nuclear power plants immune to events like Fukushima, Chernobyl and TMI, and use the energy therefrom to produce via either the Fischer–Tropsch process as much liquid hydrocarbon fuels from our abundant coal reserves or, via the silver iodine thermo-chemical process, as much hydrogen from water as we could possibly need for tens of thousands of years.

    Again, I cannot resist. Here is the GEH ESBWR (click on the triangle in the Media Gallery field at the following web link to watch the animation):

    http://www.ge-energy.com/products_and_services/products/nuclear_energy/esbwr_nuclear_reactor.jsp#

    Or the Westinghouse AP-1000 (the animation isn’t as polished, but just click on the triangle beneath the diagram to watch the passive core cooling system in action here):

    http://www.ap1000.westinghousenuclear.com/ap1000_psrs_pccs.html

    And to consume the long lived actinides from the used nuclear fuel (forever making long-term geologic repository a moot point), there’s the GEH PRISM (there’s only a PDF file on this; no really good animation that I have found so far):

    http://www.usnuclearenergy.org/PDF_Library/_GE_Hitachi%20_advanced_Recycling_Center_GNEP.pdf

    Low cost, safe, clean, abundant energy is a key prerequisite to economic prosperity. But what do we do? Tax and spend with no real planning for the future. There will be more wars for natural resources because of our greed. As St. Paul states in 1st Timothy 6:10, “For the love of money is a root of all kinds of evil.”

  • Mac,

    This is an outstanding post.

    Next, we can anticipate a USA credit-rating agency downgrade.

    Uncertainties and risks accompanying today’s stock market euphoria: annually $1,000,000,000,000.00 deficits/more debt, $60,000,000,000.00 more tax receipts. Does nothing to curb spending.

    This doesn’t improve the economic outlook. In couple months they will confront another debt ceiling fiasco – dems focus will be on tax increases: will target deductions, credits and so-called loop-holes. This will be adverse for the economy, cuts consumer spending and cash flows, it will not touch the real crisis: government spending; and likely America will go two months without being able to incur an additional dollar in debt courtesy of the debt ceiling.

    In conclusion, perpetual (Why still needed three years after the recession ended?) fiscal and monetary stimuli are unsafe, unsound, and unsustainable.

  • If I heard it correctly, the bill also enacts $1.5 billion of spending cuts per year, a ratio of 20:1. Republicans had been complaining about a plan that with a 1:5 ratio a few months ago. Nice job negotiating, fellas.

Sixteen Trillion Reasons to Vote Against Obama

Monday, September 10, AD 2012

The national debt is now north of sixteen trillion dollars,  5.4 trillion of the debt having been incurred under President Obama.  Go here to view a real time debt clock.  Our gross national product for this year is estimated to be 15.84 trillion dollars.  Anyone who cannot see the financial precipice that we are at is a blithering idiot, and Obama is counting on his or her vote.

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3 Responses to Sixteen Trillion Reasons to Vote Against Obama

  • And he has plans to raise that number to the crippling point. All his voters will be hung out to dry and he’ll be unavailable, in safety, and still not giving a damn for anyone.

  • Whatever happened to separation of church and state? Why is this piece published by “The American Catholic”? Why not rant against lack
    Of health care and ignoring the poor?

  • “Whatever happened to separation of church and state?”
    A good question for Obama in light of the HHS mandate.

    “Why is this piece published by “The American Catholic”?”
    Because as it says in our masthead we cover politics and culture from a Catholic perspective and have been doing so for almost four years.

    “Why not rant against lack Of health care and ignoring the poor?”

    A good point Fred. Obama’s policies have certainly led to poorer health care, and his economic policies have greatly increased the number of the poor. Thanks for the suggestion!

One Response to The Debts of the Parents Will Be Visited Upon the Children

  • Nations are ruined when governments grow faster than private sectors. (See Greece, Italy, Ireland, Portugal, Spain.) That has been the US model since mid-2008.

    If the US doesn’t reverse course there likely will be economic collapse.

    Congress and the president are unwilling to address the debt problem and, in fact, are exacerbating it.

    The point of no return will be when the federal government no longer can collect sufficient tax revenues to service the national debt.

    The fed will monetize the debt: buy the debt, efectively print money, and that will induce hyper-inflation (must have central bank action to generate hyper-inflation).

    The paper dollar will be worthless.

    The various trust funds: Soc. Sec., Medicare will not be able to pay anyone – they are invested in worthless (more taxes need to be collected from you to pay you) federal gov paper.

    If Obama gets re-elected, and maybe Romney, within your children’s lifetimes:

    No money can be paid from bankrupt Social Security, Medicare, etc.
    Life savings and financial assets will be wiped out.
    Famine, pestilence, exposure.
    Mass violence, rapine, etc.

Alexander Hamilton and the National Debt

Tuesday, July 26, AD 2011

This country was blessed at its founding to have on the scene a member of the Founding Fathers, Alexander Hamilton, who was a financial genius.  His idea to have the Federal government adopt the Revolutionary War debts of the states in order to establish the credit of the new Federal government was a policy of genius.  At a stroke he restored the credit of the country as a whole, made certain the debt would be paid, made America attractive to foreign investors and laid the basis of future American prosperity.  His ideas on the subject were set forth in his first report to Congress on  public credit, 1789, and which may be read here.

The final paragraph of the report is salient for the time in which we live:

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29 Responses to Alexander Hamilton and the National Debt

  • ” . . . the creation of debt should always be accompanied with the means of extinguishment.”

    Ah, there’s the rub. The US likely does not have the capacity to repay.

    Adults are trying to set up a means where, at least, the debt will not “eat us alive.”

    Demagogues are kicking the can down the road and cannot agree to cutting the Federal dollars they use to buy political power, er help the poor.

    The name of the president’s secret plan seems to be “demonize, lie, and polarize.”

    FYI: When a corporation applies for a commercial loan, the Board of Directors passes a resolution authorizing the corporation to incur the debt. The bank then looks at the corporation’s collateral, capacity to repay, character, credit, and capital. Then, decides whether or not to extend the loan. The BoD borrowing authority only says the corp. owners want the money. The credit decision is made on the numerous other general credit factors mentioned.

    The US is not a AAA credit, anyway.

  • Don,

    What do you suppose Hamilton would have said about whether we should raise the debt ceiling?

  • This scene portrays rather well the complexities of the balance between states rights and the need for a strong yet not overreaching central government.

    I find Jefferson’s support for the French Revolution so ironic in that it was so contrary to Jeffersonian sense of liberty, especially in regards to the right of the church to tend to its owninternal affairs. Jefferson, despite his views on institutionalized religion, was adamant in defending the rights of church bodies to tend to its own affairs and the need for them to influence political action.

    While I believe Washington was the greatest of the founders overall, I find John Adams the most endearing. He was at times impetuous and thin skinned, but could aspire to greatness despite.

  • “What do you suppose Hamilton would have said about whether we should raise the debt ceiling?”

    I rather suspect that he and many of the other Founding Fathers BA would wonder why the American people hadn’t long ago risen in revolt. What the Founding Fathers intended as the government of our new nation is not what we have now, and the Federal government bears an uncanny resemblance to the government of King George III, in many respects, as set forth in the Declaration of Independence. Governmental intrusion in the daily lives of the citizenry they would have regarded as shocking. Our expenditures and tax rates they would regard as obscene. The number of Federal criminal statutes they would regard as an engine of tyranny. In judging most aspects of modern American life, except for our technological advances, I suspect the views of the Founders would be pungently negative.

  • ” . . . the creation of debt should always be accompanied with the means of extinguishment.”

    Fortunately, we do have the means to extinguish our debts when those bonds come due. No matter the amount we take out, we have the means to extinguish them as we are the issuer of our own currency. And it’s not simply just printing money, its more accurately changing numbers in bank accounts. The debt is simply the amount of savings in dollars that the private sector holds. Bonds (or debts) are offered so that holders of dollars have an interest-earning option to their dollar holdings. It is a way that the government can keep inflation and interest rates from spiking by “forcing saving” when it needs to spend. Deficits are simply the amount of net injection of dollar reserves into the private sector.

    We cannot go bankrupt, unless we volunatrily declare it, as we are threatening to do.

    To say that our government is too big and should be reduced is one thing and is, I think, up for further debate and should be our polticians’ focus; but to say that we can have so much debt that it cannot be extinguished is simply a misunderstanding of how government finances work in a sovereign nation with its own currency.

    If you think differently, tell me how the government does not have the ability to pay its debt, and I will be glad to debate with you.

  • You are mistaken Alex. Too much conjuring money out of thin air and we all have monopoly money of no value. One can imagine the impact on the value of the dollar :

    http://www.ourfuture.org/blog-entry/2011072922/beyond-debt-ceiling-30-trillion-plan-ending-national-debt

    This type of printing endless paper money to pay for government has been tried twice in American history: The Continentals during the American Revolution and Confederate currency during the Civil War. It is beyond the power of any government to alter economic reality forever.

  • First of all, I wish you no ill-will or animosity of any kind. Nor do I inted to attack you as a person in any of my comments, so please do not read them in that way. I am just trying to promote truth (and its opposite, demote non-truths) and lively debate about achieving the common good.

    You are correct, we can all “conjure money out of thin air” the problem is its acceptability. The value of the dollar is dependent on its supply and its demand. Taxes are what create a demand for government money. I am not familiar with the continentals of the American Revolution, but I challenge your suggestion that the reason for the Confederacy’s inflation was “printing endless paper money.” In their case it came from their inability to tax their people, they had no reason to hold and accept it.

    What do you think gives money its value? It is no longer backed by gold or any other commodity. Even if it was it does not explain why we all hold and use US govt dollars. We hold them and use them because the government demands them in payment of taxes and if we refuse to pay those taxes, we face some kind of punishment.

    As for reality, there are many institutions who hold economic power and who alter our economic reality. The question is: should the government get involved and if so how? It seems clear you think it shouldn’t, I am merely pointing out that it can get involved without constraint of bankruptcy. I would rather debate what governemnt should do, and not what it supposedly can’t do.

    In regard to the article, I see no reason to retire all or any of our debt. I am more than okay with ignoring the debt constraint through seignorage, but would prefer a payroll tax holiday for both employers and employees so that we can boost demand and end the recession.

  • “What do you think gives money its value?”

    The goods and services produced by a population. That is why Zimbabwe can print trillion dollar bills and they will not receive a trillion dollars in goods in return.

    “In their case it came from their inability to tax their people, they had no reason to hold and accept it”

    Incorrect. The States of the Confederacy also issued state paper money as legal tender and that currency was wiped out by the same inflation that wiped out the Confederate currency. The South simply lacked the economic basis for the paper currency being issued. The North on the other hand had stunning success with the greenbacks issued during the war. The worthlessness of Confederate currency was replicated with the issuance of Continentals during the Revolution by the Continental Congress. Paper money is worthless paper unless a country has the economic strength to assure people that the nation backing it with its full faith and credit can prevent the money from collapsing in value.

  • “It ain’t what you don’t know that gets you in trouble. It’s what you know that ain’t so.” Will Rogers

    Whose portrait will be on the $10,000,000,000,000 Federal Reserve Note (or platinum or plutonium coin)? Saul Alinsky or Michelle Obama?

    Deficit/national debt problem solved.

    Brilliant!

  • We hold them and use them because the government demands them in payment of taxes and if we refuse to pay those taxes, we face some kind of punishment.

    An odd theory of money. The reason I hold dollars is because I’d rather make transactions in small paper notes than in chickens or shirts or martinis. You seem dismissive of the whole medium of exchange/unit of account/store of value definition of money. On what basis do you think seigniorage is not inflationary? Or perhaps you don’t see anything wrong with inflation?

  • I see I am not making much headway here, so I will defer to an expert on my views of money. I’m not a quack who thinks he knows everything, rather I am a Ph.D. student of economics who believes whole-heartedly in the modern money definition of money that has its roots in Chartalism.

    So if you are interested in my views of money I implore you to read a short and easy book Understanding Modern Money: The Key to Full Employment and Price Stability by L. Randall Wray or “What is Money” an article by A. Mitchell Innes.

    But I stand fully behind the explanation of hyper-inflation given above (by me), that it is more the inability of the government to tax (and therefore its inability to appropriate REAL resources towards it uses, like wars, infrastructure, etc.) rather than its printing of money willy-nilly without it being properly backed by real goods. If it wants to appropriate real resources to itself by printing and issuing its own money it has to be able to enforce a tax in that money. Otherwise, yes, printing money will lead to Zimbabwe, the Confederacy, or the Weimar Republic.

    And as I retreat, I still don’t think you’ve given me an answer why people demand government money. Why hold government dollars instead of your own money? What makes them so special? I contend it has to do with taxes and enforceable contracts, you say its because it is an easier medium of exchange?

  • Sorry one last recommendation to understand where I am coming from in regard to the taxes and demand for govt currency:

    http://neweconomicperspectives.blogspot.com/2011/07/mmp-blog-8-taxes-drive-money.html

  • Pacem. A. Binder: Good for you.

    I’m a mere conservative, tea party hobbit who is constantly enthralled by academics’ and politicians’ detachments from both reality and virtue.

    Only thing that will save the US is stable, strong economic growth.

    The US debt was 117% of GDP at end of WWII. Since, the debt was never paid down. The economy/GDP growth far outpaced debt growth. That reversed in the 1960’s and 1980’s and 2000’s. Spending has expanded at higher rates than both taxes revenues and GDP growth and development. Federal spending was $2 trillion when Clinton left in 2000. It was $3 trillion when Bush left in 2009. It is $4 trillion in 2011. And, will rise each year if the GOP doesn’t stop it.

    There is one rational (completely absent from DCcrats) argument that might support this huge, deathly debt. I have not heard it.

  • Pingback: What Would The Founding Fathers Think? « Almost Chosen People
  • Alex is right. The ISSUER of the currency “cannot become insolvent with respect to obligations denominated in that currency” — a quote from Alan Greenspan, who ought to know! As Ben Bernanke affirmed: the government spends by marking up balances in others’s accounts. It taxes by marking them down. A deficit means a net addition to the non-government sector’s holdings of financial assets. So-called “fiscal responsibility” misses this point completely. Notice that the private sector is now running massive surpluses. Why is that? Anyone who understands balance sheet accounting knows that it is because the government’s deficits have been large enough too push the print sector back into surplus … Where is belongs.

    And it is sheer folly to suggest that the US has “never paid down the debt”. Anytime the government runs a surplus (as under Clinton”) debt is retired (rather than rolled over). And how did that work out for the economy? The Clinton surpluses 1997-2001 were the longest on record since the 1927-1930 surpluses? Coincidence.

    Stephanie Kelton

  • Why is that? Anyone who understands balance sheet accounting knows that it is because the government’s deficits have been large enough too push the print sector back into surplus … Where is belongs.

    Though to the extent that the private sector surplus is representative of people needing pay down excessive debts they’ve built up, or socking away extra savings because they fear more economic instability in the near future, the private sector running at a “surplus” is not necessarily a healthy sign.

    And it is sheer folly to suggest that the US has “never paid down the debt”. Anytime the government runs a surplus (as under Clinton”) debt is retired (rather than rolled over).

    Well, it’s never paid off all the debt. There have been times when the government has run a surplus, thus decreasing the total amount of debt, but there’s certainly never been a period when the US hasn’t had debt. (Not that I would advocate that.)

    And how did that work out for the economy? The Clinton surpluses 1997-2001 were the longest on record since the 1927-1930 surpluses? Coincidence.

    Frankly, I think this is one of the weaker MMT claims, at least if it’s meant to be cause and effect. It seems really hard to argue that the late ’20s stock bubble or the DotCom era stock bubble were caused by the government running a surplus — though perhaps one could argue that part of the reason for the surplus was that the economy was booming and thus the government receipts were growing faster than its expenses (the which booming turned out to be leading up to a bust.)

    Plus, the 27-30 period was entirely different in that back then the US was on the gold standard — we didn’t have a fiat currency.

  • Darwin–

    Hello again.

    I think you make a good point about private sector surplus. It certainly does matter who takes in that surplus and how they use it. Because of the private sector debt run up prior to the crisis and the subsequent crash, people are needing to pay down large amounts of debt. They desire a larger surplus–more savings. I think it’s important to give it to those most in need through programs like medicaid, TANF, etc., but I also advocate a payroll tax holiday until demand picks up. People will pay down their debt and eventually start spending, and this may mean larger deficits, but demand-pull inflation won’t be an issue as long as their are so many idle resources. So we need more of a surplus in the right hands to see it as a healthy sign.

    About the ‘surpluses lead to recession’…a booming economy certainly can lead to a government surplus of its own accord through increases in revenue. The argument, though, is that gov’t surpluses take away from the private sector who will almost always prefer to take in net savings or a net surplus. So govt surpluses take away the desired savings of the private sector. They also reduce the total income of the private sector. People often will desire to consume at a minimum level that maintains the standard of living they are used to and often times they desire to consume more than that to “keep up with the Joneses”. If the gov’t surplus takes away income and savings from the private sector, when the private sector is trying to increase it, the private sector will respond by taking on more debt to keep up their consumption patterns which is partly what drives a bubble. So I do think, through this reasoning, there is some cause and effect–govt surplus leads to recession.

    Also, MMT is still applicapable to gold standard regimes, the implications are what change.

  • The argument, though, is that gov’t surpluses take away from the private sector who will almost always prefer to take in net savings or a net surplus. So govt surpluses take away the desired savings of the private sector.

    I think you are overlooking the role the Federal Reserves plays in a fiat system.

  • In case my last comment was too obscure, the problem with the argument is that it (implicitly) assumes the Fed does not alter its policy based on what the government is doing. That is an implausible assumption for modern fiat based monetary systems. If government starts sucking more money out of the economy via taxes than it puts in through government spending, for example, that will exert a downward pressure on inflation. If the Fed is targeting inflation, however, it will respond to this pressure by loosening its own policy a corresponding amount, and the net effect overall will be approximately zero. A similar line of reasoning applies if the Fed is targeting interest rates, NGDP, etc.

  • Well, it’s never paid off all the debt

    I believe there was no federal debt for a time in 1835 and in 1841

  • DarwinCatholic said:

    “Well, it’s never paid off all the debt. There have been times when the government has run a surplus, thus decreasing the total amount of debt, but there’s certainly never been a period when the US hasn’t had debt. (Not that I would advocate that.)
    with one brief exception the federal government has been in debt every year since 1776.”

    Again, not so.

    From http://www.levyinstitute.org/pubs/ppb_111.pdf

    “For the first and only time in U.S. history, the public debt was retired in January 1835 and a budget surplus maintained for the next two years, in order to accu- mulate what President Jackson’s Treasury secretary, Levi Woodbury, called “a fund to meet future deficits.” In 1837, the economy collapsed into a deep depression and drove the budget into deficit, and the federal government has been in debt ever since.

    There have been seven periods of substantial budget sur- pluses and debt reductions since 1776. The national debt fell by 29 percent from 1817 to 1821, and was eliminated in 1835 (under President Jackson); it fell by 59 percent from 1852 to 1857, by 27 percent from 1867 to 1873, by more than 50 percent from 1880 to 1893, and by about a third from 1920 to 1930. Of course, the last time we ran a budget surplus was during President Clinton’s second term.”

  • oops. that last line “with one brief exception the federal government has been in debt every year since 1776” was from the article I provided, not from DarwinCatholic.

  • Blackadder,

    You make a good point, thank you for clarifying. I do not think I overlooked the Fed, however. I believe that the Fed, or monetary policy in general, has less control over inflation than fiscal policy. The Fed primarily targets over night interest rates, or the price of money, which affect the quantity of money much less directly. Monetary policy has more to do with interest rate management than inflation management. The purpose of the Fed’s actions, as long as they are targeting overnight interest rates, is to avoid undue impacts on reserves from Treasury actions, in order to maintain interest rates at target levels.

    The only exogenous variable they set is the overnight rate, which I believe has very little impact on how much banks loan out to borrowers and therefore on the quantity of money (note that despite very low rates at the moment there is very little borrowing because there is no demand for loans because there is no demand for the goods and services those loans would provide), and the rest of their actions are defensive, that is, meant to maintain the rate they set.

    If I didn’t explain myself well enough I direct you to Understanding Modern Money by L. Randall Wray, particularly Chapter 5. Or perhaps this post regarding inflation and an alternative theory of prices will suffice: http://neweconomicperspectives.blogspot.com/2011/07/two-theories-of-prices.html

  • I believe that the Fed, or monetary policy in general, has less control over inflation than fiscal policy.

    In 1980 the inflation rate in the United States was 13.5%. In 1983 it was 3.2% (I could cite dozens of other similar cases, but let’s look at this one). This coincided with aggressive action by the Fed to get inflation down. It did not coincide with any significant contractionary fiscal policy. On the contrary, the federal government cut taxes during this period while simultaneously increasing spending.

    If you think monetary policy doesn’t have much effect on inflation, how do you explain the fall in inflation rates from 1980-83?

  • The idea that fiscal policy has a greater influence on inflation than monetary policy is pretty unorthodox. In any case, I think the evidence, as well as mainstream economic thinking, supports Blackladder’s assertions.

  • Blackadder,

    First, I’m not sure what you mean by “aggressive action.” Volcker tried targetting monetary aggregates for the first time ever from 1979 – 1982 to control inflation and it didn’t go so well, meaning he didnt (couldnt) hit his targets.

    Second, I think that contractionary monetary policy can have an effect on inflation through its effect on aggregate demand. If pushing interest rates up (which is what happened when the Fed let the FFR float in its attempt to target reserves) causes demand to fall, then inflation will fall accordingly.

    Third, I think that people calling his actions a success is a mistake. He did lower inflation through contractionary monetary policy, but in the process helped bring about a painful recession. Under my policy proposals, that wouldn’t have to happen for inflation to be reduced.

    My contention is that inflation is affected more by aggregate demand and aggregate supply and less by monetary policy. Monetary policy can certainly have an effect on inflation if it’s policies have an effect on aggregate demand or aggregate supply.

    As it says in the link I posted:
    “Thus, overall, there are two sources of inflation in this approach, a cost-push source (here summarized by the unit labor cost) and a demand-pull source (here summarized by the aggregate demand gap). Note that the money supply is absent from this equation. Money does not directly affect prices.”

  • Mike,

    I believe that fiscal policy has a greater effect on aggregate demand and therefore on prices and inflation than does monetary policy. I’m not sure what evidence you are referring to or how much economics you have had. I’m quite aware my views are unorthodox as are my Catholic Social Teaching views on economics in general.

    I realize that I have a major uphill battle against the mainstream, but I am choosing to debate others and defend/promote my views in any way I can for the common good of all people. I truly believe that this is right and that understanding it will help us achieve greater economic propserity and stability and thus enable us to focus on a more equitable and just distribution of wealth as well as on social issues that deserve our attention more so than bad economics such as abortion, death penalty, etc.

    I did not come up with these ideas on my own and encourage you to look into it for yourself so that you can decide what you think is right/wrong rather than just trusting the mainstream and the talking heads on television.

    I do not wish to persuade anyone, but rather to help them come to the right conclusions themselves for I, too, was once a mainstream thinker before I pursued the topics further.

    If you want to know more, visit my blog: Christian Economics where you can find in my opinion a wealth of resources on Catholic Social Teaching and heterodox views of economics including the ones I mention in my comments.

  • My contention is that inflation is affected more by aggregate demand and aggregate supply and less by monetary policy.

    This is kind of like saying ‘I believe that deaths from gunshot wounds are caused less by bullets than they are by a lack of oxygen to the brain.’ Both monetary and fiscal policy operate through certain mechanisms. The question, though, was which of the two was more powerful.

    Suppose you have a monetary authority (the Fed) that wants to increase aggregate demand and a fiscal authority (Congress) that wants to decrease it. Who wins? The fiscal authority controls around a quarter of GDP. The monetary authority controls the money supply. The fiscal authority acts infrequently and with a fair amount of notice as to what they will do. The monetary authority is constantly adjusting its activities to meet its objectives. The fiscal authority is made up of people most of whom have little to no idea how the monetary authority works or whether it might be pursuing a contrary policy. The monetary authority is very aware of what the fiscal authority is doing and how it may affect its own goals.

    It’s not even a close call.

    I think that people calling his actions a success is a mistake. He did lower inflation through contractionary monetary policy, but in the process helped bring about a painful recession. Under my policy proposals, that wouldn’t have to happen for inflation to be reduced.

    What is the policy proposal you would have suggested to bring down inflation without a recession?

  • Right, I contend that fiscal is more powerful. I also contend that the monetary authority doesn’t control the money supply (that’s perhaps my main point).

    I agree with your statements starting “The fiscal authority acts infrequently…how it may affect its own goals.” I still think that whether congress knows it or not their policies have more affect on our economy (and money supply) than monetary policy.

    I’m not sure what you’re saying is not a close call. Monetary authorities being aware of their policies and fiscal authorities unaware does not make monetary policy more powerful.

    The policy I suggest (but to be clear its not my own idea; I didn’t come up with it) for both full employment and price stability is a buffer stock job guarantee program. To explain the policy would take a lot of time and I am currently working on such paper incorporating CST principles and will also be engaging in debate with DarwinCatholic over the policy in the near future. But if you’d rather not wait you can read all about it in Understanding Modern Money: The key to full employment and price stability by L. Randall Wray. Wray is a very learned economist and the greatest pupil of the late great Hyman Minsky. You can purchase the short, easy to read, and relatively cheap book at Amazon.

Government and Economic Health

Tuesday, February 15, AD 2011

Another fine econ 101 video from the Center for Freedom and Prosperity.  The day after we learned that the Federal debt now equals the annual size of the US economy seems like an appropriate time to watch the above video.  We have attained a size and cost of government in this country which threatens to severely damage the economy which pays our bills, public and private.  This cannot go on and will not go on, either by our elected representatives finally taking steps necessary to curb the size and cost of government or through de facto national bankruptcy.

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30 Responses to Government and Economic Health

  • The US general government has been broke since 1933. The government is broke because of fiat money, but the country, these United States are very, very wealthy. We needn’t worry, we just need to jettison the central bank, the debt owed to that bank and all the government ‘regulations’ that hamper our wealth.

    We have a few choices:

    1) Constitutional restoration
    2) Revolution
    3) Civil War
    4) become obsolete

  • 1) We can only go bankrupt if we voluntarily declare it.
    2) Big government doesn’t necessarily require big taxes nor excessive debt. The ill effects of spending without financing or raising revenue are inflation and exchange rate depreciation. Inflation is very low right now and is following a similar trend as the Japanese experienced in their ‘lost decade.’
    3) Politicians may decide that there is too much government and that is all fine and good, but if they cut spending, then they must cut taxes too. Drops in the deficit will only reinforce the recession.
    4) You must not have taken economics, or you would understand that GDP=C+I+G+Net EX. G only crowds out I and C if it raises interest rates. That doesn’t seem to be a problem at the moment does it?
    5) What does this post have to do with being Catholic? If you are promoting Catholicism in politics, then show me where in Catholic Social Teaching encyclicals it says all of this. What does the teaching of Christ, the Apostles, and their successors say on the proper role of government?

  • 1. You can be in de facto bankruptcy without declaring it, and we are headed in that direction. Bankrupts are individuals who can’t pay their debts and cannot be legally compelled to do so. That is a pretty good summary of the situation facing the federal government in the very near future.

    2. Not necessarily, but usually, and that is our situation currently.

    3. Not necessarily depending upon what is cut.

    4. I have read a fair amount of the dismal science, enough to know that most economists are very good at predicting the past.

    5. Every post on this blog does not pretend to be Catholic Holy Writ. Catholicism over the past 20 centuries has said almost everything under the sun regarding government and its role, as one would expect from an institution that dates from the reign of Tiberius Caesar. In answer to your last sentence, Christ says very little, the Apostle Paul preached a fairly submissive attitude to the Roman Empire, except in matters of religion, and the Popes have been imperialists, feudalists, theocrats, monarchists, republicans, and every shade in between. Currently Catholicism is fairly comfortable with social democracy of a European sort. Lord knows, literally, what the views of the incumbent of the seat of Saint Peter will be regarding government a century hence. An example of just how shifting this can be in relatively short time periods in the life of the Church, imagine a debate on the subject between Pius IX and John Paul II.

  • Alex:

    I note Donald used the term “de facto” bankruptcy. One needn’t make a formal declaration that one isn’t going to pay one’s debts, to be in a situation where one cannot in fact do so without incurring intolerable difficulties.

    When you ask where in Catholic teaching it “says all of this”: All of what, specifically? Are there particular elements in either the video clip, or Donald’s note, which you hold either to be in opposition to Catholic teaching, or simply not mentioned in Catholic teaching?

    For of course a thing need not be mentioned to be true! “All truth is God’s truth.” I don’t know that the formula for GDP is found anywhere in an encyclical, for example; but it needn’t be.

    And of course it is a moral obligation that we not damage the economy through foolish policies, especially since poor folk are most harmed by such mistakes. (Foundational preferential option for the poor: Don’t destroy the jobs market! Corollary: Don’t make rich people too poor to hire. I myself have never been given a job by a poor man, and I don’t suppose many other folk have, either.)

    On the statement that government spending only crowds out private spending if the government raises interest rates: I don’t see how that addresses the argument.

    There is necessary spending; there is wise but not necessary spending, and there is unwise and not necessary spending. If (to use round easy numbers purely as an example) half of my tax bill were going towards spending of the unwise and unnecessary variety, and if half of every government dollar spent was borrowed but the other half was derived from taxation, then a quarter of my tax bill would represent unwise and unnecessary spending, and a comparable amount of our national debt would represent unwise and unnecessary borrowing.

    Had my taxes instead been reduced by the same amount, then 10% of that amount would have gone to the church (and thus indirectly to the poor), another segment (the percentage would change in proportion to my income that year) would have gone directly to the needy; some additional portion would have gone towards savings. The remainder would have been spent that year, becoming part of either “C” (Consumer spending) or “I” (business Investment in expansion or maintenance of operations). Let’s say — again for easy numbers — that this “C or I” spending ended up being half of the amount in question (which was itself a quarter of my tax bill, using the easy numbers from before). In that case unwise and unnecessary government spending would have replaced “C or I” in 12.5% of my tax bill.

    The real numbers are very different of course; it might boil down to only 1% of some people’s bills, 5% of other people’s bills. But multiply that by the hundred million or so people who actually pay income taxes, and as they say in D.C., “a billion here and a billion there, and pretty soon you’re talking about real money.”

    One could of course argue that the unwise and unnecessary spending was wholly funded by borrowing, and that taxes paid for all the prudent or necessary spending…assuming the numbers matched up in each category. In that case one could say that no “C or I” spending was unnecessarily crowded out. But that’s not a realistic way to look at money: It’s fungible; whether debt-based or tax-based, dollars are dollars. Seeing the debt vs. taxation balance as a percentage of each dollar is more realistic.

    Or, one could say, “Hey, all we care about is keeping GDP going; who cares whether it’s through government spending or private spending?” But that’s shoddy thinking: Our goal is not to win a game where the score is based on GDP, but to have a decent society with a functioning economy where folk can find jobs. Government spending is therefore not equivalent to private spending: The latter creates wealth through voluntary exchange and transmits helpful price-signals (required for economic health), whereas the former only transfers wealth through involuntary mechanisms and often obscures price signals (which detracts from economic health). This is why, even when all government spending is tax-based, if a given spending item is not necessary or its wisdom is “iffy,” it’s better, as a general rule, to leave it in the hands of consumers and businesses.

  • I was in college when today’s U profs were running through the streets screaming, “Ho, Ho, Ho Chi Minh: NLF is sure to win!”

    My question re the gross domestic product formula: Doesn’t G squander do-re-me that could have been better used in C and I: the wealth creation arena?

    The money could be invested in plant and equipment instead of buying dem votes and Bud Light.

  • As always, I think the real trick is to maintain a proper balance between government and private spending. Obviously we cannot have a 100 percent socialist/communist nanny state in which the government becomes responsible for meeting every single need and everyone is taxed to death to support it. Government cannot solve every problem.

    However, a society in which absolutely everything other than law enforcement, the courts and the military were privatized — no public schools, libraries, parks, roads, or other types of infrastructure, no public universities, no public regulatory bodies of any kind, etc. — wouldn’t necessarily be an economic paradise either. (What if, for example, ALL roads were toll roads and people who lived in small towns or rural areas had to pay for their daily drive to work?) To some extent, private business depends on the existence of an infrastructure that it cannot or would not be able to create on its own; and this is where a responsible government would get involved. It also makes a difference what level of government you are talking about — some things are more appropriately done at the local or state level than at the federal level, and vice versa.

  • 1) I agree, but what makes you think we can’t pay our debts?
    2) I agree, but it still isn’t necessary.
    3) What do you propose we cut? I think there is a lot of wasteful spending and it annoys me to no end, but the free market hasn’t indicated it will provide for those born in less favorable situations and neither have our people as whole.
    4) You are right most economists are very good at predicting the past and terrible at predicting the future, but that sidesteps the accounting identity known by everyone who has taken basic macroeconomics. Are you arguing that because economists are terrible at predicting the future then we should disregard all of what they say?
    5) I agree, but shouldn’t we as Catholics defend and promote the teachings of the Church rather than promote our own opinions about politics and life?

    R.C. –

    Im not sure what you mean by intolerable difficulties. Other debt ratings agencies may make it more difficult for us to pay our debts by lowering their ratings on our debt. Inflation and exchange rate depreciation may get out of control, but where in our current situation has that happened? You can’t compare us to the EU because we are sovereign in our own currency. I agree that the pace we are on currently is unsustainable, but I do not believe this is an immediate concern because these intolerable difficulties don’t appear to be anywhere near our current situation. A much more immediate concern is joblessness. If government spending declines and nothing takes its place then joblessness surely will not get better and none of the data I have seen has convinced me that the private sector has, is, or will take up the slack. Decreasing taxes doesn’t help the deficit situation either.

    I agree with the rest of your comment whole-heartedly; you make very excellent points with well though out arguments and thought-experiments. I don’t believe that the size of government must be big in order to sustain spending. I too believe that there is much waste in government spending that would be better spent by the private sector through tax cuts. The one big problem is that the private market isn’t efficient at distribution. It distributes to those who command the most economic power. I believe the saying goes “the rich get richer while the poor get poorer.” This isn’t always the case and I do believe in rewarding hard work and risk taking, but many people start with a huge disadvantage and get more piled on top of them as life goes by simply because they were born in that state. Justice owes that we do something to give them a boost from their situation. This, in my opinion, is best met through private charity and job creation, but it seems that this just doesn’t happen. There isn’t enough charity and stability of jobs isnt there when left up to private individuals. In this way I think the government must step in because individuals are either unwilling or unable to do it themselves. “How much government?” is a tough question.

    All should be ordered towards getting to heaven. I see both the government and individuals as obstacles to this and any emphasis toward materiality leads us away from this goal. The poor need to be shown charity in more than just material goods. They need their dignity upheld and opportunities to be educated, provide for themselves and their families, and support the common good. Free markets ignore the human person. We need individuals to transcend the market with charity and justice. I wish this was done without government transfers, but it isn’t. People seem to want handouts from whoever they can get it from, but you know and I know that what they really want is to be loved, to find happiness and fulfillment. The government really CANT do this. So if we as individuals would take up our responsibility and our calling the government wouldn’t have to and wouldn’t feel a need to.

  • If anyone thins our government is not bankrupt then I suspect they have no idea what bankruptcy means. The debt and unfunded liabilities our government is carrying CANNOT be retired by all of the wealth in the entire world, let alone what America can generate. It is not just that our government shouldn’t have this much debt, or that we don’t have the desire to settle it, it simply CANNOT be paid off. The borrower is the slave of the lender. Our government is the slave of the money power and that makes us defacto slaves. We need to jettison the debt, the central bank and the wealth hampering regulations that favor the politically connected business and group interests at the expense of everyone else.

    Elaine,

    You stated, “However, a society in which absolutely everything other than law enforcement, the courts and the military were privatized — no public schools, libraries, parks, roads, or other types of infrastructure, no public universities, no public regulatory bodies of any kind, etc. — wouldn’t necessarily be an economic paradise either.”

    Some of us would rather not have public (which means government run) schools, etc. Of course, if your local government was pressured by the citizens to have such a monstrosity, they could provide it and those of us who don’t want it would move to the place that doesn’t have it – of course, we’d also take our wealth and our money with us. When people have choices, the market decides. Compare the cost and benefit of most Catholic schools as compared to government schools, there is no question which works better.

    Most of the things you think would not exist without the force and threat of government would probably exist and in a better way. Enoch Pratt and Andrew Carnegie have provided more and better libraries than just about any municipality. Businesses would pay for infrastructure because their customers would demand it. Ford can’t be in business without roads and gas stations, yet we NEED government roads and we HAVE private gas stations – which seems to always provide better service?

    As for so-called regulation, which merely means control and should mean to make regular, usually fails. Enron and Madhoff were protected by the regulators, it was the independent forces of the free market that brought them down. Regulations are usually used to favor one company or group over all others. Over-regulation is unjust and leads to economic disruption, which always does the most damage to the poorest people. Government ‘regulation’ caused the moral hazards that led to the most recent financial crisis and then Wall Street banks were bailed-out, regulations were increased and the banks are doing great – how’s everyone else doing?

    As for an economic paradise, that would be one in which the principle law of economics does not apply – the law of scarcity. We will never achieve that this side of heaven, but we have to try and come as close as we can.

  • American Knight-

    I suggest you read Quadragesimo Anno pp. 103-109. The free market isn’t all it’s cracked up to be.

  • 1) “I agree, but what makes you think we can’t pay our debts?”

    Basic math. Unless we are willing to implement economy killing tax increases there is simply no way to pay off the accumulated debt while also meeting entitlement expenditures. The only reason we have stumbled along thus far is through the greatest borrowing spree in the history of the planet, and I think our ability to do this is nearing its end.

    2) “I agree, but it still isn’t necessary.”

    It may not be necessary, but it is what is happening.

    3. “What would you cut?”

    I would start with Rand Paul’s 500 billion cut proposal and move on from there. In regard to the less fortunate, it is only the free market that provides the wherewithal to do anything for the less fortunate. All the social programs in the world are worthless without an economy to pay the bills.

    4. “Are you arguing that because economists are terrible at predicting the future then we should disregard all of what they say?”

    Take anything any economist says with a boulder of salt, and look closely at their track record in regard to predictions and economic advice.

    5) “I agree, but shouldn’t we as Catholics defend and promote the teachings of the Church rather than promote our own opinions about politics and life?”

    Depends. The teaching against abortion has been changeless since the Apostles. Catholic teaching on economics has been all over the lot as has Catholic teaching regarding government. In those areas I suspect that because of the variety of teaching we see through history we are not dealing with the eternal truths of Christ, but rather fairly ad hoc stances arising often from secular developments. That explains why the Church could embrace feudalism in one era, and the welfare state in another. Some portions of the teaching on economics of course are always true. The admonition to remember the poor for example. However when someone tells me that because of this admonition I must agree that the government should do x, y or z, or the economy must be structured in a particular manner, I get skeptical.

  • Alex,

    I suggest you read the seventh commandment.

    A free market is not an anarchic market, it is the natural market that is created by numerous and unrelated individuals being useful to each other, primarily for the sake of sanctity and also for the material benefit of others. Government has a very important function in a free market; however, that function is to protect the market and not necessarily to provide so-called ‘services’.

    As for the Church’s position vis. economics and politics, I like what our resident barrister stated above. The Church has no charism in political economy other than to state principles of charity and justice, how those are applied is our work. Using the intellect God gave me I can see no other economic system that provides the material benefits of a free market and allows people to exercise charity and justice toward their brothers and sisters. I know some subscriber to Distributism is going to attack me; however, a truly free market, and not the corporate capitalism we call a free market, is more-or-less Distributist.

    Once again, I’ll point to the quality (being what it is) of Catholic education against government schooling. Much better quality, abysmal as it is, for considerably less cost, offering much more choice, flexibility and opportunities for the poor. I currently have no children in school, yet through my parish I support our school. Of course, I also have large sums confiscated from me so I cannot direct them toward a Catholic school so that I can subsidize the indoctrination of some poor soul at the government school. As a Catholic and an American I find that abhorrent.

  • Knight: I realize that Catholic education is better, but special needs students like my own autistic daughter are NOT accepted into most Catholic schools and often have no choice but to attend public schools. Where are they going to go if public schools are abolished? Homeschooling, maybe, but not everyone can do that full time (particularly single parents, or couples that both have to work). And if public universities are abolished, most of the middle class will lose ANY hope of being able to advance beyond high school.

  • Alex,

    Some additions from Centessimus Annus regarding Marxism and Socialism:

    24. The second factor in the crisis was certainly the inefficiency of the economic system, which is not to be considered simply as a technical problem, but rather a consequence of the violation of the human rights to private initiative, to ownership of property and to freedom in the economic sector. To this must be added the cultural and national dimension: it is not possible to understand man on the basis of economics alone, nor to define him simply on the basis of class membership. Man is understood in a more complete way when he is situated within the sphere of culture through his language, history, and the position he takes towards the fundamental events of life, such as birth, love, work and death. At the heart of every culture lies the attitude man takes to the greatest mystery: the mystery of God.

    On “State Capitalism and needs for the market with proper controls:

    “In this sense, it is right to speak of a struggle against an economic system, if the latter is understood as a method of upholding the absolute predominance of capital, the possession of the means of production and of the land, in contrast to the free and personal nature of human work.73 In the struggle against such a system, what is being proposed as an alternative is not the socialist system, which in fact turns out to be State capitalism, but rather a society of free work, of enterprise and of participation. Such a society is not directed against the market, but demands that the market be appropriately controlled by the forces of society and by the State, so as to guarantee that the basic needs of the whole of society are satisfied.”

    Given proper constraints, the market is seen by the Church as a positive:

    “42. Returning now to the initial question: can it perhaps be said that, after the failure of Communism, capitalism is the victorious social system, and that capitalism should be the goal of the countries now making efforts to rebuild their economy and society? Is this the model which ought to be proposed to the countries of the Third World which are searching for the path to true economic and civil progress?

    The answer is obviously complex. If by “capitalism” is meant an economic system which recognizes the fundamental and positive role of business, the market, private property and the resulting responsibility for the means of production, as well as free human creativity in the economic sector, then the answer is certainly in the affirmative, even though it would perhaps be more appropriate to speak of a “business economy”, “market economy” or simply “free economy”. But if by “capitalism” is meant a system in which freedom in the economic sector is not circumscribed within a strong juridical framework which places it at the service of human freedom in its totality, and which sees it as a particular aspect of that freedom, the core of which is ethical and religious, then the reply is certainly negative.”

    This all goes with the Church teaching that the Church herself offers no specific solutions to the problems of the world, but merely the principles to guide laymen in making those solutions. The Church also teaches that people, using historical, economic, sociological etc. knowledge, may come to distinctly different solutions. This is what people are doing here on the blog.

  • This in addition to the authoritative teaching of the Church (contrary to some of our co-religionists misinterpretation of CST) the Catholic Social teaching is not utopian. That we cannot perfect this world through our efforts. In fact, the current President of the Pontifical Council for Peace and Justice notes that CST is about seeking the “best possible world.” Not the ideal world, but what is possible given numerous constraints. This includes avoiding excessive govt. debt etc.

  • Elaine, I think here in Upstate New York there are about 840,000 people (give or take) between the ages of 18 and 25. Enrollment in private institutions of higher education stands somewhere around 110,000. That would be 13% of those demographic cohorts. The patriciate is not that large. I work in an office of about 70 people. It is not hard to find multiple examples of people from wage earning families or the common-and-garden bourgeoisie who garnered degrees from private colleges or sent their children there.

    As for primary and secondary education, if we re-chartered all public schools as philanthropies to be financed by vouchers, donations, and endowment income (not tuition and fees) and then allowed extant private institutions and new foundations to participate in the voucher program, I would wager institutions serving niche clientele such as yourself would be able to find a school that worked for you.

  • (Guest comment by Don’s wife Cathy:) Art Deco, one of our sons is part of that “niche clientele” of autistic kids like Elaine’s child. Don tells me that Livingston County is the geographically the fourth largest county in Illinois — but it’s overwhelmingly rural/small town (county seat pop. 12,000; next largest town (ours) pop. 4,200); countywide pop. under 50,000). Finding enough special-ed students to make a privately-funded special-ed program viable in a low-population area like ours would mean transporting students long distances — longer than would be desirable for many of the students. Don & I are very thankful that there is a special-ed program which can accomodate our son through the local public school system. We were offered the opportunity to enroll our son in special ed a year early, but chose to wait a year so we wouldn’t have to send him out of town to special ed.

  • Phillip –

    I know well what CST says about capitalism and socialism. I am planning on doing my dissertation on it. I am not arguing for socialism, but if you are going to argue for a free market then you should know what you are arguing for. Unfortunately, a free market is characterized by monopolistic competition, corporations, and large businesses with much incentives and resources to persuade government policy in their favor. If there were ample competition (the check on the self interest of the free market) then this wouldn’t be such a problem. Free markets tend to lend power toward the greedy and ruthless, not the hardworking.

    I wish the free market were more virtuous. The popes are clear that this takes virtuous actors within the market. So my desire is to increase the virtue of myself and others so that whatever economic system we live in will perform better. I don’t think government is the answer in many ways, but they also have the power to set rules and maintain competition and give the less fortunate a better chance to compete, whereas individuals do not. Fortunately, as the author points out, we can be Catholic in any form of government. In our current form of government, the Popes make clear in their teaching how this must be done. They do not suggest policies but remind us of our priorities. If we order all our actions and policies toward these priorities, then we will achieve the ‘best possible world’ in this life.

    So if you argue for the free market, then understand that it tends toward big business/corporations/monopolistic competition (as well as inequality of living and less opportunity of advancement) and then be willing to make economic decisions for others and not solely out of self-interest. If we all did this, there would be no need for any intervention, let alone government intervention, but we find that many cry out for it because they find themselves in need because of the free market.

  • Alex,

    Free markets are morally neutral, it is the actors in the market that set the morality of the market and I know you understand this; however, your assertion that free markets tend to monopoly and rewarding the ruthless is not accurate. It may happen, it sure has here in the USA, which is why we don’t have what can reasonably be called a free market. We have a managed market that is relatively free as compared to others.

    Monopoly and what is called state capitalism or corporatism occurs because of the government. Not necessarily the intent of the structure of government but the use of the threat and force, of which government has sanctioned use, by those who are in the market and don’t want it to be free. They just want to be free to extract as much from the market as possible.

    Our government was set up as a protector of the North American free trade zone between sovereign states and commonwealths and it worked. It worked so well that some men became so wealthy, elevating many others with them, that they began to think they were gods of the market and wanted to secure their god-like status. How’d they do that? They took over the government and twisted it from a Federal government, protecting a free market and restrained by law and checks and balances and fashioned it into a National government that is directly involved in every aspect of our lives so we can be better consumers and borrowers for the market gods.

    The solution is to restore the Constitution in practice and not in words only, elect moral men of honor to office and work to sanctify the world as moral actors in the market. It won’t be perfect, but it will be much better than Airstrip One.

  • Elaine,

    Subsidiarty dictates that some level of government or community effort should try to satisfy genuine needs when private institutions or individuals or families CANNOT. We don’t know if that is the case because the private schools have to compete with the government schools, which have an unfair advantage. I know at least one Catholic High School in my county offers and excellent special needs program. Would there be more if Catholics who owned real estate weren’t forced to pay for government indoctrination. Perhaps, probably, I don’t know because it hasn’t been tried. We should try it and see if it works, I suspect we’ll be very surprised by the results. If the market doesn’t respond, then the community, the county, or the state would have to. But, when the state insinuates itself first, it crushes the market and then becomes self-funding with an unending appetite to the detriment of all, except those being compensated by the state.

  • Mrs. McClarey,

    You are making an implicit reference to several questions – the size and distribution of the autistic population, curriculum for the autistic population, per-pupil cost of teaching the autistic population, and the feasibility of cross-training the general set of special education teachers to teach autistic students – the answers to which I do not know.

    Implicit also in your remarks is that instruction of the autistic requires a cross-subsidy drawn from the general school budget (either inherently or because economies of scale are not to be had) and that the costs of such would not be borne by a school absent compulsion. That may be the case, but there are ways around the problem that do not involve erecting and permanently maintaining public agencies to produce services which can be readily contracted for by private parties. One would be cross-subsidies financed by philanthropic donations (If I understand correctly, the core of the autistic student population in rural and small town Illinois would be about 450, with a periphery of about 2,500). If worst comes to worse, the State of Illinois could incorporate a private foundation whose interest and divident income could finance the cross subsidy through grants to schools, and provide the initial endowment.

  • “Unfortunately, a free market is characterized by monopolistic competition, corporations, and large businesses with much incentives and resources to persuade government policy in their favor. If there were ample competition (the check on the self interest of the free market) then this wouldn’t be such a problem. Free markets tend to lend power toward the greedy and ruthless, not the hardworking.”

    Actually I believe American Knights comment about markets being neutral is more corect though that dovetails with your comments about individuals being morally upright converting society. That is consistent with Catholic teaching. Your comment above seems more of an ideological position and not one that has been pronounced upon by the Church’s social teaching.

    ” I don’t think government is the answer in many ways, but they also have the power to set rules and maintain competition and give the less fortunate a better chance to compete, whereas individuals do not. ”

    As noted, I do not deny that the state has the power to establish limits to the Free Market. Though, from a Catholic perspective, that government is also composed of fallen individuals who can, as within the Free Market, predispose the state towards self-interest, preservation of special interest groups including corporations and unions (see Wisconsin teachers) and not necessarily the common good.

  • (Don’s wife Cathy again:) Art, I’ll take your word for it on how special ed programs could be privately financed. My concern is more over keeping such programs as locally-based as possible, so that as little of the students’ potential instructional time is wasted on transportation to and from a central-but-distant location in thinly-populated areas. If locally-based special ed programs could still be done via private funding, I wouldn’t have a problem with that.

    American Knight, it’s great that your county has a Catholic high school with a great special-needs program. My county, however, has no Catholic high schools at all, and just 2 Catholic grade schools (the nearest one being 9 miles away, with some students from our parish). There are some special ed services available to the parochial school students (f.ex. speech therapy); however, the Catholic grade school our parish has access to does not have the resources for a self-contained special ed classroom, which is the level of support our autistic son would have needed in grade school and still needs in high school. (As far as I know, I don’t believe the other parochial school in our county (in the county seat, hence a larger school) has a self-contained special ed classroom, either.)

  • “5) I agree, but shouldn’t we as Catholics defend and promote the teachings of the Church rather than promote our own opinions about politics and life?”

    “They do not suggest policies but remind us of our priorities. If we order all our actions and policies toward these priorities, then we will achieve the ‘best possible world’ in this life.”

    Alex,

    In general people here are applying their Catholic principles towards a just society. They just don’t happen to coincide with your positions. For example your own position on the natural trend of markets which is not a position the Church has defined.

  • Cathy,

    According to the principle of subsidiarity your community, county, or state should step in and fill the need that has not been met, but only until a lower order body can step up and meet the need.

    Of course, the principle problem you are facing is the problem of the whole world, Catholics are poor evangelists. If we were keeping our commandment from Our Lord to baptize all nations in the Name of the Father, and the Son, and the Holy Spirit, then you’d have a vibrant Catholic community and probably one that is wealthy enough to meet the needs of the minority of special-needs children and the minority of the individual person in need, you can’t get more minor that that.

    My chief concern, probably articulate poorly, is that we have allowed government, at all levels, to enter space it is not meant to serve and even create needs and codify them as rights that only it has the monopoly to fill. By doing this government distorts the natural market of matching people’s needs with those who can satisfy them. When government schools command education and offer it ‘free’ (actually by debt, taxes and confiscatory redistribution of wealth) then they enjoy a virtual monopoly over the need of education and how to define and satisfy that need. This crowds out the true innovators in the realm of education and the sole arbiters of what that education should be – the children’s parents.

    I use Catholic schools as an example; however, other private secular institutions may be able to fill the need just as well. For example a company that specializes in educating special-needs children could contract with schools, parents and acquire philanthropic or charitable funding combined with direct billing. This is unlikely when the government schools provide this service ‘free’ – this may or may not be a benefit to the child, but it certainly is a benefit to the budget for the school because no politician is going to cut the budget for children with special-needs (well, except may be Crusading Christie of NJ). That does not mean the child is getting the best service, nor that anyone is getting the most cost-efficient benefit; usually the services provided by monopoly government with hidden costs are more expensive and of lower quality.

    All that being said, it is still incumbent on government to step in when the market is NOT satisfying these genuine needs, but, we have to have measures to get the government out as soon as possible so a lower order can do it instead.

  • In regard to our autistic son, Cathy and I had to fight like the dickens to get him included in CCD. Our local director of religious education, supported by our parish priest, had zero interest in having our son participate due to his autism. Cathy was willing to instruct our son separately from his class while CCD was in session, with Larry joining for group activities under Cathy’s close supervision. That is what we were fighting for and it was a fight to get that. To be quite blunt, few people other than their parents are really interested in the education of mentally handicapped kids, and that includes some of the special ed teachers we have encountered over the years. I would prefer a voucher system for all kids so that reliance would not have to made on the state, since education, especially education for special ed kids, is something the state does poorly. The main concern for Cathy and me of course is that our son receive an education, however it is accomplished. Most of his education however, we have done ourselves. My heart goes out to parents confronted by this challenge who are less prepared for it than we were.

  • Don,

    That is a sad reception. It is not lost on me that teaching about the virtue of Charity is part of CCD and what an opportunity was missed. We are called to love and what could state that more to children than teaching the faith. Furthermore, if we really believe that we are a catholic (universal) covenant family of God, then all the children and their education is our responsibility. It is sad when convenience trumps obedience and I know I have been guilty of that far too often.

    I am confident that your example provides hope to many parents.

  • Phillip and American Knight –

    I really agree with what you say. The government is made up of fallen individuals just as markets are full of them.

    “Our government was set up as a protector of the North American free trade zone between sovereign states and commonwealths and it worked. It worked so well that some men became so wealthy, elevating many others with them, that they began to think they were gods of the market and wanted to secure their god-like status. How’d they do that? They took over the government and twisted it from a Federal government, protecting a free market and restrained by law and checks and balances and fashioned it into a National government that is directly involved in every aspect of our lives so we can be better consumers and borrowers for the market gods.”

    I agree with this statement as well. If we had morally sound politicians and wealthy individuals then they would not use government to their own advantage…big if right? That’s why John Paul II said this in response to the question “Is capitalism the best system?”:

    The answer is obviously complex. If by “capitalism” is meant an economic system which recognizes the fundamental and positive role of business, the market, private property and the resulting responsibility for the means of production, as well as free human creativity in the economic sector, then the answer is certainly in the affirmative, even though it would perhaps be more appropriate to speak of a “business economy”, “market economy” or simply “free economy”. But if by “capitalism” is meant a system in which freedom in the economic sector is not circumscribed within a strong juridical framework which places it at the service of human freedom in its totality, and which sees it as a particular aspect of that freedom, the core of which is ethical and religious, then the reply is certainly negative.

    We need both moral politicians and players in the market. (We need moral people!). Government policy doesn’t make people more moral, but outlining rules and guidelines can help them stay the course. Transferring wealth that wealthy people won’t through personal charity is also beneficial to the society and the common good if done for the right reasons. It is ideal of me to think this is possible. I hope for such a world and hope I am doing my part to evangelize and make disciples of all nations. I think part of that is educating others that free markets make some rich who don’t always use it for the common good, and by its nature encourages selfishness. I think part of that is educating others that government distorts the beneficial processes of the free market and is often controlled by “economic dictators” (as we read from CST) who use it to maintain their wealth and status. I don’t think that free markets are the answer and I don’t think that the answer lies in more government control or spending. I think the Popes have taught the same thing. I think it’s clear that at the bottom of it all is that all of us need to act in solidarity for each other and the common good. I think you realize this, too, and I thank you for contributing toward this mission!

  • “To be quite blunt, few people other than their parents are really interested in the education of mentally handicapped kids, and that includes some of the special ed teachers we have encountered over the years. I would prefer a voucher system for all kids so that reliance would not have to be made on the state, since education, especially education for special ed kids, is something the state does poorly.”

    I agree there, Don. Public school special ed is far from ideal, but most of the time it’s the only game in town if you have a special needs child. (And in many areas, it took the force of the federal Individuals with Disabilities in Education Act, or IDEA, to make that possible.) It’s possible, I suppose, that if public schooling were abolished the amount of money families save on taxes could then be sunk into private education; but I wouldn’t bet on it ever happening.

    In the end I have to agree also with Alex, that both business and government are made up of fallen human beings and neither side has all the solutions.

  • Alex,

    I think in general we are in agreement. Glad you recognize we too are applying CST. One addition I would add is that we need moral poor. There is nothing inheritly moral about the poor. They too are fallen and can be corrupted by Govt. programs. Thus the need to be careful about social programs that can promote dependency and deter the poor from seeking to improve their life.

    “Transferring wealth that wealthy people won’t through personal charity is also beneficial to the society and the common good if done for the right reasons. It is ideal of me to think this is possible. I hope for such a world and hope I am doing my part to evangelize and make disciples of all nations.”

    One has to be careful here also. CST does not deny that there be classes. To seek to absolutely level the playing field is not in accord with CST. And while it does note the universal destination of goods, it does also teach that people are entitled to their property and to provide for their families. This includes, in the long-term. retirement. Wealth, which given current life-spans and costs, may be quite a bit for a couple seeking not, in accord with CST, to be dependent on the Govt. Also CST teaches that taxes should not discourage productivity. These are legitimate concerns for placing limits on the taking of wealth.

    Thanks for helping me evangelize about CST.

  • Alex,

    You, Philip and myself are in general agreement because we are all trying to apply the Truth practically and being Catholic we have the benefit of the teaching of the Church. We differ, as we should, in detailed application and on this the Church is silent. This is good because if the Church did all the work, what would be left for us to do?

    One thing to note is that the ‘wealthy’ and the ‘poor’ are not static classes in our country. I know people who were very wealthy one year, after years of being poor due to losses and some of the wealthy weren’t all that wealthy in following years. What we consider poor in this country would be considered very wealthy in most other places in the world and don’t fall for Marxist garbage about relative wealth within a society. Additionally, when we refer to the poor it is not always, exclusive or necessarily to the materially poor. One can be ‘poor’ and still carry envy and covetousness in one’s heart, which renders one no longer poor in spirit. When Christ stated that the wealthy will have a tough time getting into heaven, he wasn’t referring to the materially wealthy. After all some of his closest friends and disciples were wealthy. Levi (Matthew), who left his wealth to follow Christ and also Joseph of Arimathea, who remained wealthy – he even gave Christ his lavish garden tomb to rest in for three days – of course, Joseph didn’t know that Christ’s body was only going to reside in the tomb for a short while.

    While those who have wealth ought to give to the less fortunate, we have no right to demand that they do it through confiscation. The wealthy man is deprived of freely offering his material wealth in Charity and Truth if we force him to give it away. The recipient of the wealth is also deprived of accepting and offering his current poverty to God if we tempt him with ‘free’ stuff. Also, how is the poor man supposed to be grateful to God and the benefactor if he thinks that it is the government that provided him the benefits? As Phillip stated, making the poor dependent on government programs robs them of their dignity, which sadly, is the overarching purpose of government programs, to increase clients, and acquire a voting block and keep feeding the machine.

    Notice the good Samaritan. He helped the man on the road, he did not demand that Roman Centurions do it and he didn’t use threat of force to make someone else help the man. He did it himself, from his own Charity.

    A free market, that is kept free by government, is the environment that allows the most free choice and therefore the most good. Of course, it also allows for ill, but that is a result of our Fallen state and not the free market. Coercion, force, fraud, deceit and all other ills employed by fallen man in a free market should be checked by government without interfering or adding a burdensome compliance cost to all other actors. Of course, the government needs to be checked also. it is a balance and the pendulum will not stop swinging from one end to the other until the Judge returns to balance the scales. Nevertheless, we can keep a modest balance and when we err, we should always err on the side of freedom. Compulsion breeds resistance and resistance agitates and aggravates. Freedom allows for the Peace of the Holy Spirit.

    Another important point to note is that the Church, even in temporal matters, is chiefly concerned with the salvation of souls and not their material economic benefit. It is far better to be a poor Holy nation than a wealthy nation of perdition. Wealth is good, all material is good, when God created the world He said it was good, when He created our first parents He said they were very good. The garden was good, the tree in the middle of the garden was good in and of itself, it was not good for man to eat of it, but the tree was good. Since that disobedience we tend to use wealth, a good, poorly. It is us who taint it. Redistributing wealth through force is not good, even if a material benefit is facilitated. We cannot use evil means to do good, we are only permitted to use good means to do good.

    Violating private property, in order to bring about a good result, still results in breaking the seventh commandment. One could argue that killing an abortionist prevents him from killing others, yet since we have the power, at this time, to make his actions illegal, we have no right to employ murder, an evil, to bring about a good. We cannot rob one man to benefit another, just because we feel one man has too much and the other hasn’t enough. We create an occasion of sin for both men while we are sinning ourselves. Wealth maybe evenly distributed, but three souls may be lost to hell.

    Thanks for this discussion, it is very enjoyable and moves my mind to want to do my part in bringing about Catholic Social Justice by helping people understand what we ought to do, voluntarily; rather than through political force.

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:

    http://www.cato.org/pub_display.php?pub_id=5656

  • 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…

    Heh

  • 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 http://www.learcapital.com/exactprice 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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"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?

$668,621

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.

Debt Sun

Wednesday, April 22, AD 2009

 debt-sun

Hattip to Instapundit.  The Heritage Foundation supplied the above graphic which compares Obama budget “cuts” of $100,000,000.00 to the appropriations bill for fiscal 2009 of $410,000,000,000.00, the Bankrupt the Nation Act of 2009, sometimes erronously called the “stimulus” bill, which has a price tag of $787,000,000,000.00 and the estimated bill for fiscal year 2010 of $3,600,000,000,000.00.  How ludicrous is all this?  Ludicrous enough that the Obama supportive Associated Press makes fun of it.  Ludicrous enough that even Paul Krugman is chuckling.

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11 Responses to Debt Sun

  • Is this the equivalent of global warming?

  • Considering that Al Gore helped to create both Phillip, I’d say you are on to something!

  • Perhaps he could cut $100 million by merely not printing that amount!

  • The problem is that a lot of people will fall for this 0bama stunt. This man preys on the stupid better than anyone.

    It’s been a long time since I heard the word matterhorn.

  • Fron the “White Giant” to the “Red Dwarf”

    The end of life as we know it.

    OR

    The Big Bang, and the ever expanding universe. 🙂

  • You’re just upset that you’re looking at winter coming. 😉

  • “Either we turn away from this madness or our ecnomy will eventually hit a wall of governmental debt and the whole house of credit cards will come crashing down.

    I think we’re already getting there. This wretchedly regrettable crisis we’re currently in is merely but one of its manifestations:

    “The root cause of today’s crisis lies not in the housing market but in America’s foreign debt. Over the past four years the U.S. private sector has borrowed an astonishing $3 trillion from the rest of the world. The money, directly and indirectly, came from countries such as China, Germany, Japan, and Saudi Arabia, which ran huge trade surpluses with America. Foreign investors trusted their funds to U.S. financial institutions, which used much of the money for mortgage loans.

    But American families took on a lot more debt than they could comfortably afford. Now no one is sure how much of that towering sum the U.S. is going to pay back — and all the uncertainty is roiling the financial markets.

    SINCE MID-2004, AMERICAN HOUSEHOLDS HAVE TAKEN ON A BIT MORE THAN $3 TRILLION IN MORTGAGE DEBT.”

    SOURCE: Chief Economist Michael Mandel

    — and —

    “Experts say that even when the current credit crunch eases, the nation may finally have maxed out its reliance on borrowed cash. Today’s crisis is a warning sign, they say, that consumers could be facing long-term adjustments in the way they finance their everyday lives.

    ‘I think we’re undergoing a fundamental shift from living on borrowed money to one where living within your means, saving and investing for the future, comes back into vogue,’ said Greg McBride, senior analyst at Bankrate.com. ‘THIS ENTIRE CREDIT CRUNCH IS A WAKEUP CALL TO ANYBODY WHO WAS ATTEMPTING TO BORROW THEIR WAY TO PROSPERITY.’

    AMERICANS ARE MORE RELIANT ON DEBT THEN EVER BEFORE.

    The portion of disposable income that U.S. families devote to debt hit an all-time high in the second half of last year, topping 14 percent, figures from the Federal Reserve show. When other fixed obligations — like car lease payments and homeowner’s insurance — are added in, about one of every five household dollars is now claimed by bills.

    The credit card industry lobbied heavily in 2005 to tighten bankruptcy laws to make it more difficult for consumers to seek court protection and shed responsibility for paying off debt. But in a sign of just how much households have become dependent on borrowing, the average amount of credit card debt discharged in Chapter 7 bankruptcy filings has tripled — to $61,000 per person — from what it was before the law was passed.

    ‘We are going to have to cut back,’ said Dean Baker of the Center for Economic and Policy Research, a Washington, D.C. thinktank. ‘We’ve really been living beyond our means.'”

    SOURCE: http://www.msnbc.msn.com/id/27149408

  • “From the “White Giant” to the “Red Dwarf”

    The end of life as we know it.

    OR

    The Big Bang, and the ever expanding universe.”

    I’d vote for the Big Whimper Don!

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Red Ink

Wednesday, March 25, AD 2009

bush-obamabudget1

A look at the federal budget since 2000, with projections, for what little they are worth, by the White House and the Congressional Budget Office to 2019.  By CBO estimates last week, the budget deficits between now and 2019 would total $9, 300, 000, 000, 000.00.  The entire cost of WW2 for the US in 2008 dollars was 3.6 trillion.  This year the budget deficit will total 13% of our gross domestic product.  This isn’t economic policy, it is lunacy.  These type of deficits are completely unsustainable, and we are running towards national bankruptcy.  It is impossible to borrow these type of funds from abroad.  We will simply create the funds out of thin air.  The long term impact on our children and their children can be easily imagined.  As the Heritage Foundation points out, this is a completely bi-partisan disaster.  Politicians have acted like teen-agers with stolen credit cards for far too long.  However, this will stop.  It will stop either by voters throwing out of office the fiscally irresponsible, or, much more likely in my estimation, the economy will simply hit a brick wall.  This will not, cannot, go on.  How it is stopped is up to us.

Update I:  The President of the EU slams current US economic policy as a road to hell.  I never thought I would live to see the day when a President of the EU would have more economic sense than a President of the US.

UpdateII:  Hattip to Instapundit.  A sign of things to come.  Stocks slide after a lack-lustre sale of T bills and notes: 

“Bond prices fell after the auction of $34 billion in 5-year Treasury notes. The yield on the benchmark 10-year Treasury note, which moves opposite its price, jumped to 2.77 percent from 2.71 percent late Tuesday. The yield on the three-month T-bill rose to 0.19 percent from 0.17 percent Tuesday.

Investors gave an unexpectedly cool response to the note sale just a day after a $40 billion auction of 2-year notes suggested strong demand. The government is running up huge deficits in order to fund an array of plans to provide stimulus to the economy and support to the ailing financial system. Any suggestion that demand for U.S. government debt is weakening is a negative for stocks, simply because Wall Street has been relying so heavily on the government’s rescue plans.

The surge of worry over the debt auction wiped out the market’s early optimism in response to durable goods and home sales data.”

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9 Responses to Red Ink

Of Tea and Taxes

Wednesday, March 18, AD 2009

dont-tread-on-me

In politics, as in physics, an action causes a reaction.  With the election of President Obama and strong Democrat majorities in both houses of Congress, the stage is set for a radical increase in the size, power and scope of government to transform the United States into a socialist state, along the lines of the European social welfare states.  The Bankrupt the Nation Act of 2009, erroneously called a stimulus bill, is merely the first step in the process.  The President has already warned of trillion dollar budget deficits as far as the eye can see, and he has the votes for now to carry out his vision.  Can he be stopped?

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7 Responses to Of Tea and Taxes

  • I hope there’s a debate, Donald.

    Vice President Biden during one of the Democratic primary debate said that he was astounded as to how much money is thrown into the election process and how much money people will throw to get a candidate elected, but we cannot raise the funds — either through government or private means — for issues like alternative energy, health care, education, and the like.

    I’d gladly pay more in taxes if the cause is worthy. I can’t speak for the rest of the country.

    Again, I’m glad you clearly outlined the need for a debate. I’ve never in my life agreed with Republicans so much, but just as I begin to reflect on it: am I really a Democrat? The answer is a resounding ‘yes.’ I agree with the GOP in the ‘no,’ but that’s what the Republican Party seems to be wrestling with right now. They cannot, in my view, be successful in the long-term if they run only as opposing Obama’s “out there” policies and then sweep Congress and maybe the presidency in 2012 with no plan of what to do. So, on the “no,” I’m with you and on the specifics of what to do, maybe we can begin the debate there.

    Good post.

  • Thank you Eric. The debate is really long overdue and I can understand why. It will be very painful to come to grips with fundamental questions of what government should do and how we will pay for it. However throughout most of our history we did just that and we must do so again.

  • Well, Donald, I think Gov. Quinn has just handed us Illinois residents an excellent warm-up exercise (in the form of his tax increase/budget proposal) for that national debate.

    In fact he explicitly asked the question you raise: if you insist on no budget cuts, tell us how you plan to pay for what you want; if you insist there be no new taxes, tell us what you plan to cut and why. I personally don’t agree with everything suggested in this budget, but the debate is, after all, just getting started.

    I presume similar debates will take place in other states, which also face severe budget shortfalls, but can’t print money or borrow from foreign nations to cover them up.

    I also believe that our current economic and fiscal woes, both at the state and national level, could perhaps be seen as our payback, penance, karma or whatever for our past electoral sins — voting for candidates who told us only what we wanted to hear, ignoring obvious corruption and incompetence, and adhering to party loyalty over principle.

  • Well said Elaine. In Illinois we are at a later stage in the debate than the nation is. We had the Build Illinois drunken sailor binge under convicted felon George Ryan (R.), or as many of us fondly deemed it, Bilk Illinois. Bloggo (D.), in addition to being a crook, was a lousy manager of the fiscal house of the State. Now the State is facing bankruptcy and so the best idea our government can come up with is a massive increase in taxes, sans the needed debate, thus far, on cutting spending. Crunch time is coming however, and this debate is going to take place in Illinois, in spite of the fact that most politicians would prefer to eat ground glass than to squarely address this fiscal nightmare.

  • It has come to this. The Porkapalooza Bill has forced a long overdue national debate on Gummint And Its Size. Reaches in all kinds of places- as in Philly Mayor Michael Nutter proposing temporary nudge nudge wink wink increase in property taxes to keep the swimming pools and neighborhood libraries open. Ignoring that the city’s population but a fraction of that two generations ago. Oh well no police or fire protection affected. But may come down to these points. What is necessary and what constitutes the category of Don’t Take Away My Teddy Bear. Happy to see our Washington Elite looking absolutely buffoonish in their efforts to demonize AIG. Spring is such a lovely time for protests. Had been the province of the sensitive and concerned over War In Iraq, Women’s Right to Choose, other stuff. This time, a different crowd with different beefs. Let the games begin.

  • Eric,

    They cannot, in my view, be successful in the long-term if they run only as opposing Obama’s “out there” policies and then sweep Congress and maybe the presidency in 2012 with no plan of what to do.

    While you won’t hear it on MSNBC or broadcast news, or the NY Times, the GOP has a health care plan, an energy plan, and an alternate stimulus plan, and an alternate budget. It’s unfortunate that the mainstream media doesn’t give the current opposition the play that the Democrats had under Bush.

    The Republicans certainly must find a way to get their message out that there is a BETTER way than selling our future, which is precisely what the Democrat tax and spend policies will do… slower economic growth and rising inflation for many years to come, with the tax the rich limitations slowly or suddenly dropping from 200k to 25k… We’ll be in the doldrums unless this is halted and reversed VERY soon.

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Don't Make It Hurt

Monday, March 2, AD 2009

So here’s an argument against irreducible complexity.  Take a family that works hard for a living, saves a large chunk of its earnings for old age, emergencies, sending kids through college, and so on.  Then create (through some combination of amino acids and other proteins) an institute that offers insurance against disaster.  The family, being prudent, realizes that the insurance, while it costs them a little more each month, could potentially save them thousands of dollars in the long run, and so it buys into the insurance company.  Now introduce a mutation: the family decides that since disasters are covered, they can divert a little more money into luxuries. Repeat this process with a health care institute that helps cover the soaring prices of medication; a loan agency to cover college tuition (which is steadily outpacing what the normal family can afford); a loan agency to cover the cost of a business; a house; a car; anything at all with the swipe of a plastic card with a magnetic strip.  With that final mutation, we now have a system in which the removal one component causes the whole organism to fail, and yet was built up by increments.

Nearly half a year after the great crash that marked our current recession as one of the worst in decades, we are still bleeding.  Our economy continues to shed jobs; the stock market wavers, falls, stabilizes, wavers, and falls again; big businesses, like the insurance titan AIG, continue to need billions of dollars of bailout money just to survive; and the government continues to scramble to pass legislation that supposedly will fix all our problems, but in reality will simply make matters worse.  The gigantic stimulus package was laughable (in more a mad, gibbering, hysterical laughter than a ha-ha laughter) in that hundreds of pet projects suddenly found funding, but precious little in the bill actually targeted economic stimulus, and much of the spending won’t happen immediately.

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8 Responses to Democrat Economy

  • Why “Democrat” economy? As Arlen Spector said, the Republicans essentially support this bill, but are afraid to put their fingerprints on it.

  • Arlen Spector, besides being a RINO, is a liar. This monstrosity is the Democrats’ gift to the nation. Besides Spector, and the Maine RINOS, the Republican party was unified in its opposition.

  • While one ought to roll eyes at superstition, I’d say that the Friday 13 passing of this trillion-dollar bag of pork-rinds is a bit of a morbidly funny harbinger. I am also glad it passed (first, because it was inevitable and second, because its inevitable doom may seal the ultimate downfall of the Left, even as the Left enjoys its shining little “moment,” at least right now).

    More horrific is the complete lack of innovation that surrounded this grand Democratic scheme to solve (or at least blunt) the crisis. Obama the new, new Visionary (for that is indeed the specific image he cultivated, sold, and rode-upon into office). Some “vision.” This bill is not only the most pedestrian, predictable, and typically uninspired Leftist folly right out of the tattered playbook, it is the fattest.

    This kind of “same old, same old” is far more ridiculous than the “past eight years same-old” that Obama, Pelosi, Reid and the other dwarfs have been whimpering about. Is anyone amazed at how the leftist imagination is so easily titillated and indoctrinated, en masse, by the most generic clouds of stardust? No. People may rightfully decry Bush and his myriad difficulties, but with the passing of this bill, the Obama Cult has officially become the greatest hoodwink in American history.

    None of that matters, now. We’re in for it. Obama plans to address the housing crisis on Wednesday. More drab policy-wonking and ineptitude. The horror is that so few Americans have even a shred of a clue that there is no solution to this largest segment of the crisis. Nothing can be done, short of having allowed (and continuing to allow) the big banks to utterly collapse and find a way to prop-up the smaller banks that did not have the means to engage in the pervasive lending abuses of the giants, and thus make it easier for the crashed banking infrastructure to reset itself even a tiny bit.

    That, at least, would put ~some~ sort of a dent in the fact that over 70 percent of those in the market for a house can never qualify for a loan now (even if 20 percent of that 70 actually DO qualify), with housing prices not even at the nadir, yet, and inventory all the way to the moon. Letting the offending banks and lenders fail and giving incentives to the smaller, up-and-coming banks would have helped put that 10-20% of qualified buyers back on the map. Even getting 5% of those who still truly qualify (but who cannot get a loan to save their lives) back on the map would have had a salvific impact. A superb pilot-light in the darkness. That would have been a real stimulus, right there. A genuine stimulus.

    But no one gets this. Few, at least. America doesn’t get it. I’ve been in lending and real estate for almost 20 years, in California. I can attest that Americans haven’t a proverbial clue and our representatives (touchy Republicans and dingbat Democrats alike) are evading the primary issue, on top of the Democrats’ execrable compounding of the issue. Everyone knows this stimulus is going to fail and that even its pithy scraps of assistance won’t register a blip for years. To secure their paradigm, Obama and the Democrats betrayed the nation and cobbled together this piece of garbage as quickly as possible (under the “we need it as swiftly as possible” mantle) at the expense of bipartisanship and the future. Certainly, a six-month attempt at coming-up with something truly innovative and potentially successful would have been wise. But that’s not on anyone’s agenda, in the beltway.

    How this administration can dare uphold even a mere pretense of being innovative and visionary is, at best, a joke, now. With the passing of this cobbled-together, typically uninspired-yet-exorbitant stimulus, the Obama presidency has already become an apocalyptic disaster. A massive failure. Truly: everything to come from him over the next four years is going to be so much fiddling amid the conflagration.

  • I’m not sure if the stimulus will help that much in the current economic environment. Economies go through cycles and recession is part of the cycle. I read a good article on the history of cycles at, I think,

    http://www.recessioninfocenter.com

  • I was looking at a chart of the DJIA for the last four years, it’s interesting to note that it was on a steady rise until November 2006… since then it has been declining.

    What happened in Nov 2006 that could possibly account for this?

  • What happened in Nov 2006 that could possibly account for this?

    Hmmmm,…., I seem to recall that there was an election that month,….,

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Does It Really Stimulate?

Thursday, February 12, AD 2009

It seems a bipartisan effort to ensure that there is some sort of stimulus bill, and only a few politicians think there should be no package at all.  Many economists have warned in the past, and continue to do so now, that stimulus packages like the one currently waiting final approval, do not work.  Let’s take a moment and examine the arguments as to why they don’t work.

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2 Responses to Does It Really Stimulate?

  • The Porkapalooza Bill is a classic example of the foolishness in this phrase- Don’t Just Stand There Do Something. It represents everything that the Washington Elite in their heart of hearts have wanted to inflict on their fellow Americanos since well nigh 1933. All in one big lovavble pork-filled sausage casing. Do not think many of us in PA will forget seeing GOP Senator Arlen Specter snuggling up to Dingy Harry Reid in the announcement of Pork In Our Time. At same time- except for mania for infrastructure- don’t see how state and local governments will receive help from Porkapalooza. Philly Mayor Michael Nutter told his top managers to give him three cost-cutting scenarios each- bad, really bad, and Oh My (will not break 2nd Commandment on this blog.) Meaning- up to 30 per cent budget cuts across the board. Including a possible 2000 or more police officers turning in badges. PA Government may or may not be in dire straits- we may not know until the annual late-June early-July kerfuffles between Gov. Fast Eddie Rendell and wascally Wepublicans(according to PA MSM, of course.) Meanwhile I hope to promote cousin Edward for Sen. Specter’s seat- devout Catholic, ethical lawyer, doting father of 2-year-old Katie, makes me look like a flaming liberal. Until then, we shall hold and roll.

  • Gerard,
    If I have any money left after being forced to subsidize abortion and welfare, I will donate to your cousin’s candidacy.

Obama and the Stimulus Package

Tuesday, February 10, AD 2009

Has anyone ever wondered if it is possible that one can land in a financial crisis when one has a steady income, no debts, and a large reserve of money in case of emergencies?  Certainly, I suppose, if something devastating comes around, like an accident that requires weeks in the ICU, surgeries, and a long rehabilitation, that could bankrupt a person.  Yet such accidents, on a whole, are rare, and most people who live a financially responsible life never have to plead for a bailout.

When we look at our current financial crisis nationwide, I can’t help but wonder what people are thinking.  President Obama has promised us trillion dollar deficits for years to come in an effort to restore our economy.  Like most right-leaning folk, I’m under the impression that our current crisis has come from overspending, living beyond our means, and not being prepared for when we hit bumpy times in the economy (like $4/gallon gas, which drives prices up all around).  Perhaps, if this view is incorrect, someone will be willing to explain to me why it is so.  But my impression has been that first, people individually are consumed with buying, buying, buying, even when they don’t have the money to buy.   I have friends who, though they grossed over $60,000 a year, were still living paycheck to paycheck because of their deficit spending.  I’ve seen people who, upon receiving their government money, have gone and blown it on new cell phones (that are shut down after two delinquent months), on fancy steack dinners, and so on, instead of buying necessities or saving up what they can.  I’ve seen people struggling with hundreds of thousands of dollars of accumulated debt that came from student loans, house loans, car loans, credit cards, and so on.  This is just what I’ve seen.  What I’ve heard–word of mouth, or in the news, or on blogs–is even worse.

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18 Responses to Obama and the Stimulus Package

  • My personal feeling is that the dollar will die within the next 10-15 years. I just don’t see how it can survive all these pressures of printing and borrowing in order to pay for entitlement programs and foreign interventions.

    If Obama were really interested in rescuing the economy and preserving the nations ‘greatness’ while there is still time he would:

    1.) End our overseas commitments, whose cost is perpetually skyrocketing to the detriment of our blood and treasure; not to mention the liberty of those we are trying to “help”

    2.) Audit the Federal Reserve if you aren’t willing to abolish them. The Fed is a quasi-public/private cartel of banks that has control of our currency via manipulating interest rates. Who the hell are they to arbitrarily decide the price of money? Our fiat currency had been far too politicized, thanks to the removal of any kind of commodity standard. We need to know what the Fed has been up to in total. Its way past time Congress reassert its powers and responsibilities.

    3.) Create a long-term transition away from entitlement programs. It turns out the Great Society ain’t so great. While many people are now dependent on the state to survive, the costs we could save from ending foreign commitments could be moved towards these programs as we slowly close them down over time. Congress should be barred from raiding Social Security/Medicare and Medicaid funds for their pet projects.

    4.) Elimination of the Income Tax. The government could easily put money back in the hands of consumers instantly by simply not taxing the fruit of their labor. There are plenty of other tariffs and taxes that would maintain the size of government at about the level it was in the Clinton years. If you have to institute a consumption tax, fine… but it should eventually be phased out too.

    5.) Secure the border. If the Defense Department really needs something do, why can’t they defend our federal border from rampant illegal immigration? Immigration, particularly of educated individuals is crucial to our society’s resources, but that is a far-cry from the seemingly endless free-for-all occurring on the border with Mexico. If the Mexican government were ever to collapse, the U.S. has to be able to preserve its physical integrity. Entitlement programs in medical care and education that have an effect of subsidizing illegal immigration should be ended.

    6.) Allow the liquidation of assets to occur. If the banking industry, real estate industry, auto industry etc. don’t fail how can we ever rebuild on a better footing? We have to discover the price of their assets by rewarding the people who have saved their money. They are the ones capable of bringing on a genuine recovery and moral redistribution of wealth. What is occurring now is an attempt by the elite and politically-well connected to keep the status-quo afloat at the expense of taxpayers and responsible consumers. This process will undoubtedly be extremely painful. But quick and painful is preferable to slow and painful.

    The fact is for the last few decades we’ve been living in a fantasy world of cheap money, easy credit and an entitlement mentality. Thats NOT what this country was ever supposed to be about. We’re supposed to work towards lifting ourselves up so that the next generation could go even higher. Instead we chose the pleasures of today at the expense of tomorrow.

    We aren’t the first generation to ever act this way. Its something that can be forgiven and reversed if we are willing to endure the consequences of our bad decisions. There’s no easy or popular way out. Its time to freaking man-up and deal with it.

    At least thats the way I see it.

  • I’m usually just a lurker here and love The American Catholic writers and the in depth dialogue here – Thank you. … I can’t help myself in making this point to enough people… I believe the goal of Obama and whoever is behind him is to destroy this country and maybe that just means Democracy but I can’t help think it also includes Christianity.

  • Lee,

    I really hope you’re wrong.

  • I think it is inappropriate to accuse the President of wanting to destroy the country. After listening to similar accusations from Bush-haters for the last eight years, I think those on the right should be especially sensitive to this.

  • I don’t believe that the President intends to destroy this country. I think he sincerely believes that unprecedented deficits that our descendants will never be able to repay, an ever-expanding public sector, and enhanced government regulation are the path to prosperity. Truth to tell I would have more intellectual respect for the President if I believed that he did wish to destroy the country, instead of accepting the fact that he actually believes this snakeoil.

  • Lee,

    I would also caution against spreading that speculation. I’m more in the camp that Obama and his ilk are plunderers (cf Ayn Rand’s Atlas Shrugged), and they simply think they can keep plundering the wealth accrued by our hard-working, industrious citizens indefinitely.

    Part of the problem is that there’s a disconnect between viewpoints on the right and the left. The ideas of how economics work, how to stimulate job growth, how to make sure everyone has his needs met, are so divergent there is simply no middle ground to work with. To this extent, both sides see the other as being completely disassociated with reality. Frankly, I believe most of these people who are willing to plunder our nation–and they are on both sides of the aisle–are the ones who are truly disconnected with reality. The plundering occurs to score political points, and those points continue to put a person in power.

    Now, I don’t really see what Obama gains personally by being president, except that he gets to be the one directing the course of the nation. Now, most people are drawn to one party or another because they believe that party has a particular vision that agrees with their own view (even if that party hasn’t held that vision since 1960). I think Obama truly believes there are huge injustices working in our nation. Ask any Democrat, and you’ll get that kind of response. In some cases, those injustices are completely valid, and Republicans are remiss in failing to address them. In other cases, those injustices are trumped up, or are infantile railing against the natural order of the world. But just because they’re trumped up doesn’t mean that the person advocating fixing those injustices knows it.

    Consider the plight of having extremely wealthy and extremely poor in our nation (though, arguably, our poor are wealthier than most “wealthy” in many third-world nations). Democrats view this disparity as coming from free market economics, a system that plunders the poor for the advantage of the rich. (I’ve argue long and hard with my sister on this point, and she won’t budge an inch on the denunciation of capitalism as personified by the industrial giants of the late nineteenth century.) Republicans view the disparity as being derived from government interference, whose subsidies and favoritism to lobbyists create situations and loopholes that permit the plundering to occur. I believe the disparity comes in part because the free market permits people to get rich by working hard (and often being in the right place at the right time), and permits people to be destitute by not working hard, or having the wrong ideas, or being in the wrong place a the wrong time. But I also believe that governmental interference with the markets by and large has permitted the grossest of injustices to occur. So when I see someone calling for more governmental oversight, more governmental interference, more governmental control, I cringe and feel that the person calling for this is either off his rocker, malevolent, or making power plays.

    But you have to understand, that someone working with that opposite viewpoint things the same about me when I call for deregulation, for tax cuts, for more faith in the market, and so on. When Obama speaks about the “failed policies of the past eight years”, I really think he believes what he says. That doesn’t mean he isn’t flat out wrong, but I think he’s honest about it.

    But I also think he is plunderer, in the sense that he feels the hardest working and most successful have an obligation to subsidize those who aren’t as successful. Now, Catholics believe that a man’s excess wealth should by right be accessible to the poor, but that can be accomplished in more ways than just handing money out. But there’s a big difference between believing there’s an obligation on the part of the rich to help the poor, and believing that a person can only be rich at the expense of the poor, and therefore should have his possessions forcibly confiscated and returned to the “rightful” owners, which I think Obama believes.

    Have no doubt–I believe Obama’s economic policies will do much to ruin our nation. But I also believe he feels he’s doing right. But then, I believe no one willingly does evil. They simply convince themselves that what they want to do is good, and then feel justified in what they do.

    Of course, you could argue that Obama sees the destruction of this nation as a good he is fighting for, but I don’t think there’s much justification for that.

  • “Catholics believe that a man’s excess wealth should by right be accessible to the poor…” – Ryan Harkins

    I disagree. I do not have such a low opinion of Catholics as to believe that Catholics approve of envy, theft, and ingratitude.

  • Micha Elyi,

    Of course Catholics do not approve of envy, theft, and ingratitude. The principle I’m referring to is when a man has more wealth than he needs, and the poor person does not even have the essentials for survival. The right to private property does not outweigh the obligation to work towards the common good, especially when one can deliver needed sustenance to those who would perish without. The Catholic church does not approve of theft, and many of the arguments we tend to have concerning social justice is whether, say, governmental taxation and entitlement programs are thinly disguised theft, or if they are true genuine charity, the option that is least bad for helping the poor.

    The problem that we face is how much wealth one can possess before any more is truly excess, and how little one can possess before it constitutes to a desperate situation that permits the usage of another’s goods in order to survive.

    Context, Micha Elyi, should help resolve what I’ve said with what the Church teaches.

  • This stimulus plan is the old “wrong execution of the right idea”. The
    righy idea being something is needed to “kick start” the economy after a
    brutal loss of confidence. But piling on more debt after execessive debt will
    not work anymore than giving a heroine addict more heroine.

    We must do what Kennedy and Reagan did. Cut Taxes!

  • Ryan,

    The right to private property does not outweigh the obligation to work towards the common good, especially when one can deliver needed sustenance to those who would perish without.

    I think you’re comparing apples to oranges here. It is precisely because we have a right to private property, that we have a moral obligation to work towards the common good.

    The Catholic church does not approve of theft, and many of the arguments we tend to have concerning social justice is whether, say, governmental taxation and entitlement programs are thinly disguised theft, or if they are true genuine charity, the option that is least bad for helping the poor.

    While the state has an obligation to insure the barest needs of the poor are met, even when the state does step in, it is not out of charity in any Catholic sense. The state is incapable of theological virtues as far as I understand it.

    The problem that we face is how much wealth one can possess before any more is truly excess

    In our economy, the excess wealth is that which one keeps in one’s mattress, or uses to buy yachts. Funds invested in the markets, bonds, treasuries etc. is not excess, it is actually “working”, it is providing the needed capital for job creation, manufacturing needed goods, and in fact funding social programs. There is such a thing as excess consumption. The beauty of the fair tax is that it taxes consumption, not wealth.

    and how little one can possess before it constitutes to a desperate situation that permits the usage of another’s goods in order to survive.

    If they have cable TV, DVD, a car, cell phone, MP3 player, etc… then… I submit that their situation is not so desperate.

  • Good post, Matt. I would add that a free society means that one is free to behave selfishly. The miser who shovels wads of money under his mattress and the big spender who buys more houses and yachts than necessary are both guilty of being uncharitable, but that does not give the state the right to take their property away. Characters like Paris Hilton can momentarily make a Marxist out of even me, but then I remember that there have always been rich people who choose to lead selfish and self-serving lives. They will be judged, just as the rest of us will be.

    If charity is forced, it is not a virtue. And you are perfectly right that the state is not in the charity business, but in the business of expanding itself.

  • Donna V.,
    I would add that a free society means that one is free to behave selfishly.

    Quite right, I meant to be suggest that, to the extent that the state is obligated to provide for the common good, that it should be funded from excess consumption rather than by reducing the capital which is the engine of the economy.

  • Matt,

    I think you’re comparing apples to oranges here.

    Hardly at all. The crux of the question is how much wealth is enough, and how much is too much (or excess)? At what point does a person have so little that he has a right to appropriate my property in order to survive? Private property and working towards the common good go hand in hand. The common good upholds the notion of private property (for a variety of reasons, like making our work fruitful, like providing for our individual needs so as not to be a burden on others), but that does not mean that private property is inviolable, either.

    But keep in mind that you’re making way too much out of my statements. I’m not in the slightest an endorser of the massive lot of entitlements the government keeps handing out. What I do endorse is understanding two things. One, we Americans have by far more stuff than we need. Just think of all the things that you could do without (and maybe should, since wealth has this nasty tendency to get between one and God (cf Luke 16)). Two, while investments are good long-term strategies for both making sure one is provided for in old age and providing jobs for people, there are plenty of people who need some short-term solutions just to make it to the long-term solutions. I would hope that these are apparent. The question then is: how do we best help those who truly need an act of charity to make it through the day?

    The Catholic church does not approve of theft, and many of the arguments we tend to have concerning social justice is whether, say, governmental taxation and entitlement programs are thinly disguised theft, or if they are true genuine charity, the option that is least bad for helping the poor.

    While the state has an obligation to insure the barest needs of the poor are met, even when the state does step in, it is not out of charity in any Catholic sense. The state is incapable of theological virtues as far as I understand it.

    Keep in mind I just stated what the dilemma was here, and not a solution. You have proffered an understanding of the government that bars any true charity in governmental acts. I would counter, reluctantly, that the government is made up of people who are capable of charity, and who often enough believe that passing laws to force others to subsidize the needy is the only way to provide aid. But I say reluctantly, because Donna states it correctly when she says: If charity is forced, it is not a virtue. But you have to understand where the supposed charity theoretically lies in the case of the government–it is supposedly (and I say supposedly because too often I feel the government entitlement programs have nothing to do with charity, and everything to do with political power) on the side of the government officials who are wresting the money from one person to another. The absence of charity is, often enough, on the part of the tax-payer, because their tax dollars are an obligatory contribution, not a gift.

    Of course, if we look at charity–the love and willingness to give of oneself for another (even a stranger) because of one’s love for God–then we see that the government official fails in part because the wealth is taken from someone else, not the official. But then, you have to understand that a case could be made that the government official’s giving of herself is the giving of her time and talent to craft those laws that wrest the money from the rich man and redistribute it to the poor.

    Now, if it seems that I’m wishy-washy here, or waffling, or whatever, it is because I’m just writing arguments. I’m not arguing one side or the other; I’m merely presenting other factors to consider. I don’t think my case for the charity of the government worker is at all compelling, but it is an argument that can be made, and to someone in power, is a good justification for enacting massive entitlement programs. (That whole fallen nature thing I’m sure comes into play somewhere around here.)

    If you want my honest opinion, it is that most government entitlement programs enable sloth, breed envy, and in general make the situation worse. The principle of: if you subsidize something, you get more of it is at play. Sometimes love for our neighbors has to be tough love, but the only way to know if that is the case is to be intimately involved with our neighbors.

    Just some things to chew on.

  • Ryan,

    Ryan:The right to private property does not outweigh the obligation to work towards the common good, especially when one can deliver needed sustenance to those who would perish without.

    Matt:I think you’re comparing apples to oranges here.

    Perhaps I’m misreading, but in my understanding you are comparing the right to private property with the moral obligation of that owner to give of his excess to support the poor. The first is a right, the second is an obligation which flows (at least in part from the right), it is not a question of one outweighing the other.

    But keep in mind that you’re making way too much out of my statements. I’m not in the slightest an endorser of the massive lot of entitlements the government keeps handing out.

    I recognize this, just seeking to clarity.

    What I do endorse is understanding two things. One, we Americans have by far more stuff than we need. Just think of all the things that you could do without (and maybe should, since wealth has this nasty tendency to get between one and God (cf Luke 16)).

    Absolutely, and with regard to “stuff” this is exactly the argument in favor of the fair tax, which targets stuff.

    Two, while investments are good long-term strategies for both making sure one is provided for in old age and providing jobs for people, there are plenty of people who need some short-term solutions just to make it to the long-term solutions. I would hope that these are apparent. The question then is: how do we best help those who truly need an act of charity to make it through the day?

    Principally by letting those who have a right to those investments determine what portion ought to go to charity, it would be for God to judge them on their culpability for letting greed interfere, secondarily, by the state acting as an emergency backstop to take by compulsion what it is absolutely necessary (all the better based on consumption rather than income)

    Matt: While the state has an obligation to insure the barest needs of the poor are met, even when the state does step in, it is not out of charity in any Catholic sense. The state is incapable of theological virtues as far as I understand it.

    Ryan: You have proffered an understanding of the government that bars any true charity in governmental acts. I would counter, reluctantly, that the government is made up of people who are capable of charity, and who often enough believe that passing laws to force others to subsidize the needy is the only way to provide aid….The absence of charity is, often enough, on the part of the tax-payer, because their tax dollars arean obligatory contribution, not a gift…a case could be made that the government official’s giving of herself is the giving of her time and talent to craft those laws that wrest the money from the rich man and redistribute it to the poor.

    Excellent! This is the sort of precision I like (I recognize that you aren’t agreeing with these arguments).

    1. government people are capable of charity – absolutely
    2. government people believe that taking from the wealthy to give money to the poor is charitable – absolutely, but they are in complete error on this (the crux of my opposition)
    3. government people are charitable when they give their efforts to taking from the wealthy – they are in error, particularly when they are paid, it increases their power or furthers their ideology. They may be charitable to an extent when they give of themselves as part of their work to aid the poor, and/or they sacrifice potential for private sector wealth by working for government (great distinctions have to be made here, as this may be exceedingly rare).

    My definition of “government people” extends from legislators, to employees of government and non-governmental organizations (as well as those who support such) who’s practice it is to expand the role of government.

    If you want my honest opinion, it is that most government entitlement programs enable sloth, breed envy, and in general make the situation worse. The principle of: if you subsidize something, you get more of it is at play. Sometimes love for our neighbors has to be tough love, but the only way to know if that is the case is to be intimately involved with our neighbors.

    Amen! The amazing thing is that true Charity has a much better impact on the reciever and the sender because it is not seen as an entitlement or taking but a gift of love.

  • Matt,

    Just to clarify:

    Perhaps I’m misreading, but in my understanding you are comparing the right to private property with the moral obligation of that owner to give of his excess to support the poor. The first is a right, the second is an obligation which flows (at least in part from the right), it is not a question of one outweighing the other.

    I’m viewing this more as a weighted scale than a comparison. Our first obligation is to take care our of ourselves, and we are not called to give charitably when doing so harms our ability to survive. But as we accrue more wealth, the possibility of a contribution harming said survivability decreases, and eventually vanishes (save for being stupid about it…). At some point, we have so much (think scales dropping well below the equilibrium point) that we have a graver obligation to use that wealth for the benefit of others than for our own concerns.

    So it really isn’t comparing two unrelated objects (in my mind, anyway), but trying to determine where the tipping point comes, and what should be done when the scales tip.

  • Ryan,

    Our first obligation is to take care our of ourselves [, our families and those we have a special obligation to], and we are not called to give charitably when doing so harms our ability to survive. But as we accrue more wealth, the possibility of a contribution harming said survivability decreases, and eventually vanishes (save for being stupid about it…). At some point, we have so much (think scales dropping well below the equilibrium point) that we have a graver obligation to use that wealth for the benefit of others than for our own concerns.

    Now we’re on the same page, the apples-apples is obligations, to our own vs to others. I agree completely. Of course, using our wealth for the benefit of others is not necessarily direct help for the poor, it can include hiring workers or investing in businesses that do so.

  • using our wealth for the benefit of others is not necessarily direct help for the poor, it can include hiring workers or investing in businesses that do so.

    I might add, that growing our business is not charity, even if it helps others. No matter how many people we help through employment, we have a serious obligation to direct charity.

Uncle Sam Borrower

Friday, January 9, AD 2009

broke-uncle-sam

A look at the credit score of the US government if Uncle Sam had to fill out a credit app.  Hattip to Instapundit.

Update:  Powerline has a depressing look at the projected budget deficit for this year as a percentage of gdp.  We are getting into very dangerous territory, starting with the 750,000,000,000 bailout under President Bush last year, as to the amount of debt that the Federal government is incurring in a very short time.

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2 Responses to Uncle Sam Borrower

  • Obama is predicting trillion dollar deficits for years to come… this is insanity, get ready to start using your dollars for fuel or toilet paper.

    This is a deeply immoral action, as it involves taking money from our descendants.

    Mat

  • I like the way you present the number with all the zero’s… Really helps the size of this thing sink in.