Numbers worth thinking about:
In 2009, this administration increased discretionary spending by 34% and overall Federal spending by 17%. In 2010 overall Federal spending is projected to increase another 9%.
The administration's projections, including a $1.4 TRILLION deficit this year, are based on projected annual GDP growth rates of 3.5 to 4.5%. The actual rate has declined to 2.4%, so tax revenues will be much lower and hence the the budget deficits will be much higher than projected by the administration.
It's hard to get an accurate estimate of the Federal workforce, because so many of them are off-budget. But the best available estimate is that the Federal government has hired about half a million new Federal workers and contractors since the recession began.
Saturday, July 31, 2010
As usual, the elite take care of their own
I see that the House Ethics Panel is recommending only a reprimand for Rep. Charfles Rangel. As usual, the ruling elites take care of themselves, issuing a slap with a wet noodle for a House member misusing his office. So much for Speaker Pelosi's promise to "drain the swamp".
Friday, July 30, 2010
The CBO's latest warning
The Congressional Budget Office has just issued a white paper entitled Federal Debt and the Risk of a Fiscal Crisis. In it they note that the federal debt is now higher than it has been since World War II, and they make two projections. The "extended baseline" projection, assuming the laws as they stand now, has the debt reaching 80% of GDP by 2035. The "alternate fiscal scenario", which assumes some expensive changes the CBO expects this Democratic administration to enact (such as renewing the 2001 and 2003 Bush tax cuts, and increasing Medicare payments to physicians over time) grows the federal debt to 110% of GDP by 2025, and to 180% of GDP by 2035. By comparison, Greece is in deep financial trouble with a debt of only 115% of GDP (as of 2009).
The underlying point is simply that the CBO thinks we are on an unsustainable path, and at increasing risk of a fiscal crisis that would make the current recession look minor. I fully agree with them.
Unfortunately, this report, issued this past Tuesday, is being largely ignored by both the media (more interested in the Wikileaks issue and Rep. Rangle's ethics problems) and, more significantly, by Congress and President Obama. Clearly the issue shouldn't be which expensive new program to pass next - we are ALREADY in trouble. The only issue ought to be where to CUT the Federal budget first.
The underlying point is simply that the CBO thinks we are on an unsustainable path, and at increasing risk of a fiscal crisis that would make the current recession look minor. I fully agree with them.
Unfortunately, this report, issued this past Tuesday, is being largely ignored by both the media (more interested in the Wikileaks issue and Rep. Rangle's ethics problems) and, more significantly, by Congress and President Obama. Clearly the issue shouldn't be which expensive new program to pass next - we are ALREADY in trouble. The only issue ought to be where to CUT the Federal budget first.
The problem with unions
In the 1920's and 1930's, unions made a lot of sense. Big companies exploited their workers shamelessly, and only by organizing could workers get enough leverage to improve their pay and working conditions. Unfortunately, many unions eventually evolved past their original necessary functions, and became power centers for their leaders (and sometimes for the mobs). The result was unions whose incessant demands eventually brought down the very companies who provided the jobs in the first place. In industries like the steel industry, union wage demands eventually drove most of the steel business out of the country. In the auto industry it bankrupted the companies, who would have disappeared entirely by now were it not for a government bailout.
The July 24, 2010, Washington Post article Rhee dismisses 241 D.C. teachers; union vows to contest firings, is yet another example of how unions are now part of the problem, not part of the solution. All across the country, teachers unions oppose any steps to tie pay and jobs to performance. In almost any other industry it is taken for granted as a fact of life that poor job performance will lead to being fired. Not with union teachers, though.
We have serious problems with our national education system, especially at the elementary and secondary level. Things aren't going to get better until we make changes. Teacher's unions are almost unanimously against almost all the changes that are needed - dropping the seniority system, pay for performance, requiring better teacher training, standardized progress testing, etc. etc. It is yet another example of how unions have ceased to be a help and become a problem themselves.
The July 24, 2010, Washington Post article Rhee dismisses 241 D.C. teachers; union vows to contest firings, is yet another example of how unions are now part of the problem, not part of the solution. All across the country, teachers unions oppose any steps to tie pay and jobs to performance. In almost any other industry it is taken for granted as a fact of life that poor job performance will lead to being fired. Not with union teachers, though.
We have serious problems with our national education system, especially at the elementary and secondary level. Things aren't going to get better until we make changes. Teacher's unions are almost unanimously against almost all the changes that are needed - dropping the seniority system, pay for performance, requiring better teacher training, standardized progress testing, etc. etc. It is yet another example of how unions have ceased to be a help and become a problem themselves.
Thursday, July 29, 2010
Recommended: The Politics of Stupidity
E. J. Dionne has an interesting Op Ed in The Washington Post for July 29, 2010 entitled The Politics of Stupidity. It is certainly true that both this Democratic administration and the last Republican administration have pursued expensive foreign wars without asking the American people to pay for them with higher taxes. To date we have spent over $1 TRILLION on the Iraq and Afghanistan military operation, without any idea how to pay for it beyond just borrowing more from the world.
And it is equally true that the Senate is highly dysfunctional, as this year's antics have demonstrated. In fact, Congress as a whole is highly dysfunctional. For example, the pay-as-you-go rule that Congress passed, that requires that new programs be paid for with new taxes or matching cuts in other programs, is meaningless, because Congress repeatedly bypasses it. Similarly the debt ceiling is meaningless, because every few months Congress simply votes to increase it.
Dionne asks the incisive question: "Can a nation remain a superpower if its internal politics are incorrigibly stupid?" As he says later in the article, "I'm a chronic optimist about America. But we are letting stupid politics, irrational ideas on fiscal policy and an antiquated political structure undermine our power."
And it is equally true that the Senate is highly dysfunctional, as this year's antics have demonstrated. In fact, Congress as a whole is highly dysfunctional. For example, the pay-as-you-go rule that Congress passed, that requires that new programs be paid for with new taxes or matching cuts in other programs, is meaningless, because Congress repeatedly bypasses it. Similarly the debt ceiling is meaningless, because every few months Congress simply votes to increase it.
Dionne asks the incisive question: "Can a nation remain a superpower if its internal politics are incorrigibly stupid?" As he says later in the article, "I'm a chronic optimist about America. But we are letting stupid politics, irrational ideas on fiscal policy and an antiquated political structure undermine our power."
So What Can We Cut #2
My second proposed area to cut the Federal budget is farm subsidies. The Department of Agriculture will spend $142 billion in 2010, or about $1,200 for every U.S. household. It operates 237 different subsidy programs and employs 96,000 workers in about 7,000 offices across the nation. It oversees more than 10,700 pages of regulations. Some of this is probably useful, but the farm subsidies, totaling these days about $30 billion a year, are clearly not useful. To begin with, most of these payments don't go to struggling small family farmers, as politicians like to pretend. Most of the payments go to huge commercial farms. Here is the breakdown for a recent year:
In the second place, these subsidies have a distorting affect on the world market. Lots of farmers in poor counties are in trouble because US government-subsidized grains undercut their prices, making it impossible for them to make a living. If we really wanted more effective foreign aid to help those in poorer countries, the very first thing we would do would be to eliminate the farm subsidies which cause large commercial US farms to flood the world with under-priced grains.
So my second proposal for cutting the federal budget is to completely eliminate agricultural subsidies.
In the second place, these subsidies have a distorting affect on the world market. Lots of farmers in poor counties are in trouble because US government-subsidized grains undercut their prices, making it impossible for them to make a living. If we really wanted more effective foreign aid to help those in poorer countries, the very first thing we would do would be to eliminate the farm subsidies which cause large commercial US farms to flood the world with under-priced grains.
So my second proposal for cutting the federal budget is to completely eliminate agricultural subsidies.
So what can we cut #1
I've argued a number of times that the only real solution to our Federal debt problem is to cut the size of the Federal government. Of course anything that is cut will have a constituency that will complain loudly and warn of dire consequences to any reduction or elimination to their programs or subsidies. But cut we must.
So my first proposal is to eliminate entirely the Department of Education, with its 5000+ staff and $50 billion budget.
Why the Department of Education? Because in our country the Federal government actually has very little to do with education at any level. Elementary and secondary education is controlled, funded and managed at the local level. Higher education is either private or managed and funded by the states. So what role does the Federal government actually have in U.S. education? Almost none, though it supports a mass of expensive education "experts" in Washington, most of whom have little actual relevant experience in a classroom.
The only major thing the Federal government has done in recent years in the education field is the "No Child Left Behind" initiative, which has proved to be yet another example of how a bureaucracy can take a reasonable idea and turn it into an expensive nightmare. If this seems an exaggeration, go ask a nearby teacher or local school administrator.
Of course now the Dept of Education has this program to "reward" schools that innovate with millions of dollars. What exactly is this "reward"? It is millions of dollars first extracted from the taxpayers across the country (or borrowed), and then returned to their schools less the (considerable) administration expenses of running and administering the program. It is hard to see what value add the Federal government offers in this transaction.
No doubt one can find a few minor things of value offered by the Dept of Education, but I don't see $50 billion in value of out of it, so it is my No. 1 candidate for elimination. Of course, with this Congress $50 billion is just pocket change, but it is a start.
So my first proposal is to eliminate entirely the Department of Education, with its 5000+ staff and $50 billion budget.
Why the Department of Education? Because in our country the Federal government actually has very little to do with education at any level. Elementary and secondary education is controlled, funded and managed at the local level. Higher education is either private or managed and funded by the states. So what role does the Federal government actually have in U.S. education? Almost none, though it supports a mass of expensive education "experts" in Washington, most of whom have little actual relevant experience in a classroom.
The only major thing the Federal government has done in recent years in the education field is the "No Child Left Behind" initiative, which has proved to be yet another example of how a bureaucracy can take a reasonable idea and turn it into an expensive nightmare. If this seems an exaggeration, go ask a nearby teacher or local school administrator.
Of course now the Dept of Education has this program to "reward" schools that innovate with millions of dollars. What exactly is this "reward"? It is millions of dollars first extracted from the taxpayers across the country (or borrowed), and then returned to their schools less the (considerable) administration expenses of running and administering the program. It is hard to see what value add the Federal government offers in this transaction.
No doubt one can find a few minor things of value offered by the Dept of Education, but I don't see $50 billion in value of out of it, so it is my No. 1 candidate for elimination. Of course, with this Congress $50 billion is just pocket change, but it is a start.
Tuesday, July 27, 2010
About the word “entitlement”
The word “entitlement” is an interesting word. Over the years it has gotten attached to a number of government programs, such as Medicare and Social Security. Politicians have used the word to imply that we are somehow “owed” these benefits, and therefore it would be immoral and illegal to take them away.
In fact, of course, we are no more “entitled” to these benefits than we are “entitled” to a million dollar mansion or a 200 foot private yacht. If we can afford the mansion or the yacht, we can buy them; if we can’t afford them then we simply can’t have them. So too with Social Security and Medicare and all the other “entitlements” politicians like to hand out to buy votes. If the nation can afford them, we can have them. If the nation can’t afford them, we can’t have them. And right now, the nation can no longer afford them.
With Social Security, there is some justification to the word “entitlement”, because we all paid into the system and were promised by Congress that our payments would go into a “lockbox” and be there to return to us in our retirement. The fact that Congress betrayed that trust, taking the money every year to pay for politically popular programs and leaving us nothing but paper IOUs in the “lockbox” doesn’t mean we are now “entitled” to Social Security. It just means we were suckered by our politicians and by our own carelessness and inattention into letting Congress get away with the theft.
In essence, no one is “entitled” to anything. We can have what we can afford, and we can’t have what we can’t afford. It’s the same lesson we learned with the subprime mortgage crisis. And like subprime mortgages, if we take on an obligation we can’t really pay for, it ends in disaster. That is the underlying reality behind our so-called “entitlements” like Medicare and Social Security. They are wonderful ideas, but only if we know how to pay for them.
There is a parallel here to our “rights”. Academics and philosophers can argue at length about what our natural “rights” are, but as a practical matter the only “rights” any of us ever have are the ones we can and are willing to defend, as a brutal world proves every day.
In fact, of course, we are no more “entitled” to these benefits than we are “entitled” to a million dollar mansion or a 200 foot private yacht. If we can afford the mansion or the yacht, we can buy them; if we can’t afford them then we simply can’t have them. So too with Social Security and Medicare and all the other “entitlements” politicians like to hand out to buy votes. If the nation can afford them, we can have them. If the nation can’t afford them, we can’t have them. And right now, the nation can no longer afford them.
With Social Security, there is some justification to the word “entitlement”, because we all paid into the system and were promised by Congress that our payments would go into a “lockbox” and be there to return to us in our retirement. The fact that Congress betrayed that trust, taking the money every year to pay for politically popular programs and leaving us nothing but paper IOUs in the “lockbox” doesn’t mean we are now “entitled” to Social Security. It just means we were suckered by our politicians and by our own carelessness and inattention into letting Congress get away with the theft.
In essence, no one is “entitled” to anything. We can have what we can afford, and we can’t have what we can’t afford. It’s the same lesson we learned with the subprime mortgage crisis. And like subprime mortgages, if we take on an obligation we can’t really pay for, it ends in disaster. That is the underlying reality behind our so-called “entitlements” like Medicare and Social Security. They are wonderful ideas, but only if we know how to pay for them.
There is a parallel here to our “rights”. Academics and philosophers can argue at length about what our natural “rights” are, but as a practical matter the only “rights” any of us ever have are the ones we can and are willing to defend, as a brutal world proves every day.
And then what ??
Most polls suggest the Democrats are in big trouble in the upcoming midterm elections, probably losing control of the House of Representatives and possibly even losing the Senate. The independent vote that got Obama elected has shifted sharply away from the Democrats, unemployment remains stubbornly high, and there is increasing concern about our military actions in Iraq and Afghanistan. At the very least the Democrats will have even more difficultly after the election getting any major legislation passed.
The good news is that such a realignment in Congress should halt or at least significantly slow the unrestrained spending that has characterized Obama's first term and driven the Federal budget deficit to an astounding $1.4 trillion for this year.
The bad news is that the Republicans seem to have little to offer as effective alternatives, especially on the critical issues of balancing the Federal budget, getting the economy healthy again, reducing unemployment, or solving the Iraq and Afghanistan problems.
It's not that credible conservative policy alternatives don't exist. The problem is that Republicans in Congress, while talking incessantly about conservative ideas, don't actually seem prepared to take the political risk of doing any of them. They certainly didn't do any of them the last time they held power.
Probably the single most important conservative idea is to sharply reduce the size, scope and cost of the Federal government. Spending cuts are the only way out of the current unsustainable fiscal situation. It's the only way we will ever halt the ballooning Federal debt, let alone begin to reduce it. But of course every Federal program closed, every subsidy eliminated, every Federal agency downsized, every regulation removed will cause cries of outrage from this interest group or that union, and the lobbying will be intense. Republicans profess to believe in smaller government, but I see no sign the Republicans in Congress have the political will to take the heat required to make that happen.
The good news is that such a realignment in Congress should halt or at least significantly slow the unrestrained spending that has characterized Obama's first term and driven the Federal budget deficit to an astounding $1.4 trillion for this year.
The bad news is that the Republicans seem to have little to offer as effective alternatives, especially on the critical issues of balancing the Federal budget, getting the economy healthy again, reducing unemployment, or solving the Iraq and Afghanistan problems.
It's not that credible conservative policy alternatives don't exist. The problem is that Republicans in Congress, while talking incessantly about conservative ideas, don't actually seem prepared to take the political risk of doing any of them. They certainly didn't do any of them the last time they held power.
Probably the single most important conservative idea is to sharply reduce the size, scope and cost of the Federal government. Spending cuts are the only way out of the current unsustainable fiscal situation. It's the only way we will ever halt the ballooning Federal debt, let alone begin to reduce it. But of course every Federal program closed, every subsidy eliminated, every Federal agency downsized, every regulation removed will cause cries of outrage from this interest group or that union, and the lobbying will be intense. Republicans profess to believe in smaller government, but I see no sign the Republicans in Congress have the political will to take the heat required to make that happen.
Monday, July 26, 2010
Recommended: Taleb: Government Deficits Could Be the Next 'Black Swan'
Those of you who have read Nassim Nicholas Taleb's book The Black Swan (see booklist on the sidebar) will know that his main point is that people, including especially all the financial "experts" in the world, don't really understand risk. We tend to be overly optimistic; we base our risk assessment on what we know, on what has happened before. But the real risk is in what we don't know, what hasn't ever happened before. Hence "the Black Swan". The BP oil spill and the current financial crisis are both examples of "Black Swans" for all of us who didn't expect either (though not for the few thoughtful people who in fact did see the risk, and hedged against it in time). As he points out, a Black Swan for the turkey is not a Black Swan for the butcher.
This interview, Taleb: Government Deficits Could Be the Next 'Black Swan', is interesting because, among other things, he thinks people are crazy to keep their savings in the stock market. Why? Because no one, and especially the small investor, really has any idea what the real risks are. And he thinks government debt could well precipitate yet another "Black Swan" -- an unanticipated fiscal crisis that no one expected and no one planned for. As he argues, persuasively, in essence we have to keep finding suckers to borrow from just to pay off the Federal Treasury notes that are coming due. The treasury calls this "rolling over" the debt when the government does it; when an individual does it prosecutors call it a Ponzi scheme. Someday we will run out of suckers, and THEN we will have a real Black Swan event.
I think Taleb is right. People always expect things to continue the way they always have, but in fact nature doesn't operate that way - there are always unexpected, severe crisis - volcanoes, tsunamis, cancer, wars, pandemics. The same in fiscal matters. We WILL eventually have severe crisis; who knows when, but current policy makes it more and more likely to be sooner rather than later.
This is an important interview to read and think about. And if you haven't read "The Black Swan" yet, it might be a good time to do so.
This interview, Taleb: Government Deficits Could Be the Next 'Black Swan', is interesting because, among other things, he thinks people are crazy to keep their savings in the stock market. Why? Because no one, and especially the small investor, really has any idea what the real risks are. And he thinks government debt could well precipitate yet another "Black Swan" -- an unanticipated fiscal crisis that no one expected and no one planned for. As he argues, persuasively, in essence we have to keep finding suckers to borrow from just to pay off the Federal Treasury notes that are coming due. The treasury calls this "rolling over" the debt when the government does it; when an individual does it prosecutors call it a Ponzi scheme. Someday we will run out of suckers, and THEN we will have a real Black Swan event.
I think Taleb is right. People always expect things to continue the way they always have, but in fact nature doesn't operate that way - there are always unexpected, severe crisis - volcanoes, tsunamis, cancer, wars, pandemics. The same in fiscal matters. We WILL eventually have severe crisis; who knows when, but current policy makes it more and more likely to be sooner rather than later.
This is an important interview to read and think about. And if you haven't read "The Black Swan" yet, it might be a good time to do so.
Sunday, July 25, 2010
Recommended: The best and the brightest redux
With respect to the Victor David Hanson article Pity the Postmodern Cultural Elite, which I recommended yesterday, Neal Gabler's Boston Globe article The best and the brightest redux deals with the same subject from a slightly different point of view.
Recommended: The Dead Hand
I highly recommend the recent book “The Dead Hand” by David E. Hoffman. The title refers to the doomsday machine the Soviet Union built in the 1980s to automatically launch its nuclear missiles toward the US in the event that the Soviet leadership had all been killed or disabled – a frighteningly real Dr. Strangelove device. Hoffman’s book details the political and military story on both sides from about 1975 to the mid-1990s as the Soviet Union fell apart and as American presidents and Soviet leaders hesitantly approached arms control deals, even as military leaders and hardliners on both sides tried to sabotage or evade such deals. Drawing on interviews, memoirs, and recently declassified documents on both sides, it paints a fascinating picture.
It will not be a comforting book to read. It reveals just how blinded the Soviet leadership was by its own ideology, and just how equally blinded American leaders were by their own ideology – both sides locked into their self-created myths about the other side. It reveals how poorly the intelligence agencies on both sides did at gathering accurate and useful intelligence. In fact, almost all the good intelligence on both sides came from defectors and walk-in spies, not from the enormously expensive efforts of the intelligence agencies themselves.
It will not be a comfort to those older “peacenicks” and liberal believes who naively bought into the Soviet propaganda and really believed the Soviets weren’t lying about their nuclear, chemical and biological weapons programs.
It is revealing how often the elite “experts” on both sides were completely wrong in their assessments. And it is revealing how slow and inept the American government was to appreciate the danger posed by all those loose weapons and unemployed Russian scientists after the fall of the Soviet Union. Yes, we finally, after some years, got our act together and managed to buy some of the nuclear material and remove it from former Soviet satellite states, and help them build better protection for some of the remaining facilities, but it was in the face of stiff opposition from our own entrenched military and intelligence agencies.
All in all and important book, if not a comforting one.
It will not be a comforting book to read. It reveals just how blinded the Soviet leadership was by its own ideology, and just how equally blinded American leaders were by their own ideology – both sides locked into their self-created myths about the other side. It reveals how poorly the intelligence agencies on both sides did at gathering accurate and useful intelligence. In fact, almost all the good intelligence on both sides came from defectors and walk-in spies, not from the enormously expensive efforts of the intelligence agencies themselves.
It will not be a comfort to those older “peacenicks” and liberal believes who naively bought into the Soviet propaganda and really believed the Soviets weren’t lying about their nuclear, chemical and biological weapons programs.
It is revealing how often the elite “experts” on both sides were completely wrong in their assessments. And it is revealing how slow and inept the American government was to appreciate the danger posed by all those loose weapons and unemployed Russian scientists after the fall of the Soviet Union. Yes, we finally, after some years, got our act together and managed to buy some of the nuclear material and remove it from former Soviet satellite states, and help them build better protection for some of the remaining facilities, but it was in the face of stiff opposition from our own entrenched military and intelligence agencies.
All in all and important book, if not a comforting one.
Saturday, July 24, 2010
Recommended: Pity the Postmodern Cultural Elite
Victor David Hanson has written another of his crusty but largely accurate assessments of today's world in his recent article Pity the Postmodern Cultural Elite. I fully agree with his opening line:
So Hanson's argument that our current severe problems aren't really rooted in the politics of red and blue states, but rather in the unrealistic world views of our ruling elites, largely shared across the political spectrum, seems to me spot on.
How else to explain Democratic leaders who blithely commit trillions of dollars (not their dollars, of course) in the face of a truly monstrous national debt to programs that most citizens don't even want? How else to explain Republican leaders who are so woefully ignorant, or even disdainful, of scientific evidence that they continue to deny that climate change is occurring even in the midst of record-breaking heat waves? How else to explain a Congress that pretends to pass financial regulation reform when everyone can see that under pressure from the financial industry they removed almost all the real teeth from the bill first? How else to explain a series of administrations, Republican and Democratic alike, who keep us mired in two distant wars, neither of which are winnable?
I think most of our problems transcend politics, which is increasingly a reflection of an elite, insider culture that is completely at odds with the majority of the country that it oversees.This is not a new phenomena - nations and cultures have always been led by small and powerful elites who reward themselves generously and look out for their own first. And these elites usually come to live in a small insular world of their own kind, largely isolated from the lives of the average people around them. And as a result, they eventually evolve a world view dissociated from the realities of the real world around them. Today in America is no different.
So Hanson's argument that our current severe problems aren't really rooted in the politics of red and blue states, but rather in the unrealistic world views of our ruling elites, largely shared across the political spectrum, seems to me spot on.
How else to explain Democratic leaders who blithely commit trillions of dollars (not their dollars, of course) in the face of a truly monstrous national debt to programs that most citizens don't even want? How else to explain Republican leaders who are so woefully ignorant, or even disdainful, of scientific evidence that they continue to deny that climate change is occurring even in the midst of record-breaking heat waves? How else to explain a Congress that pretends to pass financial regulation reform when everyone can see that under pressure from the financial industry they removed almost all the real teeth from the bill first? How else to explain a series of administrations, Republican and Democratic alike, who keep us mired in two distant wars, neither of which are winnable?
Friday, July 23, 2010
The Lessons That Guided The Nation’s Founders
The founders of our nation were wise and well-read in world history. They came from Europe and were well aware of the historical problems with the sort of strong, autocratic central governments that had ruled nations like England, Spain, Russia and France, and older empires like the Roman Empire and the Ottoman Empire. They were well aware that powerful autocratic central governments tended to become corrupt, self-serving, and out of touch with the people they ruled. They crafted for our new nation a highly decentralized system, with three independent branches of government to provide checks and balances on abuses of power, and reserved most powers to the independent states as another check on the growth of excessive power.
Over the past 200 years we have steadily eroded these protections, and have grown a huge, widely expensive, intrusive, ineffective and highly corrupt central government – the very thing they feared.
Huge? The on-budget federal population, the one reported in the budget, is about 2.4 million people, In 2006 (the last date for which I can find reliable figures) the true federal government workforce stood at between 14.6 million and 17 million people, including the “off budget” population that the government budgets generally try to hide. This includes all the civil servants, postal workers, military personnel, contractors, and grantees, and the uncertainly in the size reflects the fact that even the government itself isn’t quite sure how big it is. There are over 1,300 official federal facilities, and tens of thousands more leased private facilities.
Wildy expensive? The current federal government arrogates to itself between 17% and 20% of the entire economy, and the percentage is currently projected to rise toward 30% over the next few decades. This is largely to support the huge federal bureaucracy and the massive entitlement programs, as well as the swelling interest payment on the national debt.
Intrusive? The federal government now routinely listens in to domestic email and telephone conversations (thank the misnamed “Patriot Act” for that), and will soon regulate exactly what services your private or employer health insurance company can offer you (thank the recently-passed and also misnamed “Health Care Reform Act” for that) The current federal government even requires that a homeowner keeping a few hens for eggs register them with the federal government using a 15-digit number on Radio Frequency Identification Tags, (RFID). Sound outlandish? Read Another intrusive government regulation by Bill Horne.
Ineffective? Think Katrina. Think Gulf oil spill. Both disasters in which an efficient government might have made a big difference, but which in fact were marred by confusion, slow response, agency infighting, unclear lines of authority, and any number of other inefficiencies. Think about the recent report that there are now over 3,100 federal contractors and agencies involved in national intelligence and counter-terrorism, so many that many are duplicating each other’s work, and no one can manage to read or coordinate all the reports that they are issuing.
Highly corrupt? Well, it’s true we don’t seem to have much of the outright bribery that prevails in many nations, but in fact positions and favorable policies are routinely bought by large corporations, unions, and well-funded interest groups in their financial support, or lack of support, for expensive political campaigns. And of course we have all known for years of the extensive Washington “revolving door”, wherein government officials conveniently retire to lucrative positions in the very private industries to whom they used to direct multi-million dollar contracts. It may not be outright bribery, but it certainly is corruption.
Can this be reversed? I doubt it. Will it ultimately be fatal to our nation? Probably. It is exactly the same path of over-reach and over-spending that previous empires and great nations have followed, always with disastrous results at the end. It is instructive that at the very time when the European Union is finally facing up to the problem and beginning to cut government spending to avoid financial ruin, our own government is massively INCREASING spending.
Too bad our current leaders don’t know their history. Too bad our current leaders don’t understand what a gift the founders of our nation gave us in our original small, balanced, decentralized government.
Over the past 200 years we have steadily eroded these protections, and have grown a huge, widely expensive, intrusive, ineffective and highly corrupt central government – the very thing they feared.
Huge? The on-budget federal population, the one reported in the budget, is about 2.4 million people, In 2006 (the last date for which I can find reliable figures) the true federal government workforce stood at between 14.6 million and 17 million people, including the “off budget” population that the government budgets generally try to hide. This includes all the civil servants, postal workers, military personnel, contractors, and grantees, and the uncertainly in the size reflects the fact that even the government itself isn’t quite sure how big it is. There are over 1,300 official federal facilities, and tens of thousands more leased private facilities.
Wildy expensive? The current federal government arrogates to itself between 17% and 20% of the entire economy, and the percentage is currently projected to rise toward 30% over the next few decades. This is largely to support the huge federal bureaucracy and the massive entitlement programs, as well as the swelling interest payment on the national debt.
Intrusive? The federal government now routinely listens in to domestic email and telephone conversations (thank the misnamed “Patriot Act” for that), and will soon regulate exactly what services your private or employer health insurance company can offer you (thank the recently-passed and also misnamed “Health Care Reform Act” for that) The current federal government even requires that a homeowner keeping a few hens for eggs register them with the federal government using a 15-digit number on Radio Frequency Identification Tags, (RFID). Sound outlandish? Read Another intrusive government regulation by Bill Horne.
Ineffective? Think Katrina. Think Gulf oil spill. Both disasters in which an efficient government might have made a big difference, but which in fact were marred by confusion, slow response, agency infighting, unclear lines of authority, and any number of other inefficiencies. Think about the recent report that there are now over 3,100 federal contractors and agencies involved in national intelligence and counter-terrorism, so many that many are duplicating each other’s work, and no one can manage to read or coordinate all the reports that they are issuing.
Highly corrupt? Well, it’s true we don’t seem to have much of the outright bribery that prevails in many nations, but in fact positions and favorable policies are routinely bought by large corporations, unions, and well-funded interest groups in their financial support, or lack of support, for expensive political campaigns. And of course we have all known for years of the extensive Washington “revolving door”, wherein government officials conveniently retire to lucrative positions in the very private industries to whom they used to direct multi-million dollar contracts. It may not be outright bribery, but it certainly is corruption.
Can this be reversed? I doubt it. Will it ultimately be fatal to our nation? Probably. It is exactly the same path of over-reach and over-spending that previous empires and great nations have followed, always with disastrous results at the end. It is instructive that at the very time when the European Union is finally facing up to the problem and beginning to cut government spending to avoid financial ruin, our own government is massively INCREASING spending.
Too bad our current leaders don’t know their history. Too bad our current leaders don’t understand what a gift the founders of our nation gave us in our original small, balanced, decentralized government.
Recommended: What 7 Republicans Could Do
Thomas Friedman had a good Op Ed piece in last Sunday's New York Times: What 7 Republicans Could Do. While the Democrats on the left are blindly spending us into insolvency, the Republicans on the right are just as blindly refusing to get real about climate change. Friedman argues that surely there must be at least seven Republican Senators who are neither blinded by their right-wing ideology nor so self-serving politically that they can't see their way to doing what so clearly needs to be done. I'm not so sure.
According to NASA, 2010 is on course to be the planet's hottest year since records started in 1880. The current top 10, in descending order, are: 2005, 2007, 2009, 1998, 2002, 2003, 2006, 2004, 2001 and 2008. David Leonhardt, in his Op Ed piece Overcome by Heat and Inertia the same day in the New York Times, pointed out
According to NASA, 2010 is on course to be the planet's hottest year since records started in 1880. The current top 10, in descending order, are: 2005, 2007, 2009, 1998, 2002, 2003, 2006, 2004, 2001 and 2008. David Leonhardt, in his Op Ed piece Overcome by Heat and Inertia the same day in the New York Times, pointed out
"This city (Washington) just endured its hottest June since records began in 1872, according to the National Oceanic and Atmospheric Administration. So did Miami. Atlanta suffered its second-hottest June, and Dallas had its third hottest.As the old saying goes, "There are none so blind as those who WILL NOT see".
"In New York, the weather was relatively pleasant: only the fourth-hottest June since 1872. Then again, New York is on pace for its hottest July on record."
Rearranging the deck chairs......
Sometimes it feels like a Greek tragedy - the audience can see the inevitable bad outcome coming all through the play, but the protagonists proceed blindly on their way to their ruin.............
WASHINGTON (The Associated Press)– New estimates from the White House on Friday predict the budget deficit will reach a record $1.47 trillion this year. The government is borrowing 41 cents of every dollar it spends.
WASHINGTON (CNN) - A hotly contested bill restoring unemployment benefits to 2.8 million jobless Americans was approved by the House of Representatives Thursday. The $34 billion measure, which cleared the Senate Wednesday, now moves to President Barack Obama's desk to be signed into law.
Saturday, July 10, 2010
It’s the economy, stupid!
There are times when academic theorists are simply too arcane for their own good. While the politicians and think tanks in Washington debate the complexities of fiscal reform, additional stimulus, and the desirability of expanding this or that entitlement program, ordinary folk can see some very clear principles that the politicians and theorists seems to be missing:
1. Nothing is possible without a healthy economy. Without a healthy economy, the nation simply can’t afford a strong military, good schools, expensive entitlement programs, up-to-date roads and water systems and electric grids, etc. etc. Everything depends on a strong economy, and any government worth its name would be spending ALL its energies right now getting the economy healthy again.
2. The economy can’t be healthy when we spend more than we make. The Federal government spends about twice what it takes in, borrowing the rest. Any sixth-grader understands that this simply can’t go on forever. There comes a day when we either have to pay back the loan or we have to default on the loan. (Allowing inflation to reduce the loan is just a way of defaulting on the loan.)
3. There are only two ways to balance our budget – cut spending or increase taxes. There are no other ways. There are no miracles, or rich uncles who can die and leave us a fortune, or Powerball lotteries that can pay off the national debt. Cutting spending and/or raising taxes are the only two options – it’s as simple as that.
4. Taxes are a drag on the economy. That doesn’t mean we don’t need taxes to pay for necessary things, like police and fire protection, but taxes are an added cost on a business, reducing its competitiveness, and taxes on individuals reduce their disposable income, and so reduce their purchases in the economy. Any middle-school student could understand that. Clearly one wants to keep taxes as low as possible if one wants as strong an economy as possible.
5. That means spending cuts are the better way to balance the budget. Of course spending cuts mean eliminating someone’s subsidy, and they will scream like a stuck pig. It also means Congress forgoing the opportunity to buy votes with taxpayer money, a longstanding practice. Still, it doesn’t take a PhD in economics to see that spending cuts are necessary anyway.
Is any of this complex? No. Does any of this take an advanced degree to understand? No. Could your 10 year old child or grandchild understand this? Yes. So why can’t Washington?
1. Nothing is possible without a healthy economy. Without a healthy economy, the nation simply can’t afford a strong military, good schools, expensive entitlement programs, up-to-date roads and water systems and electric grids, etc. etc. Everything depends on a strong economy, and any government worth its name would be spending ALL its energies right now getting the economy healthy again.
2. The economy can’t be healthy when we spend more than we make. The Federal government spends about twice what it takes in, borrowing the rest. Any sixth-grader understands that this simply can’t go on forever. There comes a day when we either have to pay back the loan or we have to default on the loan. (Allowing inflation to reduce the loan is just a way of defaulting on the loan.)
3. There are only two ways to balance our budget – cut spending or increase taxes. There are no other ways. There are no miracles, or rich uncles who can die and leave us a fortune, or Powerball lotteries that can pay off the national debt. Cutting spending and/or raising taxes are the only two options – it’s as simple as that.
4. Taxes are a drag on the economy. That doesn’t mean we don’t need taxes to pay for necessary things, like police and fire protection, but taxes are an added cost on a business, reducing its competitiveness, and taxes on individuals reduce their disposable income, and so reduce their purchases in the economy. Any middle-school student could understand that. Clearly one wants to keep taxes as low as possible if one wants as strong an economy as possible.
5. That means spending cuts are the better way to balance the budget. Of course spending cuts mean eliminating someone’s subsidy, and they will scream like a stuck pig. It also means Congress forgoing the opportunity to buy votes with taxpayer money, a longstanding practice. Still, it doesn’t take a PhD in economics to see that spending cuts are necessary anyway.
Is any of this complex? No. Does any of this take an advanced degree to understand? No. Could your 10 year old child or grandchild understand this? Yes. So why can’t Washington?
Tuesday, July 6, 2010
Recommended: Faith Matters - for those in peril on the sea
Walter Russel Mead has posted another of his insightful articles, Faith Matters: For Those In Peril On The Sea. Well worth reading and thinking about.
As he points, government simply can't remove all the hazards from our lives, even if the devout liberals believe it can. Hazard has always been part of life, and it always will be. The problem isn't that hazards exist; it is that we Americans in our comfortable 21st century technological cocoon are poorly prepared for the realities of the real world, in which bad things (tsunamis, earthquakes financial collapses, wars, famine, epidemics, etc, etc.) happen, and happen frequently.
As he points, government simply can't remove all the hazards from our lives, even if the devout liberals believe it can. Hazard has always been part of life, and it always will be. The problem isn't that hazards exist; it is that we Americans in our comfortable 21st century technological cocoon are poorly prepared for the realities of the real world, in which bad things (tsunamis, earthquakes financial collapses, wars, famine, epidemics, etc, etc.) happen, and happen frequently.
The second stimulus debate
Seldom is there such a clear-cut ideological difference in economics as we are currently witnessing in the current “second stimulus” debate.
The question is simply whether or not the government ought to do a second round of economic stimulus. Put aside the issue of whether the first round was effective enough. Is the economy flagging enough –and in enough danger of a “double dip” recession – to warrant another trillion dollars or so in a second stimulus package?
The Keynesians, led by Paul Krugman, argue that we need a second stimulus package to keep us from falling back into recession as the first stimulus payments end. They acknowledge that it piles yet more debt on the nation, but argue that in the long run a faster return to productivity and economic health, and the increased tax revenues that would come with it, will more than offset the cost.
The opposition, led by Thomas Friedman, argue that we are already way too far in debt as a nation, with red ink projected as far as the eye can see. The worry is that at some point the financial world will suddenly see us as a nation as economically sick as, say, Greece or Spain, and will suddenly begin to demand a hefty risk premium to lend us more money. A huge new stimulus package (it would have to be huge to have any effect) might well hasten that day, as we plunge ever deeper into debt.
I would offer a third point of view – that even if a second stimulus were desirable, recent history gives no assurance that Congress will appropriate the money wisely. The first stimulus bill was loaded with Congressional sops to special interests, which seriously diluted its effectiveness. It also phased the money in far too slowly (most of it wasn’t actually scheduled to be spent until the second or third year). Why would one expect the same Congress to behave any differently with a second stimulus package?
Clearly the current political winds are against a second stimulus package, especially with mid-term elections coming up and the Democrats already on the defensive because of the massive spending bills they already pushed through. But that doesn’t mean the Keynesians are necessarily wrong. Nor does it mean that the financial markets may not still decide to push up our borrowing rates sometime soon, whatever policy we follow.
As I have noted before, previous empires (British, French, Spanish, etc) began to crumble when they let their domestic finances get out of hand. Ours are now right on the verge of just that point, with entitlement programs due to bankrupt the nation in just a few years. And there is no evidence that our political leaders in either party are up to the difficult task of handling this problem.
As the Chinese curse says: “May you live in interesting times”. These are certainly interesting times.
The question is simply whether or not the government ought to do a second round of economic stimulus. Put aside the issue of whether the first round was effective enough. Is the economy flagging enough –and in enough danger of a “double dip” recession – to warrant another trillion dollars or so in a second stimulus package?
The Keynesians, led by Paul Krugman, argue that we need a second stimulus package to keep us from falling back into recession as the first stimulus payments end. They acknowledge that it piles yet more debt on the nation, but argue that in the long run a faster return to productivity and economic health, and the increased tax revenues that would come with it, will more than offset the cost.
The opposition, led by Thomas Friedman, argue that we are already way too far in debt as a nation, with red ink projected as far as the eye can see. The worry is that at some point the financial world will suddenly see us as a nation as economically sick as, say, Greece or Spain, and will suddenly begin to demand a hefty risk premium to lend us more money. A huge new stimulus package (it would have to be huge to have any effect) might well hasten that day, as we plunge ever deeper into debt.
I would offer a third point of view – that even if a second stimulus were desirable, recent history gives no assurance that Congress will appropriate the money wisely. The first stimulus bill was loaded with Congressional sops to special interests, which seriously diluted its effectiveness. It also phased the money in far too slowly (most of it wasn’t actually scheduled to be spent until the second or third year). Why would one expect the same Congress to behave any differently with a second stimulus package?
Clearly the current political winds are against a second stimulus package, especially with mid-term elections coming up and the Democrats already on the defensive because of the massive spending bills they already pushed through. But that doesn’t mean the Keynesians are necessarily wrong. Nor does it mean that the financial markets may not still decide to push up our borrowing rates sometime soon, whatever policy we follow.
As I have noted before, previous empires (British, French, Spanish, etc) began to crumble when they let their domestic finances get out of hand. Ours are now right on the verge of just that point, with entitlement programs due to bankrupt the nation in just a few years. And there is no evidence that our political leaders in either party are up to the difficult task of handling this problem.
As the Chinese curse says: “May you live in interesting times”. These are certainly interesting times.
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