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SAFE’s “hit nail on head” blogs: 2011
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12/19/11 – Beware the planning disease; it takes action to get things done
Last December, in the wake of the mid-term elections, we said it was “nice to look forward to a new Congress in which fiscal visionaries will have a chance to do something besides hanging on for dear life.” Out with the old, in with the new, 12/20/10.
The top projects we envisioned were (1) a comprehensive overhaul of the tax system, to be completed and if possible acted on before the 2012 elections, and (2) decisive cuts in current spending levels, starting in 2011.
Are these projects now underway? Nope! The tax system is more muddled than ever, with a “temporary” payroll tax cut in prospect for 2012 and a huge tax increase looming for 2013 et seq. Spending rolls on essentially unchecked. Gross federal debt stands at $15.1 trillion, some 100% of Gross Domestic Product (GDP).
The gap between outlays and revenues has widened in recent years. Deficits for Fiscal Years 2009, 2010 and 2011 each exceeded $1 trillion; as a percentage of GDP, they were the three highest deficits since the end of World War II. The FY 2012 deficit is expected to be roundly $1 trillion, only a bit better. Congressional Budget Office director’s blog, 10/7/11.
http://cboblog.cbo.gov/?p=2857
Why don’t our political leaders balance the budget? The concept is not all that complicated, i.e., outlays should not exceed the amount of money coming in.
But instead of effective action, we see posturing and pontificating. Even at closed sessions of the Joint Select Committee on Debt Reduction, for example, the discussion of spending cuts never got down to cases. Supercommittee a super dud, Emily Miller, Washington Times, 11/14/11.
“Frankly, there are no real spending cuts on the table,” [Rep. Jeb Hensarling, one of the two co-chairs] said. “All we are talking about here is slowing the rate of growth.”
What’s wrong? We reject the idea that most of the nation’s political leaders are stupid or corrupt, although exceptions certainly exist.
Would all be well if bipartisan cooperation was somehow restored in the nation’s capital? We doubt it. The main reason US political leaders disagree about how to solve the fiscal problem is that the voters they represent are themselves deeply divided on the issues, e.g., should spending be cut (and for what) or taxes be raised (and on whom)? Breaking the partisan fever, Tony Blankley, Washington Times, 11/28/11.
It is not only reductionist, but fundamentally undemocratic to believe, as Mr. [Colin] Powell argues, that if the people would just stop paying attention to what goes on in Washington (helped along by the media refusing to report the political news) politicians could get back to the business of compromising over their differences.
Nor does it seem likely, hard as SAFE and others may try, that policy solutions can be crafted which are so manifestly correct no one will find reasons to quarrel with them.
But here is a suggestion that might help. Because grandiose plans for future action can provide an excuse for allowing issues to fester, the public should start demanding real corrective action in the here and now.
Three recent examples follow of the mischief to which the planning disease (our shorthand reference) can lead – in each case with a moral based on the situation. European financial crisis - Climate summit - Deficit reduction.
European financial crisis – Problems in supporting government debt levels have surfaced in one European country after another – e.g., Ireland, Greece, Spain, Italy – leading to rising borrowing rates and the threat of default.
One possible response is drastic austerity measures of the host governments, triggering social and political unrest. Another is a “bailout” from the more prosperous European countries, either directly or through international organizations such as the European Central Bank or International Monetary Fund.
None of the “rescue” plans to date has calmed the markets for long. There seems to be an irreconcilable tension between Eurozone countries that are faring well economically (notably Germany) and laggards within the 17-nation currency bloc.
The Laggards are unwilling or politically unable to embrace austerity, and they do not have a local currency that can be allowed to depreciate. They would therefore like a bailout.
The more prosperous countries are unwilling to commit massive financial resources to rescuing the Laggards, to the detriment of their own credit standings and economic performance, with no assurance that the funds provided would be sufficient.
This impasse may result in the demise of the Euro, with the Laggards reverting to national currencies. One observer recently inferred from German vs. UK debt yields that investors believe this is how things will go. Death of a currency or eurogeddon approaches, Jeremy Warner, UK Telegraph, 11/24/11.
Key European leaders huddled again and a new deal was announced – or more accurately an understanding that such a deal would be implemented in the future – which would subject the Eurozone countries to some degree of externally enforced fiscal discipline. Given this understanding, it was hoped, Germany et al. would be willing to provide more support for the Laggards and the financial markets would calm down.
The UK (a member of the European Union, which has retained its own currency) complicated matters by voting “no.” This meant the understanding could not be implemented through an amendment to the European Union treaty, but would require a side agreement between consenting members. Many other obstacles to saving the Euro existed as well. 23 European Union leaders agree to fiscal curbs, but Britain blocks broad deal, Anthony Faiola & Michael Birnbaum, Washington Post, 12/9/11.
Time will tell, but we doubt Germany will support an outcome that betrays its national interests. If not, the Euro will likely collapse. Merkel’s Teutonic summit enshrines Hooverism in EU treaty law, Ambrose Evans Pritchard, UK Telegraph, 12/11/11.
The tension would not exist if Germany and its satellites had their own hard currency, reflecting their hard economy and the tastes of their own hard-working peoples. A free float would restore equilibrium by natural means, consistent with Kultur.
At the end of the day, it always comes down [to] one core problem, the euro itself. Monetary union itself blocks any plausible solution. We have not advanced [an] inch.
Moral: Sometimes it is best to face problems instead of trying to paper them over.
Climate summit – The Kyoto Protocol (negotiated in December 1997; approved by most countries of the world, with the notable exception of the US) was set to expire in 2012. This threw into question the future of the international compact to reduce greenhouse gas emissions in the name of combating global warming.
Over 190 nations sent representatives to Durban, South Africa in late November for an UN-sponsored conference (an annual event since 1997) to discuss the path forward.
Numerous poor countries were demanding action, to include the creation of a climate change action fund (to the tune of $100B a year by 2020) that would be paid for in some fashion by the rich countries, managed by the UN, and doled out for programs to alleviate suffering allegedly caused by climate change and/or help combat it.
Several countries were threatening to repudiate the Kyoto Protocol, notably Canada (which has since withdrawn). The European countries wanted to extend the pact, but only if the three biggest carbon emitters (China, the US and India) would match their level of sacrifice.
The big three were resisting binding limits on their carbon emissions, albeit professing concern about the global warming issue.
The upshot of 10+ days of meetings, including two all-night negotiating sessions at the end of the conference, was a commitment to start negotiating a new accord that would be entered into by 2015 and become effective by 2020. In the interim, the Kyoto agreement was to be extended. Durban climate change: the agreement explained, Louise Gray, UK Telegraph, 12/11/11.
UN bureaucrats and bottom tier countries had hoped for far more, including the creation of an International Climate Justice Court in which western countries (only) could be sued for contributing to the buildup of greenhouse gases, wildly impractical restrictions on carbon emission levels, and a reduction in current global temperatures. Lord Christopher Monckton reports from UN climate summit, Climatedepot.com, 12/9/11.
This 138-page draft agreement was not executed, however, and the two-page document that was signed had limited effect. For those who buy into the manmade global warming theory, the outcome was a big disappointment. The Durban climate agreement “is almost useless,” Spiegel-on-line, 12/12/11.
The climate talks in Durban ended with an agreement to agree on a new agreement on emissions cuts in coming years. The outcome was hailed as historic by the organizers, but German commentators say the pledges remain too vague and the progress too slow -- while global warming is accelerating.
On the other hand, a decision to put this contentious issue to rest and worry about something else would have made perfect sense to those who do not buy into the manmade global warming theory. No unusual warming trend – warm is better than cold – human activity not shown to be the main influence. Chilling thoughts for global-warming alarmists, James Taylor, Forbes. 12/5/11.
Proponents of an imminent global warming crisis may present interesting theories about catastrophes that may occur if the Earth returns to the warmer temperatures that predominated during most of the past 10,000 years, but such theories are strongly contradicted by thousands of years of real-world data and real-world climate observations. The scientific method dictates that real world observations trump speculative theory, not the other way around.
Although climate research should and will continue, we can see no reason to rebuild the world’s energy infrastructure at enormous cost to cope with what may well prove to be a nonexistent problem. It would have been a good thing, in our opinion, if the delegates at Durban had allowed the Kyoto Protocol to vanish without a trace.
Moral: Don’t waste a lot of time and effort on hypothetical problems.
Deficit reduction – During its deliberations this fall, the Joint Committee was urged by many politicians (including all three members of Congress from Delaware) to “go big” and propose a deficit reduction package of some $4 trillion over 10 years including major tax increases, adjustments to entitlement programs, and spending cuts of some kind.
Recommendations along these lines were typically vague, however, and it seemed to be assumed that the committee could outline its recommendations and leave the details for someone else to figure out. Big cuts the right solution; Bipartisan group calls for $4T target, Nicole Gaudiano, [Wilmington, DE] News Journal, 11/17/11.
http://www.s-a-f-e.org/members_microblog_2011.htm
In a similar vein, there has been a series of votes in Congress on various balanced budget amendment (BBA) proposals. None of the proposals came close to the required 2/3 margin, even in the House of Representatives, despite being watered down to defuse “liberal” objections.
Perhaps a BBA would be a good idea after the budget is balanced – like locking the barn door after the horses have been recovered – but it hardly seems like a high priority at this point. Note that BBA advocates characteristically fail to specify how and when they would propose to balance the budget if a BBA was actually adopted. We don’t need a balanced budget amendment, Tad DeHaven, Townhall.com, 12/11/11.
. . . the purpose of the balanced budget amendment is to put an end to budget deficits, and deficits are only a symptom of the real problem: too much spending. Therefore, Republicans [or Democrats if applicable] who support the balanced budget amendment cannot cite it as evidence that they're serious about cutting spending unless they're prepared to detail what they would cut in order to bring the budget into balance.
So when you hear politicians say how committed they are to fiscal responsibility, ask them where, when and how much they believe spending should be cut.
Also, remind them that the envisioned savings should be applied to reduce the deficit – not used to ramp up spending in other areas.
Moral: If one puts the cart before the horse, the cart will not go anywhere.
In closing, dear readers, we wish all of you a joyous holiday season. Tune in two weeks from now for our thoughts about the path forward in 2012.
12/12/11 – Jobs, jobs, jobs, but how?
The latest US employment data were seen as encouraging, with the seasonally adjusted unemployment rate falling from 9.0% to 8.6% in November. Or to state things in a positive fashion, the employment rate rose from 91.0% to 91.4%.
However, this reported uptick was largely due to the growing portion of the working age population that is not counted as looking for work. And employment as a percentage of working age population (a ratio of our invention) was 58.5% - only one tenth of a percentage point higher than the previous month and unchanged from January 2010. Bureau of Labor Statistics (BLS), 12/2/11, Table A (seasonally adjusted data).
|
In millions |
Jan. 2010 |
Nov. 2010 |
Oct. 2011 |
Nov. 2011 |
|
Population* |
236.8 |
238.7 |
240.3 |
240.4 |
|
Labor force** |
153.4 |
154.0 |
154.2 |
153.9 |
|
Employed |
138.5 |
138.9 |
140.3 |
140.6 |
|
Employed % |
90.3% |
90.2% |
91.0% |
91.4% |
|
Unemployed % |
9.7% |
9.8% |
9.0% |
8.6% |
|
% of Pop. employed |
58.5% |
58.2% |
58.4% |
58.5% |
*16 and over, excluding people serving in the military or incarcerated.
**Members of the population seeking employment.
http://www.bls.gov/news.release/empsit.nr0.htm
Bottom line, the real improvement was modest – as has been generally recognized. US jobless rate fell to 8.6 percent in Nov., Patrice Hill, Washington Times, 12/2/11.
The dramatic drop in the unemployment rate was concentrated among whites and adult men. It was due not only to people finding more jobs, but to about 300,000 discouraged workers dropping out of the labor force. *** Average hourly wages actually declined by 2 cents to $23.18, and were up by only 1.8 percent over the last year.
Politicians on both sides of the aisle proclaim their support for an economic rebound and more jobs. But they disagree on the plan of attack, and there has been much posturing and debate in the nation’s capital and elsewhere.
Some of the job creation proposals on offer seem unsound. Thus, as discussed last week, a temporary payroll tax cut would not do much to help the economy –particularly if it was paired with permanent tax increases on the well to do.
This entry will review some other dubious ideas for boosting employment, which fall under the headings of income maintenance and “green” jobs.
Income maintenance – The core logic for a minimum wage is that all workers should be paid enough to support themselves, basically a fairness issue. In addition, it is suggested that there will be economic benefit for all concerned.
The scenario: Congress raises the minimum wage; workers receive more money; they quickly spend it, boosting economic demand and driving up the Gross Domestic Product (GDP). Unlike tax cuts and economic stimulus spending, moreover, this idea can be implemented without running up the deficit. What could be better than that?
Lest it be thought that we are making this up, here is what one observer said in 2009 when the minimum wage was boosted to $7.25 an hour in the middle of a recession. Can increasing the minimum wage boost GDP? Political calculations, Townhall.com, 12/7/11.
Some of those increased-pay workers will choose to spend -- perhaps buying a washer or drier, making a down payment on a used car, or paying down a debt. It's quite possible -- although in these "frugal consumer" economic times no one is certain- - that the wage hike will increase U.S. GDP, serving as a small engine of growth as the U.S. economy inches back toward health.
The counterarguments are obvious. Businesses must cover their costs; if they were forced to pay higher wages this would drive up prices, thereby dampening aggregate output. Worse, a higher minimum wage would result in fewer people employed (witness the very high unemployment rate for young people, particularly those with limited education) and more people on the government dole.
Another form of income maintenance is unemployment benefits for people who are unable (or unmotivated) to find jobs, not to mention means tested programs such as Medicaid and food stamps. Once such welfare benefits are made available, it gets increasingly difficult to limit their availability – particularly in a weak economy.
Like the minimum wage, welfare benefits can be seen as augmenting funds of low-income people who will quickly spend the funds at their disposal and thereby help to prop up economic demand. But is paying people not to work really likely to boost employment? Pelosi: Unemployment checks fastest way to create jobs, FoxNews.com, 7/1/10.
Talking to reporters, the House speaker was defending a jobless benefits extension against those who say it gives recipients little incentive to work. By her reasoning, those checks are helping give somebody a job. "It injects demand into the economy," Pelosi said, arguing that when families have money to spend it keeps the economy churning. "It creates jobs faster than almost any other initiative you can name."
As a thought experiment, let’s say it was proposed to boost the economy by raising the current minimum wage to $15.00 per hour. Lower income workers would have more money in their pockets, they would spend it, say hello to an economic boom?
Most people would expect this suggestion to backfire based on the counterarguments outlined above. But left-leaning politicians still tend to blame economic problems on income disparities, and to see income redistribution as a big part of the solution.
The president has increasingly taken this line, as in a much-discussed speech last week. Transcript, 12/6/11, Osawatomie, Kansas.
Now, this kind of inequality -- a level that we haven't seen since the Great Depression -- hurts us all. When middle-class families can no longer afford to buy the goods and services that businesses are selling, when people are slipping out of the middle class, it drags down the entire economy from top to bottom. America was built on the idea of broad-based prosperity, of strong consumers all across the country. That's why a CEO like Henry Ford made it his mission to pay his workers enough so that they could buy the cars he made. It's also why a recent study showed that countries with less inequality tend to have stronger and steadier economic growth over the long run.
The president went on to tout his proposal for a temporary payroll tax cut before yearend, with a permanent tax increase for the upper echelon to follow (after the election). The proceeds of that tax increase were not linked to deficit reduction either, but rather to “investments . . . in things like education and research and high-tech manufacturing.”
In their search for a defensible reason to accede to an extension of the payroll tax cut and unemployment benefits, the Republicans hit on the idea of linking these items – which the president has advocated relentlessly – with a legislative “green light” for the Keystone XL Pipeline.
In terms of creating jobs and reducing US oil imports from unstable areas, the Keystone Pipeline has much to offer. Also, no government subsidies would be needed.
The objections come primarily from environmentalists who would like to drive up the price of oil by limiting its availability. Environmental “gut check time” for Obama? Thom Patterson, CNN.com, 10/7/11.
On a cloudy day last month [Courtney] Hight, a former member of the White House Council on Environmental Quality, took a huge career risk and joined more than 1,200 protestors who were demanding that President Obama deny a building permit for Keystone XL, a planned oil pipeline that would stretch from Alberta, Canada, to Texas. The project, the protesters say, threatens to poison ground water across the heartland and extend America's reliance on climate-changing fossil fuels.
If the president was truly focused on creating jobs, he would have approved the project. Instead, it was put on hold until 2013. “We can’t wait” campaign is a farce, 11/14/11.
The Republican proposal is anathema to the president, and he has characterized the number of jobs the pipeline would create as inconsequential in comparison to the purported job gains from the measures he favors. GOP ties payroll-tax cut to pipeline, Naftali Bendavid & Janet Hook, Wall Street Journal, 12/9/11 (no link available).
Mr. Obama said Republicans were trying to extract a political price in exchange for the tax cut. He said that jobs created by the pipeline paled besides those that would be generated by the payroll-tax cut and by extending unemployment benefits.
House passage of the GOP bill is expected early this week, perhaps tomorrow. Senator Majority Leader Harry Reid says the bill will not get the required 60 votes in the Senate, but we think it will at least come close.
Green jobs – Environmentalists do not all think alike, but in general they have the following preferences as to energy sources:
|
Best |
Good |
OK |
Poor |
Awful |
|
Conservation |
Wind, Solar |
Expensive natural gas |
Cheap natural gas, nuclear power |
Coal, oil |
Energy from preferred sources is labeled green, clean, and/or renewable; other energy sources are considered to be hazardous, dirty, and/or unsustainable.
For some environmentalists, economic considerations are secondary. They decry the current lifestyle of the human race, particularly in advanced countries, as excessive – and therefore prefer conservation to energy development. Time to turn down our thermostats, stop eating meat, relocate to more compact housing in urban areas served by public transportation, get rid of pet dogs, and even stop having so many children. Population control in an aging society, Ken Connor, Townhall.com, 11/1/09.
Their argument is simple enough: fewer people put less strain on natural resources, use less energy, and generate less pollution. Wealthy countries, so the thinking goes, are particularly suited to implement this strategy because they have ready access to birth control and legalized abortion.
The general public tends to be complacent about environmental claims, but that does mean people want to alter their life styles or pay more for the energy they consume. Witness the adverse public reaction to the Bloom Energy tariff that was imposed on Delmarva ratepayers not so long ago. Bloom Energy could be the last straw, 10/17/11.
Perhaps it was thought ratepayers would not notice a dollar or two a month charge on their electric bills, while taxpayer-funded payments from the state might attract more attention. But we and others have done our best to publicize the ploy.” *** News Journal, 10/15/11, carried 8 letters to the editor about the Bloom Energy deal & tariff – FOR: Andy Grove, Santa Clara, Calif. AGAINST: Gary Myers, Rehoboth Beach; Susan Klinefelter, Newark; Alex Garcia, Magnolia; Edmund Dohnert, Wilmington; Eric Bodenweiser, Georgetown; Andrew Cohen, Wilmington; Marilyn Costas, Lewes.
In an honest showdown between environmental purity and cheap energy, the latter goal is likely to win – and the environmentalists know it. Accordingly, they have developed arguments calculated to skew the debate in their favor.
One approach is exaggerated claims about perceived dangers, which may frighten potential opponents enough to shut them up. Catastrophic global warming, national security, extreme weather events, health risks, whatever works. For example, check out the recent series of red baby carriage ads of the American Lung Association to counter efforts to reassert Congressional authority over the EPA. Video, July 2011.
http://www.lungusa.org/assets/video/red-carriage-dont-480p-16x9.mov
Another strategy is to claim that compliance with ever-tighter regulation of conventional energy producers will produce win-win outcomes, boosting the economy/creating jobs at the same time that environmental goals are achieved.
Such claims characteristically focus on projected growth of renewable energy producers and the creation of “green” jobs, while ignoring associated losses in the conventional energy sector and the effects of higher energy costs on the overall economy. The False Promise of Green Energy, Morriss, et al., Cato Institute (2011).
http://www.s-a-f-e.org/green_energy.htm
By glossing over the inherent conflict between “feel good” environmental goals on the one hand and economic growth & jobs on the other, the green jobs mantra seemingly makes it possible to support both goals at once.
Sometimes no “green” jobs can be indentified. Thus, as previously discussed, the president found it necessary to punt on the Keystone XL Pipeline. But savvy politicians will talk about “green” jobs when they can, even though the claims are not truly realistic, rather than alienating one segment of the electorate or another.
Here in Delaware, Governor Jack Markell has supported policies designed to phase out the conventional energy base of the state and replace it with subsidized wind, solar, and now fuel cell (the Bloom Energy venture) power. Our Global Warming microblog (http://www.s-a-f-e.org/global_warming_2011.htm) contains many examples.
At the same time, the governor has repeatedly underscored his commitment to creating jobs in Delaware – with “green” jobs being stressed. We have “will, fight, focus,” Jonathan Starkey, (Wilmington, DE] News Journal, 12/9/11.
Jobs summit hosted last night at UD (Clayton Hall) drew nearly 300 people. Governor Markell talked about the Delaware City refinery, Fisker, and Bloom Energy investments, saying Delaware must capitalize on its ability to move quickly – and in unison – when an opportunity arises. The governor also stressed the need to invest in public education so Delaware can offer businesses a high-quality work force. *** Bill Thayer of Bloom Energy alluded to recruiting problems in California due to the high cost of living there, and said the new fuel cell factory should be up and running by the end of 2012. In part, Bloom wanted to come to Delaware because of a sense that its needs and interests are not likely to get lost as they might in a much larger state. [This meeting was basically a political pep rally.]
And while the governor claims credit for creating green jobs, there seems to be no acknowledgment that the resulting higher energy prices will make the state a less attractive venue for other industrial firms. Regional cap-and-trade revenue is wasted, David Stevenson (Caesar Rodney Institute), News Journal, 5/2/11.
The writer urges that Delaware withdraw from the Regional Greenhouse Gas Initiative [RGGI] for the following reasons: (1) DE greenhouse gas emissions have already been cut by 40% vs. the RGGI goal of 10% due to generator shutdowns and conversions from coal to natural gas. (2) Consumers have to pay more for power under RGGI -- $10 per year in 2010 for average consumer, $10K for large industrial customer, could increase over the next decade to $50/ $50K. (3) Auctions have raised $21M cumulative thus far, $2M for administration and most of the remaining $19M turned over to private nonprofit organizations. Low-income weatherization program was a proven mess; low energy programs of the Sustainable Energy Utility (SEU) have produced no documented results and SEU has yet to issue a required progress report despite a pending Freedom of Information lawsuit. (4) Meanwhile, investments by individuals and businesses have been increasing energy efficiency by almost 2% a year (which dwarfs the results that might have been achieved if all the RGGI money had been invested effectively). (5) The entire 10-year RGGI goal for carbon emission reduction “is replaced by unregulated increases in Third World countries every 30 seconds.”
In sum, the schemes we have reviewed - a temporary payroll tax cut for workers, unemployment benefits for non-workers, and mandates & subsidies to further the environmentalist agenda – amount to political payoffs. Possibly some jobs will be created as a result, but we wouldn’t bet on it.
The basic problem is placing too much reliance on government management of the economy instead of allowing the market system to work. Our four-prong approach is spelled out in Jobs: do not let the perfect be the enemy of the good, 2/14/11.
ONE: Outright elimination of the minimum wage might be considered “extreme,” but at least the federal and state governments should refrain from any further increases. Over time, inflation would erode its economic effect. Meanwhile, the minimum rate could be lowered for teenagers to help them get started in the workforce.
TWO: Abandoning unemployment compensation benefits would be a tough sell, and on a short-term basis they may have a constructive effect. We would recommend against extending them for long periods, however, lest they come to be seen as an “entitlement” versus temporary assistance.
THREE: Eliminate the federal role in education. Support educational choice, including a robust network of charter schools. See the Education page of this Website.
FOUR: Rationalize taxes and government regulations that are imposing an inappropriate burden on business firms, and in the process reduce the government’s fiscal problem. See the Energy and Taxes pages of this Website for detailed discussion
Follow these policies and stand back. The US economy will boom again!
12/5/11 – Bin the payroll tax cut Read Replies
Until Americans recognize the urgency of the fiscal problem and demand corrective action, there is little hope for a solution. Meanwhile, as Congress lurches toward adjournment for the year, a costly and irresponsible payroll tax cut is under consideration that would make things worse.
It may be unrealistic to expect progress on the fiscal front right now, in a divided Congress with the politicians already going into campaign mode. 5 ways the 2012 election has changed since the Super Committee’s failure, Matt Mackowiak, Townhall.com, 11/30/11.
From now until the election next year, only the most mandatory business will be acted upon. That means action on expiring tax credits, temporary spending bills, nominations but little else. Capitol Hill will not be where the action is for the next year.
And some observers doubt things will improve after the elections, as they believe Americans will never face up to the fiscal problem until the roof caves in. Save Europe by budget reform, not debt, Peter Schiff, Townhall.com, 11/30/11.
In contrast, the U.S. is crystal clear in its intention to ignore its debt problems. With the failure of the Super Committee this week it actually became official. American politicians will not, under any circumstances willingly confront our underlying debt crisis.
But no matter, we think the proposed payroll tax cut is a dumb idea – like most elements of the American Jobs Act that the president harangued Congress to pass right away in his September 8 jobs speech – and it should be dealt with accordingly.
Perhaps this sounds surprising; don’t “conservatives” always support tax cuts? SAFE did not take the bait 2+ years ago (Never mind the “tax cut,” 1/19/09), however, and we certainly don’t plan to do so now.
If the Republicans are truly concerned about fiscal responsibility, let’s hope they will block this proposal instead of negotiating about (1) how big a cut, and (2) how would it purportedly be paid for?
Background: There have been “temporary” cuts of one sort or another for every tax year since 2007. Rightly or wrongly, they were justified as a means to put money in peoples’ pockets (e.g., $100-200 billion per year) and thereby stimulate economic demand.
For tax years 2007 and 2008, it was income tax rebates (not limited to the recovery of income tax paid). The details of who qualified under what circumstances were rather involved, as illustrated by this Tax Credit Resources description of the 2007 rebate (claimed on tax returns filed in 2008). http://bit.ly/vjKdLZ
For tax years 2009 and 2010 it was the “making work pay” tax credit, touted by the president in the campaign of 2008 and included in the 2009 economic stimulus package. As previously noted, SAFE opposed this proposal in January 2009.
If a huge ESP does go through, someone will have to pay for it – either through higher taxes or inflation – per the iron law of economics (“no free lunch”). Ditto for the huge deficits that are already projected. *** anyone who buys into the ESP for a tax cut may find they have made a poor bargain. “Never mind the tax cut,” we say. How about you?
For tax year 2011, as part of the post-election deal to extend the Bush tax cuts until 2013, thereby avoiding a huge tax increase in the middle of a recession, the payroll tax rate for individuals was cut by two percentage points (overall cost $110B).
In summary, a pattern has been established of doling out yearend tax favors to tens of millions. The favors are gratifying to recipients, of course, and the longer this practice is continued the harder it will be to stop. Game show government, James Arlandson, American Thinker, 12/2/11.
Never [underestimate] the seductive power of Game Show Government, all in the name of social and economic justice. When I ask students what such justice looks like in specific terms, they draw a blank. I suggest to them that over the decades, it boils down to "Vote for us; we'll send you a check!" Now our checks are no good because our account is overdrawn.
Current situation: The president proposes to double down on the payroll tax cut for 2012. Workers would get a tax rate reduction of 3.1 (versus 2.0 in 2011) percentage points; payroll taxes for small businesses (previously not reduced) would be cut in half. The resulting revenue cost would be about $240B. White House Fact Sheet, 9/8/11.
And the best part is that the tax cuts would be “paid for” by future tax increases on wealthy taxpayers. How’s that for fiscal responsibility?
Pretty bad, we would say, but Congressional Republicans do not want to alienate anyone if they can help it, and several political considerations are complicating their response.
#As already noted, tax cuts are popular with recipients – making it awkward to denounce this proposal as an unwarranted extravagance.
#Republicans have traditionally supported tax cuts, and they do not want to be one-upped. GOP is losing payroll tax fight, Conn Carroll, Washington Examiner, 12/2/11.
If Republicans want to get up off the mat and win this fight, they need to get back in touch with their tax-cutting roots. See the Democrats temporary payroll tax cut and raise them to a permanent cut.
#Blocking a payroll tax cut for the rank and file to avoid tax increases for the wealthy (anathema to the Republican base) would be political suicide. The less-than-thrilled case for extending the payroll tax holiday, Daniel Mitchell, Townhall.com, 11/30/11.
. . . if GOPers paint themselves into a corner such that they can be accused of supporting tax cuts for the “rich” while opposing tax cuts for workers, that will set a new record for being tone-deaf and brain-dead.
So what to do? The GOP game plan is to acquiesce in extending the current tax cut for 2012 – while maneuvering to derail the expansion that has been proposed – and demanding spending cuts to pay for it.
The talk thus far has been about spending cuts in future years, to be imposed on an overall basis instead of targeting wasteful programs or activities. House GOP looks to extend tax cut, jobless benefits, Susan Ferrechio, Washington Examiner, 12/1/11.
Top House aides confirmed that the proposal in the works would be similar to one offered this week by Senate Republicans. That Senate plan would pay to extend the payroll tax cut and make up for the lost revenue by freezing federal workers' pay and limiting entitlement benefits [paid] to those earning more than $750,000 a year.
Last Thursday, the Democrat plan for a souped-up payroll tax cut failed in a Senate vote. A Republican alternative also failed, by a wider margin. Senate rejects, for now, extending payroll tax cut, AP report, NPR.com, 12/1/11.
The action will now switch to the House, where a reported split among Republicans could complicate Speaker John Boehner’s efforts to get a Republican version of the payroll tax cut passed. GOP split slows push for payroll [tax] cut extension, Steven Sloan & Richard Rubin, Bloomberg.com, 12/3/11.
House Budget Committee Chairman Paul Ryan, a Wisconsin Republican who said in June that the payroll tax cut is a “sugar high,” said yesterday that he thinks a deal will be worked out to extend the break. “We’ll figure it out,” he said. “It’s all good.”
Meanwhile, the president stepped up the pressure on what he paints as a “no brainer” proposal to boost the fragile economy. Weekly address, 12/3/11.
Over the last few months, [too many Republicans in Congress] said “no” to most of these jobs bills. “No” to putting teachers and firefighters back to work. “No” to putting construction workers back on the job. And this week, they actually said “no” to cutting taxes for middle-class families. *** And we’re going to keep pushing Congress to make this happen. They shouldn’t go home for the holidays until they get this done.
Getting serious – We have viewed the president’s economic plan as recklessly irresponsible from the get go. “We can’t wait” campaign is a farce, 11/14/11.
But when it comes to pushing for action on the fiscal problem, which first and foremost would require serious spending cuts, the Republican performance has also been deficient. GOP economic plan offers some good ideas, but weak execution, 11/21/11.
OK, with control of only one house of Congress, there is just so much the Republicans can do. But they do have the power to block the proposed payroll tax cut for 2012, and such action would be well justified for the following reasons:
1. As we see it, the proposed tax cuts would not effectively boost the economy. Similar measures in prior years failed; why should they work now? And well-known economic theory suggests that temporary tax cuts are ineffective in boosting demand. Academic research suggests that the American Jobs Act will produce few jobs, David Logan, Tax Foundation, 9/19/11.
The Permanent Income Hypothesis tells us that individuals take the future into account when they decide how to consume or spend. This theory suggests that if a consumer perceives a change in income to be temporary, the increased amount of money in their pocket will not lead to a change in spending behavior. In other words, people are not likely to purchase a big-ticket item or make a long-term commitment because of a one-time cash windfall.
2. Even if the payroll tax cuts did prove mildly stimulative, this effect would be “swamped” if they were financed by permanent tax hikes in later years.
http://taxfoundation.org/news/show/27632.html
3. As for paying for the tax cuts with spending cuts, it would be foolish to increase the deficit in 2012 by $110B (let alone $240B) based on spending cut promises that could be ignored or evaded by future Congresses.
4. If and when real spending cuts are made, the proceeds should be applied to reducing the deficit – not used to justify tax cuts or new spending programs. Here is a 12/1/11 letter to the editor, which makes an analogous point with respect to Senator Tom Carper’s proposal for financing a national park in Delaware.
http://www.s-a-f-e.org/members_microblog_2011.htm
5. The assumption that the payroll tax cuts for 2012 would be a one-off deal is belied by yearly tax handouts since tax year 2007. The longer this habit continues, the more difficult it will be to break.
Thus, a message currently displayed on the White House website - IF CONGRESS DOESN’T ACT, MIDDLE-CLASS TAXES WILL GO UP – would be equally applicable a year hence.
6. Finally, it will never be possible to fix the tax system unless Congress stops tinkering with this element of the system or that and overhauls the entire structure for the long term. This is a project that could have a big payoff for the US economy, and we cannot imagine why the politicians never seem to get around to it.
No tax system will boost the economy, for the essence of taxes is to move money from the private sector that creates wealth to the government that consumes it, but the damage can be minimized by eliminating a host of tax preferences (exemptions, deductions and tax credits) and lowering tax rates.
In terms of setting tax rates, we would think it advisable to consider the system as a whole and not simply focus on the supposedly inadequate burden on the upper echelon. Thus, if everyone is to pay a “fair share,” why should nearly half the workforce pay little if any income tax?
True, lower income workers pay payroll taxes, but these taxes only cover a portion of the cost of the benefits (Social Security and Medicare) they have been promised and in no way prove that they are paying their fair share of the cost of government. Accordingly, we reject the notion that payroll taxes should be reduced or eliminated – which is precisely the expectation that a continuation of the payroll tax “holiday” could be expected to foster. SAFE’s SimpleTax proposal, November 2010.
Departing from the design of the FairTax, we do not advocate elimination of payroll taxes for Social Security and Medicare. Unemployment compensation benefits should be controlled more carefully than they have been recently, but covering them with payroll taxes seems appropriate. Ergo, no changes are recommended.
Payroll taxes represent a drag on employment, however, and the current rates are at about the maximum tolerable level in our judgment. Any proposed increases should be intently scrutinized.
http://www.s-a-f-e.org/the_simple_tax.htm
In conclusion: Our political leaders need to stop talking about the fiscal problem and start doing something about it.
Rejecting the proposed payroll tax cut would be a start.
“Just do it.” (Nike logo)
* * * This Blogs Replies * * *
Update: a letter summarizing the “bin it” viewpoint was sent to about 60 members of Congress, on both sides of the aisle, this morning. Here’s the link: http://www.s-a-f-e.org/contacting_legislators_2011.htm#120511.
I hate to say this, but to continue the tax reduction or not is a very political decision. I think the Republicans are really forced to continue. I like what I heard this morning about tying the continuation to building the Keystone pipeline. If the GOP stops this, I think we will see negative results next Nov. – SAFE director [This is admittedly a tough call for the Republicans. What do the rest of you readers think?]It’s fine to push for fiscal responsibility, but Congress will NOT STOP SPENDING. – SAFE director
11/28/11 – Tax cuts for rank and file now; tax increases for the wealthy in 2013
Last Monday, the Joint Select Committee on Deficit Reduction announced it had deadlocked due to “significant differences.” The hope was expressed, however, that “Congress can build on this committee’s work and can find a way to tackle this issue in a way that works for the American people and our economy.” Joint statement of co-chairs (Representative Jeb Hensarling and Senator Patty Murray), 11/21/11.
This outcome was disappointing, but not surprising. As we noted in August, deadlock could be expected if “Side A says tax increases are essential/ Side B says tax increases are a nonstarter.” Debt limit deal settled nothing, 8/8/11.
And by most accounts, that sums up what the Joint Committee spent the better part of three months arguing about. See, e.g., Deficit gridlock looms, David Espo & Andrew Taylor, Washington Examiner, 11/18/11.
Democrats have long demanded that Republicans agree to significant amounts of higher taxes on the wealthy as part of any deal, and they quickly rejected [a new Republican] offer, according to officials in both parties. "Where the divide is right now is over taxes, and whether the wealthiest Americans should share in the sacrifices," said Washington Sen. Patty Murray, the Democratic co-chair of the panel.
Hmm, how likely is it that Congress will find a way to build on the Joint Committee’s work? Perhaps they should try a different approach, such as a comprehensive public debate of the competing viewpoints. But don’t count on that either.
The problem that led to the debt limit fight and creation of the Joint Committee was long-term deficit spending. Fiscal experts of all political hues say this problem must be addressed lest there be disastrous consequences. The Joint Committee deadlock did not cure the projected deficits. Yet somehow the focus has shifted to tax policy.
One clue is a message that has popped up on the White House website – prominently displayed on multiple pages. IF CONGRESS DOESN’T ACT, MIDDLE-CLASS TAXES WILL GO UP.
Another is the proposal to pay for a payroll tax extension and other goodies by allowing the Bush tax cuts for high earners (only) to expire in 2013, as has been demanded ad nauseam by the president and his party.
Read on for answers to three questions about the budget battle and a suggestion that could lead to a meaningful debate if, but only if, the American public demands action.
Did the Joint Committee fail? - The JC did not solve the country’s fiscal problem. Most of its members made an earnest effort, however, and they also deserve credit for not compounding the problem by offering a bogus solution.
Perhaps the JC exercise was only a ploy designed to spread the blame around for the reckless spending spree that began in 2009. If so, says one astute observer, it may have succeeded all too well. Failure or success? Thomas Sowell, Townhall.com, 11/23/11.
Splitting the blame with the Republicans for what Democrats alone had done was a political victory, in terms of making the Obama administration less vulnerable at the polls in 2012. With the help of the media, the big issue was no longer the big spending that drove the national debt up to the legal ceiling, but the failure of the Republicans to help solve the debt ceiling crisis.
In any case, no one involved with the fiscal problem has made much headway in solving it. Should the others be labeled “failures” as well? All things considered, we would not be inclined to condemn the JC members for letting the country down without knowing far more about what happened behind closed doors.
Who or what caused the Joint Commission deadlock? – Side B’s view is closest to being right, in our opinion, although Side A’s view is entitled to respect. The ideas being peddled by independents seem mushy and potentially dangerous.
Side A says the Democrat members of the JC wanted to “go big,” backing a plan that would go far beyond the $1.5T goal that had been assigned and include significant adjustments to entitlement programs. The Democrats expected a “balanced” solution with additional tax revenue, however, and the Republicans refused to cooperate. Rhetoric turns political after Super Committee failure, John Stanton & Meredith Shiner, Roll Call, 11/21/11.
Senate Majority Leader Harry Reid: “I am disappointed that Republicans never found the courage to ignore Tea Party extremists and millionaire lobbyists like Grover Norquist.” On the other hand, “Democrats were prepared to strike a grand bargain that would make painful cuts while asking millionaires to pay their fair share, and we put our willingness on paper. But Republicans never came close to meeting us halfway.”
Side B says more tax revenue was offered by Republican members of the JC, primarily through tax reform but also including a cutback of tax preferences primarily availed of by upper income Americans. The other side rejected these proposals out of hand, and demanded at least $1T in tax increases. Why the Super Committee failed, Representative Jeb Hensarling, Wall Street Journal, 11/22/11.
Independents tend to blame both sides indiscriminately, as though the fiscal problem could be readily solved if the parties would just put their partisan [ugh!] differences aside. See, e.g., Comeback America Initiative, statement by David Walker on the Supercommittee’s failure, 11/21/11.
Both political parties are to blame for the failure of the Supercommittee. It is just another example of the huge leadership deficit that exists in Washington today. Americans are tired of partisanship and political rhetoric. They want progress and results.
http://tcaii.org/ (download PDF)
A corollary is a focus on Executive Branch leadership. It seems to be thought that the president should call the shots, with the members of Congress following like sheep lest they be considered obstructionists. The goal is to “do something;” the wisdom of the contemplated policy choices is deemed secondary. If our summary sounds unfair, consider this footage from a MSNBC interview of David Walker by Andrea Mitchell, et al. Morning Joe, video (skip the first minute, cuts off after 9 minutes), 11/22/11.
Largest failure of a political committee in recent history – things are worse than we thought – special interests trumping public interest – plenty of plans the JC could have patched together, but they chose to do nothing – New York Mayor Michael Bloomberg says president should have backed recommendations of the Bowles-Simpson Fiscal Commission in 2010 – time for another public education and engagement campaign like the one Ross Perot organized in 1992 (as a third party candidate for president) – no moderate Democrats or Republicans any more – stop pledges to special interest groups such as Grover Norquist or the AARP – the “no labels” group (with which Walker is affiliated) plans to propose Congressional rule changes, redistricting reform, election finance reform [the McCain-Feingold Act wasn’t bad enough?], and term limits.
Partisanship is nothing new in American politics, and the solution of forcing everyone to agree with each other has not been seen as desirable in this country – and hopefully never will be. Federalist Papers, no. 10, Factions: Their Cause and Control, James Madison.
There are two methods of curing the mischief of faction. The one, by removing its causes; the other, by controlling its effects. There are again two methods of removing the causes of factions. The one, by destroying the liberty which is essential to its existence; the other, by giving to every citizen the same opinions, the same passions, and the same interests.
What’s the connection between deficit reduction and a 2012 payroll tax cut? - If there is a logical connection between these subjects, it goes like this: The proposed payroll tax cuts in the president’s job plan would increase current deficits, but they would also help to promote economic recovery with the result that tax revenues in later years would be higher and the long-term fiscal effects would be positive.
This sounds a bit like the claim that the previous economic stimulus package would keep the unemployment rate under 8%. We did not buy that argument in 2009, and it was quickly disproved by events. We don’t buy this one now.
But the president made the argument in his September 8 jobs speech, and he went on to urge that Congress find a way to pay for the stimulus. Transcript.
The agreement we passed in July will cut government spending by about $1 trillion over the next ten years. It also charges this Congress to come up with an additional $1.5 trillion in savings by Christmas. Tonight, I’m asking you to increase that amount so that it covers the full cost of the American Jobs Act. And a week from Monday, I’ll be releasing a more ambitious deficit plan – a plan that will not only cover the cost of this jobs bill, but stabilize our debt in the long run.
Fast forward to last week’s reminder that unless Congress acts, taxes on the middle class will go up. The message as stated is literally true, albeit misleading (letting a one-year reduction in payroll taxes lapse would hardly represent a tax increase), and it was not necessarily related to the Joint Committee deadlock.
The timing of the “unless Congress acts” statement was no coincidence, however, as shown by a front-page story in the [Wilmington, DE] News Journal on November 23.
Economic growth in peril, Christopher S. Rugaber (AP) – A tax cut that reaches 160 million Americans and government aid for the long-term unemployed will expire at the end of the year – and suck $165 billion out of the economy next year – unless Congress takes action. *** On Monday, White House press secretary Jay Carney suggested that renewing or deepening the tax cut could be paid for by increasing taxes on the wealthy.
It is well known that the coveted tax increases are anathema to Side B – but the president has acquired a devastating weapon that he is apparently willing to use.
Under the Budget Control Act, the Joint Committee deadlock will trigger automatic cuts in discretionary spending of $1.2T over the next 10 years, half from the defense budget. On top of defense cuts already being planned, the implications for US military capabilities would be seriously prejudicial (some would say catastrophic). [Defense Secretary Leon] Panetta warns against sweeping defense budget cuts, Reuters, 8/3/11.
Panetta said a potential second round of cuts in security spending estimated at about $600 billion from fiscal 2012 to 2021 would be "completely unacceptable."
"If that happens, it could trigger a round of dangerous across-the-board defense cuts that would do real damage to our security, our troops and their families, and our ability to protect the nation," he said in a message to Defense Department personnel.
Congressional defense hawks say a way must be found to spare the military from a second budget hit, but the commander in chief has promised to veto any legislation that would defuse the automatic spending cuts. Transcript of remarks on the JC deadlock, 11/21/11.
I will veto any effort to get rid of those automatic spending cuts to domestic and defense spending. There will be no easy off ramps on this one. We need to keep the pressure up to compromise -- not turn off the pressure. The only way these spending cuts will not take place is if Congress gets back to work and agrees on a balanced plan to reduce the deficit by at least $1.2 trillion. That’s exactly what they need to do. That’s the job they promised to do. And they've still got a year to figure it out.
In other words, the president will stop at nothing to beat the Side B legislators, who he claims “continue to insist on protecting $100 billion [others estimate as about $80B per year] worth of tax cuts for the wealthiest 2 percent of Americans at any cost, even if it means reducing the deficit with deep cuts to things like education and medical research. Even if it means deep cuts in Medicare.”
Granted that politics is not for the faint of heart, this kind of “bare knuckles” tactics seems like a poor substitute for an informed debate about reforming the tax system. Nor will any change in tax policy solve the fiscal problem; the only solution is large, thoughtfully considered spending cuts. SAFE letter to JC members et al., 8/22/11.
We don’t claim to have all the good spending cut ideas by the way. Be sure to check out the suggestions of Cato Institute, CAGW, NTU, and others.
A SAFE suggestion for getting things back on track - Congressional rules call for a budget resolution for each fiscal year, to be finalized by April 15. Congressional Research Service memo (updated in 2007).
The Congressional Budget and Impoundment Control Act of 1974 . . . requires Congress to adopt an annual budget resolution. The budget resolution is Congress's response to the President's budget. The budget resolution must cover at least five fiscal years: the upcoming fiscal year plus the four subsequent fiscal years.
However, both houses of Congress chose to ignore this requirement for Fiscal Year 2011. Democrats are hiding deficits, Washington Times, 4/15/10.
. . . the party in power is reluctant to acknowledge its stewardship of worsening budget problems with midterm elections coming in November. As a result, congressional Democrats are shying away from a vote on this year’s budget resolution, causing chaos to the federal budgeting process.
This year, the House passed a budget resolution in mid April and sent it to the Democrat-controlled Senate. The Senate avoided proposing an alternative, and the House budget was tabled in late May. The Dems’ “breathtaking” refusal to pass a budget, Byron York, Washington Examiner, 5/23/11.
“There’s no need to have a Democratic budget, in my opinion,” Reid told the Los Angeles Times last week. “It would be foolish for us to do a budget at this stage.” Instead, Reid wants to wait to see if the deficit-reduction meetings led by Vice President Biden bear any fruit. Before that, Reid wanted to wait for the Gang of Six — now nearly defunct — to come up with something.
Two month into the fiscal year, a nearly $4T a year cost center is still operating on continuing resolutions. Such a course would never be accepted in the private sector and there is no reason to believe spending discipline is being maintained. New spending bill, more fiscal stupidity, Lurita Doan, Townhall.com, 11/21/11.
This hodgepodge of appropriations manages to simultaneously delay, once again, the painful necessity of confronting excessive spending, while simultaneously eroding the little fiscal discipline that does exist.
If the Senate generated a budget resolution, it could be compared in detail to the House version and set the stage for a meaningful debate. Most likely that is why Side A has been ducking the requirement, while casting stones at Side B’s proposals. Think tank project shows why Dems won’t offer a budget, Washington Examiner, 5/25/11.
In any case, the Senate should “end its incomprehensible fiscal abdication by doing one of two things: (A) Approve the budget passed by the House in April; or (B) Offer its own budget proposal so Americans can compare the two visions and weigh in as to which of them they would prefer.” SAFE letter to Congressional leadership et al., 11/22/11.
If enough people make this point, something will happen. Otherwise, the tawdry and vicious altercation now in process will continue. Pass it on!
11/21/11 – GOP economic plan offers some good ideas, but weak execution
Our review of Democrat proposals to promote economic recovery was not complimentary. “We can’t wait” campaign is a farce, 11/14/11.
But are the Republicans offering something better? To explore this question, we reviewed the “House Republican Plan for America’s Job Creators,” which has the stated purpose of “empowering families, small businesses and entrepreneurs.” http://bit.ly/niTlFr
The plan seems fine off the top. We agree that the private sector - not government – “is the foundation for economic growth and job creation in America.” For sure, “more taxation, regulation, and litigation will not create more jobs." And, yes, we favor common sense, pro-growth policies “to give small businesses [big businesses too, don’t forget them] and entrepreneurs renewed confidence in our economy.”
The six stated objectives sound sensible, or at least benign. Who wouldn’t want to (1) reduce government barriers to job creation, (2) fix the tax code, (3) make American manufacturers more competitive . . . and (6) pay down America’s unsustainable debt burden?
As for implementation, it is alleged that many “bipartisan jobs bills passed by the Republican-led House” have been blocked in the Senate. GOP jobs plan better than Obama’s, Aamen Madhani, USA Today, 11/8/11. http://usat.ly/rIEUCh
House Republicans have associated 22 bills (see Thomas, http://1.usa.gov/bKFheF, for description and status) with the GOP jobs plan. Only 5 of them have been enacted to date. The inference is there has been production in the House and delays in the Senate (hardly unprecedented). Pocket Card. http://bit.ly/k1aQjv
But the 22 bills do not constitute a coherent legislative agenda, and the Republicans must raise the level of their game if they hope to convince Americans that Democrats are primarily to blame. Read on for our analysis and suggestions.
MODEST VICTORIES – Under three of the six stated objectives, all bills listed have been enacted – without discernible progress towards the objective. This suggests that either (a) much more remains to be done, or (b) the objectives are impracticable.
2. Fix the Tax Code to Help Job Creators
• H.R. 4 - Small business paperwork mandate elimination: Repeal IRS reporting requirements e.g., (1) payments of $600+ to corporations and to purchase any type of property, and (2) payments made with respect to rental property. (Signed 4/14/11.)
If Republicans envision making the tax law flatter, fairer, and simpler, they need to propose extensive legislative changes. H.R. 4 seems constructive, but it does not address the major problems. SAFE’s SimpleTax proposal illustrates the type of action we believe is needed. http://bit.ly/etlOxX
3. Increase Competitiveness for American Manufacturers
• H.R. 3078 – US-Colombia Trade Promotion Agreement Implementation
• H.R. 3079 = US-Panama Trade Promotion Agreement Implementation
• H.R. 3080 - US-Korea Trade Promotion Agreement Implementation
(All three acts were signed 10/21/11.)
The three treaties were negotiated by the previous Administration. They were not submitted for ratification by Congress until recently, however, due, among other things, to differences of opinion about retraining assistance programs for displaced US workers.
Republican may be entitled to take credit, but Democrats will claim credit too. Thus, in his 9/8/11 jobs speech, the president lauded the treaties and urged swift Congressional action – without mentioning the 3-year delay. Speech transcript.
If Americans can buy Kias and Hyundais, I want to see folks in South Korea driving Fords and Chevys and Chryslers. I want to see more products sold around the world stamped with three proud words: “Made in America.”
The trade agreements with Colombia, Panama, and Korea will have a marginal effect on overall US exports, and there are no other trade agreements in the queue for now. Perhaps other actions could be taken to increase competitiveness for domestic manufacturers, but we question whether the government can be of great help in this regard – aside from removing negative burdens on US manufacturers (strategies 1 & 2). We do not favor more tax subsidies for domestic manufacturing and research, nor erection of new trade barriers to protect US manufacturers.
4. Encourage Entrepreneurship & Growth
• H.R. 1249 - America Invents: Overhauls US patent law, converting it from a “first to invent” system to a “first inventor to file” system like other countries. (Signed 9/16/11.)
The America Invents Act was several years in the making, and politicians on both sides of the aisle have claimed responsibility. Here is what Senator Chris Coons (D-DE) said, for instance, in commenting on the president’s jobs speech (which briefly mentioned the AIA). Obama exhorts Congress, Doug Denison, News Journal, 9/9/11.
The sweeping changes to our nation’s patent system that [the bill] makes will help create jobs in Delaware and throughout the country, which is why I co-sponsored the measure and worked aggressively for its passage.
http://www.s-a-f-e.org/members_microblog_2011.htm
The AIA may cut the backlog in patent applications and put America in synch with the rest of the world, but it will benefit big companies that can afford to hire patent attorneys more than startup businesses. Also, little if anything has been done to fix a deeper problem – the US patent system encourages overly broad patent claims versus true innovation. Patently absurd, Timothy Lee, National Review, 10/3/11.
Most patent trolls target large companies such as Microsoft or Apple. But more recently, smaller firms have been hit as well. Lodsys has become famous in the mobile-software industry for threatening dozens of small developers. As with most patent trolls, there's no allegation that the defendants specifically copied Lodsys's technology. Rather, Lodsys patents, which are related to purchasing electronic content from mobile phones, are simply so broad that dozens of companies have (allegedly) infringed them by accident.
TOUGH BATTLES – Some 2/3 of the 22 bills involve attempts to alter the policy or procedures of various administrative agencies, in most cases relating to the extraction or use of fossil fuels. And none of them have been enacted so far.
1. Empower Small Businesses & Reduce Government Barriers to Job Creation
• H. Res. 72 - Review of Federal Regulations: Set up a House review process for existing & proposed regulations. The resolution was passed and follow-up work is being done in the House. No Senate action required.
• H.R. 872 - Reducing Regulatory Burdens: Would ban (with certain exceptions) EPA or state regulation of discharge into navigable waters of pesticides approved under federal law as a result of application. In Senate since June.
• H.R. 910 - Energy Tax Prevention: Would ban (with certain exceptions) EPA regulation of greenhouse gas emissions “to address climate change.” (In Senate since April)
• H.J. Res. 37 - Disapproval of FCC’s Net Neutrality Regulations: Block FCC regulations adopted in Dec. 2010 re “preserving the open Internet and broadband industry practices.” The regulations became effective on 11/20/11. (In Senate since April)
• H.R. 2018 - Clean Water Cooperative Federalism: Limit EPA discretion to override state regulatory determinations re applications of Clean Water Act in various situations. (In Senate since July)
• H.R. 1315 - Consumer Financial Protection & Soundness Improvement: Rein in Consumer Financial Protection Bureau established by the Dodd-Frank Act by designating a 5-person commission to run it vs. a director. (In Senate since July)
• H.R. 2587 - Protecting Jobs from Government Interference: Would ban NLRB interference in work location decisions (presumably related to Boeing situation). (In Senate since September)
•H.R. 2401 - Transparency in Regulatory Analysis of Impacts on the Nation: Mandates analysis and report on “cumulative and incremental impacts of covered rules and actions” of the EPA for 2016, 2020, and 2030. (In Senate since September)
•H.R. 2681 - Cement Sector Regulatory Relief: Invalidates EPA emission standards for portland cement manufacturers, and directs agency to adopt new standards meeting specified criteria. (In Senate since September)
• H.E. 2250 - EPA Regulatory Relief: Invalidates EPA emission standards for large boiler and process reactors, solid waste incineration units, and directs agency to adopt new standards meeting specified criteria. (In Senate since October)
• H.R. 2273 - Coal Residuals Reuse and Management: Empowers states to adopt and implement coal combustion residuals permit program meeting certain standards: EPA can act if state does not. (In Senate since October)
Congress created the agencies concerned through legislation, and it has the power to rein them in. The targets selected seem generally appropriate, and indeed many of them have been discussed in prior entries. See, e.g., Dear EPA, shape up or ship out, 11/29/10.
Congressional action, which seems more likely [than presidential action] at this point, might start with a statute (a) barring the EPA from regulating carbon emissions under the Clean Air Act without explicit Congressional approval, and (b) imposing a five-year moratorium on lower ozone limits. Then extensive Congressional hearings should be conducted on business and consumer complaints about the EPA, with the objective of identifying other cases in which intervention is necessary.
Such a plan is easier said than done, however, when Congress is sharply divided and the party controlling the Senate and the White House identifies with the objectives of the regulators. Not only are delays to be expected for anti-regulation bills passed by the House, but if the bills are brought to a vote they will likely be defeated.
True, Congress may be dooming itself to institutional irrelevance by failing to consider such issues on the merits, but few politicians are known for long-range thinking.
Consider the outcome when a bill to block tighter EPA restrictions on interstate emissions from fossil fuel power plants (not on the GOP list of 22 bills, but of a similar nature) was put to a vote. Block on EPA rule rejected, Raju Chebium & Nicole Gaudiano, [Wilmington, DE] News Journal, 11/11/11.
[The bill] was defeated by a 56-41 vote margin, leaving intact a cross-border pollution rule that will reportedly require “coal plants in 27 states to cut emissions that drift across state lines.” Senator Tom Carper’s floor remarks, ending with “enough is enough,” are quoted. *** EPA officials reportedly “estimate the rule will prevent up to 34,000 deaths a year linked to respiratory illness – including an estimated 140 in Delaware – and tens of thousands of nonfatal illnesses and symptoms.”
http://www.s-a-f-e.org/global_warming_2011.htm
This is not to say the EPA’s health claims are solid (we suspect their statistics are wildly exaggerated), let alone that reliable and economical power will be available from other sources if coal-fired plants are shut down by unduly restrictive regulations. But with superficially plausible arguments being offered to support the EPA rule, it would be tough to prove that the real motive was a rosy vision of restoring the world to a pre-industrial state or windfall profits for “green” energy ventures that cannot compete on a level playing field.
Another victory for regulators occurred when the Senate voted on the bill [H.J. Res. 37] to block the FCC “net neutrality” regulations. The outcome was painted as a victory for free speech in that Interstate service providers should not be allowed to discriminate between “similar websites.” Senate in party-line vote rejects measures to overturn FCC net-neutrality rules, Gautham Nagadesh et al., The Hill, 11/10/11.
“Without net neutrality, Americans’ access to the Internet would hinge not on our right to free speech but on the whims of the corporations that would control it," said ACLU legislative counsel Christopher Calabrese.
Critics suggest, however, that the net neutrality rule offers a government-run solution to a non-existent problem. Why shouldn’t ISPs be permitted to offer differential pricing based on bandwith usage, etc. that will appropriately charge big content providers and keep the Internet from sludging up? Misnamed “net neutrality” merely picks winner and losers, Rachel Alexander, Townhall.com, 1/17/11.
Leading proponents of Net neutrality include Google, no doubt due to its recent purchase of YouTube, one of the heaviest users of bandwidth on the internet. Companies like Microsoft, IBM, and Amazon have gone along with Net neutrality, believing it was inevitable and hoping to have some say in how the rules were drafted.
Some speculate that the real objective of the FCC (or at least the three commissioners who voted for net neutrality) is a government-controlled ISP that could censor Internet content. How’s that for protecting free speech? US government about to control Internet, Godfather Politics, 11/14/11.
They refer to it as net neutrality when in fact it is anti-neutrality. It’s like getting people to drink poison by calling it Kool-Aid. The name sounds safe but the contents will kill you.
Let’s hope not, for SAFE’s one-sided advocacy of smaller, more focused, less costly government might not be appreciated by a “fairness” czar.
5. Maximize American Energy Production
• H.R. 1229 - Putting the Gulf of Mexico Back to Work; expedite offshore oil exploration and production by cutting Dept. of Interior review periods, etc. (In Senate since May)
• H.R. 1230 - Restarting American Offshore Leasing Now; expedite offshore oil exploration and production by cutting Dept. of Interior review periods, etc. (In Senate since May)
• H.R. 1231 - Reversing President Obama’s Offshore Moratorium: Force Dept. of Interior to begin granting leases on the outer continental shelves (both coasts) offshore of consenting states. (In Senate since May)
• H.R. 1938 - North American-Made Energy Security: Expedite Keystone XL pipeline, among other things directing the president, by or before 12/1/11, “to issue a final order granting or denying the “Presidential Permit” (In Senate since July)
• H.R. 2021 - Jobs and Energy Permitting: Prescribes treatment of emissions from ships servicing offshore drilling sites, and establishes a 6-month deadline for permitting reviews. (In Senate since June)
We would surely favor opening more offshore acreage for exploration and development, allowing the Keystone pipeline to proceed, etc. but the House Republicans cannot realistically hope to force through such policy changes right now.
Far from deciding on the Keystone XL pipeline by December 1, for example, the president recently decided to put off the decision – which would inevitably disappoint either labor unions or environmentalists – until after the 2012 elections. “We can’t wait” campaign is a farce, 11/14/11.
DROPPED BALL – It would be great to see the Republicans distinguish themselves from Side A by becoming true champions for fiscal responsibility, and they got off to a pretty good start. Side A has proven adroit in changing the subject, however, and the GOP seems uncertain as to how to move the ball forward. They need to figure this out!
6. Pay Down America’s Unsustainable Debt Burden, Start Living Within Our Means –
The House budget for Fiscal Year 2012 (H.CON. RES. 34) provided for substantial deficit reduction, a marked departure from other recent budget documents. Government shutdown: a temporary reprieve, 4/11/11.
House Budget Chairman Paul Ryan rolled out a proposed FY 2012 budget that reflected some $6 trillion less spending in the 10-year projection period than the president’s FY 2012 budget. The cuts included GovCare repeal, conversion of Medicare coverage to subsidized private insurance plans for future retirees, and conversion of Medicaid to a block grant program. Fiscal realists hailed the package as a serious proposal.
The Senate tabled the House budget without proposing an alternative. When October 1 rolled around, marking the start of Fiscal Year 2012, the government was kept open with continuing resolutions. The resolutions were extended last week, with very little fanfare, and no doubt they will be extended again before December 17 – who wants to shut down the government just before Christmas. The occupiers won yesterday, Conn Carroll, Washington Examiner, 11/18/11.
The $128 billion bill is bad enough since it increases spending above 2011 levels. But even worse is the fact that buried inside the bill was a provision that increases the size of home loans the Federal Housing Administration can insure from $625,500 to $729,750. This is the exact type of corporate welfare housing subsidization that caused the housing bubble and the Great Recession of 2008. And thanks to the Occupy Wall Street distraction, conservatives were not able to rally support on Capitol Hill to stop it.
In related news, the National Debt broke the $15T mark – only months after the $14.3T limit was hit. With the government borrowing about 40¢ of every dollar it spends, these milestones roll around fast. As for what to do, Side A says raise taxes and Side B says cut spending. Federal debt tops $15 trillion, Stephen Dinan, Washington Times, 11/16/11.
Mr. Obama has proposed several debt-reduction plans this year, but Republicans have rejected each of them for not tackling the long-term growth of entitlement programs and instead relying too heavily on taxes. In contrast, House Republicans’ budget this year focused on entitlements and didn’t increase any taxes. Senate Democrats haven’t brought a budget to their chamber floor in more than two years.
A similar pattern has marked proceedings of the Joint Select Committee on Deficit Reduction, which as we went to press was nearing its November 23 deadline. One of the sticking points is Democrat insistence that any deal include higher taxes for “the rich,” who are supposedly not paying their fair share. Deficit gridlock looms, supercommittee deadlocked, David Espo & Andrew Taylor, Washington Examiner, 11/18/11.
Democrats have long demanded that Republicans agree to significant amounts of higher taxes on the wealthy as part of any deal, and they quickly rejected [a new Republican] offer, according to officials in both parties. "Where the divide is right now is over taxes, and whether the wealthiest Americans should share in the sacrifices," said Washington Sen. Patty Murray, the Democratic co-chair of the panel.
Will a last minute deal be reached? If so, it will probably be an ugly one. Might as well settle for the $1.2T sequester of discretionary spending (starting in 2013), which Congress could always reshape to its liking next year.
To complete the picture, a watered-down Balanced Budget Amendment (no spending limits; would not have gone into effect until 2017) missed House passage by the requisite 2/3 margin – making clear that the idea is dead for now. In contrast to 1995, when a BBA passed in the House and failed by only one vote in the Senate, Democrat support was meager. House says no to mandating balanced federal budget, John Abrams, Washington Examiner, 11/18/11.
In all, 235 Republicans and 25 Democrats voted for the amendment, four Republicans and 161 Democrats opposed it. *** The House passed a similar measure in 1995, with the help of 72 Democrats.
Will there be further downgrades of US debt if the JC cannot agree, thereby demonstrating once again that the two parties do not seem able to agree on much of anything? Maybe, there have certainly been rumors to that effect.
But here is another point that worries us more; the growing amount of US debt held by the Federal Reserve. Fed now largest owner of US government debt – surpassing China, Terrence Jeffrey, CNS News, 11/16/11.
|
Holders of total National Debt (in public hands) - $ in trillions |
|||
|
Date |
Federal Reserve |
China |
Total |
|
9/28/11 |
1.7 |
1.5 |
10.1 |
|
9/29/10 |
0.8 |
1.5 |
9.0 |
What would happen to interest rates for the US Treasury if the Fed was not a heavy buyer of its securities, and how long can the Fed continue “printing money” like this without triggering a sharp increase in the rate of inflation?
If our instincts are sound, the economic situation may soon get a whole lot worse. And frankly, we think both parties are at fault for not demanding decisive corrective action.
It was a mistake to accept “closed door” meetings for the Joint Committee, a mistake not to push harder for targeted spending cuts, and a mistake to allow the Senate to duck its responsibility to either accept the House budget resolution or put its own proposal on the table.
The American people know the truth at some level, but they have been waiting for someone with the courage to do something about it.
11/14/11 – “We can’t wait” campaign is a farce
History does not repeat itself, but certain patterns keep recurring. Take the clash between individual liberty and collective authority, which has played out many times in different places and cultures. Keeping the Republic, Mitch Daniels, Sentinel (2011).
To my knowledge, no one has pinpointed either the originator or the birth date of the word “democracy.” But it seems likely that, within days of the first Greek’s coinage of the term, the scoffing began, and a long, unbroken line of cynics arose to disparage and dismiss the silly notion that average people, with all of their failings and selfish urges, could actually govern themselves for long. [Thus, Plato said,] “Democracy leads to anarchy, which is mob rule” and “Dictatorship naturally arises out of democracy.”
http://www.s-a-f-e.org/keeping_the_republic.htm
Well-educated people in other lands have been known to voluntarily surrender their freedom for a mess of potage – witness the rise of Fascist regimes in Europe during the 1930s. Escape from Freedom, Eric Fromm, Rinehart & Company (1941).
http://www.s-a-f-e.org/escape_from_freedom.htm
Our Constitution provides ingenious checks and balances to keep the federal government in check. But these safeguards have been compromised over the years in the name of meeting social needs, primarily by reinterpretation versus amendment, and they could wind up being subverted entirely. Keeping the Republic, Daniels.
A growing near-majority of citizens is now dependent on government for a substantial percentage of their livelihood. Increasingly, the burdens of a growing public sector are paid for by a dwindling percentage of the population. It is now reaching the point where society’s ability to generate new wealth is being threatened and the non-payers have nothing to lose by demanding still more from their richer neighbors.
The 2012 elections may determine the path forward, and all but the least controversial government initiatives are being suspended as the two sides prepare for a showdown. The central issue: Who is to blame for this country’s sorry economic situation, fraying social fabric, and fading international prestige?
Side A will offer more centralized planning and action. Its slogan, “We can’t wait,” simultaneously blames Side B for obstructionism and expresses its own determination to prevail. We think the obstructionist shoe is actually on the other foot, but time will tell which arguments prevail.
BACKGROUND – Executive Branch overreaching is hardly a new subject for us; here are some prior entries about it.
#Series on “Government Run Amok” disease: The Executive Branch might be likened to the motor in our federal system of government and Congress to the brakes. As the scope of government expands, more effective Congressional oversight may be needed to hold presidents accountable – including the ability to ask questions on the record versus simply listening to presidential speeches. RX, part two, 12/7/09
#Constitution Day essay: To this day, the Constitution provides “a statement of how the political system is supposed to work [that] can be used in challenging overreaching by any of the players.” Long live the Constitution, 9/13/10.
A power grab typically follows lesser steps that were allowed to go unchecked, so the best safeguard is to oppose deviations from accepted practice – by the president, Congress, or whoever – at an early stage.
# Series on administrative power grabs: Most of the examples (by presidential staff, DOJ, EPA, et al.) took place in recent years, with an accelerating trend after Side B regained control of the House in 2010. An administrative blitz, 5/9/11.
With legislative gridlock likely over the next 18 months, we expect big government supporters to concentrate on advancing their agenda through administrative action.
# Coverage of negotiations on raising the debt limit: When this exercise ended on a sour note, the president shifted to a sharply confrontational mode that has been evident ever since. Debt limit deal settled nothing, 8/8/11.
In his Rose Garden remarks on August 2, the president closed by implying that the members of Congress, or at least his political opponents, only did their jobs because a crisis for which they might be blamed was staring them in the face.
#Jobs bill address to joint session of Congress: The president laid out a series of economic and fiscal proposals in his September 8 speech that was not intended to change minds or win support. A tempting offer: spend now, pay later, 9/12/11.
The president displayed no interest in reaching out to political adversaries. His tone was blunt, overbearing, at times angry. Given his plan to take “the American Jobs Act” on the road (starting with an event in Richmond, VA the very next day), one might well regard this televised address as a campaign speech on the taxpayer’s dime.
#Noted in passing: The president’s jobs panel wanted more federal funding for renewable energy, but Congressional support seemed uncertain. The president exhorted his advisers to “get it done” anyway. Real Clear Politics, video (23 seconds). Bloom Energy could be the last straw, 10/17/11.
RATIONALE – Aggressive administrative action was already afoot, with more of the same planned, but how could it be explained? “We love power” would not have sounded good, so the president’s team came up with “We can’t wait.” Obama’s new slogan, USA Today, 10/24/11.
President Obama heads West today with some new executive orders and a new slogan: "We can't wait." Obama plans to argue that he is taking action on such items as housing and education while Republicans in Congress block his $447 billion jobs plan.
Perhaps the overlap of language was coincidental, but our guess is that “We can’t wait” was taken from the title of a book by Martin Luther King, Jr., originally published in 1964 (a reprint came out in January 2011). Never mind that the prime slogan of the civil rights movement was “We shall overcome” (the title of a protest song).
Often applauded as Dr. Martin Luther King, Jr.’s most incisive and eloquent book, “Why We Can’t Wait” recounts the Birmingham campaign in vivid detail, while underscoring why 1963 was such a crucial year for the civil rights movement.
If so, the decision seems contextually inappropriate. See the following table, which compares the situations of civil rights protestors in the 1960s and Side A today.
|
We |
They |
Issue |
Strategy |
Alternative |
|
Black Americans |
Governments of several states |
Fundamental human rights |
Peaceful demonstrations |
Endless litigation |
|
US president & inner circle |
Congressional Republicans |
Legislative delays |
Administrative action |
Negotiate differences |
But hold on, our comparison may reflect a misperception. Perhaps the current “we” in “We can’t wait” refers not only to the president and his inner circle, but also to any American with an economic grievance? Add in the people who fall in any of these categories – unemployed or not looking for a job, employed but having problems making ends meet, retired on a fixed income that buys less every year, or envious of upper echelon affluence – and the class would encompass most of the adult population.
If that’s the idea, the people concerned might do well to read the fine print and consider what Side B has to say before signing up. The notion that Side A is necessarily right will not wash, no matter how many speeches the president gives.
CONTENT – Enough of the high-level abstractions; let’s consider some of the matters that have been said to require immediate action.
#JOBS – A slow economy and high unemployment are surely serious problems. But there was never much reason to believe that the president’s American Jobs Act (AJA) – coupling short-term economic stimulus with long-term tax increases – would solve them.
Certainly, the results of the 2009 stimulus package provided little support for the AJA proposals. Tiny, targeted and temporary, Larry Kudlow, Townhall.com, 9/10/11.
In very round numbers, the package comes to $250 billion of temporary payroll tax cuts of one kind or another, with another $200 billion in new spending on infrastructure, unemployment benefits, and direct aid to state and local governments. But didn’t we learn from Obama Stimulus One that more government spending doesn’t grow the economy or reduce unemployment?
And although some conservatives tend to automatically favor tax cuts, a meticulous review by the Tax Foundation concluded that (A) the core tax incentives of the AJA would “have little, if any impact on either job creation or improved GDP growth,” and (B) whatever benefits were achieved would be “swamped by the long-term impact of the permanent tax increases.” Academic research suggests that the American Jobs Act will produce few jobs, David Logan, 9/19/11.
http://taxfoundation.org/news/show/27632.html
It was no big loss when the AJA was blocked in the Democrat-controlled Senate, therefore, for all the claims of obstructionism. Obama blames Senate GOP for killing jobs plan. Susan Ferrechio, Washington Examiner, 10/11/10.
The bill, needing 60 votes to clear a procedural hurdle, failed on a 51-48 vote, with only Democrats supporting it.
After its initial defeat, the $447B bill was cut into pieces. Most of the pieces seem doomed as well, at least without major changes, but the Senate did approve “a $30 billion package that promotes the hiring of veterans and ends an unpopular withholding requirement for government contractors.” Small part of jobs stimulus clears Senate, may be the last, Stephen Dinan, Washington Times, 11/10/11.
Never say die! AJA is still prominently posted on the White House website, along with statements decrying Congressional inaction.
"Without a doubt, the most urgent challenge that we face right now is getting our economy to grow faster and to create more jobs…. we can’t wait for an increasingly dysfunctional Congress to do its job. Where they won’t act, I will." – President Barack Obama, October 24, 2011
http://www.whitehouse.gov/economy/jobsact
#EVERYTHING ELSE – Even before the president’s jobs speech, a series of administrative orders was being planned. The thrust would be steps to boost the economy that could be taken without Congressional approval, and some observers warned about the implications. Beware: Obama’s fiat, Washington Times, 9/5/11.
Mr. Obama has a profound resistance to the Constitution’s separation of powers, whereby the legislature is the lawmaking body and the executive branch implements the laws passed on the other side of Pennsylvania Ave. He’s overstepped his bounds on numerous issues already, ignoring the law to further his liberal agenda through federal agencies. Oppressive environmental regulations against businesses and property owners jump to mind.
The “We can’t wait” orders are now coming out – in some cases announced by the president and in others by subordinates. Here is a probably incomplete list together with high spot comments.
#Sept. 23 – No child left behind flexibility http://1.usa.gov/sGv8AV
NCLB law has lost favor as more schools are at risk of being identified as failing; legislative changes were previously proposed and Congress probably has been slow to act. Query, however, whether the Administration is entitled to say “we’re tired of waiting” and restate the law’s requirements on its own. ABC News report, 9/23/11.
#Oct. 11 – Cutting red tape http://1.usa.gov/n51xCy
The envisioned savings are dwarfed by the drive to tighten and expand administrative controls over the entire economy. Obama’s regulatory tsunami is drowning business growth, Washington Examiner, 8/27/11. http://bit.ly/potZfc
#Oct. 18 – Reducing regulatory burdens in healthcare http://1.usa.gov/pS33Ui
Estimated savings of nearly $1B per year would be achieved by “giving hospitals more flexibility in deciding how to best treat their patients.” Brilliant! And Cass Sunstein’s comments about changing the “regulatory culture in Washington” seem ludicrous.
#Oct. 24 – Help homeowners refinance mortgages http://1.usa.gov/rVijUG Synopsis: Eligibility requirements for the Home Affordable Refinance Program would be relaxed for most homeowners with a mortgage backed by Fannie Mae or Freddie Mac who are current on their payments, etc. In addition, the Federal Housing Finance Agency, which administers the program, would waive “a set of unnecessary costs and fees.” As a result, “millions of individuals could see up to $2,500 in savings every year.”As there would be no adjustment in the principal amount, the program would not promote a bottoming out of housing prices, which must occur before recovery begins. Also, it is anticipated that the changes would facilitate refinancing at lower rates by one million homeowners (not “millions”). Expansion of mortgage program is limited in scope, Binyamin Appelbaum, New York Times, 10/24/11. http://nyti.ms/tHJuPg
Oct. 25 – Lower student loan payments http://1.usa.gov/t63akG
This is about government-guaranteed student loans, which were taken over by the US Department of Education in 2010 (previously, some of these loans were issued by banks) – supposedly generating savings for taxpayers. The current change is “to allow students to reduce their student-loan debt payments and seek loan forgiveness at 20 instead of 25 years after graduation,” which supposedly can be done with “no additional cost to taxpayers.” Query: don’t the debits and credits need to balance any more? Also, experience suggests that government subsidies for student loans are pushing up the prices charged by colleges. Out-of-control college tuition; president fiat will only make earning a degree more expensive, Washington Times, 10/26/11. http://bit.ly/ugN0pT
Why isn’t Congressional authorization required? One assertion is the costs will be offset with savings from the student loan takeover; another is that these changes represent fine-tuning of the terms promulgated administratively in 2010. Obama taps taxpayers for student stimulus, Chris Stirewalt, Fox News, 10/26/11 .http://fxn.ws/v9FYG9
Oct. 31 – Reducing prescription drug shortages http://1.usa.gov/unuaKv
Critical drug shortages are a growing problem, no doubt, but these measures ignore the government policies that are largely responsible – notably price fixing. As a result, the “unilaterally imposed ‘solutions’ promise to do more harm than good.” Obama’s drug shortage demagoguery, Michelle Malkin, Townhall.com, 11/4/11. http://bit.ly/sX7OX6
Nov. 9 – Promoting efficient spending http://1.usa.gov/rBRkXh
Synopsis: Every federal agency is directed to set 20% reduction targets for spending on travel, IT devices, motor fleet efficiency, and “extraneous promotional items.” The anticipated savings are reportedly on the order of $4B a year, and the president was quoted that “we haven’t seen as much action out of Congress as we’d like, and that’s why we launched our own initiative in the campaign to cut waste.” O vows fall of $wagdad, Geoff Earle & Chuck Bennett, New York Post, 11/10/11. http://nyp.st/s6qHWK
ASSESSMENT – On the whole, it would be hard to characterize the components of the “We can’t wait” campaign as an administrative power grab, but they hardly represent an impressive effort to address the country’s problems either.
The American Jobs Act offers an assortment of fiscal proposals, which Congress can accept or reject. So far, the nays are carrying the day. Let’s hope things stay that way.
Some of the administrative orders are inconsequential in the overall scheme of things, and the more important ones are probably legal albeit close to the line. Earlier administrative actions by the EPA, NLRB, et al., reviewed in our 5/2/11-5/9/11 series on administrative power grabs, seem more shocking.
On the other hand, the We can’t wait (WCW) objectives seem far less urgent – and the alleged obstruction by Side B less apparent – than has been so relentlessly proclaimed. See, e.g., “We can’t wait” to strengthen the economy and create jobs, president’s weekly address, 10/29/11.
#Unfortunately, Republicans in Congress aren’t paying attention. They’re not getting the message. Over and over, they have refused to even debate the same kind of jobs proposals that Republicans have supported in the past – proposals that today are supported, not just by Democrats, but by Independents and Republicans all across America.
#This week, we announced a new policy that will help families whose home values have fallen refinance their mortgages and save thousands of dollars. We’re making it easier for veterans to get jobs putting their skills to work in hospitals and community health centers. We reformed the student loan process so more young people can get out of debt faster. And we’re going to keep announcing more changes like these on a regular basis.
# Tell Congress to stop playing politics and start taking action on jobs. If we want to rebuild an economy where every American has the chance to get ahead, we need every American to get involved. That’s how real change has always happened, and that’s how it’ll happen today.
All of the WCW components seem to involve the delivery of “goodies” to targeted segments of the electorate: college students and young adults, homeowners, veterans, workers, small businesses, state governments, public sector unions, etc. Sounds like the intent is to buy votes, especially as some of the benefits would be temporary.
And who would pay for this largesse? No one, apparently, except perhaps millionaires and billionaires. As the president’s weekly address put it:
These jobs proposals [would be] paid for by asking folks who are making more than a million dollars a year to contribute a little more in taxes. These are the same folks who have seen their incomes go up so much, and I believe this is a contribution they’re willing to make. One survey found that nearly 7 in 10 millionaires are willing to step up and pay a little more in order to help the economy.
It is not acknowledged that spending is already out of control. To the contrary, the fiscal prudence of the Administration is proclaimed in the 11/9/11 executive order re “promoting efficient spending.” http://1.usa.gov/rBRkXh
. . . I have pursued an aggressive agenda for reducing administrative costs since taking office and, most recently, within my Fiscal Year 2012 Budget. Building on this effort, I direct agency heads to take even more aggressive steps to ensure the Government is a good steward of taxpayer money.
Side A’s sense of urgency about promoting economic recovery and jobs seems rather selective. Thus, consider the protracted delay in approving the Keystone XL Pipeline that would transport oil from Canada to Texas refineries.
The pipeline would (1) help to reduce oil imports from the Middle East and other volatile areas of the world, (2) employ workers to construct the pipeline and run the facilities involved after it went into operation, (3) be built with private capital, and (4) generate tax revenues for public coffers. Sounds good!
Yet the pipeline has been held up by a seemingly endless series of hearing, impact studies, etc., and it will almost certainly be challenged in the courts if it does get approved. The record graphically illustrates why this country has become an increasingly difficult place in which to do business.
Given that the pipeline is strongly supported by labor and fervently opposed by environmentalists, the president apparently decided to punt. In any case, the fate of pipeline will now be resolved after the 2012 election. Obama faces choice on Keystone pipeline: Big labor or big green, Washington Examiner, 11/7/11. http://bit.ly/sVOkRX
“This is not a political decision,” said one government functionary, re a 15-month delay to assess an alternative route, but some observers were skeptical. The Obama uncertainty machine, Conn Carroll, Washington Examiner, 11/11/11. http://bit.ly/rNqEQQ
Finally, re obstructionism, Speaker John Boehner has echoed the president’s sentiments – in reverse. Boehner, House GOP agree with Obama, John Parkinson, ABC News, 10/25/11.
“The president says we can’t afford to wait,” the Ohio Republican said. “Well guess what? I agree with the president. We’ve got 15 bills that are sitting over in the United States Senate. After we finish this week, there’ll be 16 bills sitting over in the United States Senate waiting for action.”
More recently, 22 House bills were said to be in the Senate queue and Speaker Boehner released an endorsement by 132 economists of the GOP jobs plan. Economists: GOP jobs plan better than Obama’s, Aamen Madhani, USA Today, 11/8/11.
CONCLUSIONS – Side A’s “We can’t wait” campaign appears to be a political exercise motivated almost exclusively by a desire to hang on to power.
Side B may have some better ideas, but it lacks the political leverage to implement them.
Our only hope is the 2012 elections, if the American people have not been completely bamboozled in the meantime.
11/7/11 – Flattering and cajoling the “Super Committee” Read Replies
Another meeting took place on November 1, perhaps the most revealing public meeting yet of the Joint Select Committee on Deficit Reduction.
The witnesses did their best to sell the JC on a big ($4T) and “balanced” (including tax increases) deficit reduction approach, which is reportedly what Democrat members want and Republican members are resisting.
No minds appeared to be changed, but the competing viewpoints were well expressed. There were also some notable comments about the JC’s procedural options, and the meeting had a dramatic ending that has not been widely reported.
Tuesday, November 1 – Shortly after 1:30 PM, Representative Jeb Hensarling gaveled the meeting to order in the ornate hearing room of the House Ways and Means Committee. “Overview of previous debt proposals” was the subject, and the JC would hear about two such plans from four of the principals:
ü Fiscal Commission plan: Co-chairs Erskine Bowles (White House Chief of Staff in the Clinton Administration) and Alan Simpson (former US senator, R-WY).
ü Bipartisan Policy Center plan: Pete Domenici (former US senator, R-NM) and Alice Rivlin (White House budget director in the Clinton Administration)
After brief opening statements by the co-chairs (Representative Hensarling & Senator Patty Murray), each of the witnesses spoke for five minutes about their respective plans. Despite various design differences, the FC and BPC plans were of similar size (about $4T in deficit reduction) and composition (mix of spending cuts and tax increases).
The JC members had ten minutes apiece for questions, which could be directed to any of the witnesses. They went in the following order: Rep. Jeb Hensarling, Sen. Patty Murray, Sen. Jon Kyl, Rep. Xavier Becerra, Rep. Fred Upton, Sen. Max Baucus, Sen. Rob Portman, Rep. James Clyburn, Rep. Dave Camp, Sen. John Kerry, Sen. Pat Toomey, and Rep. Chris Van Hollen.
Erskine Bowles was allowed to offer a closing pitch – more on this later – after which the meeting was adjourned. Video (3 hours, 2 minutes)
http://www.deficitreduction.gov/public/index.cfm/
In reporting on an event like this, the natural tendency is to focus on comments that support one’s own ideas at the expense of other viewpoints.
To make things more interesting, we will present the other side’s arguments and interject comments (in red) as counterpoint.
Spending cuts – One reason cited for being cautious about spending cuts is that they could derail a fragile economy. This point was considered in devising both the FC and BPC plans, and wisely so, said the witnesses, as the economic outlook is even more uncertain now than it was a year ago. Weak consumer demand - business on its back – government support needed. Accordingly, as Erskine Bowles put it, the JC should avoid recommending anything “overtly stupid” – such as large, immediate spending cuts.
The stimulus package in 2009 was a bust. It’s time to try something else; let’s unleash the private sector by dialing back regulations and reforming the tax system. Also, there is little chance of big spending cuts in 2012. The real question is whether additional economic stimulus should be injected – as the president and his party have proposed – and our answer is “no.”
Then there are perceptions of social equity. Representative Clyburn cited statistics showing the “wealth gap” widening over the past 30 years - especially in poorer areas of the US (analyzed by county) - and expressed concern that further spending cuts would gut social welfare programs to the detriment of lower income Americans.
This was too much for the witnesses, who were quick to deny that their deficit reduction plans would have the effect of hurting the poor. It was never proposed to cut welfare programs, such as unemployment assistance, food stamps, or Social Security benefits for the less affluent. Besides, if the deficit problem is not addressed quickly and a fiscal meltdown results, the people hurt the most will be the very people whose interests Representative Clyburn is trying to represent.
Many desirable spending cuts would primarily impact the more affluent, e.g., canceling corporate welfare programs, block-granting Medicaid to end bureaucratic overlap, and eliminating federal programs that cannot pass muster on a cost/benefit basis.
Tax increases – Why does the point keep coming up that a deficit reduction plan must include tax increases? A threshold consideration is that tax revenues are running about 15% of GDP, well below the average of recent decades, and it would be unrealistic to envision reducing government expenditures to this level.
The currently low tax harvest is not due to the Bush tax cuts; it developed because of the recession. The witnesses agreed that the ratio of taxes to GDP should rise to a more normal level of 18-19% as the economy gradually recovers.
Another argument is political practicality. As liberals insist on getting something from a deficit reduction deal, they must be placated with tax increases.
Fiscal policy issues should be settled based on facts and reason versus political expediency. Regardless of which side makes them, “we want it because we want it” arguments should carry little weight.
With the senior population soaring as Baby Boomers age and human life spans are extended, said Dr. Rivlin, the government will be unable to provide adequate retirement and healthcare benefits without collecting more income tax revenue. And although this is “not the time” to propose one, a Value Added Tax might also be a good idea.
If all reasonable steps for cutting spending and restructuring entitlements had been taken already, we might agree, but such efforts are at best still in the talking stage. Also, what about the drag effects of tax increases on economic output?
By the way, what counts as a tax increase? That depends on whether the baseline is considered to be (a) current law (e.g., all Bush tax cuts will expire on 1/1/13), or (b) the CBO’s notion of current policy (e.g., keep Bush tax cuts for the middle class but let them expire for high earners).
Both the FC and BPC plans called for future taxes falling between the current policy and current law projections.
So were the witnesses proposing tax increases or tax cuts? That depends on which baseline is used. As the Bush tax cuts have been in effect since 2001/2003, we think the tax increase label fits.
On the other hand, a decision to let the one-year (2011) reduction in employee payroll taxes lapse would hardly seem like a tax increase.
The witnesses and JC members generally agreed that revenue-neutral tax reform (cut rates and eliminate tax preferences to pay for it) could promote economic growth that would lead to higher tax revenues. However, several arguments were suggested for actual tax increases (raise rates and/or eliminate tax preferences).
Senator Simpson savaged Grover Norquist, who has famously pressed conservative politicians to pledge that they would not support tax increases. “You know what you have to do,” he told the JC members, and that was “forget Grover.” (In a similar vein, Simpson slammed the AARP’s “disgusting” ad campaign against entitlement changes.)
Given the urgency of the situation, said Senator Domenici, it would be unthinkable to let things slide until 2013. The market would expect “sustainable new revenues.” Although taxes have been averaging 18-19% of GDP, this relationship is not graven in stone, and it would be OK to boost the take to 21%.
Senator Murray called the handwringing about tax increases “a lie” in that both sides are calling for lower taxes than are prescribed under current law.
“Everyone wants to reform the tax code,” said Senator Baucus, but eliminating all the current tax preferences would be far easier said than done.
We take Senator Baucus’s point. Whatever tax overhaul plan was agreed on, it would likely be watered down in the ensuing legislative process. The other arguments do not seem sufficiently weighty to merit discussion.
Healthcare – Everyone agreed that the biggest deficit reduction target is Medicare, Medicaid, etc., although some JC members expressed opposition to solutions that would shift costs from the government to consumers without slowing the rate of increase in overall healthcare costs.
The witnesses outlined the healthcare changes they envision, e.g., the BCP plan would offer seniors an option to continue traditional Medicare coverage or enroll in one of several competing Medicare “exchanges.” Hopefully, competition between the exchanges would bend the cost curve down, said Dr. Rivlin, but there would be a “failsafe” cap on outlays of GDP growth + 1% a year. Medicare premiums for well-to-do participants would be raised as required to enforce the cap.
To me, said Senator Toomey, fundamental healthcare reform would mean getting away from the fee for service model. The basic aspects of this model are: (a) the government fixes prices for specified medical services, (b) doctors depend on volume to make money, and (c) patients have little financial incentive to limit their consumption of services.
The healthcare adjustments advocated by Dr. Rivlin would amount to tinkering, in our view, when a basic system redesign is needed. Intelligent planning will be impracticable until the future of GovCare is determined, so let’s put this project on hold until after the 2012 election.
There is no reason to delay block-granting Medicaid, however, which would end the inefficient overlap of state and federal management of this program. The estimated savings would be $770B over the next 10 years. A list of targeted spending cuts, 8/22/11.
Magnitude – Deficits of some $10T are in prospect over the next 10 years (see discussion last week); reducing them by only $1.5T would be inadequate. The witnesses recommended a $4T plan as the minimum amount.
Think there would be lots of time for further action. Maybe not, as investors could offset $1.5T in spending cuts just by demanding higher interest rates on government debt.
Interest rates would be spiking already, suggested Senator Domenici, but for the European debt crisis that is artificially boosting demand for US debt. He offered an analogy: this country is currently able to rent out the best house in a rundown neighborhood, but it will be out of luck if some of the neighbors improve their properties or the entire neighborhood burns down.
No argument, these points are true!
On the other hand, said the witnesses, you should not cut spending too quickly – or precipitously raise taxes either. The market will not demand instant action so long as the US government enacts a credible plan for solving its fiscal problem over time.
Does this view elevate form over substance? And how does anyone know what the market thinks? There have been wild market swings in Europe lately as one save-the-Euro plan after another was announced. The pattern: a plan is hailed, security prices firm a bit, and then there is renewed panic as the details sink in and investors conclude that no one is truly committed to implementing it.
A deficit reduction plan should be judged on the merits, not on some notion of how the market might react. And if the imperative is to cut wasteful spending and restructure entitlements, as we believe, the government should get specific and start implementing instead of assuming that a plan for future action will suffice.
True, $1.5T in targeted spending cuts would not solve the fiscal crisis. But it would represent a solid first step that could be followed by additional steps. We fail to see why investors would prefer a big plan to set things right, details to be provided later, to concrete action now.
Special powers – Three weeks remained for the JC members to reach agreement, get their recommendations translated into legislative language, and have the CBO score the package. Even if disposed to “go big” and recommend an overhaul of the tax system, Medicare, and other entitlement programs, how could they possibly get all this done?
Fortunately, said the witnesses, the JC has been granted special powers under the Budget Control Act that would permit it to dictate the basic changes and give the Congressional committees concerned a date certain to convert the changes into legislation, which would then be subject to an up or down vote in the two houses of Congress with no possibility of a filibuster.
“Pete, you’re a Republican,” said Senator Kerry during his question time. “Have you ever heard of any committee that has been granted the powers we have?”
“Never” said Senator Domenici. In effect, the JC could extend the deadline and direct others to finish the job based on its specifications. Problem solved!
The foregoing is probably correct from a technical standpoint; we certainly have no basis to say otherwise. But it is one thing to have power, and another to be smart about using it. Policy considerations aside, we would hate to see the JC members blow the mission by overplaying the hand they have been dealt.
Accordingly, we believe the JC should concentrate on producing a menu of targeted spending cuts adding up to, say, $1.5T. It would be perfectly appropriate to suggest follow-up in other areas, such as revenue-neutral tax reform, but the JC should not attempt to dictate the timing or terms.
A plan – Erskine Bowles wanted to offer some closing thoughts. Although all time for asking questions had expired, the co-chair allowed him “a couple of minutes.”
Despite his high regard for the JC members as individuals, the witness had testified earlier, he was concerned that they might collectively deadlock and thereby fail the country.
Having tried to put himself in their shoes, he now continued, it seemed the JC could craft a “big” plan that both sides would be able to accept.
Bowles proceeded to outline a potentially doable compromise based on information he had gleaned from various sources, as follows (dollars in trillions, 10-year totals):
|
Cuts already made – contingency resolution [?] |
$0.4 |
|
Cuts already made – Budget Control Act |
0.9 |
|
Discretionary cuts identified by JC to date |
0.3 |
|
Healthcare (Democrats said they could accept) |
0.5 |
|
Healthcare (start raising eligibility age for Medicare) |
0.1 |
|
Other mandatory |
0.3 |
|
Technical adjustment to CPI formula |
0.2 |
|
Revenue increase per Speaker Boehner comment* |
0.8 |
|
Interest savings |
0.4 |
|
TOTAL SAVINGS |
$3.9 |
*In addition, it was assumed that the Bush tax cuts would expire for high earners as of 1/1/13.
Such a plan, the witness concluded, might put the US on a sounder fiscal path and generate “some excitement in the country” as well.
Bowles is a senior statesman with lots of heavy-duty experience on his resume, including co-chairing the Fiscal Commission in 2010. As such, he spoke with considerable authority.
Twelve years junior to Bowles, Hensarling had served on the Fiscal Commission and cast one of the seven “no” votes that blocked Congressional consideration of the report drafted by Co-Chairs Bowles and Simpson.
Now, eleven months later, Bowles’s pointed suggestions were aligned with the position of the Democrats on the JC and primarily directed at the Republicans. The situation seemed to call for a rejoinder from Hensarling, and he found a way to deliver it.
“You certainly created some excitement with the press,” observed the co-chair laconically, but “don’t necessarily believe everything you read and hear about the work of this committee.”
After all the witnesses had been thanked and other formalities taken care of, the meeting was adjourned.
What will happen next? We have no idea, but it will be interesting to follow along as the countdown to November 23 continues.
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I fired off my thoughts to the Joint Committee, thanks for the link. The cry to raise taxes is absurd . . . the members of Congress already squander the tax revenues that flow into Washington, whereas they should be reducing spending, because the federal budget contains political schemes not authorized by the Constitution, the same Constitution they took an oath to support. – SAFE member, Arizona
I don’t believe the Joint Committee members will propose real spending cuts unless there is a huge fiscal emergency. Could happen, witness the burgeoning Italian debt problem with the premier on the brink of being forced out, but probably not before 11/23. – SAFE director [Response: We remain hopeful, but skepticism about the JC doing anything constructive is growing – and may well be vindicated by events.]
10/31/11 – Decision time for the Joint Committee Read Replies
What a surprise! The Joint Select Committee on Deficit Reduction is deadlocked over spending cuts vs. tax increases, with its November 23 deadline just around the corner.
SAFE offered some suggestions to break the impasse several weeks ago. First, we reiterated our August 22 advice (be open, stop digging, taxes can wait, be selective on spending). We then urged the JC members to, in effect, stop acting like politicians. SAFE letter, 10/10/11.
To get back on track, the JC members – from both parties – must rise above politics as usual. Instead of searching for the most expedient answers from their respective political standpoints, they need to find the best answers for the country.
http://www.s-a-f-e.org/contacting_legislators_2011.htm#101011
And there matters stood until last week, when: (1) the JC held a public meeting (the first in over a month) on October 26, and (2) there was a series of leaks about the JC’s private meetings. The information revealed is not encouraging, but at least the state of play is clearer now – as this entry will report.
OCTOBER 26 – The JC meeting began at 10:00 a.m. and ran 102 minutes. Senator Patty Murray presided (she and Representative Jeb Hensarling, the two co-chairs, have been alternating in this role). The subject was discretionary spending, and Congressional Budget Office Director Douglas Elmendorf testified (as he previously had at a September 13 meeting of the JC).
In his formal testimony, Elmendorf hit the highlights of his 28-page report. Each JC member was then allotted six minutes for questions and comments. They spoke in the following order: Sen. Patty Murray, Rep. Jeb Hensarling, Rep. Xavier Becerra, Sen. Jon Kyl, Sen. Max Baucus, Rep. Fred Upton, Rep. James Clyburn, Sen. Rob Portman, Sen. John Kerry, Rep. Dave Camp, Rep. Chris Van Hollen, and Sen. Pat Toomey.
Without attempting to summarize the entire discussion, it would probably be fair to say that substantial disagreement exists about several points. A recap follows, with our comments noted in red.
1. Given the need to promote economy recovery, which would shrink welfare outlays and boost tax revenues, can the government afford to start cutting spending before the economic outlook improves?
Elmendorf accepts the premise that government spending fuels demand, which typically undershoots supply in a slack economy. He even agreed with Rep. Van Hollen that but for the economic stimulus package in 2009, the economy would be weaker than it currently is. Likewise, a failure to renew the payroll tax reduction that was only supposed to apply for 2011 would have a negative effective on the economy, etc.
When cross-examined by Senator Toomey, however, the witness agreed that the question about the 2009 stimulus package is purely hypothetical. Accordingly, no one can prove how the economy would have fared without the package. He also conceded that the government is incapable of creating private demand; it can only substitute public demand (quite possibly resulting in a misallocation of economic resources).
SAFE: The claim that the economy needs another shot of stimulus is questionable, and the JC should not allow itself to get drawn into that argument. Let the president and Congress debate the matter, as they are in the process of doing.
2. The JC is supposed to find ways to cut budget deficits over the next 10 years, but what are the deficits in question?
One measure is the CBO’s current-law baseline, which indicates cumulative deficits over the coming decade of $3.5T. This takes credit for the minimum of $1.2T in deficit reduction that the JC is supposed to propose, and which will otherwise be achieved through a “sequester” (further mandated cuts to discretionary spending) that everyone wants to avoid, so the pre-reduction deficit would be $4.7T.
The CBO’s alternative scenario is based on “changing the provisions of current law so as to maintain major policies that are in effect now.” Assuming that the Bush tax cuts were made permanent (all of them, not just cuts for the upper echelon, are scheduled to expire on 1/1/13 under current law), that Congress continued to index the AMT for inflation so that millions of additional taxpayers would not become subject to it, and that Medicare payment rates of physicians’ services were held constant rather than being cut, the deficit over the next decade would be roundly $10T on a pre-reduction basis. Testimony of Dr. Elmendorf to the JC on 9/13/11, pp. 2-3. http://1.usa.gov/thhLgq
The CBO director alluded to the difference between the two projections at the 10/26 meeting without follow-up discussion. Senator Kyl did make an issue about the baseline allowance for “overseas contingency operations” (wars), however, suggesting that it should be adjusted to reflect the president’s announced decisions to withdraw all US troops from Iraq by 12/31/11 and proceed with phased draw-downs of forces from Afghanistan.
SAFE: It’s hard to decide where to go if you don’t know where you are. We think the JC should establish a realistic projection against which its deficit reduction recommendations would be applied, e.g., the $10T deficit projection adjusted downward for the war allowance. Then termination of any portion of the Bush tax cuts would be counted as a tax increase, currently planned troop withdrawals would not be counted as fresh spending cuts, etc.
3. Isn’t it apparent that the JC should be adjusting mandatory entitlement programs, which represent a dominant and growing share of the overall budget?
Almost everyone seemed to acknowledge that entitlement changes are essential for a long-term solution to the fiscal problem, yet here the JC members were homing in on discretionary spending as though it was the only game in town.
Some members (mainly Republicans) justified the meeting’s focus by citing substantial dollar increases in the outlays of various agencies and saying all areas of spending need to be scrutinized.
Others (mainly Democrats) decried the continuing pressure on discretionary spending, already reduced to historically low levels (on an appropriations basis as a percentage of GDP, never mind the level of actual outlays), which supposedly threatens the welfare of middle and lower class Americans.
SAFE: Mandatory spending for entitlement programs must be cut, no doubt about it, but if this is politically difficult before the 2012 election then Congress should get started on what can be accomplished currently. Notwithstanding suggestions to the contrary at the 10/26 meeting, discretionary spending has not been “cut to the bone” or anything close to it. The way to proceed is targeted spending cuts, which would eliminate programs or activities of marginal value while continuing to support higher value functions.
4. There was no discussion of targeted spending cuts; it was as though neither the JC members nor the CBO director had ever heard of the concept. What gives?
The answer is surely not a lack of information, as the prevalence of waste and duplication in the government is well known, so the apparent lack of interest in targeted spending cuts must reflect a lack of will. Unsurprising gridlock in the budget “supercommittee,” Donald Lambro, Townhall.com, 10/21/11.
The programs ripe for the ax have been richly detailed by watchdog agencies like the Government Accountability Office, the Congressional Budget Office, the Inspector Generals offices, and in sweeping earlier reports like the Grace Commission in the 1980s that dug into every nook of the federal behemoth, uncovering a mountain of waste, fraud and abuse that is larger than ever. These reports are all still there, gathering dust on the shelves of Congress. The programs they targeted are still there, getting budget increases year after year, and worse, being enlarged and duplicated with new programs when the old ones do not work or are not needed.
SAFE: Perhaps the old reports have been forgotten or are viewed as obsolete, but plenty of current information is available. Thus, we sent a list of targeted spending cuts (adding up to roundly $2T in savings over the next 10 years) to the JC on August 22.
http://www.s-a-f-e.org/contacting_legislators_2011.htm#082211
In its 2011 “Prime Cuts” analysis, Citizens Against Government Waste offers “691 recommendations that would save taxpayers $39l.9 billion in the first year and $1.8 trillion over five years.” http://bit.ly/aaichh
And “hundreds” of duplicative and overlapping government programs were identified by the GAO in a March 2011 report. http://1.usa.gov/qIjrbF
5. There was obvious disagreement re the role for tax changes.
Some members (mainly Democrats) seemed attracted to the idea of tax increases, perhaps in the form of closing loopholes versus raising rates, to achieve a “balanced” deficit reduction approach.
Others (mainly Republicans) touted revenue-neutral tax reform (lower rates while eliminating tax preferences) that could be expected to boost the economy.
Like most economists, Dr. Elmendorf agrees that positive economic effects and enhanced tax revenues could be expected from revenue-neutral tax reform. However, the CBO has traditionally used a static model for scoring the effects of tax law changes (if the rate is doubled, twice as much revenue is assumed, and vice versa).
One eminent economist says the JC should “insist” on a different approach this time. Supercommittee urged to pursue tax reform, Martin Feldstein, Wall Street Journal, 10/24/11.
With personal income-tax revenue in 2011 of about $1 trillion, that 4% increase in net revenue would be $40 billion at the current level of taxable income, or more than $500 billion over the next 10 years. The Joint Select Committee should insist on counting that revenue as the starting point for a serious deficit reduction plan.
SAFE: Big tax increases would merely postpone the spending cuts that are needed, while increasing the risk of a devastating fiscal meltdown. We do not favor tax cuts either, whether short term (extend the 2011 payroll tax reduction) or permanent (flat tax proposals under which almost everyone would pay less tax than at present).
Our idea would be to stop tinkering with the tax system and overhaul it to be simpler, fairer, and more economically neutral, without creating any new taxes. This work should ideally be completed by 2012 to eliminate continuing acrimony and uncertainty about the future of the Bush tax cuts, AMT fixes, etc. Our SimpleTax proposal illustrates the concept, although the tax table and other details could certainly be adjusted if this was deemed desirable. http://www.s-a-f-e.org/the_simple_tax.htm
Finally, for those who would like to watch the JC proceedings and draw their own conclusions, here is the link.
http://www.c-spanvideo.org/program/JointDef
BEHIND THE SCENES – Since the 10/26 meeting, thanks to a series of increasingly specific leaks, the basic positions of the two sides have been disclosed. Democrats envision a “big” deficit reduction plan with major tax increases, seemingly rather similar to what the president proposed earlier, while Republicans envision a smaller plan without tax increases. For numerical parameters, see the following table. Taxes remain stumbling block for deficit panel, Janet Hook, Wall Street Journal, 10/28/11. http://bit.ly/ukwPIu
|
Over 10 years, $ in trillions |
DEMOCRATS |
REPUBLICANS |
|
Cut Medicare & Medicaid |
$0.5 |
1.96** |
|
Other spending cuts* |
1.2 |
|
|
Tax increases |
1.3 |
.04 |
|
Revenue neutral tax reform |
- |
0.2 |
|
Total deficit reduction |
$3.0 |
$2.2 |
*By difference, e.g., $3.0 less (0.5 + 1.3) = $1.2.
** No breakdown between mandatory & discretionary spending available.
House Speaker John Boehner appears to be following the JC negotiations closely and calling some of the Republican signals, as suggested by his recent remarks:
#“I expect that it’s going to be very difficult to get to an outcome, but I am committed to get to an outcome. We’re into the really tough time and it is going to take a lot more work.” Wall Street Journal, 10/28/11. http://bit.ly/ukwPIu
#Defense spending was cut substantially – the Pentagon is planning on 10-year reductions of about $450B – in the debt accord this summer. "I would argue that they've taken more than their fair share of the hits." Politico, 10/28/11. http://bit.ly/uRdkGX
#Re the BBA vote that will take place before yearend, “the House Republican leadership is not ruling out the possibility that it will support a balanced budget amendment that does not cap federal spending as a percentage of Gross Domestic Product or require a supermajority in Congress to increase taxes.” Vision to America.org, 10/27/11. http://bit.ly/u05r2R
All of which should belie claims that the Republicans have been either inflexible or obstructionist in the budget negotiations. Indeed, Speaker Boehner’s position on the BBA strikes us as downright mushy, although he may be assuming that the Senate would never support passage of even a watered-down BBA by the requisite 2/3 margin.
PATH FORWARD – At the end of the October 26 meeting, Senator Murray announced another public JC meeting on November 1. The subject will be an “Overview of previous debt proposals,” and there will be three witnesses:
#Former Senator Alan Simpson was a co-chair (along with former White House Chief of Staff Erskine Bowles) of the 2010 Fiscal Commission. The FC report failed to get the super majority vote (14+ of the 18 commissioners) required for Congressional consideration. Fiscal Commission sets stage for further discussion, 12/6/10.
#Former Senator Pete Domenici and former budget director Alice Rivlin collaborated on an outside task force report that was also published last November. Politico, 11/17/10.
http://www.politico.com/news/stories/1110/45284.html
Although Simpson and Domenici are both Republicans, they will probably attempt to nudge the JC in the direction of the Democrat deficit reduction approach. After all, it looks more like the plans they respectively backed last year (in terms of amount of deficit reduction and the inclusion of tax increases) than the current Republican approach.
The JC will also reportedly be getting a letter from 100 members of the House of Representatives, which will urge a “grand bargain” including entitlement cuts and tax increases. Bipartisan plea for $4 trillion in deficit cuts: why it could work, Gail Russell Chaddock, Christian Science Monitor, 10/27/11.
After weeks of private discussions, the group settled on a plan to reach out to colleagues to build support for a big deal along the lines that President Obama and Speaker Boehner discussed and appeared close to agreeing to until talks collapsed in July.
There will also be guidance from Speaker Boehner, Senate Majority Leader Harry Reid, et al., who began meeting with the JC co-chairs on October 13. Roll Call, 10/14/11.
As far as the super committee negotiations have gone, leaders have been relatively hands-off to date, with Reid even telling reporters late last month that he was “leaving the super committee alone.” But if Wednesday’s meeting is any indication, time is running out for members of the bipartisan, bicameral panel to find their own solutions without the heavy influence of leaders.
Last but not necessarily least, there have been rumors of a further US credit downgrade if the achievements of the JC are not viewed as satisfactory – which the politicians would obviously prefer to avoid. On 10/22/11, Business Insider quoted a BOA analyst as follows:
The credit rating agencies have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan. Hence, we expect at least one credit downgrade in late November or early December when the super Committee crashes.
Maybe, who knows, our crystal ball is a little cloudy. However, we question the assumption that the bond markets are necessarily insisting on a $3-4 trillion “grand bargain” at this point. It is not hard to imagine that rumors of this type could be politically motivated, with the sources hoping to stampede Congress into raising taxes – after which the promised spending cuts over the next 10 years might or might not materialize.
From an economic standpoint, we are convinced that the only real solution to the fiscal problem is to start cutting spending. Why not get started now? All in favor say aye.
Also, take time to post a comment – however you choose to word it – on the JC’s Website. http://bit.ly/vM1zTq
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Governments attain their powers by spending and buying votes from an ignorant polis. Governments never pay down the debt and will never agree to cut spending except at some later date or on some remote asteroid. All governments will default on the debt in a variety of ways. – SAFE director
[Response: Generally true, but there have been exceptions, e.g., New Zealand halved its government spending in the 1990s. This audiotape (3 segments, 1.25 hours, .WAV files, compatible with Windows XP and Mac OS X) by Maurice McTigue (now with the Mercatus Center) explains how it was done. McTigue1, McTigue2, McTigue3.]
10/24/11 – Wasteful spending: the EEOC has outlived its usefulness
SAFE member Alan Richter, PhD of Spokane, Washington, recently offered two suggestions for reducing the deficit – abolish the EEOC, “which is a waste of taxpayer money,” and disenfranchise voters who do not pay income taxes. “I have the feeling,” he added, “that my ideas are too conservative for SAFE.”
Actually, we would support abolition of the EEOC, as will be discussed in this entry. Richter’s point about the disconnect between voting rights and paying taxes is well taken too, although our proposed solution is different. Perhaps we could do a better job of communicating our viewpoints – in any case, we appreciate the feedback.
1. If Herman Cain is elected president, he would be able to abolish the Equal Employment Opportunity Commission (EEOC), which is a waste of taxpayer money, contributor to lawyers and the public debt. No white man would dare to accomplish that!
We have no comment as to whether Herman Cain will or should be elected president; it is not our practice to weigh in on such matters. SAFE will be evaluating the policy positions of the presidential candidates (including Cain, whose 9-9-9 tax plan has sparked a lot of interest) in coming months, however, as we did in 2008. See, e.g., What would you like, central planning or an eclectic mix? 10/27/08.
Senators McCain and Obama have endorsed essentially the same economic goals, but offered quite different approaches for achieving them. For details, see the following entries: [10/10/08, taxes; 10/15/08, financial turmoil; 10/20/08, healthcare; 10/23/08, energy policy]. A wrap-up discussion follows, in which our concept of good policy (in italics) is contrasted with the proposals on the table.
Mr. Cain might be in a better position to support abolition of the EEOC than a white president, but to our knowledge he has not indicated such an intention. Bear in mind too that black conservatives can face withering fire in the public arena, as shown by the 1991 battle over Justice Thomas’s appointment to the Supreme Court. My Grandfather’s Son, Clarence Thomas, Harper (2008).
Turning to the merits of this proposal, let’s begin with some basic facts: The EEOC is a five-member commission created during the Johnson Administration – DC headquarters, 53 field offices around the country – $385M budget requested for FY 2012 – mission: “promote equality of opportunity in the workplace and enforce federal laws prohibiting employment discrimination” – investigates charges of discrimination, tries to settle them, and files lawsuits if settlement efforts fail. http://www.eeoc.gov/
Title VII of the Civil Rights Act of 1964 prohibited employment discrimination based on “race, color, sex, religion or national origin.” Although this prohibition did not create affirmative obligations for employers, the need for adjustments would quickly become apparent as the rights were asserted and enforced.
The creation of affirmative rights to be enforced by the federal government was somewhat novel; the rights guaranteed by the Constitution limit rather than authorize government action. This tack seemed appropriate, however, at a time when certain states were supporting or tolerating overt racism in employment, education, housing, etc. The Death of Common Sense, Philip K. Howard, Grand Central (1994), pp. 121-24.
http://www.s-a-f-e.org/commom_sense.htm
“The Civil Rights Act broke huge holes through barriers of employment discrimination that had stood for centuries,” and “in industry after industry, either voluntarily or by class-action suits, blacks and then women were admitted into areas of endeavor where they had never been allowed.” But “by 1980, most obvious barriers were down and affirmative action offices were commonplace.” Death of Common Sense, p. 123.
Would the government now declare victory and disband the EEOC, and if not what would happen to the agency?
No surprise, the EEOC continued to pursue an increasingly marginal agenda –growing disorganized and demoralized in the process. By 1982, when Clarence Thomas reluctantly took over as chairman at the request of President Reagan, it was on the verge of collapse. The headquarters was “a converted hotel that was filthy and poorly maintained.” It had not “reconciled its books in ten years and lacked an accurate accounting system.” Bills were being “paid so late that vendors would only do business with EEOC on a cash basis.” And the agency had acquired a reputation of operational ineffectiveness. Grandfather’s Son, pp. 148-53.
The EEOC was closing lots of cases, but this activity was basically a numbers game based on extracting settlements. Its biggest cases at the time were against General Motors and Sears. Both cases were based on statistical analyses of hiring and promotion patterns – with little direct evidence of discrimination. Grandfather’s Son, pp. 158-60.
#Sears refused to settle and ultimately prevailed, winning part of its demand for legal fees. There were no winners in that case.
#GM was in basically the same legal posture as Sears, “but it preferred not to waste millions of dollars defending itself in court.” There was a settlement, and the company funded numerous scholarships at various institutions including historically black colleges and universities. At least this case wound up doing some good, Thomas felt, versus merely enriching the attorneys and experts involved in the litigation.
During his time at the EEOC, Thomas shaped it up. “Fully investigated charges had been the exception when I arrived at EEOC in 1982; they were the rule when I departed eight years later.” Grandfather’s Son, p. 187. But greater administrative efficiency did not address the fundamental issue of whether the agency’s job needed doing.
Congress has contributed to this issue by periodically creating new employee rights – as reflected in the EEOC’s current ambit.
The [EEOC] is responsible for enforcing federal laws that make it illegal to discriminate against a job applicant or an employee because of the person's race, color, religion, sex (including pregnancy), national origin, age (40 or older), disability or genetic information. It is also illegal to discriminate against a person because the person complained about discrimination, filed a charge of discrimination, or participated in an employment discrimination investigation or lawsuit.
One obvious omission, sexual preference, may represent the next frontier. Senate confirms open lesbian to EEOC, Baptist Press, Townhall.com, 12/29/11.
Now we have no wish to advocate discrimination against any of the aforementioned groups, indeed anyone in the workplace should be judged and treated based on his or her individual merit, but administrative action is a blunt instrument that is ill-suited to achieving subtle social goals and can cause plenty of collateral damage. Death of Common Sense, pp. 126 (since 1994, the situation has probably gotten worse).
After thirty years of expanding rights against workplace discrimination, Congress has succeeded in “protecting” over 70 percent of all American workers. *** Many people have multiple potential claims: an Asian woman over 40 with a physical ailment, like a bad back, enjoys four protections. Aaron Wildavsky calculated that if you apply all the protected categories, they add up to 374 percent of the American population. Only one group has no protection against employment discrimination: employees of Congress.
Even if the government chooses to ban various forms of workplace discrimination, why have a federal agency to investigate complaints and file suits? There are presumably plenty of private attorneys available to represent employees with plausible complaints.
Finally, consider some cases the EEOC has been pursuing in recent years. Looks like the numbers game noted by Clarence Thomas in 1982 lives on, and that the burden on the private sector far exceeds the EEOC’s $385M annual budget.
#EEOC: Discrimination claim at Bloomberg failed, AP News, Townhall.com, 10/18/11. Suit against news company founded by NY Mayor Michael Bloomberg alleged a company-wide pattern of discrimination against pregnant women and mothers. The evidence consisted of “isolated remarks by a handful of executives.” Class action dismissed; individual complaints can proceed. http://bit.ly/pc6ml5
# Work, pray, sue, Wall Street Journal, 10/17/11 (no link available) – The case of Hosana-Tabor Evangelical Lutheran Church and School v. EEOC centers on a parochial school teacher who took a medical leave from her job in 2004 and was not allowed to return eight months later. The EEOC sued for back pay, damages, and rehiring. Ms. Perich’s duties were partly secular and partly religious. Although school considered her part of the school’s mission to offer a “Christ-centered education based on biblical principles,” the EEOC maintained that she did not qualify for the “ministerial exemption” from normal rules re employees with disabilities and “a wide variety of other generally applicable laws.” The Sixth Circuit upheld the EEOC theory; the case is now before the US Supreme Court. At oral argument, Chief Justice John Roberts questioned the government’s position: “The Pope is a head of state and has important administrative functions, so he’s not a minister?” http://bit.ly/r2IjAg
#EEOC alleges age discrimination at Texas Roadhouse, AP News, 10/3/11. Suit against a restaurant chain (350+ restaurants in 46 states). Some managers were allegedly told to hire younger job applicants for positions such as servers, hosts and bartenders. [Should companies be required to hire seniors in preference to juniors, and if so why?] http://bit.ly/mUIZzI
#Outdoor retailer accused of racial discrimination, AP News, Townhall.com, 9/11/11. EEOC charged Bass Pro Outdoor World of discriminating against qualified black and Hispanic job applicants and retaliating against employees who complained about the practice. To make the identified persons “whole,” the agency sought “back pay, fair hiring and reinstatement.” Bass denied the allegations and accused the EEOC of stereotyping outdoor enthusiasts. It also pointed out that it had provided over 250,000 pages of documents during the investigation, which presumably supported its position or at least did not contradict it. http://bit.ly/rmeSBo
#EEOC alleges discrimination at Maine Kohl’s store, AP News, Townhall.com, 8/23/11. This federal lawsuit, in Portland, Maine, claims Pamela Manning’s rights under the Americans with Disabilities Act were violated by refusal of requests for a set schedule to prevent complications from diabetes. Kohl’s was supposedly more receptive to other employees' schedule requests re day care and transportation needs. http://bit.ly/nvl0gH
#EEOC: 3M agrees to settle age discrimination complaint, AP News, 8/22/11. Class action suit based on layoff of 290 older workers; 3M agreed to pay what amounted to a nuisance settlement of $3M. An employee e-mail is mentioned that described the CEO’s vision: “we should be developing 30-year-olds with General Manager potential.” This settlement was separate and distinct from a settlement with a larger group of employees, which had been negotiated by a private law firm. http://bit.ly/qe8bpT
#Verizon to pay $20M to settle discrimination suit, AP News, 7/6/11. It was reportedly the largest disability discrimination settlement in EEOC history; Verizon agreed to (a) pay $20M to resolve a lawsuit over treatment of employees who [claimed to have] missed work due to their disabilities, and (b) change its absence policy. Verizon should supposedly have accommodated the employees instead of disciplining or firing them. Verizon denied any ADA violations, but said it was in the company’s interest to avoid litigation. http://bit.ly/osuUcA
#US sues over treatment of workers from Asia, Alex Dobuzinkis, Reuters, 4/20/11. 500+ workers from India were recruited to work at shipyards in Mississippi and Texas, and 200+ Thai farm laborers were brought to Hawaii and Washington state. According to the EEOC, the Asian workers were forced to live in substandard housing and exploited with recruitment fees so that “some had net earnings of nearly nothing.” In addition to filing suit, the EEOC had the head of the labor firm that recruited the Thai workers arrested on forced labor conspiracy charges. [This case has more apparent substance than the others discussed, but the Department of Justice could have been handled it if there was no EEOC.] http://bit.ly/nQrzoR
#Got monks! Get the monks! Ken Blackwell, Townhall.com, 10/29/10. The EEOC sued a small Catholic college in North Carolina because its healthcare insurance plan did not provide contraceptives to female employees. The college denied sexual discrimination, pointing out that they did not provide contraceptives to monks (all male) or male lay employees either, but the EEOC claimed the provision of contraceptives to female employees was mandated under Title 7 of the Civil Rights Act and another federal statute. http://bit.ly/mUEwnP
#Ninth Circuit plays Father Knows Best, William Pendley, Townhall.com, 6/1/07. – Richard and Shauna Kidman operate RD’s Drive In and Exxon in Page, Arizona. On learning that some employees were sexually harassing fellow employees in the Navajo language (which the Kidmans did not speak), they adopted an English language workplace policy. The EEOC filed suit in 2002, claiming this policy represented “racial discrimination.” The ensuing proceeding was long, tortuous and expensive – ultimately resulting in a Kafkaesque appellate decision that the Kidman’s were bound by the terms of a “settlement” agreement they had refused to sign. http://bit.ly/qNNiiY
#When sexism claims are a real hoot, John Stossel, Townhall.com, 6/28/06 – The EEOC sued Hooters for hiring only female servers. After an exhaustive four-year investigation, the agency demanded a $22M settlement for alleged sexual discrimination against male applicants plus ongoing “sensitivity training.” Public demonstrations by Hooters waitresses turned the tide, and the case was settled for $3.75M. http://bit.ly/qPKS7b
Despite the historic role that the EEOC played in its early years, we would conclude from the foregoing that the agency has outlived its usefulness – and should therefore be abolished. The assumption that government agencies should continue indefinitely is one of the root causes of a top-heavy, hugely expensive government.
Likewise, federal administrators played a vital role in ending school segregation, but that job has been done and it is high time to terminate federal intervention in the nation’s school system. Centralized control of education may be overrated, 4/12/10.
The current role of the federal government in education can be traced to the 1960s, when the racial segregation of many of the state school systems was ended by federal intervention. This action was necessary and appropriate, but it led to other initiatives that were not.
2. There should be a new requirement for voters. If you don’t pay income tax, you don’t vote.
About half of working age Americans pay little or no income tax, which probably dulls their concerns about how income tax revenues are spent. We agree this is a problem, and SAFE’s tax overhaul proposal (unlike either the flat tax advocated by Steve Forbes or the FairTax) is designed to fix it by requiring many more people to pay income tax.
Tax rules should be understandable, and, while not necessarily “permanent,” not in constant flux – which undermines confidence in the private sector. Tax rates should be kept low. The tax base should be broadened. The vast majority of the population should pay taxes, even if the burden varies with ability to pay. For lack of a better name, our proposal might be labeled the SimpleTax.
http://www.s-a-f-e.org/the_simple_tax.htm
While it would be arguably be possible to take non-taxpayers off the voting rolls instead, we do not favor this idea for two reasons.
First, it would create a permanent underclass in American society – to put a face on them, visualize the current “occupy” demonstrators camping out in locations around the country – who would feel cut off from the upper tier of society. To some extent such a separation already exists, but there would be no merit in reinforcing it.
Second, the idea of sharing the tax burden more equitably is appealing. Why should half of the population be exempted from this duty?
10/17/11 – Bloom Energy could be the last straw Read Replies
If you think the push for wind, solar, etc. power is all about manmade global warming (MMGW), think again. Renewable energy is also touted, among other things, as a means to (a) reduce oil imports (by conservation or substitution), (b) reap an economic bonanza from renewable energy investment, (c) avoid wicked weather patterns resulting from “climate change,” and (d) foster biodiversity. War on cheap energy grinds on, 6/14/10.
The MMGW theory may prove partly correct; carbon emissions from burning fossil fuels probably are contributing to a modest warming trend. Our guess would be, however, that natural factors, e.g., fluctuating solar activity, will continue to play a dominant role in determining the Earth’s climate – as they have done for billions of years.
At first blush, the other arguments seem silly. While it would be nice to reduce oil imports, this could be done by ramping up domestic oil production instead of switching to electric cars. The vision of “green jobs” is alluring, but an overall economic loss should be expected from switching to more expensive power sources. Climate change could mean just about anything, and the term only came into vogue because the global warming trend appeared to be stalling. Biodiversity, oh please!
Presenting a range of arguments has proven useful, however, in garnering support for renewable energy – which by now has become deeply entrenched at both the national and state level (even here in Delaware).
Environmentalists support renewable energy for idealistic reasons. At bottom, they don’t care about the cost, feeling that a less developed society would be more “natural.” Reclaiming the Republic, [Indiana Governor] Mitch Daniels, Sentinel (2011).
Some environmentalists appear to nurture the visceral illusion that a less developed, less wealthy society would be a cleaner one. *** Their view seems to be that if we could just stop building things, stop expanding things, stop developing things, we would be healthier and so would Mother Nature.
http://www.s-a-f-e.org/keeping_the_republic.htm
Other people support renewable energy for more practical reasons. Meet the lobbyist who turns “green” into greenbacks, Timothy Carney, Washington Examiner, 3/5/11.
Environmental policy is not driven by tree-hugging activists, earnest liberal bloggers, or ecologically minded citizens. Instead, it flows from the lobbyists and executives of well-connected multinational corporations and built-for-subsidy startups that see profit in the loan guarantees, handouts, mandates, and tax credits Congress creates in the name of saving the planet.
Is it too late to stop the eco-lobby? This entry will present some examples (Marketing, Research, Competition, and Subsidies) to convey the scope of the challenge.
MARKETING – Renewable energy proponents seek to raise public consciousness of alleged problems, e.g., manmade global warming, which their product could arguably address. One means to this end is repetitive, one-sided news coverage – which represents essentially cost-free advertising for their cause. Here are two examples from SAFE’s global warming & energy policy microblog.
#A recent article presented nearly a full page about the MMGW theory, essentially a rehash of prior reports, while painting critics of the theory as misguided idiots. Despite evidence, US desire to deny global warming deepens, Charles Hanley (AP), [Wilmington, DE] News Journal, 9/25/11.
“In the face of years of scientific findings and growing impacts, the doubters persist. They ignore long-term trends and seize on insignificant year-to-year blips in data to claim all is well. They focus on minor mistakes in thousands of pages of peer-reviewed studies to claim all is wrong. And they carom from one explanation to another for today’s warming Earth: jet contrails, sunspots, cosmic rays, natural cycles.” Most of them are Republicans and/or conservatives, and denial “feeds into their basic narrative that all government is bad.”
http://bit.ly/ghPVOu (Except where noted, other cited News Journal articles may be found at the same link.)
Although the article did not say so, several of the reported trends could have redeeming features. For example, a summertime sea passageway through the Arctic might come in handy. As for cosmic rays, this theory recently received a major boost from research at the CERN particle physics lab in Switzerland. Washington Times, 8/30/11.
#There was a 20-page section in the News Journal on Earth Day. All green to me: Guardians of the earth, 4/22/11.
Summary: (1) Churches putting solar panels on their roofs; (2) “Decoupling demystified” – controversy is presented in a neutral fashion by Aaron Nathans, who among others quotes John Nichols, “a citizen activist with Tea Party allies,” as saying decoupling “turns Delaware into a ward of the state;” (3) Gas prices too high? Don’t pay them – Innovative mechanics power cars through vegetable oil, electricity; (4) Is nuclear energy dead in Japan? Oh dear, “the country will need to rely on nuclear power for some time to come, despite the risks.” And speaking globally, the “EarthTalk” authors utter the heresy that “while solar and wind power can take up some of the slack, these and other renewables are at least decades away from the scalability needed to power a significant share of a modern industrial society’s energy requirements;” (5) More, including plaudits for the “green advertisers.”
RESEARCH – The next step is research programs to develop renewable energy technologies, which often seem somewhat haphazard in nature. University of Delaware’s Energy Institute: Power for the people, Ken Mammarella, News Journal, 4/20/11.
The theme of this two-page, color-photo spread is responding to “a country eager to lessen its dependence on foreign oil.” Alternative energy research is being conducted in many areas: (A) Catalysis (enzyme aided transformation of glucose to fructose); (B) Vehicle-to-grid (create electric cars with batteries that could send power back to the grid during peak demand periods); (C) Industrial processes (if all US industrial boilers were painted with low-emissivity paint, $420 million a year in heat loss could be avoided); (C) Fuel cells (hydrogen-burning buses); (D) Magnets (stronger magnets would be more energy-efficient); (E) Solar cells (Department of Energy’s SunShot initiative aims to reduce the cost by roughly 75% to $1 per KWH); (F) at least eight wind power projects (corrosion resistance, bird impacts, construction issues, and even government planning issues, e.g., advice as to “what fees and tariffs encourage wind power”).
Academic freedom is wonderful, but many of the UD projects are funded by federal government grants – with the enthusiastic support of Delaware members of Congress. UD researchers make case in DC: Trip to Capitol Hill lets feds look closer at value of funding, Wade Malcolm, News Journal, 3/19/11.
Photo of Senator Chris Coons chatting with two guests from UD at the Senate Office Building function, which is described in the story as “a science fair combined with a cocktail hour.” Senator Tom Carper and Representative John Carney “also stopped by to express support for continued funding.”
Various projects are described in the article, which supposedly show the value of federal research funding. Note that 2/3 of UD’s research spending in 2010 was funded by federal agencies. Thus, for example, Jeremy Firestone, who studies offshore wind policy, has received federal grants totaling more than $3 million. And it is said that “building relationships with federal officials can be critical to preparing competitive grant applications.”
COMPETITION – Renewable energy is far more expensive than conventional power sources for most applications, and no one wants to pay the applicable cost penalty. Terrestrial Energy, William Tucker, Bartleby Press (2008).
#One solution is to mandate a minimum (and growing) usage of renewable energy sources, with the hope that no one will notice as the cost penalty phases in and/or that said penalty can be reduced over time.
Such was the vision of the national “cap and trade” legislation passed by the US House in 2009, but the bill died in the Senate and it is not likely to be revived any time soon.
The “cap and trade” concept exists in Delaware, however, through (a) state participation in a multi-state Regional Greenhouse Gas Initiative, and (b) a statutory requirement (aka the Renewables Portfolio Standard) that utilities operating in Delaware purchase a growing volume of renewable energy (5% by compliance year 2010-11 . . . 10% by 2013-14 . . . 16% by 2017-18 . . . 20% by 2020-21 . . . 25% by 2025-26) or acquire renewable energy credits to make up the deficiency.
Under these provisions, the development of wind, solar, etc. power in the Northeast would be forced – whatever the cost penalty. Legislation to take Delaware out of the RGGI was blocked earlier this year after a rigged hearing. Tips for fiscal visionaries: policies and politics are closely connected, 5/23/11.
#Another idea is to burden conventional power sources with onerous environmental requirements and/or taxes. Thus, the EPA has been considering regulations that could shut down a significant portion of the nation’s coal-fired power plants. How Obama Spent His Summer Vacation- Day One: Kill Power Plants, Kill Jobs, John Ransom, Townhall.com, 8/20/11. (The regulations in question have been moderated somewhat since Ransom’s column was written, but could still do a lot of damage.)
Under new interpretation of old rules, the EPA will shortly be forcing the shutdown of about 20 percent of coal-generated electric capacity in the United States. Since coal generates about half the electricity demanded in the US, the country will have to find other, more expensive ways of making up about ten percent of electric capacity . . .
Similarly, the proposed American Jobs Act (which failed in the Senate) would sharply hike taxes on oil and gas companies by ending current expensing of drilling costs, eliminating the US manufacturing tax deduction for oil & gas companies only, etc. Obama jobs plan silly or sinister? Marita Noon, Townhall.com, 9/25/11.
There are even proposals to curb the “fracking” technique, which has sparked a lot of new drilling activity and driven down natural gas prices. What the frack is going on here? Paul Driessen, Townhall.com, 10/1/11.
Environmentalists used to support “clean natural gas.” Whence the intolerant new attitude? *** Natural gas, specifically shale gas, is essential for powering backup generators for unreliable wind and solar installations. However, low gas prices make wind and solar even less competitive. *** People want and need reliable, affordable power. [But] many environmentalists support Paul Ehrlich’s opposite sentiment that “giving society cheap energy is like giving an idiot child a machine gun.”
SUBSIDIES – Last but not least, there are a host of government subsidies for renewable energy projects, infrastructure, and in some cases end products.
#Fisker Automotive has received a $529M federal loan and $21M in state grants and loans to support its conversion of the Boxwood Road GM plant to make electric cars.
There are also federal subsidies for development of charging station networks (in various areas of the countries), better batteries, etc. not to mention tax credits for the purchasers of electric cars.
But even with all this assistance, it remains uncertain that the Fisker venture will be a commercial success. Fisker to hire 120 this year; workers will retrofit old GM plant for reopening in 2012, Jonathan Starkey, News Journal, 6/23/11.
. . . analysts at JD Power & Associates and IHS Global Insight have characterized Fisker’s sales goal (100,000 cars to be produced at the site in 2014) as lofty.
Other reports suggest that electric cars in general will be a tough sell. See, e.g., Bob Beauprez, Obama blunders on batteries badly, Townhall.com, 6/23/11.
In the March issue of A Line of Sight we documented that sales of the Chevy Volt and Nissan Leaf were happening by the dozens per month rather than the tens of thousands some had predicted. Consumers are hard pressed to warm to a $41,000 four seat compact that needs to be plugged in every 30 miles to recharge the battery. Even the $7,500 taxpayer subsidy can't pump up sales.
While the urge to be the first early adopter on the block will spur a few sales, even the liberal Slate.com says the Volt is "a rich man's ride," not the working man's transportation solution of Obama's dreams. [And now,] it looks like electricity rates – the plug-in fuel source – is about to go up dramatically.
#Some renewable energy subsidies that were sold as temporary economic stimulus may not be renewed due to growing concern about federal deficits. This uncertainty seems to be affecting a wind power project off the Delaware coast. Bluewater’s contract delay proves futile in changing law, Aaron Nathans, News Journal, 9/12/11.
The three-month extension for an NRG payment under the Bluewater contract will expire in two weeks, and guess what. Congress remains divided, the loan guarantee program is still up in the air, and it is unclear whether NRG will make the $2.75M commitment or back away from the contract. Governor Jack Markell reportedly supports moving forward with the project, “but recognizes that decision largely rests with NRG and Delmarva.”
Two required payments by NRG have since been consolidated into a single $4M payment that will be due by Dec. 31. NRG is reportedly confident of being able to proceed. Delmarva gives wind developer extension, Aaron Nathans, News Journal, 9/16/11.
#Last week, the president’s jobs panel proposed more federal funding for renewable energy – which reportedly would benefit GE et al. Crony capitalism is not an economic plan, National Center for Public Policy Research, 10/11/11.
Congressional support for the panel’s recommendations is uncertain, but there may be ways to implement some of them anyway. Obama tells advisers to find how to approve stimulus projects without additional Congressional authorization, Real Clear Politics, video (23 seconds), 10/11/11.
#A similar willingness to improvise exists at the state level. Thus, the bulk of subsidies promised to attract the Bloom Energy fuel cell venture would take the form of a non-cancellable, long-term tariff on Delmarva Power ratepayers. Fuel cell boondoggle, SAFE newsletter, Summer 2011.
http://www.s-a-f-e.org/nwsltr/nwsltr62.htm#Fuel_cell
Why is such a tariff appropriate? Ratepayers get no benefits as electric consumers, and if there are economic benefits for the state as a whole – which we doubt – Delawareans who are not Delmarva ratepayers would get a free ride. Ergo, the tariff appears to be a discriminatory tax. SAFE analysis, 9/28/11.
Perhaps it was thought ratepayers would not notice a dollar or two a month charge on their electric bills, while taxpayer-funded payments from the state might attract more attention. But we and others have done our best to publicize the ploy. Bloomin’ tariff, SAFE newsletter, Fall 2011.
http://www.s-a-f-e.org/nwsltr/nwsltr63.htm#Bloomin%92
And our efforts have apparently had an impact. News Journal, 10/15/11.
Eight letters to the editor are all about the Bloom Energy deal & tariff – FOR: Andy Grove, Santa Clara, Calif. writes that the scariest moment for technology ventures is at the front end when the costs & risks are obvious while the rewards are further away. “Will Delaware, having worked hard and long to attract an American energy company to ramp up its manufacturing in its home country, blink or step on the accelerator. As former CEO of Intel Corp. and an investor in venture funds that have invested in [subsidized] clean energy initiatives, including Bloom Energy, I hope it will be the latter.” AGAINST: Gary Myers, Rehoboth Beach (Proposed Bloom subsidy is not shared fairly); Susan Klinefelter, Newark (Bloom deal too rushed, may be next Solyndra); Alex Garcia, Magnolia (Delaware taxpayers may be stuck with bad deal); Edmund Dohnert, Wilmington (Bloom should try to make it on its own); Eric Bodenweiser, Georgetown (Energy policy should focus on free market); Andrew Cohen, Wilmington (Put Bloom boxes close to sites of electricity use); Marilyn Costas, Lewes (If Bloom was that great, it wouldn’t need subsidy).
The official Public Service Commission hearing will take place on October 18 (tomorrow), and the PSC could conceivably reject the tariff despite intense pressure from the governor, et al. – it will be interesting to see what happens.
But even if the tariff is approved, that will not be the end of the story. The Bloom Energy venture is just a sample of the costs to Delawareans of the state’s renewable energy regime. To ensure the continuation of reliable and economical electric power service, it is imperative to extricate Delaware from the Regional Greenhouse Gas Initiative and terminate the Rewewables Portfolio Standard.
And given the unwise economic commitments being made based on RGGI and RPS, we would urge that action be taken as soon as possible.
What do you think, dear readers? Please let us hear from you.
* * * This Blogs Replies * * *
You do not mess around. This is outstanding! – Financial executive
I’d like to expand on several points: (1) Proceeds from the auction of carbon allowances by the Regional Greenhouse Gas Initiative (RGGI) are not remitted to the Delaware treasury, they are primarily used to fund a nongovernmental organization called the Sustainable Energy Utility (SEU), which in turn advocates the renewable energy cause and subsidizes various renewable energy initiatives, all without effective public supervision; (2) The SEU and the Center for Energy and Environment Policy (CEEP) at the University of Delaware are headed by the same individual. On the CEEP Website, “cheap energy” is characterized as “simply a form of subsidy to the status quo at the expense of future generations.” It is therefore proposed to “take the necessary actions to build a sustainable and equitable energy regime.” http://www.ceep.udel.edu/energy/index.html; (3) Speculators have fled the RGGI market due to New Hampshire's attempt to escape, Delaware's failed effort to end participation and New Jersey's unilateral withdrawal. The auction revenue has fallen from $2.5M per quarter to $400K. – SAFE member and citizen activist
10/10/11 – Joint Committee must get back to basics Read Replies
On October 6, the SAFE board reviewed our position vis-à-vis the proceedings of the Joint Select Committee on Deficit Reduction.
The conclusion: SAFE’s August 22 suggestions to the JC members are sound, but they are being ignored. The JC appears to be headed for either deadlock (triggering more across-the-board cuts in “discretionary” spending) or a pointless political deal.
Meanwhile, the economic outlook continues to deteriorate. It is urgent to start addressing the fiscal problem now, as a means of restoring public confidence, instead of blindly hoping that a solution will be easier after the next election.
The JC is being bombarded by suggestions from players and observers across the political spectrum who are far more powerful than SAFE. What if anything could we say that might actually get through to the JC members and change some minds? Here is the best answer that we could come up with:
To: JOINT SELECT COMMITTEE ON DEFICIT REDUCTION
From: SECURE AMERICA’S FUTURE ECONOMY
In August, we offered several suggestions to the JC – in summary: be open, stop digging, taxes can wait, and be selective on spending. These are solid ideas, in our opinion, and we stand by them.
http://www.s-a-f-e.org/contacting_legislators_2011.htm#082211
Alas, the JC appears to be slipping into secret meeting mode, calls for another round of fiscal stimulus have not been rejected, time and effort is being wasted discussing possible tax changes, and we see no signs of targeted spending cuts being considered. “JC update: hunting for a painless solution,” 10/3/11.
In our opinion, a major course change is needed. It is hard to envision this happening, however, unless the JC members – from both parties – are able to rise above the politics as usual culture that is so prevalent inside the Beltway.
Given that the JC is composed of career politicians, some members will surely have reservations about the idea of rising above politics. Let’s see if we can anticipate and respond to some of the likely questions.
What’s wrong with politics? Surely it is better for people to compromise their differences than come to blows over them. That does not necessarily justify government intervention in the economic sphere, however, which involves an inherent conflict.
Politics is local and limited in time; economics is global and long term. Accordingly, interventionist policies often create more problems than they solve. Politics vs. economics, Thomas Sowell, Townhall.com, 9/28/11.
All politics may be local but the repercussions reach around the world, and even extend to generations yet unborn, who will be left to cope with the national debts resulting from this debacle. Quick fixes for the economy now are unlikely to get investors to make job-creating investments, which depend on long-term factors ignored by politicians who are focused on the 2012 elections.
In addition to the examples cited by Sowell, consider the statutory restrictions on bank charges to merchants that have sparked proposals to levy new credit card fees on consumers. How shocking; who could have possibly expected this to happen? “Durbin fees” are coming, thanks to “progressives,” Washington Examiner, 10/1/11.
The alternative to making economic decisions based on politics is to limit government intervention in the economic sphere and allow decisions to be made by buyers and sellers in a free market. Such a system is called capitalism, and it generally works quite well.
We do not advocate anarchy. The government is needed to defend against external enemies, maintain order, restrain private cartels, run the judicial system, and do many other things. But we would caution against placing too much authority in the government’s hands, thereby sapping individual initiative and increasing social rigidity. The rise and decline of nations, Mancur Olson, Yale University Press (1982).
http://www.s-a-f-e.org/rise_and_decline.htm
So what trumps politics? Most political leaders agree that it is imperative to start (after the next election, at least) reducing the deficit. The argument is about how to go about it, notably whether to cut spending or raise taxes.
One answer is political compromise, with spending cuts and tax increases seen as two sides of the same coin. In this frame of reference, a “balanced” solution might include both elements in roughly equal measure, with spending cuts to be spread across the board. Anyone attempting (like SAFE) to rule out tax increases and target specific spending programs would risk being labeled a political extremist.
Opinion polls support such a “balanced” approach to deficit reduction. Americans blame wasteful government spending for deficit, Frank Newport, Gallup, 4/29/11.
. . . some emphasis on tax increases is part of the solution for almost half of Americans. Thus, it appears Americans would most likely tell their elected representatives to attack the federal deficit primarily using spending cuts, but with a secondary reliance on raising tax revenue.
But suppose a different question is asked: Which will be more effective in shrinking the deficit, spending cuts or tax increases? Now the objective is not negotiating a balanced answer, it is determining the right answer, which might well be to place primary reliance on spending cuts.
Start with the fact that there is extensive waste in the federal budget, as illustrated by a recent Government Accountability Office study that identified “hundreds” of duplicative and overlapping government programs. GAO report, 3/18/11.
Add the side effects of tax increases; they reduce incentives to work and to invest while fostering changes in behavior (investment outside the US, lobbying for special tax preferences, etc.). No wonder that revenue gains from tax increases frequently under-run expectations, while tax cuts tend to boost the economy. Diving into the rich pool, Economist, 9/24/11.
Finally, empirical studies demonstrate that countries seeking to shrink their debt in relation to Gross Domestic Product have generally failed unless they relied primarily on spending cuts. The right way to balance the budget, Biggs, Hassett & Jensen, American Enterprise Institute, 12/29/10.
The data also clearly indicate that successful attempts to balance budgets rely almost entirely on reduced government expenditures, while unsuccessful ones rely heavily on tax increases. On average, the typical unsuccessful consolidation consisted of 53% tax increases and 47% spending cuts. By contrast, the typical successful fiscal consolidation consisted, on average, of 85% spending cuts.
This is not to suggest that the current US tax system is satisfactory; it is not. But a comprehensive overhaul of the tax system would not help to meet the JC’s deficit reduction goal, at least given the current scoring system of the Congressional Budget Office, so we would suggest that some other committee(s) undertake this worthy project.
What’s the market saying? Our last reading on the US economic and financial outlook was far from optimistic. Who cut my credit rating? 8/1/11. (Note: several days after this entry was posted, hypothetically justifying a credit downgrade, Standard & Poor’s cut the rating on US debt for real.)
Subsequent developments in brief: Gasoline prices are down, primarily due to growing uncertainty about the global economic outlook. Stock prices have fallen, signaling concerns about future business profits. The deficit for FY 2011 came in at $1.3T, an awful result but slightly lower than expected. The unemployment rate remains stuck above 9%; the underemployed rate is considerably higher than that.
Some experts are warning of a double dip recession, but others (ourselves included) expect the US to muddle along in an anemic recovery mode. A twisted outlook, Larry Kudlow, Townhall.com, 9/23/11.
Europe is unsolved. U.S. finances are a mess. All this is being discounted by slumping stocks. *** The Obama $1.5 trillion tax-hike plan, and his veto threat for any deficit package that doesn’t include big tax hikes on successful earners, investors, and businesses, is another sword of Damocles hanging over the economy and the stock market. *** Business profits will slow significantly, but are still likely to rise a bit. And with oil dropping to about $80, a price shock that was a key slowdown factor is going away. *** Housing is still in the tank, and consumer spending looks very iffy. And we had zero jobs and zero retail sales in August -- two very bad signs. On the other hand, exports and business investment are still rising.
The big unknown is how the US will be impacted by developments in Europe. Bonds issued by several countries (notably Greece, Italy, and Spain) are selling well below face value, thereby pushing up borrowing rates and creating as yet unrealized losses for the European banks holding these securities. El-Erian [of Pimco bond funds] says world is on eve of next financial crisis over sovereign debt, Shamim Adum, Bloomberg, 9/22/11.
“There has been a significant increase in the financial requirements of international intervention,” El-Erian said. “You need a lot more firepower in order to be a circuit breaker. Look at how much the ECB has put in and ask yourself the question: has it created a circuit breaker? The answer is no, even though the amounts involved have been massive.”
There appears to be no exit plan for Europe. The deficits of the aforesaid debtor countries (and possibly others) are out of control; these countries are not prepared to correct matters through the political process; and no one is willing and able to bail them out. NEIN, NEIN, NEIN, and the death of EU Fiscal Union, Ambrose Evans-Pritchard, UK Telegraph, 9/30/11.
Here at home, the case being made for another shot of fiscal stimulus seems farfetched and unconvincing. “Happytalk” revisited and what to do about it, 9/26/11.
On the other hand, the sovereign debt crisis brewing in Europe suggests that this country’s government might be do well to start getting its fiscal affairs in order while there is still time to do so. Granted that the fiscal problem cannot be solved over night, do the JC members really think it is OK to wait until 2013 to start working on a solution?
Do you understand the pressure we are under to raise taxes? Yes, it would be hard to miss – but hopefully the JC members can deal with it.
The president has given speech after speech about how Congress must pass his American Jobs Act quickly and sign on to a deficit reduction approach that relies heavily on hiking taxes on the well to do and corporations. See, e.g., his weekly address on October 8.
There are too many people hurting in this country for us to simply do nothing. The economy is too fragile for us to let politics get in the way of action. The people who represent you in Washington have a responsibility to do what’s best for you – not what’s best for their party or what’s going to help them win an election that’s more than a year away. So I need you to keep making your voices heard in Washington. I need you to remind these folks who they work for. And I need you to tell your Senators to do the right thing by passing this jobs bill right away. Thank you.
Meanwhile, “occupy Wall Street” protests in New York City have morphed into demonstrations around the country that seem generally animated by envy and perceived grievances.
Who are the protestors, what do they want, and who is directing their efforts? The answers to these questions are not entirely clear, but the movement seems to be well outside the political mainstream.
The protestors complain of being unemployed, which is blamed on corporate greed. Hope behind occupy Wall Street, Donald Lambro, Townhall.com, 10/5/11.
This dispirited movement appears to be composed of a confused collection of leftist 20-somethings who blame globalism, trade, the Federal Reserve Bank, investment brokers, corporations, and capitalism in general for all of our economic ills and rampant unemployment.
They congregate in public areas for extended periods and refuse to leave when ordered to do so, thereby forcing police to make arrests. Some “occupy Sacramento” protestors lash out at questioners, CBS Sacramento, 10/7/11.
Among other things, big surprise, they have demanded tax increases for the well to do and corporations. Occupy Wall Street protestors post manifesto of “demands,” Kerry Picket, Washington Times, 10/3/11.
CONGRESS PASS THE BUFFETT RULE ON FAIR TAXATION SO THE RICH AND CORPORATIONS PAY THEIR FAIR SHARE & CLOSE CORPORATE TAX LOOP HOLES AND ENACT A PROHIBITION ON HIDING FUNDS OFF SHORE. No more GE paying zero or negative taxes. Pass the Buffet Rule on fair taxation so the rich pay their fair share. (If we have a really had a good negotiating position and have the place surrounded, we could actually dial up taxes on millionaires, billionaires and corporations even higher...back to what they once were in the 50's and 60's.Vote Here #4
They demonstrate for weeks on end, which requires a well-organized support network. Here is an interview with one of the organizers, an articulate young member of the Working Families Party. She speaks of the need to change the “infrastructure of the system that hasn’t worked for us,” and bring “revolutionary change to the states.” Labor is described as being under “complete and utter attack by corporate America.” Video (4:41), the Blaze, 10/7/11.
At least one high-ranking political leader has expressed support for the protestors. [House Minority Leader Nancy] Pelosi: “God bless” Wall Street protestors, Charlie Sperling, Washington Examiner, 10/7/11.
God bless them for their spontaneity. It's independent ... it's young, it's spontaneous, and it's focused. And it's going to be effective.
The president himself has expressed a tolerant attitude towards the protestors, if not necessarily support for their activities. Obama: Occupy Wall Street protests show Americans’ frustration, Michael Memoli, Los Angeles Times, 10/6/11.
I think it expresses the frustrations the American people feel, that we had the biggest financial crisis since the Great Depression, huge collateral damage all throughout the country ... and yet you're still seeing some of the same folks who acted irresponsibly trying to fight efforts to crack down on the abusive practices that got us into this in the first place.
So, OK, there is a lot of pressure – but we would urge the JC members to resist it. The hour is late, there is a great deal at stake, and they need to forget about politics and propose a deficit reduction package that would actually make things better. In this vein, we would submit that SAFE’s suggestions merit thoughtful consideration.
Finally, Americans have contributed importantly to the fiscal problem by accepting more and more spending without worrying about how it was going to be paid for – and at some level they realize this. So maybe, just maybe, there could even be a political payoff for those who have the courage to do the right thing for a change.
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UPDATE: one-page summary of this entry sent to Joint Committee and JC members. http://www.s-a-f-e.org/contacting_legislators_2011.htm#101011
Don’t expect any requests for further help. The JC members can do nothing but stall. – SAFE director
10/3/11 – JC update: hunting for a painless solution Read a reply
The members of the Joint Select Committee on Deficit Reduction have been given a unique opportunity to work across the House/Senate divide in a bitterly split Congress. If anyone is in a position to start chipping away at the fiscal problem before the elections next November, they are the ones.
Either party can veto the JC recommendations, however, so a truly successful outcome depends on finding “common ground.” How likely is that?
To assess how things are going, we compared (A) our initial vision about what the JC should be doing, to (B) what the JC appears to be doing. The indicated gap suggests a need to adjust either the JC’s thinking or our own.
The situation will be reviewed at the SAFE board meeting on October 6 (this Thursday). In the meantime, dear readers, we invite your feedback. Unless we are aware of your ideas, we cannot represent them.
http://www.s-a-f-e.org/contact_us.htm
Our vision – SAFE has offered four suggestions to the JC on how to meet its assigned goal of proposing at least $1.5 trillion (over 10 years) of deficit reduction (spending cuts and/or tax increases) by the November 23 deadline. A list of targeted spending cuts, 8/22/11; summary letter to JC members, 8/22/11.
(1) Be open: We would urge that your committee follow the example of the Fiscal Commission in 2010 by posting videotapes of its general meetings and a draft of its report before the report is voted on.
(2) Stop digging: This country does not need another round of fiscal stimulus; far more effective ways to promote economic recovery are available.
(3) Taxes can wait: The tax changes that have been proposed to date are of debatable merit, and the JC does not have enough time for the system overhaul that is needed.
(4) Be selective on spending: Across the board spending cuts treat all government programs as equally worthy, thereby undermining support for the limits imposed. It would be far more effective to eliminate or restructure ailing programs. The following spending cuts are recommended to save the US Treasury roundly $2 trillion over the next 10 years: Medicaid $770B, Education $500B, Corporate Welfare $180B, Agricultural Subsidies $130B, Energy $60B, and resultant reduction in Interest Expense $328B.
Further spending cuts will be needed, including adjustments to both Social Security and Medicare, but the foregoing would represent a solid start on the fiscal problem.
http://www.s-a-f-e.org/contacting_legislators_2011.htm#082211
Other input – Money has been described as “the mother’s milk of politics.” Predictably, given the power entrusted to it, the JC has been deluged with requests and suggestions. Among those heard from: top political leaders, commentators, advocacy groups across the liberal/conservative spectrum, and hordes of lobbyists.
There has been lots of buzz about tax changes, with less discussion about how to reduce spending. Indeed, the president is pushing a stimulus package (aka the American Jobs Act) that would increase the 2012 deficit in hopes of jumpstarting the economy.
In theory, the president’s $4.4T deficit reduction plan is nearly three times bigger than the target assigned to the JC. However, (A) the $1.1T in war savings is essentially fictitious, and (B) the $1.2T in discretional spending cuts was already mandated by the Budget Control Act. The new elements in the plan are (1) $1.6T in permanent tax increases for the well to do and corporations, and (2) about $150B in net spending cuts ($600B over 10 years minus the $450B cost of the American Jobs Plan). “Happytalk” revisited and what to do about it, 9/26/11.
Congressional Republicans question the need for economic stimulus and reject the proposed tax increases. They support a tax overhaul, which would eliminate tax preferences and lower rates. It is reasoned that lower marginal rates would boost the economy, thereby increasing revenue over time. Boehner offers a jobs plan of his own, Susan Ferrechio, Washington Examiner, 9/16/11.
Boehner called for the newly appointed congressional debt-reduction committee to reform the tax code by closing loopholes that favor certain groups while lowering overall tax rates for individuals and corporations.
Phased-in changes to Medicare and Medicaid were built into the FY 2012 budget resolution passed by the GOP-controlled House in April, but the Democrat-controlled Senate rejected the House budget without offering a counterproposal. FY 2012 will begin with a continuing resolution that maintains current spending levels through November 18, thereby kicking the can down the road a bit.
If there are plans to push for acceptance of the House budget, or components thereof, we do not know about them. Speaker Boehner raised the subject in his Sept. 15 speech to the Economics Club of Washington, D.C., but only in a general way. Transcript.
Most of the entitlement reforms in the House GOP budget are phased in over time. And that’s the way the Joint Committee should do them as well. *** The United States Senate needs to act, too. The Senate cannot continue to sit idle on jobs and the budget.
Speaker Boehner’s lack of specificity about entitlements is no surprise; frank talk about the need to cut specific programs is unusual inside the Beltway because no one wants to be labeled as an extremist or killjoy. Washington’s budget theater, Steve Chapman, Townhall.com, 7/31/11.
Everyone is talking about cutting the overall budget, without actually doing it. Our leaders are not even saying exactly which programs will be trimmed. Neither party wants to reveal which constituents will lose their spots at the federal trough. The publicized changes are mere promises to reduce projected spending -- by some formula that we don't know, because it has yet to be determined. For that matter, there is no guarantee the cuts will ever happen.
Here is another example of spending cut apathy. In March, the Government Accountability Office (GAO) issued a report identifying “hundreds” of duplicative and overlapping government programs. List of selected federal programs that have similar or overlapping objectives, provide similar services, or are fragmented across government missions, GAO, 3/18/11.
One might expect such a report to galvanize would-be deficit hawks into action – and several statements along these lines were made – but nothing constructive has happened. Senate appropriators’ secret war against oversight, Senator Tom Coburn (R-OK), Washington Examiner, 9/28/11.
Seven months ago, the non-partisan Government Accountability Office released a landmark report identifying at least $200 billion in wasteful, duplicative, and fraudulent government programs. *** Yet, in the last seven months, Congress has failed to send a single cut identified by GAO to the president’s desk. Even worse, instead of cutting the spending identified by GAO, the Senate Appropriations Committee is now proposing to slash funding for GAO itself.
Then there was the dispute over whether offsets should be required for disaster relief funds, with Senate Democrats apparently willing to go to the mat over $1.6B in “green” energy subsidies. We reported on this then developing “crisis” last week.
As it turned out, the Federal Emergency Management Agency had enough unspent appropriations to cover disaster relief payments through September 30, and Congress will apparently (House action will be required this week) pass the aforementioned continuing resolution to keep the government (including FEMA) going until mid-November. Senate reaches deal to avert government shutdown, Jennifer Steinhauer, New York Times, 9/27/11.
On balance, with the exception of our own comments (everyone tends to believe their ideas are right and we are no exception), it is hard to say much for the advice that the JC seems to be getting.
JC activity – There have been three public sessions to date: (A) Sept. 8 – Each member gave opening statements and the previously negotiated rules for the JC were adopted. (B) Sept. 13 – Congressional Budget Office Director Douglas Elmendorf testified about the fiscal problem. (C) Sept. 22 – Thomas Barthold, chief of staff for the Joint Committee of Taxation, testified about tax “reform.” Videos of each session are available.
http://deficitreduction.senate.gov/public/
Now what? The publicly displayed calendar shows no further meetings scheduled. It does not even indicate the November 23 deadline for JC action.
At least two private meetings have taken place to date, and perhaps the JC will have more of them. Supercommittee “made progress” in second closed-door meeting, co-chairs say, Felicia Sonmez, Washington Post, 9/20/11.
Addressing reporters after the 2 1/2 - hour meeting, the panel’s co-chairs, Sen. Patty Murray (D-Wash.) and Rep. Jeb Hensarling (R-Tex.), said only that the 12-member group was making progress.
Despite our “be open” suggestion, there are advantages in permitting negotiators to meet in private – with greater flexibility to say what they want without risking scorn or retribution. After all, the US Constitution was drafted in secret sessions; why not take the same tack for a deficit reduction deal?
But inquiring minds will want to know what is going on behind closed doors, and excessive secrecy can impede buy-in for a deal when it is announced. Debt panel trade-off: exposure vs. efficiency, Stephen Dinan, Washington Times, 8/23/11.
Viewing the first two public sessions (9/8 and (9/13), we were not sure what was going on. Everyone seemed on their best behavior; there were no brush-off responses or personal zingers. The members demonstrated familiarity with the issues. It was agreed that the fiscal problem is serious, and that a decisive response is needed. And yet –
There seemed to be no sense of urgency. The action reminded us of an “organizational effectiveness” exercise – spelling doesn’t count, every opinion has equal value, everyone should have an equal opportunity to speak – rather than a serious problem-solving meeting.
The September 22 meeting ran longer than the other two meetings put together, nearly 4 hours without a break. Although the proceedings were tedious, we found them somewhat revealing. Here is a link to the video (only the truly dedicated will want to watch it). Our observations follow (times, where indicated, are approximate).
http://www.c-spanvideo.org/program/CodeOv
10:05 a.m. - Rep. Jeb Hensarling (R-TX) calls the meeting to order. Today’s subject is tax “reform,” with the chief of staff for the Joint Committee on Taxation on tap. Thomas Barthold’s testimony will be in two segments, business taxes and individual taxes.
There will be opening statements from the members, and rounds of questions after each segment – plenty of opportunity for everyone to have their say.
10:10 a.m. - Rep. Hensarling suggests the JC should focus on reforming entitlements, not raising taxes which could tank the economy. But if we were able to promote some tax reform too, he adds, that would create jobs and boost tax revenues.
10:15 a.m. – Senator Patty Murray (D-WA) says Americans are tired of the political bickering; they want to know how we propose to improve their lives. Spending cuts alone will not put Americans back to work. We need to do the hard work of facing the issues honestly and negotiating a balanced approach.
The members interact in a dignified fashion, despite obvious differences of opinion, and their questions and comments reveal a surprisingly (to us) good knowledge of the tax code. If their efforts fail, it will not be for lack of preparation or talent.
There is considerable talk about a general tax overhaul to eliminate tax preferences while cutting tax rates, as has been advocated by congressional Republicans.
The witness agrees a tax overhaul that lowered marginal tax rates should have positive economic effects, and that the resulting economic recovery might boost tax revenues. However, only actual tax increases (whether from elimination of preferences or rate increases) would be “scored” as revenue increases by the Congressional Budget Office.
11:10 a.m. - Senator Rob Portman (R-OH) speaks of “smart tax reform” as a potential “sweet spot” for the JC. For example, slash corporate income tax rates and impose a value added tax. After all, economists like the idea of taxing consumption – don’t they? He presses the witness on the feasibility of changing the rules so that the CBO could give credit for assumed positive effects on the economy.
11:16 a.m. - Rep. James Clyburn (D-SC) says comparisons of the US corporate tax rate to tax rates elsewhere is meaningless because all the other countries have value added taxes and the US does not. Why couldn’t the US have a VAT too?
The idea of crafting a comprehensive tax overhaul is beginning to sound like a major undertaking. Several members suggest there will not be enough time before November 23 to do the job right.
12:07 p.m. – Given the time problem, says Rep. Fred Upton (R-MI), perhaps the JC should advocate tax reform and propose a follow-up effort of some sort.
1:20 p.m. - Sen. Patty Murray (D-WA) suggests the JC should develop a list of tax preferences meeting the “spending by another name” criterion and recommend that they be axed instead of waiting for overall tax overhaul. She references an intense discussion (presumably at one of the private meetings) of spending “earmarks.” (Co-Chair Murray is a tough, shrewd operator. She has periodically communicated her impatience with the leisurely pace at which the JC is moving.)
1:45 p.m. – Rep. Chris Van Hollen (D-MD) is the final speaker. He observes that the double taxation of corporate earnings does not apply to partnerships, Subchapter S Corporations, etc. The meeting is then adjourned.
The foregoing is a highly selective representation of a long discussion, but it may help to convey the essence of what took place. Rather than focusing on spending cuts, which are only popular in the abstract, the JC members are looking for an easy out.
Is our conclusion a bit harsh? Maybe, although the habits and ideas that we observed are shared by many people in the government class. Does it apply to all the JC members? No. But here is its basis, see what you think.
1. Judging from the public record, the JC has spent more time discussing taxes than spending thus far. The panel will ultimately act on the problems that it studies.
2. In theory, a comprehensive overhaul of the tax system could help fuel economic recovery. Hammering out the details would take more time than has been allotted to the JC, however, and the benefits of such an overhaul would not count as confirmed “savings” for purposes of the $1.5T deficit reduction goal.
3. Any concrete action by the JC in the tax area will probably take the form of ad hoc elimination of tax preferences or rate increases, either or both of which would count as “savings.” The tax increases involved might have adverse economic effects, but such effects would not be reflected in the CBO scoring.
4. We observed a similar outbreak of wishful thinking during a session of the Fiscal Commission last year, and concluded after a detailed review that the commissioners were off track. Sorry, but there are no “painless” ways to raise taxes, 8/9/10.
So if the Fiscal Commission recommends a raft of tax increases – labeling them as necessary, but claiming they will somehow make the U.S. economy stronger (“take this, it will make you better”) – our advice is to review the details very carefully. It could just be a plan to keep the spending party going a little longer.
5. If Co-Chair Murray’s reference to an intense discussion of “earmarks” is descriptive of what has been going on behind the scenes, then even when the JC has discussed spending it has not explored the type of targeted spending cuts we think are needed to make a real difference.
Finally, as though to confirm our analysis, we have just become aware of rumors that the JC members are split on spending cuts versus tax increases. Imagine that! Democrats push tax hikes first in deficit talks, Reuters, 10/1/11.
The tough stance by Democratic members of the powerful 12-member congressional panel reflects the party's wariness that Republicans might try to sideline the issue of revenue increases in the negotiations.
"They've raised the idea of doing taxes first," a Republican aide involved in the discussions said on Friday on condition of anonymity.
OK, where should things go from here, and what can SAFE do to help?
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Compromising to get things done re the fiscal crisis is not the answer. The only thing that could come out of that would be less socialism. We don't want ANY socialism. It is killing Europe and will surely kill us as well. We don't need Democrats or Republicans per se, we need conservatives. – SAFE member in PA
9/26/11 – “Happytalk” revisited and what to do about it Read a Reply
Some readers may recall an entry deploring one-sided political rhetoric, which at the time seemed well nigh unstoppable. “Happytalk” blossoms in the nation’s capital, 7/6/09.
A huge government program is proposed to deal with a problem (whether current or forecast). The purported benefits are touted relentlessly, without discussion of drawbacks or costs. There is such a rush to enact legislation that members of Congress may not have time or inclination to read the final bill before voting. And anyone who complains runs the risk of being labeled a diehard extremist.
Our suggested response to such pitches (don’t worry, there is a new sheriff in town – this proposal will take care of the problem – take XYZ action now) was healthy skepticism.
We are not buying the Happytalk about economic stimulus, healthcare, or energy policy. Shame on the proponents; they should present their proposals honestly and be open to other viewpoints – including the dictates of fiscal responsibility. Help us hold them to a higher standard!
Two years later, public sentiment has shifted on these issues – as demonstrated by the 2010 mid-term election results. But divided government has not led to more constructive engagement, and the tone of political discourse seems more strident than ever.
Now there is a lot of Scarytalk about jobs and deficit reduction (do worry and it’s the other side’s fault – these proposals will take care of the problem – take XYZ action now). If the pitch sounds familiar, it should, and healthy skepticism remains advisable – plus positive alternatives (of which SAFE has offered several).
2009 UPDATE – Our first example in the Happytalk entry was the $787B economic stimulus bill enacted in February 2009. Despite its hefty cost, this bill failed to prevent the US unemployment rate from rising to over 9% and staying there. Those who favor another jolt of stimulus in 2012 seem out of touch with reality. Desperate Democrats jump the stimulus shark, Washington Examiner, 6/23/11.
That Democrats now demand yet another stimulus program, plus tax increases, is a Hail-Mary reprise of a failed policy. All they can think of is more spending, more tax increases, more federal bureaucracy.
Example two was a proposal to provide healthcare insurance coverage for tens of millions of Americans, supposedly without cost or inconvenience for those already insured. This “something for nothing” claim was never credible, and disillusion set in after GovCare was rammed through Congress in early 2010. Many would support repealing this legislation before it goes on line in 2014. Rasmussen, 9/19/11.
Fifty-two percent (52%) of voters think the healthcare law will be bad for America. Thirty-four percent (34%) view the legislation as good for the country. Two percent (2%) feel it will have no impact, and 12% remain undecided about it.
The third proposal was a “cap and trade” bill in the name of combating global warming. It had squeaked through the House, in June 2009, but subsequently died in the Senate. The current legislative focus is whether the EPA’s efforts to curb carbon emission by regulation should be blocked. House is moving forward on American energy solutions, Rep. Fred Upton, Washington Examiner, 9/21/11.
The Energy Tax Prevention Act will prohibit the Environmental Protection Agency from imposing a cap-and-trade-style national energy tax under the Clean Air Act. With as many as 1.4 million jobs by 2014 estimated to be at risk under a new greenhouse gas regulatory regime, the Energy Tax Prevention Act is essential to protect our economy from massive job losses and the higher energy costs that would accompany these costly new rules.
THE RECKONING – As a result of the economic slowdown, the 2009 stimulus bill, and a general failure to rein in government spending, the fiscal problem – which was already serious – has gotten steadily worse.
Some observers blame trillion dollar deficits and skyrocketing debt on the previous president, but this claim is growing threadbare. SAFE letter, [Wilmington, DE] News Journal, 8/25/11.
SAFE advocates bringing the deficits down and balancing the federal budget within 4 or 5 years. Never mind the 10-year plan; cut spending now, 5/30/11.
One SAFE director, a former pilot who has flown military aircraft all over the world, suggested an analogy for the current situation. Imagine we are flying in a C-133, and three of the four engines have conked out.
If the last engine dies, the plane will crash and burn. Or the pilot can attempt to bring it down in a controlled fashion, which would probably be the best course of action.
SAFE to Congress: This is not a drill; it is the real deal. Mayday, Mayday . . .
But with the president and his party pushing for temporary tax cuts and spending increases, ostensibly to fight the continuing economic slump, it will be difficult to start cutting deficits. What’s more, the political window of opportunity will soon slam shut until after the 2012 elections.
Inaction might be tolerable if money had to be appropriated before being spent, but remember that “mandatory” spending (roughly 2/3 of the federal budget) is on autopilot. Also, there will be huge tax increases in 2013 unless “temporary” reductions in tax rates are extended or made permanent.
We have previously reported on a series of budget battles – the skirmish over FY 2011 spending, the debt limit showdown, the organization of the Joint Select Committee on Deficit Reduction, and the president’s jobs proposal (economic stimulus by another name). Last week, two more pieces of the puzzle were in play.
ROSE GARDEN – The time is 10:56 a.m. Viewers see some well-dressed people (from the back) standing until the president tells them to “please have a seat.” Everyone quickly sits down. The president proceeds to speak for 20 minutes, with the only evidence of audience reaction being muffled laughter at two lines: (1) a gibe directed at House Speaker John Boehner, and (2) “This is not class warfare. It’s math.” The “thank you very much” conclusion is followed by dutiful applause. Preparing to depart, the president loftily waves in acknowledgment. White House, transcript and video, 9/19/11.
The president’s remarks associated (A) the debt reduction deal (roughly $1T in across-the-board cuts in discretionary spending over 10 years plus the Joint Committee mission to find additional deficit reductions), (B) his American Jobs Act ($450B in economic stimulus for 2012), and (C) his suggestions on how to pay for the AJA (by tax increases in ensuing years), with (D) the deficit reduction plan he was now announcing.
Many elements of the speech marked the president’s plan as a sales pitch rather than a serious proposal. Let’s have a look (speech extracts in red; comments in black).
It’s a plan that reduces our debt by more than $4 trillion, and achieves these savings in a way that is fair -- by asking everybody to do their part so that no one has to bear too much of the burden on their own.
The supporting memorandum from the Office of Management and Budget indicates $4.4 trillion in deficit reduction, but residual deficits of about half a trillion dollars a year would continue throughout the 10-year projection period. The basis for the debt reduction claim: public debt as a % of Gross Domestic Product is shown (based on economic assumptions that may be overly optimistic) declining modestly after FY 2013. Living Within Our Means and Investing in the Future: The President’s Plan for Economic Growth and Deficit Reduction, OMB, 9/19/11, Table S-1.
http://www.whitehouse.gov/omb/ (download PDF).
Now, as I said before, Congress should pass this bill knowing that every proposal is fully paid for. The American Jobs Act will not add to our nation’s debt.
As the proposed payment would take the form of future tax increases, such a statement defies logic.
During this past decade, profligate spending in Washington, tax cuts for multi-millionaires and billionaires, the cost of two wars, and the recession turned a record surplus into a yawning deficit, and that left us with a big pile of IOUs.
The Bush Tax cuts benefit many people besides “multi-millionaires and billionaires;” roughly 3/4 of the benefits accrue to middle class taxpayers. Obama makes last-ditch push for agenda, Julie Mason, Washington Examiner, 11/25/10.
The White House believes it has deficit hawk Republicans boxed in on tax cuts with the argument that extending the tax break for the rich would cost $700 billion. The Treasury Department estimates that making all tax cuts permanent would cost $3.7 trillion over 10 years.
All told, this plan cuts $2 in spending for every dollar in new revenues.
Among other things, the referenced spending cuts include (A) $1.2T reduction from discretionary spending caps imposed by the Budget Control Act, (B) $1.1T savings from winding down the wars in Iraq and Afghanistan versus continuing them indefinitely, and (C) $0.6T in imputed interest. Only $0.6T in new spending cuts are proposed, which over 10 years works out to about $60B per year.
We would omit the war savings pickup + associated interest, which is largely fictitious as no one had any intention of keeping the two wars in question much longer anyway, and allocate the other interest savings between spending cuts and tax increases. On our basis, the ratio of spending cuts to tax increases would be about 1:1. OMB report, Table S-1.
|
|
BCA caps |
American Jobs Act |
Healthcare |
Other mandatory spending |
increases |
Interest expense |
Total
|
|
Spending cuts |
992 |
(200) |
320 |
257 |
0 |
260 |
1629 |
|
Tax increases |
0 |
(247) |
0 |
0 |
1573 |
252 |
1578 |
|
Deficit reduction |
992 |
(447) |
320 |
257 |
1573 |
512 |
3207 |
Finally, this plan includes structural reforms to reduce the cost of healthcare in programs like Medicare and Medicaid. *** [It] reduces wasteful subsidies and erroneous payments while changing some incentives that often lead to excessive healthcare costs. It makes prescriptions more affordable through faster approval of generic drugs. We’ll work with governors to make Medicaid more efficient and more accountable. And we’ll change the way we pay for healthcare. Instead of just paying for procedures, providers will be paid more when they improve results -- and such steps will save money and improve care.
The proposed 10-year, $320B reduction in healthcare outlays would be achieved primarily by reducing payments to healthcare providers. The biggest single savings ($135B) would be from cutting Medicare payments for pharmaceuticals to the Medicaid standards. OMB report, Table S-5.
In the context of huge and rapidly rising government outlays for healthcare, the proposed changes do not loom very large. Furthermore, top-down limits on Medicare, Medicaid, etc. outlays would inevitably morph into healthcare rationing. So while there is still time, we think the country needs to change direction and implement real healthcare reform. Here’s our plan.
http://www.s-a-f-e.org/healthcare_reform.htm
[The president quotes House Speaker John Boehner that] there is “only one option.” And that option and only option relies entirely on cuts. That means slashing education, surrendering the research necessary to keep America’s technological edge in the 21st century, and allowing our critical public assets like highways and bridges and airports to get worse. It would cripple our competiveness and our ability to win the jobs of the future. And it would also mean asking sacrifice of seniors and the middle class and the poor, while asking nothing of the wealthiest Americans and biggest corporations.
This mischaracterizes Boehner’s 9/15/11 speech to the Economic Club of Washington, D.C. Basically, Boehner said the best way to promote economic recovery would be to restore business confidence. He advocated reining in government regulators. He rejected the idea of hiking tax rates, but supported tax reform, possibly under the aegis of the Deficit Reduction Committee, via eliminating tax preferences and lowering tax rates. Boehner offers a job plan of his own, Susan Ferrechio, Washington Examiner, 9/15/11.
. . . I am eager, to work with Democrats and Republicans to reform the tax code to make it simpler, make it fairer, and make America more competitive. But any reform plan will have to raise revenue to help close our deficit. That has to be part of the formula.
The president’s ideas for raising revenue boil down to raising tax rates or eliminating “loopholes” for high bracket taxpayers and corporations. Nowhere in the speech did he concede that such changes might prolong the economic slump, although this is a distinct possibility. Obama’s bizarre tax attack, Larry Kudlow, Townhall.com, 9/21/11.
Reagan was branded a class warrior for the Kemp-Roth tax cuts, and he was overwhelmingly reelected. Why? Because low tax rates reignited economic growth and job-creation. Today, the president’s militant tax-hike threats, along with Obamacare and unmanageable regulatory costs, are holding back job-creators.
And any reform should follow another simple principle: Middle-class families shouldn’t pay higher taxes than millionaires and billionaires. That’s pretty straightforward. It’s hard to argue against that. Warren Buffett’s secretary shouldn’t pay a higher tax rate than Warren Buffett. There is no justification for it.
This dog will not hunt. Almost all of Buffet’s cash income comes in the form of dividends and capital gains, and the business entities involved (assuming they are C corporations) also pay tax at the corporate level. On a rolled-up basis, the tax on Buffet’s income is almost certainly higher than that of his secretary’s. Also, the secretary’s salary is tax deductible to the payer, whereas Buffet’s investment income is not.
A proper objective would be to eliminate the double taxation of corporate earnings, as SAFE has recommended, not create a new version of the ill-fated Alternative Minimum Tax. This sort of tinkering for political purposes has made a mess of the US tax system, and we need to put a stop to it. SimpleTax proposal, November 2010.
To prevent duplicative taxation of corporate earnings, we recommend that dividends from standard corporations, and capital gains from investments in their stock, be excluded from the taxable income of shareholders. Income of “pass through” entities (S corporations and partnerships), and capital gains from investments in such entities, would remain subject to individual income tax.
http://www.s-a-f-e.org/the_simple_tax.htm
#Either we ask the wealthiest Americans to pay their fair share in taxes, or we’re going to have to ask seniors to pay more for Medicare. We can’t afford to do both.
#Either we gut education and medical research, or we’ve got to reform the tax code so that the most profitable corporations have to give up tax loopholes that other companies don’t get. We can’t afford to do both.
#And I will veto any bill that changes benefits for those who rely on Medicare but does not raise serious revenues by asking the wealthiest Americans or biggest corporations to pay their fair share.
Posing such either/or choices may be effective from a rhetorical standpoint, but many other choices are possible. Thus, none of the foregoing options made the debt reduction menu SAFE proposed for the Debt Reduction Committee, with the arguable exception of a $500B, 10-year cut in federal spending on education that would actually improve results. A list of targeted spending cuts, 8/22/11.
State school systems are administratively top heavy as it is, and a federal overlay is not needed. If there is to be a federal Department of Education, its functions should be limited to maintaining a data bank of best educational practices at the state and local level, sponsoring national and international educational contests, and the like.
CAPITOL HILL – One might think the big story would be that Congress is once again about to start a fiscal year without having put a budget in place, a mistake we have been warning about for some time. SAFE letter to Delaware members of Congress, 9/6/11.
In our opinion, Congress should reverse course on spending (cut vs. increase), taxes (overhaul vs. tinker), and regulations (rein in overly zealous regulators like the EPA). As a first step, why not establish a budget before the fiscal year 2012 begins on October 1st? Running a roundly $4 trillion-per year operation on continuing resolutions represents the height of irresponsibility.
But no, the big story is a fight about funds for disaster relief (which both parties support in principle) and the extent, if any, to which the outlays should be offset by spending cuts in other areas.
The issue was teed up several weeks ago, with liberal pundits pummeling fiscal conservatives as heartless for their suggestion that disaster relief might need to be paid for. Leveraging a hurricane, Wall Street Journal, 9/3/11.
This week the left-wing press has been attacking House Majority Leader Eric Cantor for holding disaster relief funding "hostage." A more accurate way to put this is that Senate Democrats won't approve new funding for disasters unless they get the funding they want for corporations that make electric cars.
Matters have since progressed to the point where the possibility of a “government shutdown” is front-page news.
Around 1:00 a.m. on Friday, Sept. 23, the House passed (219-203) a “continuing resolution to keep the government going after October 1 (until November 18). But the dueling sound bites were not about the Senate’s failure to propose a budget for FY 2012, they were about disaster relief (the resolution authorized $3.65B through 11/18; Senate Democrats had proposed $7B) and the extent (if any) to which it would be offset by spending cuts (the resolution cut “green energy” subsidies by $1.6B). House passes stopgap spending bill, Sean Lengell, Washington Times, 9/23/11.
#House Appropriations Chairman Harold Rogers (R-KY): “This [bill] lives up to the Republican commitment to responsible and reduced levels of spending, and helps right our fiscal ship while still supporting essential government programs and services.”
#House Minority Leader Nancy Pelosi (D-CA): “Assistance at a time of a natural disaster should not be a controversial issue. *** We’re not going to balance the budget on the backs of people who have already been hit by a disaster.”
#House Speaker John Boehner (R-OH), urged the Senate to quickly pass the bill “so we can send it to the president and keep our focus on the American people’s top priority: jobs.”
Before the House vote, Senate Majority Leader Harry Reid (D-NV) had already drawn a line in the sand. House approves stopgap funding but Reid says Senate will block measure, Russell Berman, The Hill, 9/23/11.
The bill the House will vote on tonight is not an honest effort at compromise. It fails to provide the relief that our fellow Americans need as they struggle to rebuild their lives in the wake of floods, wildfires and hurricanes, and it will be rejected by the Senate.
Hours later, the House measure was tabled (59-36), but Majority Leader Reid deferred a vote on an alternative measure (which would reportedly accept the House level of disaster relief with no spending offsets) until Monday – while House members left town with only an abbreviated session scheduled for the next week. The dueling sound bites flew back and forth. Senate blocks emergency disaster money, Sean Lengell & Stephen Dinan, Washington Times, 9/23/11.
#Majority Leader Harry Reid: “Cool off a little bit. Work this through. There’s a compromise here.”
#House Majority Leader Eric Cantor (R-VA): “Harry Reid is holding a bill up with full funding for what is needed right now for no reason — for no reason but for politics. This is why the people just don’t have the respect for this institution and this town anymore.”
#Senator Mary Landrieu (D-LA) said that offsets had never been required for emergency disaster funds. “That is not right. That’s what this debate is about.”
#Senate Minority Leader McConnell suggested the growing fiscal problem required a change in practice. “The American people won’t accept that excuse any longer.”
We could see a government shutdown until the Senate proposes a FY 2012 budget; at least the sanction would be in proportion to the problem. But a government shutdown over $1.6B in “green energy” subsidies would be ridiculous.
SAFE to Congress: Lighten up, compromise this issue, and move on. There are far more important issues to address.
NEXT WEEK – The members of the Joint Select Committee on Deficit Reduction have a unique ability to work across the House/Senate divide in a bitterly split Congress. If anyone can start chipping away at the fiscal problem, they are the ones. Tune in for an update on the JC proceedings and our assessment of the likely results.
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I hope they [the members of Congress] are watching the TV reports about the financial crisis in Greece, where the citizens are protesting the austerity measures and increased taxation -- AND calling for a drastic review of government expenditures, to be based on value-received criteria. Or so the reporter indicated. – former IBMer
9/19/11 – Elementary, my dear Holmes
There are 16 pieces in a chess game, which can only make certain moves, and 64 spaces on the board. Yet the number of possible combinations is staggering, e.g., over 288 billion positions after only four moves apiece. Chess-poster.com.
The complexity of life on this planet, with billions of players, etc., is far greater. No wonder that humans make decisions based on limited information and using simplistic rules of thumb; doing otherwise would result in “analysis paralysis.” But such shortcuts have two notable drawbacks: (1) many suboptimal decisions are made, and (2) even if the parties in a shared decision agree on the facts, their use of different rules of thumb may lead to disagreement and gridlock.
Thus, the deliberations of the Joint Select Committee on Deficit Reduction (“JC”) figure to be tortuous, which leads us to speculate about an alternative approach. The results of asking Watson might be about the same as those from current methods, and the computer program could generate them a lot faster.
Here is the plan of attack for this entry: update our coverage of the deficit reduction negotiations; evaluate the process in use; and discuss how Watson might be able to help.
UPDATE: A debate is underway about whether to stimulate the economy in the name of creating jobs or start tackling the fiscal problem. Last week we covered, among other things, the first meeting of the JC on September 8 and the jobs plan that the president pitched to a joint session of Congress that evening. A tempting offer: spend now, pay later, 9/12/11.
A constructive outcome seemed dubious then, and subsequent developments have reinforced our skepticism.
#The president sent the American Jobs Act to Congress on September 12. This package includes details as to how the proposed one-year, $450B stimulus package would be “paid for.” The basic thrust would be to raise taxes on the prosperous over the next 10 years, e.g., by attacking their deductions of mortgage interest, state & local taxes, and charitable contributions. Obama’s latest tax proposal, Washington Times, 9/13/11.
It is hard to keep track of all the things the president has said about his jobs plan, but the hard sell is clearly on. Obama declares “national emergency” for acting on his jobs plan, Carrie Brown, Politico.com, 9/14/11.
We’re in a national emergency. We’ve been grappling with a crisis for three years, and instead of getting folks to rise up above partisanship in a spirit that says we’re all in this together, we got folks [congressional Republicans] who are purposely dividing, purposely thinking just in terms of how does this play out just in terms of this election.
There will also be a proposal for $2T in deficit reduction (over and above cuts mandated by the debt limit deal), which is scheduled to be published today. As of late last week, the White House was reportedly considering “higher premiums for the wealthiest Medicare recipients and [more] reductions in reimbursement rates for doctors.” Obama decides against Social Security cuts, Brian Hughes, Washington Examiner, 9/16/11.
Congressional Republicans may accept some of the president’s proposals, but they are not about to go along with the bulk of them. In a September 15 speech to the Economics Club of Washington, D.C., House Speaker John Boehner rejected the temporary tax cuts/ permanent tax increases that have been proposed in favor of a tax system overhaul to be taken up by the JC. He also advocated support for increased energy production in the United States and rollbacks of other regulations that are contributing to business uncertainty. Boehner offers a jobs plan of his own, Susan Ferrechio, Washington Examiner, 9/16/11.
Let's be honest with ourselves, the president's proposals are a poor substitute for the pro-growth policies that are needed to remove barriers to job creation in America.
It remains to be seen how the president’s proposals (and the Republican counterproposals for that matter) will influence the deliberations of the JC, but we suspect they will serve to deepen the partisan divide on the committee rather than facilitating a solution.
Consider Co-Chair Jeb Hensarling’s reaction to the president’s plan. On jobs bill, White House bets on Boehner’s support, Carrie Brown & Jake Sherman, Politico.com, 9/13/11.
I don’t know how one could assert that you could promote job growth by simultaneously giving job creators a one-year temporary tax relief coupled with permanent tax increases. I don’t understand the logic, and I have found no historic example to indicate that would promote job growth in any way, shape or form.
#The JC met for the second time on September 13, this time in a Senate meeting room with Co-Chair Patty Murray presiding. The main order of business was to hear from Congressional Budget Office Director Douglas Elmendorf on “The history and drivers of our nation’s debt and its threats.”
The session ran about 2 hours and 40 minutes. There were three rounds of comments from the 12 members: statements before the witness was introduced – questions of the witness (often statements rather than questions) – and closing comments.
Dr. Elmendorf’s statement had been distributed in advance, and the members seemed familiar with its contents. His oral presentation hit the highlights, some of which seemed rather obvious. For example, there are basically three ways for Congress to reduce the deficits that are projected: cut discretionary spending, restructure entitlements, or raise taxes. As a matter of arithmetic, the deficit reduction goal could be met by pulling only one of the levers, but in that case the changes in the area selected for attention would likely be bigger than if two or three levers were pulled.
During the Q&A that followed, the witness repeatedly resisted invitations to favor any particular approach (e.g., spending cuts vs. tax increases). It was not CBO’s role to recommend policy choices, he said, as opposed to estimating the economic and fiscal effects of proposals suggested by the JC members.
Either spending cuts or tax increases might slow the economic recovery in the short term, it was said, while spending increases or tax cuts might stimulate the economy. And without getting into specifics, some spending increases or tax cuts might conceivably work better than others.
Elmendorf agreed with several questioners that the fiscal situation has deteriorated since the Clinton Administration. He also agreed that the currently low percentage of revenues to GDP (about 15%) is primarily a function of the weak economy rather than, say, the Bush tax cuts in 2001 and 2003.
PROCESS CHECK: The JC meeting on September 13 seemed like a re-run, and no wonder. A very similar session with Dr. Elmendorf took place a year ago. Fiscal Commission update: lots of input, little progress, 7/5/10.
The CBO presentation was well done, but it conveyed little new information. *** Commission members repeatedly brought up elements of Elmendorf’s testimony that supported their own views.
Very little was said about targeted spending cuts, with the possible exception of fraud & waste and the US military. There was at least as much talk about changing the tax system as about cutting spending or restructuring entitlements.
After the session, we posted two comments on the JC’s recently established Website.
1. The JC does not have sufficient time to consider a thorough overall of the US tax system, and many of the tax law changes under discussion would represent tinkering – which is what Congress has been doing with the tax system for years. Rather than continuing this unfortunate practice, it would be best to recommend that a comprehensive tax overhaul be undertaken soon.
2. There was little if any discussion of targeted spending cuts. Such cuts would represent the most effective and credible way to meet the JC’s deficit reduction quota. Here is a list of candidates that would save roundly $2T over the next 10 years: Medicaid $770B, Education $500B, Corporate Welfare $180B, Agricultural Subsidies $130B, Energy $60B, and resultant reduction in Interest Expense $328B. The particulars may be found in our 8/22 letter to JC members and references cited therein. http://bit.ly/on2sFD
Whether or not these comments will make a difference, it was easy (and satisfying) to submit them. Accordingly, dear readers, we would encourage you to contact the JC (which says “We want your input”) and offer your own deficit reduction suggestions.
Based on past experience and the tenor of the first two meetings, there is little hope that the JC members will agree on a solid deficit reduction plan. Indeed, this does not seem to be what they are aiming to do.
The real objective appears to be a solution that will achieve (at least in theory) the assigned deficit reduction goal with a minimum of political angst. And in that sense, the outcome of the JC negotiations may well be perceived as successful.
Even a political solution could prove elusive, however, particularly as the JC has only about seven weeks left to complete its work, have its proposals translated into legislative language, and secure the CBO stamp of approval.
Would that there was a better way to do things!
WATSON: As already stated, maybe there is. Probably too much prep time would be required for the JC to use IBM’s natural language processing system, but we can envision Watson or a sibling being used in future political negotiations.
On reading that Watson had beaten some human champions in a game of Jeopardy, we thought of Dr. John Watson, the colleague of Sherlock Holmes. However, the system was actually named after IBM founder Thomas J. Watson Sr. Behind-the-scenes, John Sutter, CNN Tech, 2/7/11.
Watson can input a trickily worded Jeopardy question, process millions of possibilities, and produce an answer in less than 3 seconds. The humans truly did not stand a chance. The science behind an answer, IBM, video (about 7 minutes, fascinating).
IBM has now entered into a contract with Wellpoint, a leading healthcare insurer. Watson will provide diagnoses and supporting reasons to human doctors, hopefully for the purpose of providing better service rather than denying treatment. IBM’s Watson computer to work in health[care] insurance, CBC News, 9/12/11.
The WellPoint application will combine data from three sources: a patient's chart and electronic records that a doctor or hospital has, the insurance company's history of medicines and treatments, and Watson's huge library of textbooks and medical journals.
IBM says the computer can then sift through it all and answer a question in moments, providing several possible diagnoses or treatments, ranked in order of the computer's confidence, along with the basis for its answer.
Could something similar be done in the political arena? Load Watson up with reams of information about the fiscal problem from various sources: the CBO and OMB data bases, academic tomes, related content from the Wall Street Journal and other leading periodicals, studies of the top think tanks, transcripts of prior proceedings, presidential speeches, and whatever else might be deemed relevant.
Then ask what the most politically palatable package of fiscal adjustments would be to reduce federal deficits by $1.5 trillion over the next 10 years.
Whirr, whiz, bang . . . the indicated answer is __________ because ___________.
And if such an application is not technically feasible just yet, we would be glad to have someone from SAFE stand behind a curtain and send in the answers.
9/12/11 – A tempting offer: spend now, pay later
With apologies to the People’s Court, this week’s entry might be summed up like this: “The problems are real, the proposed solutions political, and the prognosis uncertain.”
Which could help explain why so many Americans are losing faith in this country’s political leadership. Congress’s ratings hit new lows, 8/29/11.
Some political leaders think the answer is to do a better job of “educating” the public, but we believe the opposite is true. SAFE letter to Delaware members of Congress, 9/6/11.
In our opinion, Congress should reverse course on spending (cut vs. increase), taxes (overhaul vs. tinker), and regulations (rein in overly zealous regulators like the EPA). As a first step, why not establish a budget before the fiscal year 2012 begins on October 1st? Running a roundly $4 trillion-per year operation on continuing resolutions represents the height of irresponsibility.
Realistically, smaller, more focused, less costly government figures to be a tough sell. So if you agree with this agenda, dear readers, we could really use your help. Looking at things in a different way, 7/25/11.
Let’s not give up on the politicians who have been ignoring us, no matter how tempting this seems. They are people too, and some of them are trying to do the right thing. What’s more, if they hear from enough fiscal visionaries, it is always possible they will change their minds. One letter means little; twenty letters might give them pause; swamp the switchboards with calls and they will panic.
But first, some recent developments may illuminate the likeliest lines of attack. We will start with the problems (there are basically two of them), take a look at some proposed solutions, and offer a tentative prognosis.
PROBLEM ONE is a depressed economy, which to some observers suggests a need for government-provided economic stimulus or the equivalent.
The unemployment rate stands at 9.1% (and would be higher if people who have stopped looking for work were considered), with “zero” jobs created per the latest monthly report. Job growth, unemployment stall in August, Patrice Hill, Washington Times, 9/2/11.
The fall in job growth to zero from 85,000 in July, reported by the Labor Department Friday morning, represents the sharpest deceleration of job gains since the Great Recession, and was influenced by a strike of Verizon workers that subtracted nearly 50,000 jobs during the month. Reflecting the static jobs picture, the U.S. unemployment rate was unchanged at 9.1 percent, the department said.
Overall economic output is likewise growing anemically. GDP report shows economy even weaker than expected, Philip Klein, Washington Examiner, 7/29/11.
In another sign of economic weakness, the gross domestic product grew at a lower than expected 1.3 percent [annualized rate] during the second quarter, and the already weak first quarter number was revised downward to an anemic 0.4 percent, the Commerce Department reported today.
Going beyond recent headlines, some analysts point to ominous longer-term trends. Thus, Craig Steiner, a professed member of “the vast right-wing conspiracy now active in this country,” sees little if any progress in addressing the financial crisis that exploded on the national consciousness in the fall of 2008 by the president who was elected to fix it. Obama’s schizophrenic reality, Townhall.com, 9/7/11.
Our federal government is closer to bankruptcy, as are many of our states, counties, and cities. *** unemployment rate [has risen since] Obama was elected, and appears to be going higher [yet] *** millions of homes in or near foreclosure, [many] abandoned and falling into disrepair *** Obama's stimulus failed to create jobs. So did QE1. And QE2 [“quantitative easing” programs of the Federal Reserve] *** Even as Social Security enters deficit territory we've created a new unfunded entitlement with Obamacare.
Larry Kudlow, a usually upbeat financial pundit, fears the US economy may have “entered into a long-term economic decline.” A Reagan moment, Townhall.com, 9/3/11.
[O]ver the past 10 years, the U.S. has actually lost jobs on a net basis. In August 2001, non-farm payrolls calculated by the Bureau of Labor Statistics stood at 132 million. Through August 2011, payrolls stand at 131.1 million. *** Following the Bush tax cuts of 2003, 8 million new jobs were created. But in the aftermath of the financial meltdown, those jobs have disappeared. *** And through this whole period, our economy has barely grown at a sub-par 1.6 percent yearly rate for real gross domestic product *** [while] the government has grown fat [increasing its expenditures, funded in significant part with borrowed money].
Economic results have also been dicey elsewhere, notably in Europe, and the global financial markets appear increasingly unstable. Some experts fear a return of the market turmoil experienced in 2008, or even something worse. Global slowdown to hasten new financial crises, Moneynews.com, 9/6/11.
Three years after the collapse of Lehman Brothers Holdings Inc., financial shares in Europe are under assault and the cost of insuring bank debt is at records as the global recovery falters and the euro-region crisis weighs on the economy. There’s a 60 percent probability that most advanced economies will fall into a recession, while authorities are running out of options to provide emergency support, said [Nouriel] Roubini, also a professor at New York University’s Stern School of Business. ***“In the short term, we need to do massive stimulus, otherwise there’s going to be another Great Depression. Things are getting worse and the big difference between now and a few years ago is that this time around we’re running out of policy bullets.”
PROBLEM TWO is skyrocketing government spending and debt, which are threatening the government’s creditworthiness. No need to say much more; we recently reviewed this situation in detail. Who cut my credit rating? 8/1/11
If the US were any other country, their securities would merit a single A rating at best. Total US debt is too high, fiscal deficits are staggering, and the economic outlook is mediocre.
Only days after the 8/1/11 entry was posted, Standard & Poor’s cut the US credit rating to AA+ and placed Treasury securities on its “negative” watch list for a further downgrade.
Our reaction: what took them so long? The Administration seemed surprised, however, if not downright displeased.
The president spun the downgrade as a statement about political wrangling in Washington, not a financial judgment based on the merits. We will always be a AAA country, BarrackObama.com, 8/8/11.
“Markets will rise and fall, but this is the United States of America. No matter what some agency may say, we’ve always been and always will be a AAA country.
Treasury Secretary Tim Geithner claimed S&P had made a $2T mistake, although the issue was actually one of interpretation vs. math. Obama, Geithner have math problem, Bill Tatro, Townhall.com, 8/10/11.
There were reports of a Justice Department probe into S&P’s rating procedures, and the firm’s president left about a month later to pursue “new challenges.” Federal actions were not linked to the US downgrade decision, but who knows? S&P president Deven Sharma steps down, UK Telegraph, 9/8/11.
[Parent company McGraw Hill’s announcement about Sharma’s departure] did not refer to recent reports that the Justice Department was investigating whether S&P improperly rated dozens of mortgage securities in the years leading up to the financial crisis in 2008. Those reports sent McGraw-Hill's shares tumbling last week.
PROPOSED SOLUTIONS: The two problems we have described are overlapping. An economic slump has clearly deepened the fiscal problem, and arguably vice versa.
Let’s see how this works before reviewing some of the specific plans on offer.
As indicated earlier, a frequently proposed cure for a recession is economic “stimulus.” The stimulus can be delivered in the form of deficit spending, tax cuts, and/or expansive monetary policy, whatever it takes to put more money in people’s pockets, thereby encouraging consumers to spend and entrepreneurs to invest. If one attributes economic weakness to a loss of confidence, this idea sounds logical. And now a word from a job creator, Mike Whalen, Washington Times, 9/5/11.
As government money starts to ripple through the economy, consumers and businesses will be encouraged and cautiously respond with limited increases of their own. Vroom! The economic engine steadily revs up in billions of responsive steps until happy days are here again. This pump-priming reaction is termed the “multiplier effect.”
Suppose, however, that the real problem is restrictions on economic activities imposed by economic cartels and/or government agencies. Fighting fire with gasoline is not very effective. It might be better to remove the restrictions than to inject economic stimulus. The rise and decline of nations, Mancur Olson, Yale University Press (1982).
http://www.s-a-f-e.org/rise_and_decline.htm
Economic stimulus loses credibility, moreover, when the government is obviously nearing its financial limits. And now a word from a job creator, op cit.
. . . it appears as though everyone except Uncle Sam is working like mad to strengthen his balance sheets. The legitimate fear across the country is that Washington’s refusal to join our common-sense parade will result in higher taxes, more regulations, more inflation and Japanese-style stagflation. In other words, Washington’s attempts at stimulus through spending are having the opposite effect. Businesses and consumers stay hunkered down.
Bottom line, even if economic stimulus may be helpful to fight a recession under certain conditions, it is certainly no panacea. In the current situation, we believe there are much better ways to promote economic recovery and job creation.
Most Americans have heard the economic stimulus mantra repeated so often, however, that they hesitate to dismiss it as nonsense. And politicians have learned from experience that spending money and doling out favors wins more plaudits from their constituents than playing Scrooge.
Everyone knows that deficits and borrowing cannot keep growing at the current rate without disastrous consequences, of course, but such awareness does not necessarily result in corrective action. Many politicians try to have it both ways by advocating (1) economic stimulus now, and (2) a plan that will supposedly reduce the deficit (or even balance the budget) in years to come. See, e.g., Pair raising of debt limit with a long-term debt plan, Representative John Carney, [Wilmington, DE] News Journal, 5/26/11.
http://www.s-a-f-e.org/members_microblog_2011.htm
Politicians who want to start cutting spending and rescinding regulations right here, right now are not especially popular, and neither are their core supporters. Politics turns dangerously rougher, Tony Blankley, Townhall.com, 9/7/11.
In the last few weeks, leading Democrats in Congress have called Tea Party constituents terrorists, said they should go to hell and accused them of wanting to lynch black people. Last weekend, at an event attended by President Obama, the head of the Teamsters Union, Jimmy Hoffa Jr., attacked the Tea Party, screaming, "President Obama, this is your army. We are ready to march. Let's take these son of bitches (Tea Party members) out and give America back to an America where we belong." (Note: the president was not on the platform when Hoffa spoke.)
Keeping this background in mind, let’s now consider some solutions suggested at three important events that took place during the space of 24 hours.
GOP presidential candidates debate, Reagan Library, 8:00 PM (EST), 9/7/11 – Eight avowed candidates (Michele Bachman, Herman Cain, Newt Gingrich, Jon Huntsman, Ron Paul, Rick Perry, Mitt Romney, and Rick Santorum) were standing at their respective podiums, with Brian Williams (CNBC) and John Harris (Politico) peppering them with questions. One minute to respond, 30 seconds for rebuttal or follow-up at the discretion of the moderators, no opening or closing statements. The running time (including two breaks for commercials) was about 1-3/4 hours.
Despite many differences in other areas, the candidates agreed on two points. First, the current president has not been a good steward of the US economy or much of anything else. Second, more jobs must be created. (Whether due to their priorities or the questions asked, the candidates said considerably less about balancing the budget.)
If you were president, how would you propose to go about creating jobs? A frequent answer was personal qualifications, e.g., Romney and Cain referenced their private sector experience, while Perry and Huntsman pointed to their records as governors of two states that have weathered the economic slump better than most.
There were promises to repeal GovCare, roll back regulations, promote more domestic oil and gas production, hold down taxes, and pick someone other than Ben Bernanke when the Federal Reserve Chairman’s second term expires in 2014. If anyone proposed more economic stimulus, we missed it.
Romney referenced his economic plan, unveiled a day before the debate, which includes some 59 proposals and some rather bold (probably unrealistic) targets. Romney predicts 4% growth, 11.5M [more] jobs, Stephen Dinan Washington Times, 9/6/11.
We agree with some criticisms of Romney’s plan. He should have been more specific about how to cut spending to 20% of GDP; real choices are needed, not just procedural reforms. His tax proposals do not sound like the sort of comprehensive restructuring of the tax system that is needed. And the idea of imposing trade sanctions on China is unrealistic (as former ambassador to China, Jon Huntsman, suggested during the debate). Mitt Romney’s flawed economic plan, Washington Post, 9/7/11.
The former Massachusetts governor deserves credit, however, for putting his ideas on paper and making them available for review. Furthermore, his ideas are closer to the mark than the plan that has since been offered by the president (read on).
Kickoff meeting of Joint Select Committee on Deficit Reduction, 10:30 AM, House meeting room, 9/8/11 – Co-Chair Rep. Jeb Hensarling gaveled the Joint Committee (JC) meeting to order. (He and Co-Chair Sen. Patty Murray will alternate in presiding over the JC’s meetings.) The 12 members were seated behind a long, raised dais like judges on a court. The agenda was to (a) hear opening statements from each member, and (b) ratify the rules that had been agreed to.
In general, the session went smoothly. Reasonable sounding statements, suggesting a willingness to consider all points of view – cooperation with time constraints – pledges to put the interests of the country before political calculations, and to exceed the JC’s deficit reduction target ($1.5T over 10 years) if possible.
The sole exception was an eruption of shouting, which sounded like “jobs now, jobs now, jobs now,” in the hall outside the room. Whether by coincidence or otherwise, this outburst began during the statement of Rep. Dave Camp (R-MI). Hensarling suspended the proceedings for several minutes, and then asked staff members to shut the door so the meeting could resume (muffled shouting continued for several minutes). We would think building security could have dealt with the situation more quickly; hopefully, the demonstrators (whoever they were) will be prosecuted.
The JC meeting was not a debate, and it would serve little purpose to recap all the viewpoints expressed. Here are three points, however, that seem noteworthy.
#Several members noted that boosting economic growth could contribute to reducing the deficit. The Congressional Budget Office (CBO) has apparently suggested as a rule of thumb that a 0.1 percentage point increase in the 10-year economic growth rate would cut the 10-year deficit by $300M (which one member extrapolated to a one percentage point increase resulting in a $3T cut). Here is a potential rationale for the JC to get involved in attempting to solve the jobs problem, which might divert its attention from finding provable ways to reduce the deficit, e.g., spending cuts.
The CBO has traditionally declined to factor in the drag or stimulative effects of tax law changes. It would seem inconsistent to attribute stimulative effects to added spending. This point will bear watching as matters progress.
#Under the rules adopted by the JC, we understand that general meetings will be open to the public and the JC report will published before being voted on. However, there will also be some closed-door meetings. The approach described is consistent with SAFE’s “be open” recommendation, which was meant to provide the greatest practicable degree of transparency. (8/22/11 letter)
#The next meeting of the JC will take place tomorrow, September 13. There will be one witness, CBO Director Douglas Elmendorf, who will testify at length about his perspective on the fiscal problem.
For those who would like more details about the JC kickoff meeting, here is the C-Span videotape (1 hour, 2 minutes). The JC members spoke in the following order: Rep. Jeb Hensarling, Sen. Patty Murray, Sen. Rob Portman, Rep. Xavier Becerra, Rep. David Camp, Sen. Max Baucus, Sen. Patrick Toomey, Rep. James Clyburn, Rep. Fred Upton, Sen. John Kerry, Sen. Jon Kyl, and Rep. Chris Van Hollen.
Do not be misled by the show of civility. Many disagreements are simmering below the surface. Thus, shortly after this session, Senator Jon Kyl expressed his intention to resign from the JC if there is any move for defense cuts beyond those ($350B over 10 years) already mandated by the Budget Control Act of 2011. Congressional debt reduction [sic] panel kicks off work, David Espo, friends of US Chamber, 9/9/11.
"I'm off the committee if we're going to talk about further defense" cuts, Arizona Sen. Jon Kyl said he told panel members. Speaking at a defense forum [sponsored by several conservative groups], Kyl said the military "has given enough already, and any further hit would be inimical to our national security around the globe."
Presidential address to a joint session of Congress, 7:00 p.m., 9/8/11 – A great deal has been written about this speech, much of it unfavorable. See, e.g., The speech that broke the patience of the country? Hugh Hewitt, Townhall.com, 9/8/11.
His repetition of long-overused talking points combined with his repeated attacks on job creators and his incessant demand to “pass it right now” produced a mixture of arrogance and absurdity so transparently political that it lacked any capacity to cause political movement or to change anyone’s opinion on any issue.
Fair enough. The president displayed no interest in reaching out to political adversaries. His tone was blunt, overbearing, at times angry. Given his plan to take “the American Jobs Act” on the road (starting with an event in Richmond, VA the very next day), one might well regard this televised address as a campaign speech on the taxpayer’s dime.
The president’s plan was forcefully expressed, however, and the members of Congress will surely remember the main elements. So let’s forget style points and focus on the substance – with our comments shown in [brackets]. Speech transcript.
#“I am sending this Congress a plan that you should pass right
away. It’s called the American Jobs Act.”
[Based on a subsequent report, the AJA will be sent to Congress
on September 12.]
More jobs for construction workers – repair badly decaying roads and bridges all over this country – repair and modernize at least 35,000 schools – rehabilitate homes and businesses in communities hit hardest by foreclosures – no earmarks, no boondoggles, cut the red tape, set up an independent fund to attract private dollars and issue loans based on two criteria: how badly a construction project is needed and how much good it would do for the economy.
More jobs for teachers – thousands of teachers in every state will go back to work.
More jobs for veterans – companies will get extra tax credits if they hire America’s veterans.
More jobs for the long-term unemployed – companies will get a $4,000 tax credit if they hire anyone who has spent more than six months looking for a job.
Extend unemployment insurance for another year [query whether that will give the recipients an incentive to get back to work].
Tax cut for companies that hire new workers or raise workers’ wages – thousands of disadvantaged young people will have the hope and dignity of a summer job next year – low-income Americans will have more ladders out of poverty.
Cut payroll taxes in half for every working American by extending payroll tax reduction put into effect for 2011 – Would mean a $1,500 tax cut for the typical working family.
Cut payroll taxes in half for every small business.
[Overall, these proposals sound quite similar to the economic stimulus package enacted two years ago. The 2009 plan proved ineffective; why should anyone expect a similar plan to work now?]
#The basically one-year price tag (tax revenue foregone + added spending) would be roundly $450B. [This detail was not mentioned in the speech, but has been provided by the Administration.]
Not to worry, the bill will be paid in full and here is how. The July debt reduction agreement charges Congress with coming up with an additional $1.5 trillion in savings by Christmas – tonight I’m asking you to increase that amount to cover the full cost of the American Jobs Act – a week from Monday [i.e., on September 19], I’ll be releasing a more ambitious deficit plan that will not only cover the cost of this jobs bill, but stabilize our debt in the long run.
[With all due respect, the fiscal problem is more urgent than the president lets on. This country cannot afford “another drink for the road,” to be paid for over the next 10 years. It is time to start bringing down the deficit right now.]
Some hints about the forthcoming deficit [reduction?] plan – reform Medicare to strengthen it – raise taxes on “those who are most fortunate and can best afford it – reform corporate tax by lowering one of the highest corporate tax rates in the world and eliminating pages of loopholes and deductions (especially for oil companies) – give an advantage to companies that invest and create jobs in America.
[What about the need to repeal GovCare, block grant Medicaid, and restructure Social Security? Our proposals are spelled out on the SAFE Website.
As for tax changes, Congress should stop tinkering and overhaul the system. See SAFE’s SimpleTax proposal. http://bit.ly/etlOxX]
#And we must also act to improve US competitiveness over the long term, through both administrative and legislative action, so that “America will be number one again.”
Administrative action: pay small businesses that do business with the government faster – cut red tape that prevents too many rapidly-growing start-up companies from raising capital and going public – work with federal housing agencies to help more people refinance their mortgages at currently low interest rates – look for ways to work side-by-side with American businesses, e.g., in the Jobs Council that “I’ve brought together” – mobilize business leaders to train 10,000 American engineers a year by providing company internships and training – make sure our trading partners play by the rules.
Legislative action: Today you passed patent reform legislation, which will permit entrepreneurs to turn a new idea into a new business as quickly as possible. Now it is time to clear the way for the Panama, Colombia, and South Korea trade agreements by passing legislation to help workers whose jobs have been affected by global competition.
[The patent reform legislation sounds sensible from what we have read, although we are not sure how much the Administration had do with it. A three-year holdup in submitting the trade agreements for ratification seems inexcusable; let the proposed liberalization of worker retraining programs be considered on its own merits. The other ideas mentioned do not amount to much.]
# Finally, for those who sincerely believe the only solution to our economic challenges is to simply cut most government spending and eliminate most government regulations, here’s the deal.
I will continue to work with Congress to get rid of wasteful spending. And I agree that there are some rules and regulations that put an unnecessary burden on businesses at a time when they can least afford it. So far, we’ve identified over 500 reforms, which will save billions of dollars over the next few years.
But I reject the notion that we should ask people to choose between their jobs and their safety, or roll back protections that ban hidden fees on credit card companies, or discard rules that keep kids from being exposed to mercury, or prevent the health[care] insurance industry from shortchanging patients, or strip away collective bargaining rights.
[We find these arguments unpersuasive. The hit list of regulatory reforms is a drop in the proverbial bucket. No one is proposing to compromise worker safety, expose children to mercury, etc., but a balancing of risks and costs is definitely in order. And what, pray tell, is the basis for the reference to stripping away collective bargaining rights just because the NLRB has been justly criticized for hyperactivity?]
PROGNOSIS – We are not confident that Congress will adopt a budget on a timely basis, i.e., before Fiscal Year 2012 begins on October 1.
It is unclear whether the Joint Select Committee on Deficit Reduction will refrain from dabbling in extraneous matters, e.g., economic stimulus, and propose a deficit reduction plan that would actually work. A list of targeted spending cuts, 8/22/11.
The American Jobs Act is a spend now, pay later scheme. It does not deserve serious consideration. But the president has made a forceful pitch for it, and the House Republicans have expressed willingness to consider at least some of its elements. GOP wants Obama plan a la carte, Jonathan Allen, Politico.com, 9/10/11.
Perhaps the net result of all this activity will be positive, we certainly hope so, but don’t bet the ranch on it.
9/5/11 – Federal Family Flim Flam Read Replies
The week of August 22-28 brought two natural disasters in the eastern United States, an earthquake and Hurricane Irene. Not a good week, for sure, but did the media coverage and government reactions make things worse?
We say “no” for the earthquake, despite some question marks, but handling of the hurricane provides a textbook example of “what is wrong with big government.” Our reasoning follows. Your feedback would be appreciated as always.
EARTHQUAKE: A major earthquake by East Coast standards occurred on August 23. It was centered about 90 miles southwest of Washington, DC, and the shockwaves were felt from Florida to Maine. Magnitude 5.8 earthquake hits Virginia, Fox News, 8/23/11.
The quake lasted only a minute or two and many people did not immediately recognize its nature. See, e.g., the account of Senator Chris Coons of Delaware.
Having arrived at Union Station, Coons was on foot in a park facing the Capitol when he felt the tremor. “The ground around me shifted sharply several feet in both directions. All the people who were walking around me sort of froze and looked around and tried to figure out what was happening.” His first thought was that the ground might be swaying due to a terrorist attack or an accident at a nearby construction site, but he reportedly “learned it was an earthquake when he got on the phone for an MSNBC interview.” The pro forma session that Coons was to preside over had been scheduled for 2:30 PM, but the Capitol had been evacuated and no one was allowed back inside. Accordingly, the session was convened in a basement conference room of the nearby Postal Square Building, which is designated for congressional use in an emergency.
http://www.s-a-f-e.org/members_microblog_2011.htm (8/24 entry)
The quake response was particularly vigorous in the DC area. Numerous buildings were evacuated, ranging from the US Capitol and the Pentagon to a nursing home in Alexandria, VA (first person account, only minor damage to the building but residents were kept outside for about 30 minutes in case of aftershocks). Many employees were sent home early, causing considerable traffic-related congestion. Earthquake shows difficulty of evacuating from DC, Eric Tucker, ABC3340, 8/25/11.
Several public landmarks were damaged, notably the Washington Monument (cracks near the top) and the National Cathedral (3 of 4 spires atop the central tower broke off). DC area evaluates earthquake damage, Andrea Noble, Washington Times, 8/24/11.
Most property owners did not have earthquake insurance, or had coverage with a high deductible, so there will probably never be an accurate estimate of the aggregate losses in DC and elsewhere. Few homeowners’ earthquake damage covered by insurance, Hayley Peterson, Washington Examiner, 8/26/11.
Two nuclear reactors at the North Anna, VA site (a few miles from the epicenter) automatically shut down. Pending review by Dominion Power and the Nuclear Regulatory Commission, they will stay closed. Regulators [call] for further investigation at earthquake-affected plant in Virginia, Shushannah Walshe, ABC News, 8/29/11.
More generally, the NRC plans to review seismic risks at nuclear power plants nationwide. The timing of the announcement was said to be coincidental, although the Virginia quake and Fukushima will surely spark public interest. NRC requires new look at quake risk for nuclear reactors, Pam Sohn, timesfreepress.com, 8/29/11.
“We have been re-evaluating seismic issues since long before the [Fukushima Dai-ichi] event in Japan, much less the Virginia earthquake,” [an NRC spokesman] said. “This long-standing initiative was launched when new data became available indicating that seismic risks in the eastern and central parts of the country might be greater than earlier estimates.”
Reflecting on the foregoing, we are not inclined to be critical. No one knew an earthquake was coming, so there was no advance hype. Many building evacuations may have been unnecessary, but they were understandable under the circumstances. At least that is what DC worker Emily Varanay thinks. Farmer’s Almanac: DC is wimpiest weather city, Liz Essley, Washington Examiner, 8/31/11.
It was silly for everyone to be so angry for the way we reacted to the earthquake because our buildings aren't built like they are on the West Coast.
Fiscal visionaries should stay alert, however, lest alarmist thinking about the Virginia quake spawn future problems. Here are two issues to watch for:
ü When will the North Anna nuclear power plant reopen, and will any unreasonable restrictions be imposed? Similarly, will this event reinforce the backlash against nuclear power already set in motion by the quake and tsunami-induced damage at the Fukushima nuclear plant in Japan? We view nuclear power as a vital element in the US energy sector, which must not be sacrificed on the altar of superstition and political expediency. Japanese nuclear plant damage: a big setback for nuclear power, 3/21/11.
ü About earthquake insurance, let’s hope the government will not move to supplement private insurance arrangements – as previously happened with federal flood insurance and hurricane insurance in Florida. Better to let property owners absorb their own losses if earthquake coverage is not available at a price they are willing to pay than to put taxpayers on the financial hook.
HURRICANE IRENE made landfall in North Carolina on August 27 and moved up the coast from there. Although less intense than expected, it caused widespread flooding, billions of dollars in property damage, and over 40 fatalities. Irene forecasts on track; not up to speed on wind, Seth Borenstein & Christine Armario, myway.com, 8/28/11.
Ever since the bungled handling of Hurricane Katrina in 2005, there had been talk about the need for the Federal Emergency Management Agency (FEMA) and other government units to do a better job of handling the next big hurricane – wherever it might happen to strike. So a connection was predictably drawn – by the media and political leaders alike – between the developing Hurricane Irene and Katrina.
No purpose would be served by rehashing the Katrina situation, which reflected mistakes of the Mayor of New Orleans and Governor of Louisiana as well as federal miscues. Suffice it to say that the results did little to burnish anyone’s reputation, and that the preceding president was harshly criticized for not cutting his vacation short, surveying the affected area from Air Force One without landing, etc. Decision Points, George W. Bush, Crown Publishers (2010), pp. 308-333.
Politicians currently in office were not about to be accused of failing to respond decisively to Hurricane Irene. Massive evacuations of coastal areas were ordered, including an unprecedented order for the evacuation of a quarter million people in the New York City area. Mayor Michael Bloomberg also shut down the subway system and urged all New Yorkers to stay indoors throughout the storm. NY mayor orders evacuation ahead of Hurricane Irene, LA Times, 8/26/11.
"We don't have the manpower to go door to door to drag people out of their homes.... Nobody is going to get fined, nobody is going to jail," he said. But if they didn't leave [reportedly there were many holdouts], he added, "people are just going to die."
Similarly aggressive measures were taken elsewhere. In Delaware, for instance, state workers were sent home at noon on Friday – 36 hours before the storm was expected to hit. The following day, key bridges were closed and a driving ban was imposed for nonessential travel. Delaware bans driving; closes major bridges, John Mussonik, newswatch.org, 8/27/11.
The Governor had been leaning away from an all out driving ban earlier in the day. His order suggests he had to adjust to the changing conditions [but the storm outlook was improving, not getting worse].
WHEREAS, as a result of the continued dangers posed by Hurricane Irene, the Delaware State Police has requested that reasonable driving restrictions be instituted statewide.
Television service continued for those with power (most of the population), but with frequent break-ins by the National Weather Service that conveyed little useful information. Besides, the graphics are ugly and the klaxon horn is annoying.
Sample warning: A tornado advisory has been issued for the ABC area until X time; everyone should stay away from windows and relocate to a closet or the basement. Some people probably took this advice, the first time at least (remember the story of “the boy who cried wolf”), but this writer chose to ignore it.
A tornado did touch down in Lewes, DE, but it was a relatively minor one (uprooted trees and destroyed a garage) as tornados along the East Coast usually are. F-1 tornado confirmed: investigation by weather service says twister hit Lewes area, Doug Dennison, [Wilmington, DE] News Journal, 9/1/11.
"When a hurricane comes close, it's actually not that rare of an event," [a NWS meteorologist] said. "These are very weak ones, though, and embedded in the overall winds of the hurricane."
Backstopping state and local efforts, FEMA and other federal agencies were also on the job – including the president who had cut his vacation short by about 12 hours so as to be seen as personally engaged. His comments sounded ominous. Obama takes charge at hurricane command center, Yahoo.com, 8/27/11.
This is going to be a tough slog getting through this thing . . . a long 72 hours . . . a lot of families are going to be affected . . . an enormous strain on a lot of states . . .
On Sunday afternoon, with the weakening tropical storm then well past New York, the president attributed lighter than forecast damage to an effective government response. Obama on Irene: “This is not over,” Julia Pace, Washington Examiner, 8/28/11.
While Irene was far weaker than expected, at least 18 people died in the storm and early damage estimates were in the billions of dollars. But Obama said the toll could have been much higher had it not been for preparation and coordination by FEMA and other emergency personnel.
A likelier explanation is that the forecasts were wrong. Although Hurricane Irene covered a huge area, it lacked the punch of the storm to which it had been initially compared. How Hurricane Irene stacks up vs. Katrina, Mike Wall, MSNBC, 8/29/11.
It was a Category 1 hurricane when it hit North Carolina, with maximum sustained wind speeds around 85 mph. By the time it hit the Northeast, Irene had weakened to a tropical storm again, with top winds of about 60 mph.
One might accept the use of “conservative” forecasts on grounds that the authorities were right to err on the side of caution. Stop criticizing officials for ordering evacuations, [Wilmington, DE] News Journal, 9/1/11.
As bad as it was in this area, the hurricane could have been worse. But since it wasn't as bad as predicted, the officials ordering evacuations are being criticized in some quarters as overreacting. *** The same critics would be screaming at the top of their lungs if an official hesitated and something went wrong.
If the media and politicians were simply being cautious, however, they neglected to let the public in on their thinking.
Preparation for the worst-case scenario makes sense and could have saved hundreds during Katrina. But the worst-case scenario [for Irene] was largely portrayed as inevitable. Some of the footage of television reporters putting themselves in the most extreme position possible just to get the best “stand-up” live shot was beyond parody.
Consider the account of a CNN reporter.
“We are in, right, now…the right eye wall, no doubt about that…there you see the surf,” he said breathlessly. “That tells a story right there.” Stumbling and apparently buffeted by ferocious gusts, he took shelter next to a building. “This is our protection from the wind,” he explained. “It’s been truly remarkable to watch the power of the ocean here.” The surf may have told a story but so too did the sight behind the reporter of people chatting and ambling along the sea front and just goofing around. There was a man in a t-shirt, a woman waving her arms and then walking backwards. Then someone on a bicycle glided past.
Politicians acted in their own interests, which generally meant making a show of being in charge. New Jersey Governor Chris Christie, for example, had been lambasted for taking a holiday during one of the worst snowstorms in the state’s history. Seeing a chance for political redemption, he ordered an aggressive evacuation before Irene hit. Perfect storm or hype: politicians, the media and the Hurricane Irene that never was, Toby Harnden, UK Telegraph, 8/28/11.
After the storm had passed, Christie insisted that his evacuation of the Jersey Shore was “a pre-emptive measure that I am confident saved lives” and there could still be damage worth “tens of billions” of dollars.
Commentator Rush Limbaugh suggests that the media and politicians were disappointed when the storm did not measure up to the picture they had painted. Media hyped Hurricane Irene to boost Obama, Newsmax.com, 8/29/11.
There wasn't any wind. It was a rainstorm and there was a lot of flooding and there were deaths associated with it, but the hype, folks, I'll tell you what this was. It was a lesson, if you pay any attention to this, the hype, the desire for chaos, I mean literally, the media desire for chaos was a great learning tool, this was a great illustration of how all of the rest of the media in news, in sports, has templates and narratives and exaggerates beyond reality, creating fear so as to create interest.
Perhaps Limbaugh’s comments went too far, but we think the handling of Hurricane Irene does illustrate some of the flaws of big, pervasive, cost is no object government.
#Issues are reported in a one-sided way, with candor being the exception rather than the rule. Thus, as we have seen, Hurricane Irene’s impact was exaggerated considerably.
#Politicians overestimate their own knowledge while underrating the intelligence of the general public, as evidenced by their condescending communications. Group A, evacuate now (by the way, the roads will be closed soon). Group B, stay inside and we will inform you when the problems are over.
#Government infallibility is implied despite a great deal of historical evidence to the contrary. See, for example (emphasis added), the statement of the president et al. on Hurricane Irene, 8/28/11.
Now, the Department of Homeland Security will continue working to coordinate the federal response through FEMA, making sure that the entire federal family is working as one to support the affected states.
#Fans of big government seem to have no sense of limits, and anyone concerned about the cost of protective measures is derided as a Neanderthal. Politicizing hurricanes again, Brent Bozell, Townhall.com, 8/31/11.
Then [Al Sharpton] turned to former Democratic Gov. Ed Rendell and asked, "What is your take on this anti-government rhetoric in the middle of this crisis, unprecedented crisis for people on the East Coast?"
Unprecedented? Hurricane Irene was frightening and had a death toll that stands at 37. But compared to hurricanes like Katrina and Rita, she was a nuisance. Hysteria politics were definitely overcoming the reality that had yet to occur. Rendell replied: "It is absolutely stunning, Al. It reminds me of the saying, 'The inmates are running the asylum.' It's lunacy."
Actually, House Republicans have proposed to increase funding for disaster relief, but they want offsetting cuts in other areas – such as funding for electric car companies. What’s wrong with that? Leveraging a hurricane, Wall Street Journal, 9/3/11.
#While obsessing about the problems du jour, politicians fail to address longer-term issues – typically arising from unwise government policies – such as the drug-fueled calamity along this country’s southern border. Deadlier than Irene, Oliver North, Townhall.com, 9/2/11.
Illicit drug trafficking and human trafficking across our southern border have reached unprecedented levels. Violent criminal gangs directly connected to Mexican drug and extortion cartels kill and maim nearly 1,000 Mexican citizens every month -- a level of violence well beyond that experienced in Iraq or Afghanistan. The carnage is wrecking any hope for normal life or economic activity in Mexican society and prompting a new flood of desperate "refugees" across our border.
Other examples would include the fiscal problem (it’s so much fun to spend other people’s money) and US economic decline (private sector falters under a perverse tax and regulatory regime).
#Finally, government takeover of one activity after another that supposedly involve issues too tough for “ordinary people” to cope with is eroding the sense of personal responsibility in this country. The essential rules of tyranny, Brandon Smith, market.com, 7/29/11.
People who are easily frightened are easily dominated. *** [Tyrants] instill apprehension in the public; a fear of the unknown, or a fear of the possible consequences for standing against the state.
If you agree, join us in speaking up before it is too late.
* * * This Blogs replies * * *
As usual I agree with your outlook, not that it helps me sleep better. – College classmate
A result of global warming to be sure. – SAFE director
8/29/11 – Congress’s ratings hit new lows: some thoughts about the stats Read Replies
Other observers are still talking about the debt limit deal and the Joint Committee it spawned, but we are up to date on that story for now and will shift to another topic.
Results vary depending on how the question is asked, but Congress as an institution fares poorly in public opinion polls. See, for example, New low: 6% think Congress is doing a good or excellent job, Rasmussen, 7/26/11.
June 24-25, 2011
|
How would you rate the way Congress is doing its job? |
|
|
Excellent |
1% |
|
Good |
5% |
|
Fair |
31% |
|
Poor |
61% |
What accounts for such low ratings? This entry will present more polling data, discuss possible explanations, and consider some implications.
DATA: Gallup asks the question like this: “Do you approve or disapprove of the way Congress is handling its job.” An excess of disapproval over approval has been typical since Gallup began its series in 1974, with the notable exception of a few months after 9/11. The approval rating hit a record low of 13% in December 2010, which was recently matched. Summer Doldrums: Congressional approval rating ties all-time low, Erik Hayden, Atlantic Wire, 8/16/11.
Other pollsters report similar results, e.g., a 6-poll average during the period June 9-August 14: Approve 16%, Disapprove 78%. Based on an historical chart, the narrowest spread during the current Administration was on 3/9/09: Approve 33%, Disapprove 55%. Congressional Job Approval, Real Clear Politics.
People apparently think better of their own representatives in Congress. Consider these results. Congress job ratings, Polling Report.com.
|
Date |
Poll |
Performance of |
Approve |
Disapprove |
Unsure |
|
10/25-28/10 |
ABC/ Wash. Post |
Congress |
23% |
74% |
3% |
|
“ |
“ |
Your representative |
53% |
40% |
7% |
|
10/1-5/10 |
CBS News |
Congress |
18% |
71% |
11% |
|
“ |
“ |
Your representative |
40% |
40% |
20% |
EXPLANATIONS: One interpretation of the foregoing results is that Congress is in fact doing a poor job. But there also reasons why Congress might be expected to receive lower than warranted ratings.
#Lack of empathy: The members of Congress are people; Congress as a whole is a big group. One may hesitate to “disapprove” of an individual’s performance unless he or she is obviously doing a bad job; it is easier to “disapprove” of a group’s performance.
People do rate their elected representatives more highly than they rate Congress, as we have already seen, even though the overall performance of the House of Representatives (and the same goes for the Senate) should logically equal the average performance of its members.
Likewise, approval ratings run higher for the president than for Congress – as might be expected since everyone knows a bit about the president and many people voted for him (or her). Ignoring “somewhat” responses, the spread between presidential approval and disapproval currently stands at 21 percentage points (versus a reported spread of about 60 percentage points for Congress). Count “somewhat” responses and the presidential spread falls to 12 percentage points. Daily presidential tracking poll, Rasmussen, 8/26/11.
|
Strongly approve |
Somewhat approve |
Somewhat disapprove |
Strongly disapprove |
|
23% |
21% |
12% |
44% |
#Performance criteria: What does it mean to say one “approves” or “disapproves” of the performance of Congress? Approved legislation (the stimulus package, GovCare, etc.) presumably counts; so should blocked proposals (such as “Cap and Trade” or comprehensive immigration “reform”). There also style points, e.g., the manner in which hearings are conducted and whether the members of Congress are perceived to be debating or bickering.
With 535 members of the two houses, many essentially cancelling each other out, impressions of Congress become a generalized blur. We would therefore posit that the overall ratings should be similar to responses to another well-known poll question: Do you think this country is headed in the right direction?
Recent results (65 percentage point spread in favor of the country being on the wrong track) seem to support our supposition, although Rasmussen relates them to presidential versus congressional popularity. Such a view is logical. After all, the members of Congress are elected to represent the interests of their respective constituents – not the entire country. A national president can speak with one voice; Congress rarely does so on matters of substance. Right direction or wrong track: 14% say US heading in right direction, Rasmussen, 8/24/11.
When President Obama assumed office in January 2009, optimism rose to 27% and climbed to the low to mid 30s – peaking at 40% -- until May 2009. That figure has steadily declined since.
Seventy-nine percent (79%) of voters say the country is heading down the wrong track, down slightly from last week. From January 2009 until the end of July, voter pessimism had ranged from 57% to 75%.
Another observer suggests, however, that the low ratings for Congress reflect the economic slump rather than any particular thing Congress has done. Congressional job approval nears “lowest ever” levels: What can turn it around? Mark Blumenthal, Huffington Post, 8/5/11.
This suggestion may be based in part on a desire to blame someone other than the president for currently disappointing economic results, e.g., a jobless rate of over 9%. Efforts are also being made to attribute said results to the previous president, although that claim may lose potency as time goes by. Obama escapes blame for economy, Brian Hughes, Washington Examiner, 8/25/11.
More than 85 percent of adults surveyed describe the economy as "poor" and nearly half say the situation has been exacerbated in the past month. Sixty-three percent disapprove of Obama's handling of the economy, with 48 percent saying they "strongly" disapprove.
IMPLICATIONS: Two interesting questions emerge from the foregoing, one relating specifically to Congress and another of a more general nature.
#If there is so much disappointment with the performance of Congress, why do incumbents keep getting reelected?
Even in 2010 (when many Americans were fired up about reckless spending, GovCare, bailouts, etc.), incumbents won over 80% of both House and Senate races.
The CRP notes that incumbents typically have an advantage in name recognition and campaign cash. We would add that House electoral district lines tend to be drawn in ways that make for safe seats. Reelection rates over the years, Center for Responsive Politics, opensecrets.org.
http://www.opensecrets.org/bigpicture/reelect.php
The residents of any given state rate their representatives (and probably senators) higher than Congress as a whole. Not only are the local members identifiable people, as previously suggested, but also the fate of important legislation will rarely be decided by their individual votes. Accordingly, their prowess in “bringing home the bacon” may take precedence over their voting records. Lawmakers: earmarks ban would not – should not – end spending on local projects, Susan Ferrechio, Washington Examiner, 11/23/10.
Rep. Jo Ann Emerson, R-Mo., sponsored 38 earmarks last year totaling more than $30 million for projects back home, according to the Center for Responsive Politics. She now worries that there won't be enough money to repair crumbling roads and bridges in her state. Without earmarks, decisions about how to spend those federal dollars will be left to the executive branch.
"The earmarks that I previously have done are not because of lobbyists, but because the Missouri Department of Transportation comes with a list of all the highway projects or the water and sewer district asks for funding," Emerson said. "Unless you consider a mayor in a community a lobbyist and I don't."
Finally, low ratings mask underlying conflict. Some voters are upset because Congress took actions they dislike; others feel Congress did not go far enough. An incumbent who straddles the issue may represent a consensus choice.
While one might infer from the current ratings for Congress that it is time to fire all the members and start over, such an outcome seems unlikely. A more practical objective might be to vote out enough incumbents to give the members of Congress a scare and keep pushing for desired changes in policy.
Whatever the future holds, many members of Congress (on both sides of the aisle) are concerned by the forthright and in some cases angry public feedback they have been encountering of late. Members of Congress avoid town hall brawls this recess, Lisa Mascaro, L.A. Times, 8/26/11.
Lawmakers seem to prefer meeting constituents in more controlled venues, avoiding rabble-rousers or amateur videographers who may turn them into the next online spectacle. Some events are hosted by groups that charge entrance fees, another way to filter who is in the audience.
#If most Americans disapprove of (a) Congress, (b) the president, and (c) the direction in which the country is headed, where does that leave us?
One answer might be that you cannot please everyone. Human beings are seekers by nature and rarely satisfied for long. As a famous general once said (going on memory here), “When griping in a unit stops, the commander better start worrying about morale.”
On the other hand, Americans may correctly sense that this country is in a long-term decline. If so, it would be natural for them to disapprove of what is going on and blame some or all of the nation’s leaders. National Suicide: How Washington is destroying the American dream from A to Z, Martin Gross, Berkley Books (2009).
Here is a variation on the national decline theme. Let’s assume Americans are unhappy with themselves for allowing the current situation to develop, and should therefore be willing to devote some serious effort to setting things right. To quote the immortal bard (but without advocating violent action as Cassius did):
The fault, Dear Brutus, is not in the stars,Do not expect plaudits from the “government class,” which is basically satisfied with current policies and allergic to suggestions from the general public. No partisan divide, just parallel partisan universes, David Keene, Washington Times, 8/23/11.
They are so sure of themselves that “Meet the Press” host David Gregory, a charter member of Mr. Rasmussen’s political class, dumbfounded by Michelle Bachmann’s vote against raising the debt ceiling, asked her after the Iowa straw poll how she could possibly defend her position when “virtually everyone in a leadership position” disagreed with her. When she responded that 80 percent of the country disagreed with those leaders, Mr. Gregory dismissed that by saying, “What does that matter?”
As for the “special interests,” they have sold their souls for a bunch of government pottage and will fight to protect their turf. The big ripoff: how big business and big government steal your money, Timothy Carney, John Wiley & Sons (2006).
http://www.s-a-f-e.org/big_ripoff.htm
In addition to being unfair, the machinations of the special interests serve to undermine the national economy. The rise and decline of nations, Mancur Olson, Yale University Press (1982).
The gist of Olson’s theory is that special interest groups (producer cartels, labor unions, etc.) rig prices and/or output so as to advance their own interests, typically with the approval or support of the government. This leads to misallocation of resources and lower economic output than would otherwise be realized, but group members will be better off.
The economic system gradually sludges up, with less effort devoted to profitably boosting economic output and more to dividing the economic pie (aka “rent seeking”).
When changes in economic conditions occur, e.g., unexpected deflation or inflation, the painstakingly negotiated arrangements of the special interests take time to adjust. In the meantime, needed economic adjustments are not made, which Olson posits as one of the reasons for the length of the Great Depression in the 1930s and the emergence of stagflation (a previously unknown occurrence) in the 1970s.
Thirty years after Olson’s book, a similar situation has developed – and the government elite is floundering. Print money, borrow for more stimulus spending, unleash an avalanche of new regulations, do anything but reform the tax code, cut government spending, and put the brakes on government regulators so business leaders will get back to trying to make money the old fashioned way (“earn it”). Out of touch on economy, Salena Zito, Townhall.com, 8/21/11.
The president and his team have a poor understanding of how to get the economy going and to create jobs, said Stanley Block, chairman of the finance school at Texas Christian University: “You really keep regulation low and taxes low and keep things predictable, and you don't change things in a major way.”
“If he really wanted to create jobs, he would eliminate what he has done in the first two-and-a-half years,” said Block, all of which has been “counterproductive to growing jobs.”
Will the general public speak up about the current situation in such a way that its wishes cannot be ignored? Possibly, but there are some major obstacles.
#Self-interest: It is not just business groups and unions that have a vested interest in sub-optimal economic arrangements, so do many other people. We have in mind the recipients of a host of government benefits – Social Security, Medicare and other government healthcare programs, long-term unemployment benefits, food stamps, etc. – which in the aggregate promote idleness and dependency.
No disrespect is intended for the recipients of any of these benefits, your faithful scribe accepts Social Security benefits himself, but they will prove unaffordable over the longer term (as suggested by current and projected deficits). They are also far broader than would have been necessary to protect the disadvantaged. Misleading Words, Part II, Thomas Sowell, Townhall.com, 8/3/11.
If government programs were confined to people who were genuinely poor in some meaningful sense, that would shrink the welfare state to a fraction of its current size. The left would lose their human shields. *** It is one thing to keep people from suffering from unforeseeable things beyond their control. But it is something else to simply subsidize their necessities so that they can spend their money on other things and leave a larger estate to be passed on to their heirs.
When a government shifts from promoting the general welfare to serving the interests of special interests or defined classes of people, battle lines get drawn. Some observers may attribute the resulting “partisan divide” to fiscal conservatives, but the big spenders are really responsible. Rise and Decline, Olson, p. 47.
The common interests that all or most of the people in a nation share can draw them together, as they are drawn together when they perceive a common interest in repelling aggression. In distributional struggles, by contrast, none can gain without others losing as much or (normally) more, and this can generate resentment. Thus when special-interest groups become more important and distributional issues accordingly more significant, political life tends to be more divisive. *** The divisiveness of distributional issues, and the fact that they make relatively lasting or stable political choices less likely, can even make societies nongovernable.
Nor is this just a theory; we are seeing just such a situation in the United States and most Americans sense it. Partisan politics: 68% expect DC politics to become even more divisive, Rasmussen, 8/18/11.
Only 12% believe politics in the nation’s capitol will grow more cooperative during [the next year], the lowest finding since March 2009. Another 19% are undecided.
#Different opinions: Self-interest is one reason for disagreement amongst the ranks of Americans who believe this country is headed in the wrong direction. Another factor is genuine differences of opinion.
Few would really want the poor starving in the streets or perishing for lack of medical care. And once a duty to help has been recognized and the government (federal or state) gets involved, where does one draw the line?
There is no definitive answer to that question, of course, but we appreciated the thoughtful comments of Senator Marco Rubio (R-FL). People who truly need help should get it, he suggests, but the assistance must not be allowed to become a “way of life.” Speech at the Reagan Library, 8/23/11, 23-minute video (and worth the time).
#Apathy: Based on expected effort versus payoff, people may conclude that being politically active is a great idea – for someone else. Rise and Decline, Olson, p. 26.
Since the probability that a typical voter will change the outcome of the election is vanishingly small, the typical citizen is usually “rationally ignorant” about public affairs. Often information about public affairs is so interesting or entertaining that it pays to acquire it for these reasons alone – this appears to be the single most important source of exceptions to the generalization that typical citizens are rationally ignorant about public affairs.
But if everyone thinks that way, nothing constructive will get done. So how can fiscal visionaries break through the apathy and get something going? If you have suggestions, please share them with us.
* * * This Blogs Replies * * *
Re the latest "Nail on the Head" blog, I think the only "Hammer" that might work--and Mancur Olson, whom I knew, would probably agree with me – is a proposed 28th Amendment to the U.S. Constitution. It would bar Congress from (a) restricting the rest of us while exempting itself, or (b) providing special rights and benefits for its members that no one else gets. – Richard Timberlake, Georgia
[We agree with the spirit of the proposed amendment, but it might not prove to be a panacea. http://bit.ly/cXbCao]
House Speaker Tip O'Neil: “All politics is local.” – SAFE director
8/22/11 – A list of targeted spending cuts Read Replies
Last week’s entry offered four suggestions for the Joint Select Committee on Deficit Reduction (JC), which may be summarized as follows:
(1) Be open: The JC should follow the example of the Fiscal Commission in 2010 by posting videotapes of its general meetings and a draft of its report before the report is voted on.
(2) Stop digging: This country does not need another round of fiscal stimulus; far more effective ways to promote economic recovery are available.
Update: the president will propose a new economic plan after Labor Day, calling for new “middle class” tax cuts and more (not less) spending. JC support will probably be solicited. AP Source: Obama to give major jobs speech, Ben Feller, AP, 8/17/11.
(3) Taxes can wait: The tax changes that have been proposed to date are of debatable merit, and the JC does not have enough time for the system overhaul that is needed.
(4) Be selective on spending: Across the board spending cuts treat all government programs as equally worthy, thereby undermining support for the limits imposed. It would be far more effective to eliminate or restructure ailing programs. A recess was taken due to space limitations, but we committed to provide more input on spending cuts this week. Here goes.
GOAL: Getting down to brass tacks about spending, 10/25/10, proposed that federal government spending be cut to 20% of GDP (higher than in 2000, about equal to the 2005 level, considerably lower than projected). If spending cuts to meet this goal were phased in by 2015, the 5-year savings would be roundly $1.3T.
|
Fiscal yrs - $B |
2012 |
2013 |
2014 |
2015 |
2016 |
Total |
|
OMB Projection |
|
|
|
|
|
|
|
Outlays |
$3,728 |
$3,771 |
3,977 |
$4,190 |
$4,467 |
$20,133 |
|
GDP |
15,813 |
16,752 |
17,782 |
18,804 |
19,790 |
88,941 |
|
% of GDP |
23.6% |
22.5% |
22.4% |
22.3% |
22.6% |
22.6% |
|
Adjusted Projection |
|
|
|
|
|
|
|
Outlays |
$3,650 |
$3,685 |
$3,734 |
$3,761 |
$3,958 |
$18,788 |
|
GDP |
15,813 |
16,752 |
17,782 |
18,804 |
19,790 |
88,941 |
|
% of GDP |
23.1% |
22.0% |
21.0% |
20.0% |
20.0% |
21.1% |
http://www.whitehouse.gov/omb/budget/Historicals/
The 2016 savings level of $509B should be at least equaled in ensuing years, achieving a 10-year savings total of $3.9T in program cuts plus, let’s say, $0.8T in interest savings.
The Budget Control Act shaves total outlays by $0.9T (including interest savings) over the next 10-years. That leaves $3.8T to go.
|
Fiscal year, $B |
2012 |
2013 |
2014 |
2015 |
2016 |
2017-21 |
2012-21 |
|
Spending |
(22) |
(41) |
(56) |
(69) |
(77) |
(498) |
(761) |
|
Interest |
0 |
(1) |
(3) |
(6) |
(10) |
(134) |
(156) |
|
Total |
(21) |
(42) |
(59) |
(75) |
(87) |
(634) |
(917) |
http://cbo.gov/doc.cfm?index=12357
If the JC proposed additional cuts of $1.5T, thereby meeting the goal stated in the BCA, the government would still be $2.3T short of our spending cut target (which if anything was not set high enough, but let’s go with it for now).
Although hardly sufficient, spending cuts of this magnitude would mark a change in direction that could hopefully be continued in the future. As the saying goes, “ well begun is half done.”
WHERE TO CUT: One might start by looking for spending areas that have grown faster than the overall economy. For example, here is the “super function” breakdown of spending for selected years (from Fiscal Year 1990 to 2016). OMB tables.
|
|
Percentage of GDP |
|||
|
|
1990 |
2000 |
2010 |
2016 est. |
|
Human resources |
10.8% |
11.4% |
16.4% |
15.1% |
|
National defense |
5.2% |
3.0% |
4.8% |
3.4% |
|
Net interest |
3.3% |
2.3% |
1.4% |
2.8% |
|
Physical resources |
2.2% |
0.9% |
0.6% |
0.8% |
|
Other functions |
1.2% |
1.2% |
1.2% |
0.9% |
|
Offsetting receipts |
-0.7% |
-0.4% |
-0.6% |
-0.6% |
|
TOTAL OUTLAYS |
21.9% |
18.2% |
23.8% |
22.6% |
The biggest opportunities for spending cuts presumably reside in “Human resources” (HR), which has been growing faster than the overall economy for decades and currently accounts for 2/3 of the total budget. Drilling down, here is a breakdown of HR.
|
|
Percentage of GDP |
|||
|
|
1990 |
2000 |
2010 |
2016 est. |
|
Social Security |
4.3% |
4.2% |
4.9% |
4.8% |
|
Medicare |
1.7% |
2.0% |
3.1% |
3.2% |
|
Medicaid |
0.7% |
1.2% |
1.9% |
2.1% |
|
Other health |
0.3% |
0.4% |
0.6% |
0.9% |
|
Education, training, etc. |
0.6% |
0.5% |
0.9% |
0.6% |
|
Income security |
2.6% |
2.6% |
4.3% |
2.7% |
|
Veteran’s benefits & services |
0.5% |
0.5% |
0.7% |
0.8% |
|
TOTAL HR OUTLAYS |
10.8% |
11.4% |
16.4% |
15.1% |
National defense was at a higher level in 1990 than now. The growth between 2000 and 2010 reflects two wars that are winding down, and significant cuts are already projected.
Interest expense will grow due to rising debt and higher borrowing rates as the economy recovers. Deficit reduction could help, but this outlay is not subject to direct control.
Net spending for the other super functions totals only 1.1% of GDP in 2015, suggesting lesser opportunities in these areas.
SOME OPTIONS: Here is a “punch list” of spending cuts, which by no means exhausts the possibilities but includes some of the best choices (conceptually and politically) at this point. The 10-year savings of roundly $2 trillion handily exceeds the JC’s deficit reduction goal of $1.5T. An explanation of each line item follows the table.
|
2012-21, $ in billions |
Spending Cuts |
Interest Expense* |
Total Savings |
|
Medicaid |
770 |
154 |
924 |
|
Education |
500 |
100 |
600 |
|
Corporate Welfare |
180 |
36 |
216 |
|
Agricultural Subsidies |
130 |
26 |
156 |
|
Energy |
60 |
12 |
72 |
|
TOTAL |
1,640 |
328 |
1,968 |
*Savings imputed at 20% of 10-year spending cuts.
Medicaid is in trouble, both fiscally and operationally, in part due to being jointly run by the federal and state governments. It is hard to envision much improvement unless one level of government or the other takes charge.
Our suggestion would be for the states to assume full responsibility for Medicaid. The federal government would provide block grant funding without attempting to dictate the coverage provided. Once established, block grants would be indexed for general price inflation. In Search of Real Healthcare Reform, proposal 4, 2009.
A similar proposal was offered in the Ryan Plan (approved by the House in April), with the exception that block grants were be indexed for population growth as well as general price inflation. Projected 10-year savings vs. the CBO baseline: $771B.
http://wapo.st/fA8UZg [download PDF)
Education: This word does not appear in the Constitution, and the founders probably expected that education would remain a private or state responsibility. With the notable exception of ending racial segregation in the schools, federal intervention in the educational arena appears to have done more harm than good.
State school systems are administratively top heavy as it is, and a federal overlay is not needed. If there is to be a federal Department of Education, its functions should be limited to maintaining a data bank of best educational practices at the state and local level, sponsoring national and international educational contests, and the like.
http://www.s-a-f-e.org/education.htm
Accordingly, we would suggest that outlays for the Department of Education be cut 80%, with the cuts to be phased in by 2015. Current federal grants (accompanied by federal strings and “red tape”) should be eliminated, not converted to block grants. Estimated 10-year savings: $ 500B.
|
Fiscal yrs - $B |
2012 |
2013 |
2014 |
2015 |
2016-21 |
Total |
|
Education Department* |
71 |
67 |
70 |
76 |
|
|
|
Education Division |
56 |
37 |
25 |
15 |
|
|
|
Spending Cuts |
15 |
30 |
45 |
61 |
366 |
517 |
* OMB projection (p. 87)
Corporate welfare – No “corporate welfare” category may be found in the budget, any more than there is a line for “fraud, waste and abuse.” Nevertheless, some government programs exist for the benefit of relatively narrow business constituencies – and such programs should be eliminated. The following list is just a start. Estimated 10-year savings: $180B.
|
Fiscal yrs - $B |
2012 |
2013 |
2014 |
2015 |
2016-21 |
Total |
|
Commerce Dept.* |
13 |
11 |
11 |
11 |
66 |
112 |
|
Ethanol Subsidies (est.) |
6 |
6 |
6 |
6 |
36 |
60 |
|
SBA* |
1 |
1 |
1 |
1 |
6 |
10 |
|
Export-Import Bank, Maritime Administration, OPIC, etc. |
# |
# |
# |
# |
# |
# |
|
Total savings |
20 |
18 |
18 |
18 |
108 |
182 |
*OMB projection (p. 87) #Data not readily available.
Agricultural Subsidies – Support payments for certain crops represent a burden on taxpayers, and contribute to higher food prices as well. If these subsidies were ever justified, they have outlived their usefulness. We would urge that they be phased out by 2015. Estimated 10-year savings: $130B.
|
Fiscal yrs - $B |
2012 |
2013 |
2014 |
2015 |
2016-21 |
Total |
|
Farm income stabilization* |
14 |
18 |
17 |
15 |
|
|
|
Residual amount |
10 |
8 |
5 |
0 |
|
|
|
Spending Cuts |
4 |
10 |
12 |
15 |
90 |
131 |
* OMB projection (p. 78)
Energy – Established to work for energy independence, the Department of Energy has become a green energy venture fund without marketplace accountability.
http://www.s-a-f-e.org/energy.htm
DOE cannot be eliminated as it has other responsibilities, notably managing the military nuclear program, but its energy venture fund activities should be phased out by 2015. Estimated 10-year savings: $60B.
|
Fiscal yrs - $B |
2012 |
2013 |
2014 |
2015 |
2016-21 |
Total |
|
Energy programs* |
23 |
15 |
11 |
9 |
|
|
|
Residual amount |
20 |
10 |
4 |
0 |
|
|
|
Spending Cuts |
3 |
5 |
7 |
9 |
40 |
64 |
* OMB projection (p. 78)
TO BE CONTINUED: No spending cuts have been proposed for either Social Security or Medicare. Lest it be thought that we are ignoring the proverbial “elephant in the living room,” an explanation seems in order.
Social Security is the government’s biggest program, in terms of cost, and it is currently paying out more than the tax revenues earmarked to pay for it. The existence of the Social Security trust funds does not assure that this program can continue operating in the current mode until 2037; there is nothing in these funds except IOUs.
There are two basic options for Social Security: (A) Convert it to a funded (personal accounts) retirement plan. The change would require several decades and substantial up front outlays, which would be a “tough sell” under current circumstances. (B) Make adjustments to benefits and/or contributions that would extend the life of the current program. Social Security belongs on the table with everything else, 6/27/11.
If Plan B was chosen, we would recommend the following changes: (1) Raise the early retirement age from 62 to 65 and the normal retirement age from the current level (being raised to 67 by 2027) to 70 over the next decade, inasmuch as Americans are living longer on average. (2) Tighten the eligibility requirements for disability benefit payments, which currently account for about one-sixth of Social Security outlays.
But such changes would be quite controversial, and we believe Social Security reform – like tax reform – should be taken to the voters. There will be time enough to make the decisions that are needed in 2013.
Medicare is commonly thought to be in worse shape than Social Security because (1) its trust fund is scheduled to be exhausted more quickly (this difference is merely cosmetic), and (2) the cost of healthcare is growing faster than the general rise in price levels.
It is essential to slow the growth of Medicare outlays, but slashing reimbursement rates and/or rationing allowable care is not the way to do it. The effect of such measures would be to degrade the quality of care for patients, as has already happened with Medicaid.
Our suggestion would be to provide capped funding for private insurance coverage to future retirees. Traditional Medicare coverage would be phased out as current retirees pass on. For discussion of the rationale and expected benefits, see In Search of Real Healthcare Reform, proposal 6, 2009.
http://www.s-a-f-e.org/healthcare_reform.htm
A similar proposal for Medicare was included in the Ryan Plan; it would have been phased in more slowly than our proposal. As a result, Medicare outlays over the next ten years would have been reduced by only $30 billion vs. the CBO Baseline – truly “a drop in the bucket” for a program of this size.
That did not stop the Medicare proposal from drawing more fire than any other element of the Ryan Plan, in marked contrast to the lack of reaction to the Medicaid proposal (discussed above). The general theme was that Medicare costs should not be shifted “onto the backs of senior citizens.” GOP running political risks with Medicare reform, Susan Ferrechio, Washington Examiner, 4/18/11.
As far as we are concerned, the conversion of Medicare into subsidies for private insurance coverage is the best way out of the Medicare mess, but such an approach does not appear to be politically feasible for now. The same goes for repealing GovCare (the healthcare “reform” bill enacted in 2010), as was also proposed in the Ryan Plan.
So again, the JC would be well advised to focus on matters that can potentially be agreed on at this time. They cannot expect to solve the fiscal problem that way, but at least they can make a respectable start on it.
* * * *
Will the Joint Committee members pay any attention to our recommendations? Maybe not, but we are sending them a summary for consideration. SAFE letter to JC members and others, 8/22/11.
If you agree with our recommendations, dear readers, we would urge you to reinforce them. Forward this link to friends and acquaintances, post it on Facebook, write a letter to the editor or to your elected legislators, or whatever approach occurs to you.
What we must not do is to once again let the big fiscal decisions be made by default, in reaction to the demands of those who are fixated on demanding more, more, more based on the assumption that someone else will pay for it. The national piggy bank is empty, and efforts to keep the spending spree going can only end in disaster.
Sorry to end on such a somber note. Have a good week, everyone.
* * * This Blogs Replies * * *
SAFE note: In addition to posting this entry and our letter to the Joint Committee, we brought them to the attention of a number of contacts. The feedback was generally positive, but we did not hear from everyone and there were few comments on details of our proposals let alone offers to reinforce them. Moral: it is comparatively easy to show the fiscal problem is real, but getting people to join in supporting a concrete solution is a “different kettle of fish.”
“Suggestions well thought out” (SAFE), “I sure hope they’re listening” (SAFE), “the specifics are excellent” (SAFE), “thanks for this thoughtful piece” - (Princeton professor).
SAFE director: My approach is to propose more drastic changes, because they are needed, and a good bargaining tactic. Thus: Give Medicaid to the states without grants, make the goal debt repayment vs. balancing the budget, and institute a “temporary” tax for each overseas military action.
[Lest we forget, a telephone excise tax imposed to help pay for the Spanish-American War was in effect for 108 years. http://usat.ly/uEPQ4]
”I agree completely,” said a Cato expert, but “of course, the Dems won't agree to a package of spending reforms, so a sequester is the best option.”
#Prof. Larry Kotlikoff, Boston University thinks the “purple” tax (http://bit.ly/p1wDix), health[care] (http://bit.ly/eMGPbV) and Social Security (http://bit.ly/oPCqj8) plans “are the ways to go.”
[We will review them as time permits.]
#“Never happen” said a SAFE director re our suggestion that the JC should emulate the Fiscal Commission in 2010 by conducting a relatively open process (videotapes of general meetings, publish draft report before voting).
He sees no chance of joint recommendations for real spending cuts. “The House has to just stand firm on the Appropriations committee and cut spending apart and different from any joint votes for a budget. This will raise great fires and anger.”
8/15/11 – And so it begins: a “Super Committee” is born
For those who came in late, the US government has a spending problem, not a deficit problem. And the logical solution would be to spend less, not raise taxes or keep on borrowing. Making sausage in DC: haggling over a debt limit increase, 7/15/11.
The Budget Control Act (BCA) provides for deficit reduction of at least $2.1 trillion over the next 10 years. The amount may sound impressive, but it is only a down payment on the total problem. And as discussed last week, there are many obstacles to achieving even this much progress. Debt limit deal settled nothing, 8/8/11.
The initial round of spending cuts is imposed across the board (rather than targeting specific programs) and backend-loaded besides.
|
Fiscal year, $B |
2012 |
2013 |
2014 |
2015 |
2016 |
2017-21 |
2012-21 |
|
Spending |
(22) |
(41) |
(56) |
(69) |
(77) |
(498) |
(761) |
|
Interest |
0 |
(1) |
(3) |
(6) |
(10) |
(134) |
(156) |
|
Total |
(21) |
(42) |
(59) |
(75) |
(87) |
(634) |
(917) |
http://cbo.gov/doc.cfm?index=12357
Many Americans (including us) wonder whether these cuts will actually be made. 62% think Congress unlikely to cut spending as promised by one trillion dollars over next 10 years, Rasmussen Reports, 8/5/11.
The Joint Select Committee on Deficit Reduction (JC) will now be asked to propose further deficit reductions. Again, the prospects for success are uncertain, but all concerned have an obligation to support the JC’s efforts and SAFE intends to do just that.
STEP ONE: We began by offering suggestions re appointments to the JC. Letter to Representatives Boehner & Pelosi, Senators Reid & McConnell, et al. on 8/8/11.
Four of our six House picks (highlighted) were appointed; we struck out in the Senate.
|
REPRESENTATIVES |
SENATORS |
|
Jeb Hensarling (R-TX)* |
Patty Murray (D-WA)* |
|
Dave Camp (R-MI) |
Max Baucus (D-MT) |
|
Fred Upton (R-MI) |
John Kerry (D-MA) |
|
|
|
|
Xavier Becerra (D-CA) |
Jon Kyl (R-AZ) |
|
James Clyburn (D-SC) |
Rob Portman (R-OH) |
|
Chris Van Hollen (D-MD) |
Patrick Toomey (R-PA) |
* Co-chairs
Without getting into personalities, here are several comments on the JC members.
# All are career politicians, accustomed to the ways of Washington. Most of them voted for the BCA; the exceptions were Becerra and Toomey.
# Representatives Becerra, Camp, & Hensarling and Senator Baucus served on the Fiscal Commission in 2010. Representatives Clyburn & Van Hollen and Senators Baucus & Kyl participated in the Biden talks earlier this year.
#Representative Hensarling is Paul Ryan’s deputy on the House Budget Committee; Camp chairs Ways and Means; Upton chairs Energy and Commerce; Van Hollen is the ranking minority member on the Budget Committee.
#Senator Murray chairs the Democratic Senatorial Campaign Committee; Baucus chairs Finance; Kerry chairs Foreign Relations and ran for president in 2004; Kyl is Republican Whip; Portman served as budget director in the latter days of the Bush Administration.
#Baucus, Murray, Portman, and Upton have ties to numerous special interest groups. How many seats does K Street have on super committee? Timothy Carney, Washington Examiner, 8/10/11.
#Based on National Taxpayer Union ratings (for 2010 or most recent year available), most of the GOP members are fiscally conservative (Kyl 97%, Hensarling 94%, Camp 88%, Upton 86%, Toomey 85% - 04 House). Portman 60% - 04 House appears to be a “centrist.” All Democrat members are reliably liberal (Baucus 9%, Becerra 6%, Murray 6%, Van Hollen 4%, Clyburn 2%).
All things considered, were the JC members chosen wisely? Time will tell, but for now we are inclined to give them the benefit of the doubt.
STEP TWO: Here are some suggestions for the JC members on their legislative “Mission Impossible.” We will also send them a one-page summary of our suggestions before Congress returns to Washington.
Congratulations on your appointment to the Joint Select Committee on Deficit Reduction (JC). You and the eleven other members will have an extraordinary opportunity to work on the federal government’s fiscal problem – but the task will not be easy.
As you know, the objective is to reduce the deficit (over the next ten years) by at least $1.2 trillion, over and above the $900 billion in discretionary spending cuts already mandated.
Limited time has been provided, no extensions are likely, and a painful sanction will apply in the event of failure. A recap of the timetable follows.
|
BY |
EVENT OR ACTION |
RESPONSIBILITY |
|
Sept. 16 |
First Joint Committee (JC) meeting |
JC Co-Chairs |
|
Oct. 14 |
Submission of wish lists for deficit reduction to JC |
Each committee of the House and Senate |
|
Nov. 23 |
JC votes (7 “yes” votes required) on a report of its findings, conclusions & recommendations (including “legislative language”) |
JC Co-Chairs |
|
Dec. 23 |
Expedited consideration of and vote on JC report |
House & Senate |
|
1/15/12 |
(a) Legislation enacted to reduce deficit by at least $1.2T, or (b) further cuts to discretionary spending will be mandated to cover the shortfall. |
House, Senate & President |
|
1/31/12 |
Termination of JC |
Automatic |
A majority of Americans doubt the initial spending cuts in the Budget Control Act (BCA) will be effective, so why should anyone expect the JC to make further progress? But take heart! There is a good chance of a constructive outcome if you follow these simple suggestions:
1. BE OPEN: Are Americans the ultimate decision-makers in our society, or should they meekly follow the lead of the “political class,” which supposedly has the expertise to make the best decisions? Random thoughts, Thomas Sowell, Townhall.com, 8/9/11.
Three little words -- "We the people," the opening words of the Constitution of the United States -- are the biggest obstacle to achieving the political goals of the left. For that, they must move decisions away from "We the people" -- from individuals to government; from elected officials to unelected judges; and from national institutions to international institutions like the United Nations -- all safely remote and insulated from "We the people."
Without necessarily placing the question in a left/right context, we have a bias in favor of people making their own decisions rather than being told what to do by government. Not only is this consistent with the nation’s political traditions, but there are many historical examples of blunders made by leaders who amassed too much power.
Even politicians who favor a big government model typically invoke American self-reliance and innovation, albeit going on to suggest that the government should take over the economy and much else because business firms and individuals are no longer up to the task. To win the future, do not let the government do it, 1/31/11.
“Our free enterprise system is what drives innovation,” but basic research is not always profitable so the government must lend a hand at times. From this seemingly modest starting point, the president touts one government funded or inspired program after another. Obama uses language of capitalism, tools of government, Timothy Carney, Washington Examiner, 1/26/11. http://bit.ly/iaJmHv
When it comes to choosing between cutting government spending and raising taxes, for example, there is no apparent reason why the issue should be discussed in private by the leaders who presume to be speaking for Americans. What have they got to hide? Let there be light on the budget super committee, Washington Examiner, 8/5/11.
It is said that laws and sausages ought not be seen in the making, but such thinking creates a screen that hides the very dark things that the public most needs to see in the full light. As Patrick Henry said in 1787, "the liberties of a people never were, nor ever will be secure so long as the transactions of their rulers may be concealed from them." Let's not conceal the deliberations of this super committee.
The BCA requires public notice of the scheduling of and agenda for meetings and publication of the JC report after approval, and it would not appear to bar greater transparency. Following the example set by the Fiscal Commission in 2010, we would urge your committee to provide videotaped coverage of its general meetings and publish a draft of its proposed report before the members vote.
2. STOP DIGGING: With the government running trillion dollar deficits, there is no warrant for new “investments” in infrastructure improvements, extension of the one-year (2011) payroll tax reduction, or other measures that would serve to widen the fiscal gap. Yet some of these ideas appeared in the president’s now rejected FY 2012 budget, and they continue to come up in one form or another. Obama calls for more federal money for roads, bridges and airports to create jobs, Terrence Jeffries, CNS News, 8/7/11.
We appreciate the need to foster economic recovery, but the best way to do so would be to remove government obstacles to progress rather than relying on the US Treasury to “stimulate” investment. To this end:
#Unblock worthwhile projects that have been studied to death by government agencies. For example, approval of the Trans-Canada pipeline (which has been bottled up by the State Department for three years) could reportedly create some 20,000 high-paying jobs and bolster US energy security as well. Obama urged to OK Canada-Texas pipeline, Tim Deveaney, Washington Times, 8/8/11.
#Challenge the Administration’s drive to impose anti-business regulations that could not possibly be approved in Congress and are undermining business confidence. Meanwhile on the administrative front, 5/2/11; An administrative blitz, 5/9/11.
Here is an update on one of the worst offenders. Killing jobs, cost won’t stop Obama EPA, Bob Beauprez, Townhall.com, 8/12/11.
The Obama EPA is preparing to implement two major new air quality regulations that will cost consumers hundreds of billions of dollars more in their energy bills and destroy great numbers of American jobs. *** [Because] of higher costs and power plant closures by 2020 these two new regulations [Cross-State Air Pollution Rule and the Mercury and Air Toxics Standards] could destroy another 1.4 million jobs, and drive up electricity costs for consumers by 11.5% and some businesses could see as much as a 35% increase.
#Stop pushing big tax increases, which is likewise detracting from business confidence, unless they are truly needed to cut deficits. As discussed under the next heading, we do not believe this is so.
Not that your committee needs to take up all these issues, but do not fall for the claim that economic recovery is dependent on more “stimulus” programs. The Keynesian approach has received an ample trial already, with little to show for it. Obamanomics drives Americans out of the workforce, Washington Examiner, 7/10/11.
Having thrown nearly a trillion dollars at an economic mess, nearly every penny of which is spent, Obama now finds himself facing continued deterioration with no end in sight. Having run up an unsustainable debt in the vain hope of creating lasting jobs in the United States, he finds himself out of ammunition and with no clear plan to forge ahead.
3. TAXES CAN WAIT: Perhaps the thorniest debt reduction issue is what to do about taxes. Side A demands a “balanced solution” that includes more “revenue.” Side B insists that this is no time for tax increases. Despite the passion with which these views have been stated, neither side has done a good job of justifying its position.
It is generally agreed that the US tax system is a complicated mess. Some would scrap the existing system and replace it with a flat tax or FairTax. The other option would be to radically simplify the existing system, e.g., by implementing SAFE’s SimpleTax proposal. Limping along with the present system comes in dead last.
http://www.s-a-f-e.org/the_simple_tax.htm
Side A seems more interested in hiking taxes for selected taxpayers, however, than in true tax reform. Indeed, their approach smacks of the ad hoc tinkering with taxes Congress has indulged in over the years, which has produced the current mess.
It is argued that high earners (aka “millionaires and billionaires”) are either not paying their “fair share” of the total tax bill or are making so much money that they should be happy to pay the government a “bit more.” Big corporations (especially oil companies) are likewise said to be under-taxed.
Neither claim has been solidly supported. The facts contradict Obama’s calls for higher taxes on the rich and corporations, Scott Hodge, Tax Foundation, 8/9/11.
#Recently released IRS data for 2009, shows that taxpayers earning over $200,000 paid 50 percent of the $866 billion in total income taxes paid that year, or $434 billion. Skeptics will say, "That's because they earn the majority of the income in America. Not so. These taxpayers earned 25 percent of the $7.6 trillion in total adjusted gross income in the country that year.
#In 2008, the roughly 1,900 largest corporations paid $152 billion in income taxes. This amounted to 67 percent of the $227 billion in total corporate income taxes paid that year.
There is also considerable evidence that lower earners are getting a free ride in that they receive plenty of government benefits without helping to pay for them. Id.
#The 2009 IRS data also shows that a record 58.6 million tax filers had no income tax liability that year. This means that 42 percent of the 140 million Americans who filed tax returns that year contributed nothing to the basic cost of government.
Should the JC wade into this thicket, attempting to decide who should pay more or less taxes? One could make an argument for doing so. Super-committee is a chance for tax reform, Hugh Hewitt, Townhall.com, 8/12/11.
As the new "Super Committee" of 12 sets to its work it confronts a unique opportunity to rethink the basic approach to federal taxation. Whether it proposes an overhaul depends on many factors, but it ought to at least consider the upside to slashing rates on income, both personal and corporate, and introducing a national sales tax to make up for those lost revenues.
With all due respect to Mr. Hewitt, the JC will not have enough time to tackle comprehensive tax reform. Nor would the current balance of power in Washington permit a mutually agreeable solution, i.e., here is an issue that must be thrashed out on the campaign trail. And we would reject the idea of having both an income tax and a national sales tax.
Rather than going off half-cocked on taxes, we would urge your committee to focus on the spending side of the equation. By following our next suggestion, you should find it relatively easy to meet the assigned deficit reduction goal in a constructive way.
4. BE SELECTIVE ON SPENDING: Across-the-board spending cuts can undermine programs that deserve support, thereby fueling demand for exceptions. Before long, the budget restrictions give way like a dam with seepage around the edges. Debt plan spending-cut “trigger” has failed in past, Heidi Przybyla, Business Week, 7/29/11.
“Anything Congress does, Congress can undo,” said Bob Bixby, executive director of the Concord Coalition, an Arlington, Virginia-based group that advocates for balanced budgets. “They can’t really bind themselves. You really have to have a political will to make these things work or they won’t.”
For an effective spending reduction program: (a) identify wasteful programs or activities, and (b) eliminate, consolidate, or restructure them. Reaching consensus on the targets may not be easy, but there is really no substitute. Downsizing the Federal Government, Chris Edwards, Cato Institute (2005)
The merits of being specific are particularly evident in the present situation, as the BCA has already mandated $917B in across-the-board cuts (next 10 years) on discretionary spending (a modest and shrinking share of the overall budget). Further across-the-board cuts to discretionary spending would simply not make sense.
Major cuts in defense spending are already reflected in round one, and there is ample evidence that it would be unwise to go further. Panetta warns against sweeping defense budget cuts, David Alexander & Jim Wolf, Reuters, 8/3/11.
[Defense Secretary] Leon Panetta [who has solid budget experience on his resume, and is hardly considered a “military hawk”] said a potential second round of cuts in security spending estimated at about $600 billion from fiscal 2012 to 2021 would be "completely unacceptable."
Across-the-board cuts to nondefense spending could do harm as well, and it would be far more productive to look for discretionary programs that could be eliminated and make a start on restructuring entitlements.
Some of the needed changes would be very controversial, and like tax reform should be left to be debated on the campaign trail. But with all the opportunities to shrink the government that exist, surely your committee could find $1.2T in targeted spending cuts that would make sense.
Yikes, this is getting too long! Tune in again next week, when we will conclude our suggestions to the Joint Committee with a “punch list” of spending cut alternatives. If any of you readers have suggestions in the meantime, please let us hear from you.
8/8/11 – Debt limit deal settled nothing Read Replies
There was a feeling of closure as the votes on the Budget Control Act of 2011 were shown taking place on national TV, first the House (269-161) in the early evening of August 1 and then the Senate (74-26) the next day. After signing the bill, the president walked out of the White House to a podium in the Rose Garden at 1:06 p.m. on August 2.
Presumably, the US political leader would now thank the members of Congress for their long hours of thoughtful consideration, passionate debate, and ultimate willingness to compromise their differences. This is what the voters sent us to Washington to do, this is what makes our democracy works, etc. But the speech did not come out that way.
No one was praised except the American people for “keeping up the pressure on their elected officials to put politics aside and work together for the good of the country.”
The president stressed that he wants to see tax increases on “the wealthiest Americans and biggest corporations” in phase two of the deficit reduction package, not spending cuts alone. There was also a call to extend the one-year reduction of payroll taxes (referred to as “tax cuts for middle-class families”) into 2012, which would increase the deficit and make the need to raise taxes on the “rich” that much greater.
He closed by implying that the members of Congress, or at least his political opponents, only did their jobs because a crisis for which they might be blamed was staring them in the face. Transcript.
It shouldn’t take the risk of default -– the risk of economic catastrophe -– to get folks in this town to work together and do their jobs. Because there’s already a quiet crisis going on in the lives of a lot of families, in a lot of communities, all across the country. They’re looking for work, and they have been for a while; or they’re making do with fewer hours or fewer customers; or they’re just trying to make ends meet. That ought to compel Washington to cooperate. That ought to compel Washington to compromise, and it ought to compel Washington to act. That ought to be enough to get all of us in this town to do the jobs we were sent here to do.
Apparently, the budget brawl is just getting started. It will continue until the 2012 elections and beyond. And the principals may or may not address the basic issues: cutting government spending, streamlining taxes, and rationalizing regulations, before a top-heavy government tanks the US economy.
THE DEAL: The basic terms have been amply reported. (A) Debt limit increase of $2.4 trillion (or maybe $2.1T); (B) Spending over the next 10 years cut by $900B; (C) a “joint committee” (JC) will look for another $1.5T in deficit cuts, and if the JC deadlocks then a $1.2T spending cut trigger kicks in; (D) Congress will vote on a Balanced Budget Amendment. But the details are important, so let’s drill down a bit.
A. There will be a debt limit increase of at least $2.1T, all right, but it will be in three installments with the second and third installments subject to the theoretical possibility of Congressional disapproval – much as Senator Mitch McConnell suggested several weeks ago – which may serve to keep this subject in the news. The following timetable can be inferred from the provisions of the “Budget Control Act of 2011” (BCA), pages 30-43.
|
Debt limit increase |
President requests |
Congress can disapprove |
Timing of increase |
|
$400B |
Now |
No |
Now |
|
$500B |
Now |
Yes* |
By October |
|
$1,500B, but not less than $1,200B |
After $900B debt limit increase |
Yes* |
By early 2012 |
*But subject to veto, so a 2/3 majority of both houses would be required.
http://bit.ly/naCubl (download debt-bill PDF)
Over half of the initial debt limit increase was used to reverse the “extraordinary measures” the Treasury Department had been using to hold Total Debt under the $14.3T limit. The debt now stands at $14.5T or 100% of Gross Domestic Product. US eats up most of debt limit in one day; $239 billion spike uses up 60% of funding OK’d on Tuesday, Stephen Dinan, Washington Times, 8/3/11.
B. Spending cuts of $917B versus the March 2011 Baseline were claimed by setting year-by-year ceilings for new budget authority (no impact on entitlements except $17B added for Pell Grants); about 50% of the cuts would be allocated to defense and the remainder to all other discretional spending. BCA, pages 2-26.
The cuts are backend-loaded, with no indication (beyond the split between defense and other) of where they would be made. Congressional Budget Office, August 1, 2011.
|
Fiscal year, $B |
2012 |
2013 |
2014 |
2015 |
2016 |
2017-21 |
2012-21 |
|
Spending |
(22) |
(41) |
(56) |
(69) |
(77) |
(498) |
(722) |
|
Interest |
0 |
(1) |
(3) |
(6) |
(10) |
(134) |
(153) |
|
Total |
(21) |
(42) |
(59) |
(75) |
(87) |
(634) |
(917) |
http://cbo.gov/doc.cfm?index=12357
C. A Joint Select Committee on Deficit Reduction (aka “Super Committee”), composed of twelve members of Congress, will be assigned the goal of reducing the deficit by at least $1.5T more for fiscal years 2012-21. BCA, pages 52-72.
Six joint committee (JC) members will be from the House. The Speaker of the House will appoint three of them (and designate one of the two Co-Chairs); the House Minority Leader will appoint the other three.
Six JC members will be from the Senate. The Senate Majority Leader will appoint three of them (and designate the second Co-Chair); the Senate Minority Leader will appoint the other three.
The deadline for appointing JC members and designating the Co-Chairs is August 16 (fourteen calendar days after enactment of the BCA). The ensuing timetable is:
|
BY |
EVENT OR ACTION |
RESPONSIBILITY |
|
Sept. 16 |
First JC meeting |
JC Co-Chairs |
|
Oct. 14 |
Submission of wish lists for deficit reduction to JC |
Each committee of the House and Senate |
|
Nov. 23 |
JC votes on a report of its findings, conclusions & recommendations (including “legislative language”) |
JC Co-Chairs |
|
No deadline specified |
Approval of JC report |
Majority of JC (7 of the 12 members) |
|
Dec. 23 |
Expedited consideration of and vote on JC report |
House & Senate |
|
1/31/12 |
Termination of JC |
Automatic |
We infer that the JC may meet behind closed doors (unlike the Fiscal Commission of last year, which published videotapes of all its general sessions). Although the JC Co-Chairs are to publicly announce the “date, place, time, and subject matter of any hearing to be conducted” (BCA, p. 61), there is no provision regarding access to meetings. Also the JC report is only to be published “upon the approval or disapproval of the joint committee report.” (BCA, p. 56)
“Secret” proceedings are not required, however, and some observers (including us) would prefer more transparency. Let there be light on the budget super committee, Washington Examiner, 8/5/11.
If the JC report results in at least $1.2T in deficit reductions being enacted by 1/15/12, all will be well. This could result from spending cuts (including entitlements), tax increases, or a combination of both. If the JC process falls short, however, discretionary spending cuts would be triggered to cover the shortfall.
Half of the additional cuts would be from the defense budget, giving rise to justifiable concerns about gutting the US military. Panetta warns against sweeping defense budget cuts, David Alexander & Jim Wolf, Reuters, 8/3/11.
[Defense Secretary] Leon Panetta said a potential second round of cuts in security spending estimated at about $600 billion from fiscal 2012 to 2021 would be "completely unacceptable."
"If that happens, it could trigger a round of dangerous across-the-board defense cuts that would do real damage to our security, our troops and their families, and our ability to protect the nation," he said in a message to Defense Department personnel.
And even in the case of non-defense programs, it would be hard to make a case for single-mindedly slashing discretionary spending while giving spending for entitlements a pass. Medicare, Medicaid spending continue to rise, NCPA, 8/4/11.
The debt limit and spending package approved by Congress and President Obama doesn't restrict the costs of Medicare, Medicaid and other entitlement programs. The rapidly escalating costs of the healthcare programs will challenge lawmakers seeking to rein in federal spending in the future, especially in 2014, when coverage expands to people who are uninsured now.
http://www.ncpa.org/sub/dpd/index.php?Article_ID=20946
True, the mandated spending cuts to cover a deficit reduction shortfall might include a cut of up to 2% in reimbursement rates for Medicare providers – which are already considerably lower than rates charged to the general public. Although no reduction in benefits would result in theory, overuse of this tactic can be expected to undermine the quality of care provided and/or patient access. New debt deal leads to more Medicare cuts, Manny Fantis, USA9.com, 8/2/11.
If the debt committee hits a dead end, the agreement between President Barack Obama and congressional leaders decrees an automatic 2 percent cut to Medicare providers. That's on top of a 6 percent cut already enacted to finance the president's health care law, according to the nonpartisan Kaiser Family Foundation. And the earlier cut is still being phased in.
http://www.wusa9.com/news/local/story.aspx?storyid=161187
However difficult it might be to agree on more deficit cuts, the members of Congress may see the mandated spending cut alternative as even less attractive.
D. A Balanced Budget Amendment (BBA) will be voted on between September 30 and December 31. The only stipulation as to substance is that the resolution be titled “Joint resolution proposing a balanced budget amendment to the Constitution of the United States.” BCA, pages 27-30.
If a BBA passed both houses of Congress by the requisite 2/3 margin and was sent to the several states for ratification, this could theoretically substitute for the JC process in clearing the way for a full third installment ($1.5T) debt limit increase. BCA, page 33.
As the current Congress is unlikely to approve a BBA, however, the vote is primarily of symbolic significance.
WHO WON: Commentary about the political fallout is all over the lot, and we could cite opinions for just about any point of view. The tea partiers changed the national conversation, the president enhanced (or booted) his election chances, progressives set a tax increase trap, etc.
The real answer, we think, is that none of the political players has lost yet – and the survivors will be decided in phase two. If there is a big tax increase without any entitlement reform, the president and his supporters are likely to be perceived as the winners. Otherwise, the GOP may be seen as having played its hand (control of one house of Congress) pretty well.
Final judgments about the substance of the deal should await the outcome of the second (JC) phase, but we are not optimistic at this point. Far bigger spending cuts are needed than have been provided for, and the cuts need to be surgical versus across-the-board or haphazard. Giving in to the demand for tax increases on the well-to-do would further complicate the tax system without making it fairer, and such increases would tend to work against economic recovery.
Did the debt limit deal appease the gods of the financial markets? Apparently not, since Standard & Poor’s has cut the US credit rating to AA+ and placed Treasury securities on its “negative” watch list as well. S&P downgrades US credit rating from AAA for the first time since 1917, Henry Jackson (AP), Washington Times, 8/6/11. (Aside from the timing, this development is in line with our 8/1/11 entry.)
And although last week’s stock market carnage may reflect other factors, it hardly represents a vote of confidence in the US political leadership either. Dow takes worst hit since 2008, Patrice Hill, Washington Times, 8/4/11.
In short, the only way to view the BCA with favor is by comparing it to what might have happened otherwise. As John Kenneth Galbraith put it, “Politics is not the art of the possible. It consists in choosing between the disastrous and the unpalatable.”
WHAT’S NEXT: Perhaps the most important decision concerning implementation of the BCA is who will be on the JC. As noted earlier, the deadline for appointing the 12 members is August 16 (Tuesday of next week).
We would hope that the appointed members will be smart, well versed in the policy issues, and inclined to seek constructive engagement. If the two sides staked out rigid ideological positions – Side A says tax increases are essential/ Side B says tax increases are a nonstarter – the likely result would be activation of the spending cut trigger (not the optimal outcome).
Another consideration, especially given the short period for the JC to act, is participation in prior efforts of this type. Thus, Delaware’s two senators have suggested that the “Gang of Six” – which has just the right number of members and party mix – should represent Senate on the JC. Deficit focus turns to super committee: support for the “Gang of Six,” Nicole Gaudiano, [Wilmington, DE] News Journal, 8/3/11.
“They know how to get to an agreement,” said Carper. If the leadership of the Senate “chooses to appoint six different senators who haven’t gone through that time working together,” said Coons, “I think we just start 20 yards back off the field.”
http://www.s-a-f-e.org/members_microblog_2011.htm
In a similar vein, ten members of the 2010 Fiscal Commission who are currently seated in Congress might be considered for the JC. Note that 4 of the 5 senators in question (the exception is Senator Baucus) also participated in the Gang of Six discussions this year.
|
The House |
Xavier Becerra (D-CA); David Camp (R-MI); Jeb Hensarling (R-TX); Paul Ryan (R-WI); Janice Schakowsky (D-IL) |
|
The Senate |
Max Baucus (D-MT); Tom Coburn (R-OK); Kent Conrad (D-ND); Michael Crapo (R-ID); Richard Durbin (D-IL) |
But we would think that some of the new members of Congress deserve a chance too, lest it be felt that the outcome of the 2010 elections was ignored. Also, we were not blown away by the recommendations of either the Fiscal Commission or the Gang of Six.
Another rumored criterion is that no senators will be appointed to the JC who voted against the BCA. Opponents of debt hike to be barred from “super Congress,” Paul Watson, Prisoner Planet.com, 8/2/11.
What a bad idea! In addition to ruling out some talented newcomers, e.g. Senators Ron Johnson and Marco Rubio, such a litmus test approach would bar two of the three Republican members of the Gang of Six (Senators Saxby Chamblis and Tom Coburn).
Suggestion for fiscal visionaries: Consider who you would like to see on the JC and share your thoughts with the leaders who will make the appointments and others. SAFE has already submitted a letter in this vein, but many letters are needed – and some of you may have your own ideas as to the best candidates.
You might also wish to ask why there is still no budget for the roundly $3.7T to be spent in Fiscal Year 2012. Both the president’s proposed budget and the Ryan Plan have been rejected by the Senate, yet that body has yet to propose an alternative. As for the BCA, it provides $21B in unidentified cuts for Fiscal Year 2012, representing a paltry 0.6% of total expenditures.
NEXT WEEK: Some suggested “dos” and “don’ts” for the Joint Commission.
* * * This Blogs Replies * * *
At the rate things are going, this could become the new national anthem. http://bit.ly/EPgNz - SAFE member, Arizona
The only real questions in the wake of S&P cutting the U.S. debt rating to AA+ are: (a) What took so long? & (b) Why isn't the rating lower? - SAFE member, Delaware
Too true. All too true. - Michael Tanner, Cato Institute
The stock market predictably plummeted on August 8, the first trading day after the S&P downgrade announcement. The president et al. will continue touting tax increases and “stimulus,” while some economists (including Ken Rogoff) call for more QE (bond market purchases by the Fed). This will only ramp up the debt and speed the dollar’s decline. - SAFE director8/1/11 – Who cut my credit rating?
We had planned to review the debt limit “deal” today, but the terms were still being debated when we went to press. Congressional leaders struggle to work out bipartisan debt deal, Lori Montgomery et al., Washington Post, 7/30/11, 3:19 PM.
The House voted around 3 p.m. to reject the Reid plan, but the vote was on Reid’s original plan, not the re-worked version he presented in the Senate on Friday night. But the revised plan was faring no better Saturday, when Senate Minority Leader Mitch McConnell (R-Ky.) delivered a letter to Reid, signed by 43 Republicans, declaring it unacceptable. Needing 60 votes to clear a filibuster hurdle, Reid’s current draft is assured of failure in a Senate [vote] scheduled for 1 a.m. Sunday.
Accordingly, this entry will focus on a broader point – whatever the specific terms for raising the debt limit, much more would need to be done to solve the fiscal problem.
Today’s discussion will be cast in the form of a hypothetical internal memo from XYZ rating agency recommending that US treasuries be down-rated to AA.
To: John P. Bigshot
Debt Rating: US Treasury securities
1. The Numbers: If the US were any other country, their securities would merit a single A rating at best. Total US debt is too high, fiscal deficits are staggering, and the economic outlook is mediocre.
DEBT: Total debt is $14.4 trillion (being artificially held to $14.3T by “extraordinary measures” of the Treasury Dept.). This represents about 96% of current dollar GDP of $15.0T at the end of the second quarter of 2011.
An alternative debt figure that is sometimes referred to, debt in public hands (excludes obligations to Social Security and other government trust funds), is currently $10.3 trillion (about 69% of current dollar GDP). It can be argued that Public Debt is the true measure of the US government’s obligations since the debt securities held by the trust funds are legally unenforceable IOUs.
On the other hand, Public debt + the present value of unfunded future liabilities of the US government total over $60T. Citizens’ Guide, Peterson Foundation, April 2010. If US leaders were truly committed to honoring Social Security and their other existing entitlement programs, this could be taken as the true measure of the “financial hole” that the US government has dug for itself.
Additionally, some US states are in severe financial straits, notably California, Illinois, and New York. If one or more of them defaults, there would be strong pressure for a federal bailout – just as is happening in Europe for Greece et al.
All things considered, I believe the Total Debt numbers – about 96% of current dollar GDP – represent a realistic measure of the US federal government’s obligations.
DEFICITS: The US government is borrowing about 40¢ of every dollar that it spends this year. CBO: Gov’t ran $929B deficit in first 8 months of [Fiscal Year] 2011, on track to hit $1.4T, Terrence Jeffries, CBS News.com, 6/22/11.
The president’s FY 2012 budget proposal, as submitted on February 14, 2011, projected deficits of $7.2T over the next 10 years. The budget: a “lowball” offer, SAFE, 2/21/11.
Based on its review of the president’s budget, the Congressional Budget Office upped the 10-year deficit estimate to $9.5T. Obama’s budget doesn’t reach primary balance, Stephen Dinan, Washington Times, 3/18/11.
Various proposals have been offered to improve matters. Thus, the Ryan Plan (approved by the House of Representatives in April; later rejected by the Senate) would pare the 10-year deficit of $9.5T to $5.1T via $6.2T in spending cuts less a $1.8T reduction in tax revenues (including those in GovCare, which would be repealed). Government shutdown: a temporary reprieve, SAFE, 4/11/11.
Assuming the Ryan Plan could be implemented and enforced, projected deficits would persist over the next decade but with a gradual improvement in the US financial position. The following recap substitutes Total Debt for Public Debt in the Ryan Plan presentation, and assumes nominal GDP growth of 5% per year (more on that in a minute). The path to prosperity, House Budget Committee, FY 2012 budget resolution.
http://budget.house.gov/fy2012budget/
|
$ in Trillions |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
2017-21 |
|
Revenues |
2.2 |
2.5 |
2.9 |
3.1 |
3.2 |
3.4 |
19.8 |
|
(Outlays) |
(3.6) |
(3.5) |
(3.6) |
(3.6) |
(3.7) |
(3.9) |
(21.8) |
|
Deficit |
(1.4) |
(1.0) |
(0.7) |
(0.5) |
(0.4) |
(0.5) |
(2.0) |
|
Total debt (end of period) |
14.5 |
15.5 |
16.2 |
16.7 |
17.1 |
17.6 |
19.6 |
|
GDP (nominal dollars) |
15.0 |
15.8 |
16.5 |
17.4 |
18.2 |
19.1 |
24.4 |
|
Total debt as % of GDP |
97% |
98% |
98% |
96% |
94% |
92% |
80% |
But let’s be realistic. The Ryan Plan has no chance of being adopted given the current balance of power in Washington.
Consider what the president had to say about the Ryan Plan, for example, in a speech about the fiscal problem on April 13. Transcript.
The fact is, their [the Republicans] vision is less about reducing the deficit than it is about changing the basic social compact in America. As Ronald Reagan's own budget director said, there's nothing "serious" or "courageous" about this plan. There's nothing serious about a plan that claims to reduce the deficit by spending a trillion dollars on tax cuts for millionaires and billionaires. There's nothing courageous about asking for sacrifice from those who can least afford it and don't have any clout on Capitol Hill. And this is not a vision of the America I know.
The passage of a balanced budget amendment, which would require a 2/3 vote in both the House and Senate followed by approval by 3/4 of the states is even less likely.
ECONOMIC GROWTH:
Relatively fast economic growth has typically been assumed for purposes of projecting the US fiscal position. See, e.g., the president’s FY 2012 budget (p. 202).
|
Calendar Years (GDP growth) |
|||||||
| 2011 | 2012 | 2013 | 2014 | 2015 | … | 2021 | |
| Nominal | 4.0 | 5.2 | 6.1 | 6.1 | 5.6 | 4.3 | |
| “Real” (inflation-adjusted) | 2.7 | 3.6 | 4.4 | 4.3 | 3.8 | 2.5 | |
In my opinion, this outlook is far too rosy because:
#It assumes substantially faster economic growth than the US has experienced in recent years, e.g., 1.6% per year real GDP growth on average from 2002-2010, with the highest growth rate during this period being 3.5% in 2004. Bureau of Economic Analysis, 7/29/11 release, download PDF, Table 1A.
#A shortfall in the trend line is already developing, with an annualized real GDP growth rate of 0.4% in the first quarter and 1.1% in the second quarter. These results compare unfavorably to those during the recovery phase of prior recessions. GDP report shows economy even weaker than expected, Philip Klein, Washington Examiner, 7/29/11.
In a typical economic recovery, GDP growth is supposed to be a lot higher, because comparisons to the prior period are easier. For instance, during the comparable quarters of the Reagan presidency in 1983, the recovering economy grew at 5.1 percent and 9.3 percent, respectively.
#The Administration has been pursuing policies that are certain to put a damper on business investment and economic growth. Draconian emission standards, a hold on the Trans-Canada gas pipeline, obstacles to US oil production, higher mile per gallon standards for cars and light trucks, and a flood of regulations to implement the GovCare and GovFinance legislation come to mind. There seems to be very little concern about the economic consequences. See, e.g., New EPA regulations to improve the environment [will] tank the economy, Rebecca Difede, NetRight Daily, 6/15/11.
Utility giant American Electric Power (AEP) announced that it was going to have to shut down five [coal-fired power] plants and spend upwards of $8 billion by 2014 in order to comply with the EPA’s new proposed rules for the limiting of toxic emissions and waste, including mercury. *** Ironically, the new EPA proposed rule under their definition of an “appropriate and necessary” standard is far more aggressive than the original rule that was struck down by the Courts.
#If the president and his party were able to get their way and hike taxes, this would further undermine the US economy. Far from representing a solution to the fiscal problem, higher taxes would make it worse.
In my opinion, average real GDP growth of 1.6% per year (2002-2010 average) is about the best that can be expected. The nominal rate of GDP growth depends on the rate of inflation, which could turn out to be far higher than economists expect, but if this happened government borrowing costs would skyrocket. For convenience, I accepted the projected interest costs and assumed a nominal GDP growth rate of 5%.
ECONOMIC HISTORY: Experience has shown – for many countries under a wide range of circumstances – that it is very tough to escape a deficit-debt spiral once the debt to GDP percentage hits about 90%. (As discussed, the US is already past this point.) Not that paying the debt is impossible, but there is so much built-in resistance to making the required sacrifices that political leaders will opt for some kind of default, from stiffing creditors to promoting relatively rapid inflation to shrink the debt in real economic terms (e.g., hyperinflation mitigated Germany’s debt problems in the 1920s, but also decimated the country’s middle class and facilitated the rise of Nazism). This Time is Different: Eight Centuries of Financial Folly, Carmen M. Reinhart & Kenneth S. Rogoff, Princeton University Press (2009).
http://www.s-a-f-e.org/this_time.htm
2. Special Circumstances: We are, of course, not talking about just any country. The United States is the richest and most powerful nation in the world. But that does not make it immune to the laws of economics. And if the US hits the wall, there is clearly no one around who will be able (or at least willing) to bail them out.
Here is how Professor Lawrence Kotlikoff put it in a University of Delaware seminar – at a time (2004) when the US fiscal problem was far more manageable than it is now.
Government spending has ratcheted up, taxes have been cut, and our senior entitlement programs (Social Security, Medicare & Medicaid) will explode because the baby boomers are about to start retiring and people will be living longer and longer. We face a fiscal gap of $51 trillion (including $6 trillion for the recently enacted prescription drug benefit for Medicare). Never mind that the Federal debt in outside hands is less than $5 trillion at this point, “our country is bankrupt right now.” Indeed, as Professor Kotlikoff sees it, we are in worse shape than Argentina. If the problem is allowed to continue, look for hyperinflation and a fiscal meltdown. It’s happened in many other countries, we are not immune.
http://www.s-a-f-e.org/generational_storm.htm
3. Policy considerations: You would know better than me, but I doubt this firm would want to suddenly down-rate US securities to single A. Such action could raise questions. If the situation is so clear-cut, why wasn’t there any down-rating action previously? What do we know that the other rating firms do not know? Are we irresponsibly creating turbulence in the financial markets? Etc.
If we wait too long to act and there is real debt default, however, you can bet that everyone and his sister will blame us for being asleep at the switch. And the current debt limit showdown has created an opportunity to start moving in the right direction without making a lot of waves.
In June there were warnings of a possible downgrade, presumably to AA, if there was a delay in raising the debt limit. Can’t create too much anxiety, after all, or investors will start expecting a downgrade. Debt-limit clock ticking, Washington Times, 6/6/11.
Moody’s Investors Service added urgency to the congressional debate over the debt limit by threatening to downgrade the nation’s credit rating unless a deal is struck in the coming weeks making a “substantive change in the debt trajectory.” That was Thursday. On Monday, more than 100 of the most conservative Republicans in the House insisted such an agreement would have to be big.
More recently, there have been hints that a downgrade may be necessary unless an “adequate” amount of deficit reduction is agreed to. Maybe this was an attempt to curry favor with the Administration, which wanted a “grand bargain” to ensure the debt limit issue would not come again until after the 2012 elections, but the warnings have been given nevertheless. S&P says US downgrade “at least a 50 percent possibility,” Larry Kudlow, Townhall.com, 7/29/11.
KUDLOW: Does it matter to you if the debt ceiling is raised in one or two tranches? In other words, if they raise, let's say for argument sake, half this year and the rest next year. How does that affect your thinking?
Mr. BEERS: Well, we'll look at it. But we've also said on the 14th of July that we would be concerned if we thought that the debt ceiling debate would come back and be open and we'd have to go through all this again and again and again.
KUDLOW: And that would be a negative in your view.
Mr. BEERS: That would be a negative in our view.
It seems to me that we are now in a position to take issue with the debt limit deal, whatever the precise details, and down-rate the US debt to AA in September.
It also wouldn’t hurt to start creating a record that a further down-rating may be needed if the politicians don’t get a grip on things. As I said at the outset, the numbers do not objectively warrant anything better than a single A rating.
Cassandra
* * * *
Tune in next week for a detailed evaluation of the deal that our political leaders will presumably have struck by then. Whatever happens, it will not be the end – but only a rather modest beginning.
7/25/11 – Looking at things in a different way
Gary Neil Asteak, Esq., a criminal defense attorney in Easton, PA, presented a session at the Criminal Law Symposium (6/2/11, Harrisburg) entitled “The Four Noble Truths – Dharma for the Defense.” The aim was to transcend conventional thoughts and practices and explore the essence of productive and satisfying criminal defense work.
It struck us that a similar inquiry might be useful for other fields of endeavor. Also, the debate (to the extent revealed by competing statements to the media about what has been said behind closed doors) over a deal to raise the debt limit before the purported August 2 deadline seemed to be going in circles. OK, a dharma entry it would be.
|
7/11 |
T-22 |
Strategies of Sides A & B |
|
7/15 |
T-18 |
Spending cuts & tax increases |
|
7/25 |
T-8 |
The dharma of budgeting |
|
8/1 |
T-1 |
Assessing the outcome |
Now, before going any further, what is dharma? The word has several definitions, including the teachings of Buddhism, but we will take it to mean “essential quality or character, as of the cosmos or one’s own nature.” Random House Dictionary. That may seem vague, but should become clearer as we proceed.
FOUR NOBLE TRUTHS FOR FISCAL VISIONARIES
ONE: Suffering exists – There is a fundamental duality in existence, which is manifested by the pairings of opposites.
Some pairings are absolute, such as alive/dead or top/bottom. There is generally little controversy involved.
Some pairings are relative but based on verifiable measurement, such as short/long or hot/cold. Issues there may be as to frames of reference and normative values.
Pairings based on value judgments are inherently controversial – especially as applied to human beings. Some observers (not us!) reject the good/evil pairing, for example, on grounds that even the most extreme antisocial behavior can be explained by an unhappy childhood, brain chemistry, etc.
The existence of suffering is readily accepted, and it has become trendy to classify the people involved as “victims.” There is a tendency to belittle happiness, however, as though it was unfair that some people should be happy while others suffer.
Suffering can be experienced in many ways, but here is how it typically works for fiscal visionaries.
We hold certain principles to be self-evident. If you want to do something, do it right. Don’t make promises you cannot keep. If you borrow money, pay it back.
Our government’s leaders have flouted these principles in thought, word and deed. The Constitution has been distorted from its original intent. A host of programs have been launched that are not truly needed and cannot be sustained.
Spending, deficits and debt are soaring out of control. The roar of the falls is growing louder; the sky is inky black; something wicked this way comes.
We have sounded the alarm repeatedly, in every way we know, and no one seems to be paying attention. To foresee disaster and be ignored, that is true suffering.
TWO: There are causes of suffering – Everything in the cosmos happens for a reason, and this case is no exception.
Politicians need money and support to get elected. They often make promises that will attract money and support, even if they know or should know that they will not be able to keep the promises. Tax & tax, spend & spend, elect & elect.
Big corporations, unions, and non-profit organizations are willing to kick in campaign cash and/or political support with reasonable assurances that the favor will be returned with interest if their candidate wins. Some hedge their bets by supporting candidates on both sides of the aisle.
Other visionaries have their own doomsday scenarios. Thus, some of them rationalize the torrent of government spending as “social justice” or an “investment.”
The general public likes government programs and handouts so long as someone else is paying for them. This is sometimes referred to as looking for a “free lunch.”
Fiscal visionaries fantasize about how politicians, special interests, their intellectual opponents, and the general public would behave in an ideal world rather than trying to better understand the world that exists. How foolish, when as has been truly said we cannot control anyone’s behavior except our own.
THREE: Suffering can end – Perceptions of reality are powerfully affected by the way in which one looks at things. It is within our power to look at the world differently and choose a new path.
Examine this image. http://www.mindfake.com/illusion_25.html One minute it looks like a duck; the next it resembles a rabbit. Back and forth – duck, rabbit, duck.
We must abandon perceptions and strategies that are not working. “If you always do what you have always done,” as the saying goes, “you will always get what you always got – and that’s just not good enough.”
FOUR: The path forward – No one can guarantee success in this world, and suffering will always exist. However, there should be many ways to improve on our track record. The key is to escape from mindsets that are holding us back.
Life is complicated and fast moving. Things are not always what they seem. No man is an island. There are no do-overs. Consider the haunting lyrics of “Both Sides, Now,” which ends with the following lines.
I’ve looked at life
from both sides now
From up and down, and
still somehow
It’s life’s illusions
I recall
I really don’t know
life at all
Many things we have been doing are right, such as seeking to represent the interests of future generations who may not be able to speak for themselves. That said, let’s work harder on connecting with the Millennials. These young people have been unaccountably sitting on the sidelines; they could bring tremendous energy to the fiscal debate.
Have we paid enough attention to what motivates our intellectual opponents? With a better understanding of “where they are coming from,” we might be able to combat their arguments more effectively or possibly even find a bit of common ground now and then.
Do we get so wound up about the intellectual purity of our principles that we miss opportunities for creative collaboration? Most of us have encountered conservatives who seemed more interested in promoting their own ideas than considering inputs from potential allies. “Yeah, thanks, but you should read the memo I wrote.” Certainly, this is not the way we want to act.
Let’s not give up on the politicians who have been ignoring us, no matter how tempting this seems. They are people too, and some of them are trying to do the right thing. What’s more, if they hear from enough fiscal visionaries, it is always possible they will change their minds. One letter means little; twenty letters might give them pause; swamp the switchboards with calls and they will panic.
Without dumbing down our message, we need to find ways of communicating it to the general public that are clearer, more obviously relevant to the public’s needs, and more compelling. Easier said than done, but without setting such goals we are unlikely to achieve them.
Remember, it’s not about us. We need to look beyond ourselves. And as Ronald Reagan said, “you can accomplish much if you don’t care who gets the credit.”
* * * *
One thing we will not do is to regard the fiscal debate as simply a matter of political accommodation, e.g., finding the precise mix of spending cuts and tax increases that will minimize the opposition to taking action to avert (at least for now) financial disaster.
Whether the picture is a duck or a rabbit, one may be sure it is not a rab-uck or duc-bit. A choice must be made, and there is a great deal at stake.
7/15/11 – Making sausage in DC: haggling over a debt limit increase
Many Americans are against raising the $14.3 trillion debt limit, including a majority of Republican and independent voters. Newsmax/Insider Advantage poll, 7/8/11.
Public sentiment could shift, however, as the August 2 “deadline” nears. Also, the reported results may reflect how pollsters are asking the question. No trust in debt ceiling, [Wilmington, DE] News Journal, 7/12/11.
Ralph Begleiter, director of the Center for Political Communication at the University of Delaware, predicts that “it will come down to the Friday night before the debt ceiling hits, and they’ll work into the wee hours to get something done.” Begleiter attributed polls showing widespread opposition to a debt limit increase to a lack of public understanding. “If you asked Americans, ‘Should America not pay its bills and default on its obligations?’ you would get a different answer.
http://www.s-a-f-e.org/members_microblog_2011.htm
And the major rating agencies warn that a delay in raising the debt limit could lead to a down-rating of US debt. Such action would increase the government’s interest expense (unless the Federal Reserve stepped in to buy bonds, which would fuel inflation). Moody’s reiterates credit-rating threat, Patrice Hill, Washington Times, 7/14/11.
All of the principals in the debt limit negotiation say the limit should be raised, but they cannot seem to agree as to the appropriate terms. We will present our views in this entry, and also provide some updates on the negotiations. Right size – real spending cuts – no tax increases – plot thickens.
RIGHT SIZE: Given the magnitude of the fiscal problem (projected deficits of $9.5T over the next decade, after which the outlook deteriorates), it is natural to yearn for bold and decisive action. We are Americans, after all, and, to borrow a line from this year’s State of the Union address, “we do big things.”
OK, why not balance the budget? Doing so would take a few years, but it is possible – and the nation would be better off than if deficits were simply reduced. However, the two sides do not trust each other. There is no common understanding about how to balance the budget. And it is inherently difficult to ensure that future spending reduction promises will be honored.
Doing a big deal in a big hurry, leaving many details to be worked out after the fact, would ensure future disappointment and discord.
For a couple of days in early July, there was a flurry of talk about a $4T deficit reduction deal that would include cuts in discretionary spending, trimming of entitlement programs, and tax increases. Think of it as a watered-down version of the Ryan Plan, which called for bigger spending cuts and no tax increases. Obama, GOP inching toward debt deal, Susan Ferrechio, Washington Examiner, 7/8/11.
Many conservatives feared Team B’s leader, House Speaker John Boehner, would get snookered on the $4T deal, and they let him know how they felt. Boehner thought better of the idea and the conversation shifted back to a $2.5T deal – which is what the Biden task force had spent two months talking about.
But there is a problem with pairing an immediate $2.5T debt limit increase (the estimated amount to keep the government going until after the 2012 elections) with a like amount of spending cuts over ten years. How could Side B be sure the promised spending cuts would materialize?
Some fiscal conservatives are advocating a “cut, cap and balance” approach as the answer. Cut short-term spending – impose spending caps for ensuing years – adopt a Balanced Budget Amendment (BBA) to the Constitution. See this memo from the grassroots action team of the National Taxpayer’s Union.
The first part is fine. By all means, Congress should cut spending for FY 2012 et seq., as discussed under the next heading.
Spending caps are another matter. They could be readily evaded if the zeal to cut spending faded. The big taxpayer scam, Larry Kudlow, Townhall.com, 7/7/11.
. . . big budget deals say they “cut” (there's that word again) a couple of trillion dollars over ten years. But most of it is targeted for the last couple of years, as in years eight, nine, and ten. So basically it'll never happen. It's four or five congresses from now. Laws change. Deals are broken.
As for a BBA, good luck obtaining approval of (a) 2/3 of both houses in the current Congress, and (b) 38 of the 50 states. If we ever do get a BBA, it will probably be as a means to preserve a balanced budget rather than to balance the budget in the first place. RX, part one – Reform Congress, 11/30/09.
http://www.s-a-f-e.org/government_run_amok.htm
Another approach would to raise the debt limit in installments of say $500B, with clearly defined commitments to pay for each installment. If that meant the debt limit would be revisited several times between now and the 2012 elections, so be it. The White House and Congress should agree to a hard cap on spending, James Baker, Wall Street Journal, 6/17/11.
We like Mr. Baker’s idea. Better for fiscal visionaries to hit some singles than swing for the fences and strike out. If the 2012 election results permit a more aggressive strategy, appropriate changes can be made then.
REAL SPENDING CUTS: Politicians on both sides of the aisle acknowledge the need for spending restraint, but they often take a powder when the discussion starts getting specific. The frustration of SAFE directors was evident at our last board meeting, and with good reason given the government’s fiscal track record. Never mind a 10-year plan; cut spending now, 5/30/11.
Everyone agreed on eliminating the Departments of Energy and Education, most government grant programs, corporate welfare, etc. By comparison, ideas offered by Delaware’s Congressional delegation have been timid at best. See, e.g., these News Journal columns: Rep. John Carney, Pair raising of debt limit with a long-term debt plan, 5/26/11; Senator Tom Carper, US must learn how to spend smarter, 5/12/11; Senator Chris Coons, Reckless budget cuts passed by House threaten citizens’ welfare, 2/28/11
The fiscal problem cannot be solved with freezes, caps, triggers, etc., which treat all spending programs alike. A corollary of our “smaller, more focused, less costly government” agenda is that “good” programs should be adequately supported and “bad” programs eliminated. Better the government take on a limited number of functions and do them well than undertake a host of functions with mediocre results.
Over the years, the federal government has become a huge bureaucracy with hundreds (maybe thousands) of wasteful and/or overlapping programs. National Suicide: How Washington Is Destroying the American Dream from A to Z, Martin L. Gross, Berkley Books (2009).
http://www.s-a-f-e.org/national_suicide.htm
Reasonable minds could differ as to the specifics, but it seems clear that huge savings (of both taxpayer dollars and regulatory compliance costs) could be achieved by eliminating wasteful programs and overhauling the rest of the government’s portfolio.
Our recommendations are three-fold: Cut spending, overhaul the tax system, rationalize regulations. The details are posted. SAFE to Congress: you need to do much, much better, 2/7/11.
Over $1T of mutually agreeable spending cuts have reportedly been identified in the debt limit negotiations thus far, but they would be spread over 10 years and probably back-end loaded. At best, this sounds like a drop in the proverbial bucket.
One basis for our skepticism is informed speculation, such as the Karl Rove column that was cited in the 7/11/11 entry.
Also, we have not detected serious efforts to shrink the projected deficit for FY 2012 (begins on 10/1/11). The president’s budget projected a $1,101B deficit; the Ryan Plan said $995B; the Democrat-controlled Senate has yet to offer a budget resolution. Sharp spending cuts in 2012 could be crucial to longer-term success. The Tea Party is ceiling the deal, Larry Kudlow, Townhall.com, 7/13/11.
The public wants deep spending cuts. That’s their first priority and that’s why polls overwhelmingly show opposition to a debt-ceiling increase. So regarding those spending cuts, the only thing that matters is the first-year spending decline. That would be 2012. If the spending baseline is brought down significantly in year one, then the out-years will follow suit. The government’s cost curve will ease down.
If anyone is thinking about eliminating the Department of Energy, corporate welfare programs, etc., we have not heard about it.
True, the ethanol tax credit may be allowed to expire, but the effects would be modest. Ethanol subsidy likely to end; even without $5B in federal aid, experts say industry would be fine, David Mercer, News Journal, 7/3/11.
How could “the industry be fine” and corn continue to be burned for high cost energy while food prices are artificially boosted? (1) Most likely the steep tariff on imported ethanol will remain, which prevents competition from ethanol produced from sugar cane in Brazil. (2) There is no thought of ending the federal mandate that a steadily rising amount of ethanol be blended into motor fuel. (3) Even if the current 45¢ a gallon tax credit was given up, the corn ethanol lobby would work for “a smaller credit to encourage sales when economic conditions dictate that ethanol producers really need it and money to pay for the installation of gas pumps that would let drivers fill up with fuel containing up to [15%] ethanol.” Welcome to Washington! Killing government subsidy programs will never be easy; without relentless pressure it won’t happen at all.
Another bad sign, which relates to regulatory policy rather than spending, was the defeat of a House bill to block a mandated phase-out of incandescent light bulbs. A two-thirds vote was sought for procedural reasons, and we understand that the bill will be presented again. But even if the bill clears the House, it will probably be blocked in the Senate. House turns out light on old-style bulbs, Stephen Dinan, Washington Times, 7/13/11.
What about the suggestions for pruning entitlements, e.g., changing the cost of living formula (would reduce future Social Security benefits while increasing future income taxes) and raising the eligibility age for Medicare to 67?
These ideas were apparently a part of the president’s pitch for a $4T deal, and if so they are no longer in play. It is also unclear whether they ever represented anything more than rhetorical window dressing. See, e.g., Democrats oppose talk of cuts to Social Security, Robert Pear, New York Times, 7/7/11.
As word spread that Mr. Obama was considering large savings from the use of a different measure of inflation to reduce the annual cost-of-living adjustment in Social Security benefits, Democrats joined with lobbyists for older Americans to reject the idea.
In short, real spending cuts will be hard to come by. All the more reason to seek a smaller debt limit increase, which might make it easier to monitor spending cut promises.
NO TAX INCREASES: The fiscal problem has arisen primarily due to government spending growing faster than the economy, not a shortfall in revenue caused by the Bush tax cuts in 2001 and 2003. See this Heritage Foundation chart, which tracks spending versus revenue on a historical and projected basis.
http://www.heritage.org/BudgetChartBook/runaway-spending-tax-revenue
Not that we oppose tax reform. To the contrary, the tax system is a mess and a complete overhaul is needed. See SAFE’s SimpleTax proposal for discussion. Note the assumption that tax revenues should total 20% of Gross Domestic Product, about five percentage points above the currently reduced (by the economic slump) level.
http://www.s-a-f-e.org/the_simple_tax.htm
Side A’s suggestions for raising tax revenue are illustrative of the ad hoc tinkering that has degraded the system. It is high time for Congress to get its tax writing act together.
And Side A’s obsessive insistence on tax increases can only be understood as ideological or political. Why Obama must raise taxes, John Ransom, Townhall.com, 7/2/11.
Without a tax hike, Obama will have to admit that it’s been his poor handling of the budget that’s led to the largest deficit ever. Without a tax hike, he’ll have to admit that his stewardship of the economy has been a lot of sound, but the only fury created has come from fleeced taxpayers.
Taxpayers in the top 1% percentile paid 38% of individual income taxes in 2008, while taxpayers in the lower 50% percentile paid 3%. Who is to say top earners are not paying their fair share? Perhaps lower income taxpayers should pay a bit more of the tab.
http://www.ntu.org/tax-basics/who-pays-income-taxes.html
Other complaints about the current tax rules are even lamer, e.g., the president’s slap at corporate jets. “Balanced” deal with more taxes misses the point, News Journal, 7/8/11.
Granted that the government needs more tax revenue, the most effective way to get it would be to promote economic recovery. Raising the depreciation life for corporate jets from 5 to 7 years, repealing LIFO accounting for oil companies, phasing out tax exemptions and deductions for “millionaires and billionaires,” etc. would complicate our already Byzantine tax system without significant revenue gain.
http://www.s-a-f-e.org/letters_2011.htm#July_8,_2011
Now is the time for a comprehensive overhaul of the tax system. Rates should be cut, but also preferences (exemptions, deductions and credits), to make the system simpler, fairer, and economically neutral. Revenues would probably increase overall, but that should not be the primary objective. And there should be no ad hoc tax increases, once again kicking the can of tax reform down the road.
THE PLOT THICKENS: Herewith several updates to the 7/11/11 entry on the Side A and Side B strategies.
#The president has threatened to veto any short-term debt limit extensions. Obama’s flattery of Boehner goes nowhere, Dave Boyer, Washington Times, 7/11/11.
Mr. Obama said he would veto any short-term pact to raise the debt ceiling, arguing that an agreement must cover government borrowing through the November 2012 elections. “I will not sign a 30-day, or a 60-day, or a 90-day extension,” Mr. Obama said. “This is the United States of America. We don’t manage our affairs in three-month increments.”
In so doing, the president arguably overreached. If he vetoed a $500B debt limit increase tied to spending cuts, or the Democrat-controlled Senate blocked it, how could any resulting problems be blamed on Side B? Obama’s Waterloo, Jeffrey Kuhner, Washington Times, 7/12/11.
#The president has warned that Social Security payments might be delayed if the debt limit was not raised by August 2. GOP says Obama resorting to scare tactics, Kara Rowland & Sean Lengell, Washington Times, 7/13/11.
“I cannot guarantee that those checks go out on Aug. 3 if we haven’t resolved this issue. Because there may simply not be the money in the coffers to do it,” he told CBS News.
Side B might counter this threat by enacting legislation requiring Treasury to pay debt service, military pay, Social Security, and Medicare on a priority basis. Memo to Hill GOP: How to take the Social Security card out of Obama’s hands, Mark Tapscott, Washington Examiner, 7/13/11.
But with the government currently borrowing 40¢ of every dollar it spends, many obligations could not be paid – no matter what legislation was passed. Surely the Administration would try to delay the payments most embarrassing for Side B.
#Senate Minority Leader Mitch McConnell has suggested a plan that would empower the president to keep running up debt in $800B increments, subject to offering spending cuts (which would not need to be enacted). Congress could block the debt limit increases, but the president could veto its refusal.
The rationale was that the Senate wanted no part of triggering a debt default, yet the impossibility of making a reasonable deal for raising the debt limit had become evident. McConnell offers “last choice option,” Susan Ferrechio, Washington Examiner, 7/13/11.
We have become increasingly pessimistic that we will be able to reach an agreement with the only person in America who can sign something into law, and that's the president of the United States.
Most conservatives lambasted McConnell’s proposal, but the Wall Street Journal warned that Side A holds more cards than Side B and would exploit its position ruthlessly in a default context. Debt-Limit Harakiri, 7/13/11, link not available.
[The president] and Mr. Geithner will gradually shut down government services, the more painful the better. The polls that now find that voters oppose a debt-limit increase will turn on a dime when Americans start learning that they won’t get their Social Security checks. Republicans will then run like they’re fleeing the Pamplona bulls, and chaotic retreats are the ugliest kind. By then they might end up having to vote for a debt-limit increase and a tax increase.
With all due respect to Senator McConnell and the Wall Street Journal, we believe it would be a grave mistake to implement this proposal.
First, such action would blur the lines of Constitutional responsibility. Congress, not the president, is responsible for authorizing borrowing. Plan B and limited government’s future, Washington Examiner, 7/14/11.
Second, Side B has a sound position on the policy issues. Right size (they are coming around to the idea of raising the debt limit on the installment plan, which is the only practical way to proceed, while the president is threatening a veto) – real spending cuts (the Ryan plan is available for inspection; Side A’s ideas are not) – no tax increases (we agree, especially as Side B is open to a review of the overall system).
Third, Americans would see the implementation of Senator McConnell’s plan as a copout, losing all respect for Side B as a result. Republicans must vote against raising debt ceiling or face political annihilation, Matt Towery, Townhall.com, 7/13/11.
# A White House meeting on July 13 was terminated by the president’s departure from the room after a testy exchange. Eric Cantor: Obama abruptly walked out of debt meeting, Jonathan Allen & Jake Sherman, Politico, 7/13/11.
http://www.politico.com/news/stories/0711/58937.html
The next day, House Speaker John Boehner declined the president’s invitation to conduct a weekend meeting in a more relaxed setting. Boehner rejects Camp David summit with Obama, Susan Ferrechio, Washington Examiner, 7/14/11.
Just as well there will be no Camp David meeting. We had a vision of the president telling the Secret Service to put Representative Cantor in time out for talking back.
* * * *
And now, at 5:30 p.m., July 14, 2011, your faithful scribe is signing off so this second entry in our series on the debt limit showdown can go to press.
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7/11 |
T-22 |
Strategies of Sides A & B |
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7/15 |
T-18 |
Spending cuts & tax increases |
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7/25 |
T-8 |
The dharma of budgeting |
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8/1 |
T-1 |
Assessing the outcome |
The 7/25 entry will review certain aspects of this subject at a deeper and more fundamental level, and the 8/1 entry will complete the story (assuming it ends on schedule) in a conventional manner.
7/11/11 (T-22) – When worlds collide: two very different strategies Read a Reply
Rumor has it that the world as we know it will end on August 2 unless an agreement to raise the $14.3 trillion federal debt limit is reached by then. No doubt the point has been overstated, but negotiations over the next three weeks could still determine what, if anything, gets done about the fiscal problem before the 2012 elections.
SAFE will be providing updates and analysis as matters progress. We envision a four-part series, as follows:
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7/11 |
T-22 |
Strategies of Sides A & B |
|
7/18 |
T-15 |
Spending cuts & tax increases |
|
7/25 |
T-8 |
The dharma of budgeting |
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8/1 |
T-1 |
Assessing the outcome |
The debt limit showdown is subject to varying interpretations, which can lead to simplistic conclusions. Hey, Side A is trying to do the right thing. But Side B makes some points too. So the true answer must lie somewhere in the middle. See, e.g., President gets it right: Both sides must bend, [Wilmington, DE] News Journal, 6/30/11.
The reality is the nation needs both: to cut spending levels and to eliminate some tax breaks and other special favors to the "millionaires and billionaires" and corporations the president mocked at Wednesday's press conference.
But why focus on a snapshot of the current situation when a video is available? Let’s go back in time a bit.
CHRONOLOGY OF EVENTS: The president and his party could probably have raised the debt limit last December, while they still controlled both the House and Senate, but chose to wait for the new Congress. Here is a recap of what has happened since.
January 6 - Treasury secretary sends a letter to the Senate majority leader, with copies to all members of the new Congress, advising that a failure to swiftly raise the debt limit “would precipitate a default by the United States” with dire consequences.
Never in our history has Congress failed to increase the debt limit when necessary. Failure to raise the limit would precipitate a default by the United States. Default would effectively impose a significant and long-lasting tax on all Americans and all American businesses and could lead to the loss of millions of American jobs. Even a very short-term or limited default would have catastrophic economic consequences that would last for decades. Failure to increase the limit would be deeply irresponsible. For these reasons, I am requesting that Congress act to increase the limit early this year, well before the threat of default becomes imminent.
February 14 - The president submits a FY 2012 budget showing a 10-year deficit of $7.2T. The budget: a “lowball” offer, 2/21/11. Based on its review, the Congressional Budget Office ups the 10-year deficit estimate to $9.5T. Obama’s budget doesn’t reach primary balance, Stephen Dinan, Washington Times, 3/18/11.
April 5 - The House publishes an alternative budget (aka the Ryan Plan), which would pare the 10-year deficit to $5.1T. The indicated $4.4T deficit reduction reflects $6.2T in spending cuts less a $1.8T reduction in tax revenues (including those in GovCare). Government shutdown: a temporary reprieve, 4/11/11.
Meanwhile, House Budget Chairman Paul Ryan rolled out a proposed FY 2012 budget that reflected some $6 trillion less spending in the 10-year projection period than the president’s FY 2012 budget. The cuts included GovCare repeal, conversion of Medicare coverage to subsidized private insurance plans for future retirees, and conversion of Medicaid to a block grant program.
April 13 – The president outlines an alternative proposal (with few details and no documentation) for reducing the projected deficit by $4T over 12 years. He sharply attacks the Ryan Plan as an extreme and unbalanced approach. Speech transcript.
A 70% cut to clean energy. A 25% cut in education. A 30% cut in transportation. Cuts in college Pell Grants that will grow to more than $1,000 per year. That's what they're proposing. These aren't the kind of cuts you make when you're trying to get rid of some waste or find extra savings in the budget. These aren't the kind of cuts that Republicans and Democrats on the Fiscal Commission proposed. These are the kind of cuts that tell us we can't afford the America we believe in. And they paint a vision of our future that's deeply pessimistic.
April 15 – The lower chamber approves the Ryan Plan. House passes $6 trillion spending cut plan, Andrew Taylor, Washington Examiner, 4/15/11.
May 25 – Despite not having offered its own budget proposal, the Senate rejects the Ryan Plan (57-40). The president’s FY 2012 budget is also rejected (97-0) on grounds that it is no longer in play. President’s budget sinks 97-0, Alexander Bolton, The Hill, 5/25/11.
Democratic aides said ahead of the vote that the Democratic caucus would not support the plan because it has been supplanted by the deficit-reduction plan Obama outlined at a speech at George Washington University in April.
April/June – The Biden talks identify $1T+ in spending cuts on which the two sides can supposedly agree, but deadlock over tax increases. Taxes take top Republicans out of deficit-paring talks, Sean Lengell, Washington Times, 6/24/11.
Republicans say the federal red ink should be reduced through spending cuts, while Democrats argue tax increases should also be on the table. After 11 meetings, Republicans said the talks have gone as far as they can without Mr. Obama becoming personally involved.
June 29 – The president slams Republicans at a press conference for refusing to accept tax increases. Transcript.
It would be nice if we could keep every tax break there is, but we’ve got to make some tough choices here if we want to reduce our deficit. And if we choose to keep those tax breaks for millionaires and billionaires, if we choose to keep a tax break for corporate jet owners, if we choose to keep tax breaks for oil and gas companies that are making hundreds of billions of dollars, then that means we’ve got to cut some kids off from getting a college scholarship. That means we’ve got to stop funding certain grants for medical research. That means that food safety may be compromised. That means that Medicare has to bear a greater part of the burden. Those are the choices we have to make.
June 30 – Republicans say they will consider tax reform, but not selective tinkering with the tax code designed to raise revenue. They also object to the “class warfare rhetoric” being employed. GOP pushes back at Obama over debt talks, Susan Ferrechio, Washington Examiner, 6/30/11.
July 5 – The president says he is unwilling to consider a short-term extension of the debt limit and wants a comprehensive deal by August 2 at the latest. Obama prods Congress on debt deal, Dan Boyer & Stephen Dinan, Washington Times, 7/5/11.
“I’ve heard reports that there may be some in Congress who want to do just enough to make sure that America avoids defaulting in the short term, but then want to kick the can down the road when it comes to solving the larger problem of our deficit,” Mr. Obama said. “I don’t share that view.”
July 7 – The president and Congressional leaders meet at the White House. There is a flurry of reports afterwards, the gist being that consideration will be given to pairing a debt limit increase with a $4+ trillion deficit reduction deal. The talks are described as “constructive,” and there is to be another meeting over the weekend.
July 10 – (Sorry, but our entries have to cut off at some point and the Sunday evening session happened after we went to press. Any notable developments will be posted as a “comment” on this entry.)
Would it be fair to conclude from the foregoing that the two sides are simply trying to find the best answer to the fiscal problem (toxic deficits & debt increases)? If anyone believes that, we have some beachfront property in Arizona for sale.
SIDE A: Let’s start with the president and his supporters, who made the first moves and seem to be following the more devious strategy. What are they aiming for, and how do they hope to achieve it?
Based solely on his recent remarks (the snapshot), it might seem that the president is a fiscal moderate who is trying to prod the extremists on both sides into reaching a constructive solution. Hey, they might be willing to make a short term deal and keep kicking the can down the road, but he wants no part of that.
Notice, however, that the president habitually portrays himself as a moderate even though his political record indicates otherwise. Also, the claim that he does not intend to keep kicking the can down the road is stale – he made the same point in January 2009 to a group of Washington Post reporters and editors. Mr. President, stop straddling the fence and decide, William Whipple, News Journal, 8/24/09.
If the president truly wanted to solve the fiscal problem, he could have submitted a more austere FY 2012 budget. Or shown greater appreciation for the thinking that went into the Ryan Plan, even if he differed with various aspects of it. Or presented details of the alternative deficit reduction “plan” that most of the media has credited him with offering instead of simply giving a speech.
In short, as the saying goes, “actions speak louder than words.” The president has done little to address the fiscal problem, and indeed contributed to making it worse during his first two years in office. So what is Side A really up to?
We see the main goal as preparing for the 2012 elections by either (a) winning the debt limit tussle decisively, or (b) blaming Side B for unpopular spending cuts and/or any adverse fallout from an alleged default.
“Winning” would mean raising taxes on the well to do, while agreeing to the minimum in real spending cuts (except for defense). And every substantive move by Side A thus far has been guided by these criteria.
What about the spending cuts agreed to in the course of the Biden talks? When the details become available, they are likely to prove unimpressive. Obama’s debt-ceiling opportunity, Karl Rove, Wall Street Journal, 7/7/11 (no link available).
Thus, in backroom negotiations recently, the Administration offered roughly $1 trillion in phony savings – mostly money that would never have been spent in Iraq and Afghanistan over the next 10 years anyway, along with $500 billion in interest savings on the trillion. It has also offered another supposed trillion in domestic and entitlement savings, but with cuts starting in 2014 and unlikely ever to be realized.
And if Side B demands more substantive spending cuts than Side A is willing to accept, there is a meticulous record (Treasury Secretary Geithner’s letters to Congress, the president’s speeches, etc.) that Republicans were warned of the dire consequences of default yet refused to accept a “balanced” deal.
There is even a school of thought that Side A might choose to ignore the debt limit on grounds that it is unconstitutional, citing the necessity of saving American from a default brought about by Side B’s failure to act responsibly. Really, we are not making this up, and Secretary Geithner has articulated the claim publicly. Obama Administration may just ignore the debt limit, Conn Carroll, Washington Examiner, 7/1/11.
I think there are some people who are pretending not to understand it, who think there’s leverage for them in threatening a default. I don’t understand it as a negotiating position. … can I read you the 14th amendment? … “The validity of the public debt of the United States, authorized by law, including debts incurred for the payments of pension and bounties for services in suppressing insurrection or rebellion” — this is the important thing — “shall not be questioned.” So as a negotiating strategy you say: “If you don’t do things my way, I’m going to force the United States to default–not pay the legacy of bills accumulated by my predecessors in Congress.” It’s not a credible negotiating strategy, and it’s not going to happen.
Most conservative observers see this theory as so patently lacking in legal merit that Side A would never invoke it. (Maybe, but after the manner in which the president ducked compliance with the War Powers Resolution for Libya, we are not so sure.) Obama’s empty 14th Amendment ploy on the debt ceiling, Bill Wilson, Washington Examiner, 7/6/11.
. . . there is no legal right or claim of the president to overturn Article I, Section 7 of the Constitution, which gives the House of Representatives the sole power to originate "the raising of revenue." And let's be clear, adding new debt is new revenue. The president has no role.
SIDE B: The strategy of Republicans has been comparatively straightforward. They have demanded spending cuts exceeding the amount of any increase in the debt limit, while rejecting demands for net tax increases.
Side B’s rationale is that (1) it is imperative to tackle the fiscal problem, and (2) the measures they advocate will help to restore business confidence and promote economic recovery. In other words, they are trying to do the right thing. Representative Paul Ryan’s speech to the Economics Club of Chicago, 5/16/11, transcript.
#You can’t get real, sustainable growth by continuing to pile on the debt. More debt means more uncertainty, and more uncertainty means fewer jobs. *** We cannot get our economy back on track if Washington tries to tax its way out of this mess.
While generally agreeing with these sentiments, we would offer three criticisms of Side B’s position.
#The Ryan Plan did not cut spending enough. Our idea would be to balance the budget over the next decade (or less), not simply cut projected deficits in half. Still, the proposal represented a step in the right direction and Side B deserves credit for offering it.
#It seems lame to rule out tax increases on grounds they “cannot pass the House,” as House Speaker John Boehner has done on several occasions. The claim is not demonstrably true, and it invites the equally lame response that a deal without tax increases “cannot pass the Senate.”
#Side B is relying on the president to accept real, verifiable spending cuts and no net tax increases. If he balks, they may find themselves in a weak bargaining position. Debt cutting discussions lack backup plan, Jake Sherman & John Brensahan, Politico.com, 7/6/11.
The House GOP leadership isn’t drafting alternative bills to boost the debt ceiling, and they’ve ruled out any short-term agreement to forestall a default by the U.S. government on its $14.4 trillion debt, an option that one House Republican lawmaker said could not muster more than 100 GOP votes.
With 12 legislative days before the White House’s deadline for a deal — and three weeks before Treasury’s Aug. 2 default date — House Republicans are counting on someone they haven’t had much faith in in the past: President Barack Obama.
CONCLUSION: The debt limit showdown is between a unified, slick, bare-knuckles political machine, and opponents that are smart and well intentioned, but less cohesive and ruthless.
Side B’s only chance is to convince the American public that their ideas are better than those being offered by Side A, e.g., that their thinking about spending cuts is sound and this would be a bad time to raise taxes. Can they succeed? Tune in next week for a discussion of the policy issues that have been put in play.
* * * * This Blog's Reply * * * *
7/11 UPDATE: The grandiose idea of a $4T deficit reduction deal collapsed over the weekend, and the principals in the debt limit showdown are reportedly back to discussing $2T+ deficit reduction to pay for a debt limit increase of equal side with continuing disagreement as to whether tax increases will or will not be included in the mix. Yet another meeting of the principals is scheduled today.
Multi-year tax agreements are untrustworthy. Whatever Congress agrees on this year will change next year, when a new budget is presented and debated. The time has come to face the facts. We cannot continue to spend at the rate we have without disastrous results, so there must be no INCREASE IN THE DEBT CEILING! As for concerns about the consequences of default on our debt obligations, there is plenty of revenue to meet those obligations if we pay them first. – SAFE director
Both sides must bend, so let’s put half the federal budget on the table along with a copy of the U. S. Constitution. It will be seen that half of the budget is for political schemes, not authorized by the Constitution, which serve to keep corrupt politicians in office. – SAFE member, AZ
The bond markets will not tolerate the US deficit and debt spree much longer. When they balk, we will see interest rates hit double digits hard and fast. Plus which, just wait until CA, IL, or NY comes to Washington looking for a bailout. Neither Side A nor Side B seems to appreciate the gravity of the fiscal problem and the urgency of acting decisively. Get set for a disaster. – SAFE director7/4/11 – Remember the past to save the future
“Those who cannot remember the past are condemned to repeat it,” wrote philosopher George Santayana, which is generally taken to mean that a failure to remember past mistakes may result in making them again.
We agree. Everyone should be mindful of the lessons of the past – including what worked as well as what failed – especially on Independence Day. So please join us for a thought experiment in three parts: Past – Present – Future.
PAST: Imagine that it was possible to travel back in time to July 4, 1776. There you would encounter antiquated technology, quaint apparel, and a Spartan standard of living by today’s standards. However, the complaints about a powerful government, being run without regard for the desires or interests of the citizenry, might sound familiar.
The Declaration of Independence alleges abuse and manipulation of the legislative and judicial processes, bureaucracy run amok (“swarms of officers to harass our people, and eat out their substance”), and taxes imposed “without our consent.” All true, no doubt, but are things much better 235 years on? We now have a rather imperious president, legislators who seem to avoid taking responsibility for anything, unelected judges who aspire to be legislators, virulent bureaucracy (it would be hard to do more damage than the EPA), and taxes higher than the founders ever imagined.
http://www.archives.gov/exhibits/charters/declaration_transcript.html
Not for nothing did the signers “pledge to each other our lives, our fortunes, and our sacred honor.” They were taking some major risks, which are not always appreciated in hindsight.
ü Many colonists were loyal to the British Crown; many more would stay on the fence until it became clearer what the outcome was likely to be.
ü Years of war lay ahead, under the best of circumstances, and military defeat by the powerful British forces was a definite possibility.
ü It remained to be seen what sort of political system would emerge if the war for independence was won.
No matter, the Declaration was signed, the war was fought, and after a false start the former colonies created a federal republic that would grow and prosper over the years.
Well done! If the colonists had waited until success was assured, this country might still be a British colony.
PRESENT: Shades of 1776, American independence and the republic that the founders established have been faltering of late. SAFE members are not the only people who think so either. Indeed, some two-thirds of Americans say this country is moving in the wrong direction. Right direction or wrong track, Rasmussen Reports, 6/29/11.
Sixty-eight percent (68%) of voters say the country is heading down the wrong track, up three points from last week and the highest level of pessimism since mid-April. Since January 2009, doubt about the country's direction has ranged from 57% to 72%.
The general feeling is that the government has gotten too big for its britches. Most Americans fear a government that is too powerful, Rasmussen Reports, 6/29/11.
[Voters] across all demographic categories agree that a government with too much power is the bigger danger today. Even 64% of government employees feel that way.
To cut the government down to size, spending cuts are strongly favored – at least in principle. 70% say default is bad for economy, 56% says failure to cut spending is worse, Rasmussen Reports, 6/20/11.
Although Americans would like spending cuts, however, they do not trust the government to deliver them. Most voters still think tax cuts, spending decreases benefit economy, Rasmussen Reports, 6/3/11.
Just 31% think it is even somewhat likely that President Obama and congressional Republicans will reach an agreement to significantly cut long-term government spending trends before the 2012 elections. *** Fifty percent (50%) of voters think it’s more likely that the government will go bankrupt and be unable to pay its debt before the federal budget is balanced. Thirty-three percent (33%) believe the budget is more likely to be balanced first.
A growing number of people feel there will be no fiscal solution until after a financial breakdown. The generational divide: two takes on the fiscal problem, 9/27/10.
#There is a new book out on the coming fiscal meltdown, Boomergeddon, with a nuclear explosion depicted on the front cover. *** The book tells of out of control government spending, an aging population, failed political leadership, and projected deficits that cannot conceivably be financed. All true, hardly novel.
#What does set Boomergeddon apart [from previous books on the fiscal problem], we think, is its focus on how successive generations, with different social experiences in their formative years, have differing degrees of responsibility for, stakes in, and perceptions of the national tragedy that is in the making. Call it the generational divide.
#It would be natural for younger Americans – the Generation Xers and Millennials – to resent a situation they did not create and yet stand to lose more from than their elders.
If such resentment exists, however, young Americans do not seem to be acting on it. Millennials sleep as their future crumbles, Ted Nugent, Washington Times, 6/23/11.
While I personally condemn violence of any kind, I am stunned that [the current college age cohort is] not participating more in the Tea Party, even rioting in the streets, clashing with the cops, conducting sit-ins at their colleges, interrupting political events and so on. Instead, the young people of this generation appear to be sound asleep, lethargic and seemingly unaware of how badly their generation is being royally abused by the deep-seated corruption and abuse of power in the government.
Perhaps young people have had things too easy thus far, making it hard for them to picture developments that could leave their futures in the dustbin. As Dan Kerrick (SAFE’s youngest director) puts it, “I think the eventual financial collapse is the only thing that will wake anyone up.”
Or maybe our communication techniques are outdated. Boy, with 600,000 Facebook fans, just think of the impact SAFE could have. “Generation Opportunity” targets coveted demographic issues, Elisabeth Meinecke, Townhall.com, 6/15/11.
The group is designed to educate 18-29 year olds over an extended period on economic-related matters facing the country—such as the size of government, unemployment and entrepreneurialism—so that young people connect who they vote for with what's happening to their wallet.
GO’s Website (http://bit.ly/macLMM) provides little information, however, as to their background or objectives. We rather prefer SAFE’s “what you see is what you get” model.
In general, social networking techniques that reduce complex issues to sound bites are likely to do more harm than good. Is democracy viable? Thomas Sowell, Townhall.com, 6/29/11.
#A society that cannot or will not focus on matters of life and death is a society whose survival as a free nation is at least questionable. Hard as it may be to conceive how the kind of world that one has been used to, and taken for granted, can come to an end, it can happen in the lifetime of today's generation.
#To those who see voting as more or less just a matter of self-expression, almost a recreational activity, there is no need to inform themselves on both sides of the issues before voting, much less sit down and think beyond the rhetoric to the realities that the rhetoric conceals.
Oh dear, perhaps it is time for another rebellion – an expedient that Thomas Jefferson, for one, said would be needed periodically. Letter to James Madison, 1787.
I hold it, that a little rebellion, now and then, is a good thing, and as necessary in the political world as storms in the physical.
And were Jefferson alive today, he might well be leading the charge. Independence Day revival, Ted Nugent, Washington Times, 6/30/11.
Thomas Jefferson would be shocked and appalled if he could see what America has done to this grand experiment since he drafted the Declaration of Independence. On Independence Day 2011, Mr. Jefferson would not be celebrating our independence but rather encouraging Americans to revolt once again.
The American tradition of searching for the right answers has been enfeebled, however, by social conditioning. Thanks to the efforts of many educators and the mainstream media, the current emphasis is on reaching consensus (or at least pretending to do so).
Middle-of-the-roaders and people who don't pay a lot of attention to politics have made such a fetish out of bipartisanship that the most partisan political hacks in D.C. will go on and on about "unity" and "working with the other side" even as they lustily plant toe kicks to the other side's groins at every opportunity. To the moderates, this makes little sense. Why can't both sides get together, buy the world a Coke, teach them to sing in perfect harmony, and keep it company....la, la, la, la!
Enlisting the support of a few backbenchers from the other party does not truly represent bipartisanship, and the two parties are so far apart that constructive compromises are rare.
Where true bipartisanship does exist, moreover, the results may be unfortunate. Five reasons moderates are wrong about bipartisanship, John Hawkins, Townhall.com, 6/22/10.
There are three instances in which politicians in D.C. tend to come together in a genuinely bipartisan way. That's in order to engage in more deficit spending, to rush through poorly-thought-out legislation after a crisis of some sort, and to put off reforms we desperately need as a country because they're politically unpopular
In summary, this country is in a mess and there is no easy way to get out of it.
FUTURE: So should the fiscal problem be ignored on grounds that no one will meaningfully address it until the house of cards comes tumbling down? With all due respect to those who have reached this conclusion, we believe otherwise.
SAFE’s approach has been to advocate corrective action now instead of hoping the system can be glued back together later. The other approach didn’t work for Humpty Dumpty; why should it work for a country?
The lead-in to our organizational statement in March 1996 set the pattern.
As senior citizens, we are very concerned about the growth of the federal government, and the huge debt being left for our children and grandchildren to pay. We believe this country is risking a financial disaster which will hurt everyone, including senior citizens. It is as if we are floating down a river and can hear a waterfall ahead. It is time to pull for the shore now.
http://www.s-a-f-e.org/nwsltr/nwsltr01.htm
Our blog acknowledged reverses in 2009, but suggested “this might be a good time to redouble our efforts.” Nothing ventured, nothing gained, 9/14/09
Bill Morris put it this way in a 10/16/10 letter to the editor: “We need to accept temporary discomfort now to avoid severe pain in the future.”
Earlier this year, SAFE sent a letter to every member of Congress urging them to cut spending, simplify taxes, and reform regulations. The details were provided in an ensuing blog entry.
http://www.s-a-f-e.org/blog_2011.htm#2/7/11
We are not backing down now! But at the same time, we realize that SAFE (or for that matter Cato, Heritage, the NTU, et al.) cannot accomplish much unless millions of “ordinary” Americans get involved in demanding smaller, more focused, less costly government.
It is easy to think of excuses. Some folks might not like me for saying things like that. Everyone should get along. I’m too busy. No one pays attention to what I think. Maybe we can deal with the problem later.
Standing pat will not achieve a successful outcome, however, any more than it would have worked in 1776. And this time, “rebellion” need not entail starting a war.
Americans must get serious about the problem of an invasive, ever more costly government and demand that the politicians reverse course or be replaced.
Otherwise, the spirit of our national holiday may be lost forever. Happy Dependence Day, Robert Knight, Washington Times, 7/1/11.
6/27/11 – Social Security belongs on the table with everything else
It is hardly a newsflash that Social Security faces long-term fiscal problems. Unfunded promises – outlays covered on “pay as you go” basis – retirement of the “baby boomers” – ever better medical technology – steadily declining ratio of workers to beneficiaries.
So long as there was a current surplus, i.e., earmarked tax revenues exceeded program outlays, little appetite existed for corrective action. Congress happily spent the surplus for other purposes, while periodically reiterating its unbreakable commitment to preserving Social Security. What a “gold mine” this program was!
But the day of reckoning has arrived – a little earlier than expected due to the recession. Future outlays are expected to consistently exceed tax revenues, and the shortfall will grow to alarming levels in due course. Social Security deficits now “permanent,” Stephen Dinan, Washington Times, 5/13/11.
Will there finally be a serious effort to put Social Security on a businesslike basis, e.g., by trimming benefits to sustainable levels? Perhaps, but we doubt the issue will be addressed before the 2012 elections.
There may be a threat to delay Social Security payments, however, as part of efforts to blame fiscal conservatives for the debt limit impasse that is developing.
TROUBLE BREWING: Nobody wants to hear that his (her) Social Security benefits should be reduced or postponed. You may have seen demonstrators carrying “hands off my Social Security” signs, which pretty well sums up the popular attitude.
But the government is facing a fiscal problem that could easily spiral out of control and end in a financial catastrophe. Social Security (the government’s largest single program) cannot be considered immune from scrutiny for sentimental reasons, e.g., its status as the crown jewel of the New Deal, FDR’s legacy, or whatever.
And Social Security is no longer viable on a cash flow basis – even in the short term. See these data from the latest Trustees’ report (calendar years, dollars in billions, projected data from “intermediate” cases).
|
|
2010 |
Projected |
||||
|
|
Projected in 08 |
Actual |
2011 |
2012 |
2013 |
2020 |
|
Payroll taxes (net) |
761 |
637 |
565 |
721 |
764 |
1,081 |
|
Income tax on benefits |
26 |
24 |
23 |
25 |
31 |
61 |
|
Total costs |
(700) |
(713) |
(738) |
(772) |
(814) |
(1,240) |
|
Cash flow |
87 |
(52) |
(150) |
(26) |
(19) |
(98) |
|
Imputed interest |
138 |
118 |
115 |
116 |
121 |
172 |
|
General fund reimbursements |
0 |
2 |
105* |
5 |
0 |
0 |
|
Accounting inflow (outflow) |
225 |
68 |
70 |
95 |
102 |
74 |
|
End of year trust fund balances |
2,873 |
2,609 |
2,678 |
2,773 |
2,874 |
3,519 |
*Principally to reimburse the trust funds for a one-year reduction in payroll taxes.
True, the Social Security trust funds (Old Age & Survivors Insurance; Disability Income) currently total some $2.6 trillion. And with imputed interest, government actuaries estimate the trust funds will last (assuming enactment of legislation to authorize transfers between the OASI and DI funds) until about 2036
The trust funds exist on paper only, however, and every dime has been spent. Sorry, but that is how things are. The missing money, Thomas Sowell, Townhall.com, 6/21/11.
Many retired people remember the money that was taken out of their paychecks for years and feel that they are now entitled to receive Social Security benefits as a right. But the way Social Security was set up was so financially shaky that anyone who set up a similar retirement scheme in the private sector could be sent to federal prison for fraud.
NOW WHAT: Despite acting as though the trust funds were real, the Social Security trustees advocate corrective action “sooner rather than later.” 2011 OASDI Trustees Report, 5/13/11, page 4.
The projected trust fund shortfalls should be addressed in a timely way so that necessary changes can be phased in gradually and workers and beneficiaries can be given time to adjust to them. Implementing changes sooner would allow the needed revenue increases or benefit reductions to be spread over more generations.
http://www.ssa.gov/oact/TR/2011/index.html (download PDF)
Even the AARP, a long-time champion of senior entitlement programs, has signaled potential receptivity to Social Security changes. Reportedly (per an underlying Wall Street Journal story) “the group will accept cuts,” although it “wants tax increases to fill most of the program’s financial hole.” AARP pivots on Social Security benefit cuts, Fox News, 6/17/11.
The decision, which AARP has not discussed publicly, came after a wrenching debate inside the organization. In 2005, the last time Social Security was debated, AARP led the effort to kill President George W. Bush's plan for partial privatization. AARP now concludes that change is inevitable, and it wants to be at the table to try to minimize the pain.
“About time,” some SAFE veterans may say. We tried to tell them years ago, and the AARP national office was not listening. The story is documented in SAFE’s archives.
SAFE founder Bill Morris initiated a dialog with Richard W. Johnson and Ted Ressler of the Delaware AARP chapter in 1996, which led to Bill’s submission of a paper to the AARP national office. The AARP was saying at the time that the federal budget should be balanced by 2006, while SAFE’s position was that budget balance should be achieved sooner (as it was, although the victory proved short-lived).
http://www.s-a-f-e.org/nwsltr/nwsltr03.htm
Even now, however, we question whether the AARP has truly accepted the need to rein in entitlement spending.
#Its purported change of heart is belied by the launching of an ad campaign to defend senior entitlements against “harmful cuts.” Press release, 6/16/11.
The new, multi-million dollar advertising will air nationally and in local markets. In addition to the TV ad, AARP is engaging its millions of members to make their voices heard through direct mail, phone calls, email alerts, publications, and tele-townhall meetings.
#As already noted, it is keener on tax increases than benefit cuts to cover projected Social Security shortfalls.
#And the seniors organization is apparently angling to keep Social Security out of current budget talks, i.e., would defer discussion of any changes until after the 2012 elections. AARP slammed for not fighting Social Security cuts, USA Today, 6/17/11.
[Director of legislative policy David] Certner said AARP had planned to begin a series of town-hall events around the country earlier this year to start talking with seniors about potential changes to Social Security to improve its long-term finances. Those talks were delayed — and have not been re-scheduled — because the group does not want to Social Security to become part of the budget talks in Washington, Certner said.
Still, the AARP is streets ahead of the Strengthen Social Security (SSS) coalition. If the SSS’s “seven principles” were adhered to, there would be no conceivable way to cap the amount of money spent on Social Security.
No benefit cuts, no privatization, no means testing, no increases in retirement age beyond 67 (by 2027 under current law), no changes to the COLA (cost of living adjustment) or benefit formula. Two changes would be allowed: require high earner to pay “somewhat more,” and increase benefits for “those who are most disadvantaged.”
http://strengthensocialsecurity.org/about
Many well known organizations have joined the SSS coalition, including labor unions, political action groups, religious groups, minority groups, life style groups, etc., so its views cannot be dismissed as the position of a “lunatic fringe” element.
http://strengthensocialsecurity.org/about/coalition?page=1
PLAN A: Our basic idea for a Social Security makeover would be to convert the program to a funded (personal accounts) retirement plan. This could be done over time by allowing younger workers to choose between a personal account and traditional Social Security benefits.
A botched proposal along these lines was rejected in 2005, and we recognize that the time may not be right to try again. But basing retirement income on generalized criteria (length of service, pay rate, family status, and a “normal” retirement age) versus individual circumstances and choices is an archaic model that will inevitably be replaced in time. Bismarckian relics like Social Security won’t survive the 21st Century, Eric Rozenman, Washington Examiner, 3/20/11.
The following video (8 minutes) provides an excellent summary of why the current system is broken and how personal accounts could help. (Tip: the Social Security taxes referred to include both the employee and employer portions of the total payroll tax burden.) Saving Social Security with personal retirement accounts, Dan Mitchell, Cato Institute, January 2011.
http://www.youtube.com/watch?v=DRh5zKleh0I
PLAN B: Pending a long-term solution, Social Security expenditures could be shaved by two simple changes. (A) Raise the early retirement age from 62 to 65 and the normal retirement age from its current level (being raised to 67 by 2027) to 70 over the next decade, inasmuch as Americans are living longer on average. (B) Tighten the eligibility requirements for disability benefit payments, which currently account for about one-sixth of Social Security outlays. Getting down to brass tacks about spending, 10/25/10.
Senator Kay Bailey Hutchison (R-TX) has proposed a somewhat similar approach, which she says would stabilize Social Security’s finances without raising taxes on anyone or cutting core benefits. Sen. Hutchinson: We can save Social Security – painlessly. Jim Meyers & Ashley Martella, Newsmax.com, 6/22/11.
What it does is raise the retirement age gradually three months a year starting in 2016 so the age will be 69 in 2027. The early retirement age would go to 64 in 2023. That will make Social Security solid for 75 years.
In addition you would lower the cost of living increase by 1 percent. So if inflation is 2 percent, you would get a cost of living adjustment of 1 percent. That lowers the cost of living but it never lowers the core benefits.
Would such changes make sense? Arguments can be made either way, as we recently had an opportunity to observe. Federal budget workshops – a good effort with limited results, 6/13/11.
One group member argued against raising the Social Security retirement age to 70 because, among other things, it is “well known” that life expectancies will plunge in the future, i.e., the alleged fiscal problems of Social Security are a hoax. When I requested a source for this assertion, she said it is “being taught in Delaware’s schools.” Also, if the Social Security retirement age was raised, more people who cannot work would take disability benefits.
Another member decided the retirement age should not be raised to 70 because he would then be tempted to retire at 62 with reduced benefits instead of continuing to work until the “normal” retirement age. My suggestion that the early retirement option will disappear if the system is allowed to collapse made no impression.
But we feel certain of one thing: Social Security should not be considered “untouchable.” Overall spending must be cut – a lot – and this program should be on the table along with all the others. If you agree, pass it on.
THE TRAP: Last week’s entry discounted forecasts of agreement by early July on the terms for raising the debt limit. Slouching towards a debt limit deal, 6/20/11.
We do believe that – as stated in the 6/14/11 Wall Street Journal article – the panel will “hand off whatever beginnings of a plan it has crafted to [President] Obama and top party leaders . . . before the Fourth of July weekend.” But given the complexity of the subject matter, high stakes and gulf between the two sides, we doubt the negotiators will have gotten very far by then.
Sure enough, the Biden talks broke down on June 23 because the Democrats kept pressing for tax increases while Republicans continued to insist that spending cuts represent the only acceptable way to reduce the deficit. Further discussion of the debt limit issue will apparently be kicked up to a top tier trio (the president, Senate Majority Leader Harry Reid, and House Speaker John Boehner). Taxes take top Republicans out of deficit-paring talks; House GOP leaders say it’s time for Obama [to] get involved, Sean Lengell, Washington Times, 6/25/11.
Will the trio be more successful in finding common ground? Possibly, after all the president and Speaker Boehner did play a round of golf on June 18.
And the Democrats are reportedly holding out for $400B in tax increases, which does not sound like it should be a “deal breaker” in the context of negotiations over a $2.5T increase of the debt limit. When push comes to shove, would they really risk a credit default for such a relatively minor “win”?
The president has expressed strong support for tax increases, however, and we do not see him readily caving. Fed-up GOP to Obama: No new taxes, David Patten & Kathleen Walter, Newsmax.com, 6/24/11.
Obama is on record calling for reducing what he calls “spending in the tax code,” a euphemism for getting rid of the Bush-era tax breaks for citizens and business owners earning more than $250,000 a year. Also, Obama said in his budget speech in April that continuing to give tax breaks to those in upper income brackets, while cuts are made in discretionary spending for social programs, “is not going to happen as long as I’m president.”
We doubt the spending cut vs. tax increase standoff will be quickly resolved. It does not stem from a difference of opinion about what policies would be most effective; it reflects a fundamental disagreement about the proper role of government in our society. Ultimately, in what amounts to a “culture war,” one view or the other must prevail. And never the twain shall meet: the Left/Right divide, 6/28/10.
Say we are right, time will tell, and August rolls around with the parties no closer to agreement than they are now. The Treasury would not actually default at that point, but Secretary Tim Geithner and the president would start deciding which bills to pay and which to delay.
Predictably, the payment delays that were made or threatened would not be for government programs of marginal popularity – or debt service obligations either. The choices would be based on a political calculation of upsetting the general public while blaming the opposition, thereby so embarrassing the Republicans that they would be forced to give way.
One of the prime payment delay candidates, predicted columnist Charles Krauthammer in a recent panel discussion on Fox News, would be Social Security payments. Sounds possible to us, and we hope Speaker Boehner et al. have thought through how they would respond.
It might help if the Republicans stepped up the plate about the need for Social Security changes instead of continuing to go along with the fiction that the program is OK for now. We think the American people can handle the truth, and they might actually like to hear it for a change.
6/20/11 – Slouching towards a debt limit deal Read Replies
We have no inside information on what will happen in the Biden talks, but some predictions making the rounds seem unrealistic if not downright deceptive. Robust discussions, a deal by early July, corporate leaders and investors encouraged, etc.
Spending cuts to “pay for” a $2.5T debt limit increase (the amount being discussed to tide Washington over until after the 2012 elections) will be fiercely resisted. If a satisfactory deal can be struck at all, it will happen at the last minute after an initially proposed solution has been rejected.
What’s our basis for all this pessimism? Read on.
CONSTRUCTIVE DIALOG: Vice President Joe Biden left the Capitol on Thursday, June 9, without talking to reporters, which was spun as a sign that progress was being made. And House Majority Leader Eric Cantor sounded upbeat about the “series of meetings” planned for the coming week. Biden group plans “robust” debt talks next week, Steven Dennis, Roll Call, 6/9/11. http://bit.ly/kG63sq
Notice, however, renewed concerns about uncertainties in the US economic picture. Talk of economic stimulus measures, including extending or broadening the payroll tax reduction for 2011 (2 percentage points, employee portion), “buzzed in the hallways of the Senate late Thursday.” And a budget proposal under discussion among 20 Senate Democrats, for possible use if the Biden talks break down, “has been changed to reflect the weakening of the economy.” Really, the deficit problem isn’t big enough already?
It does not sound as though Congress gets it that major, targeted spending cuts will be necessary. Nor do we know of a single case in which proposed spending cuts have been pushed through aside from the over-hyped cuts for FY 2011.
Here is an example of the difficulties of eliminating spending programs. A proposal was passed in the Senate to end ethanol subsidies and the tariff on imported ethanol. It would save the government roundly $6B per year, in addition to benefitting consumers. Thus, according to our local newspaper, the subsidy fails on three counts: makes some Midwest corn farmers rich, hurts the environment, and raises price of corn and overall food costs. Was ethanol vote a sign of break in fiscal fight? News Journal, 6/16/11.
The proposal passed by a 73-27 vote, but this may not be the end for ethanol subsidies. First, it was passed as an amendment to an underlying bill – called by the Wall Street Journal “a new engine for green subsidies” – that is unlikely to pass the Senate let alone the House. Second, it would also need to be voted by the House and signed into law by the president.
http://bit.ly/dPuWOJ (6/16/11 & 6/17/11)
Even if the ethanol program does wind up being terminated, this is just one of many spending battles that will be fought. Do not expect quick or easy victories in any of them.
TIMELY PROGRESS: Negotiators are reportedly shooting for a debt limit deal by early July. Biden cites progress in debt talks, hopes for deal by July Fourth, Anna Palmer, Roll Call, 6/14/11.
“We are making real progress,” Biden said after the meeting in the Capitol. “I’m convinced — it ain’t over until it’s over — but I’m convinced we can come up with an agreement that gets the debt limit passed and makes some real serious down payment on the commitment to 4 trillion bucks over the next 10 to 12 years.”
There seems to be a shortfall in identified spending cuts, however, given Biden’s further statement that he expects the debt limit package to go “well beyond a trillion” dollars in cuts. Sounds like he is fishing for tax increases – which the Republicans have repeatedly said cannot pass the House.
While there is nothing to say the debt limit could not be raised by less than $2.5T, this might mean further debt limit negotiation before the 2012 elections – which neither side wants. Thus, House Minority Whip Steny Hoyer “reiterated his call to raise the debt limit by enough to carry the nation through the November 2012 elections in order to ‘depoliticize’ [yeah, right] the debate.”
And House Majority Leader Eric Cantor has spoken of his “desire to have one debt-ceiling vote." With the clock ticking, debt talks resume on Capitol Hill, Lisa Mascaro, LA Times, 6/14/11.
If six-month extensions of the debt ceiling represented the only way to craft an enforceable deal, however, it might be necessary to take this route. My man James Baker on How to Deal With the Debt Limit - The White House and Congress should agree to a hard cap on spending, Cracker Squire (from the Wall Street Journal), 6/17/11.
We'll have to repeat the process twice a year until a comprehensive budget fix is reached. The caps should aim at achieving a historical ratio of spending to GDP of 20.6%. The debt-limit increase should not exceed the six-month period, because it is only when the debt limit has to be increased that Congress will be forced to muster the political will to enact enforceable spending restraint.
Also, the spending cuts that have been agreed to thus far may be illusory because the negotiators are apparently talking in terms of a spending cap/ trigger mechanism versus specific cuts. Such a regime might be measured against inflated CBO baseline projections, and in any case could be readily waived or abandoned by future sessions of Congress. Debt talks at crucial stage, Janet Hook and Carol Lee, Wall Street Journal, 6/14/11 (no link available).
Republicans and some Democrats have advocated a cap that would be enforced by automatic, across-the-board spending cuts if Congress didn’t comply. The White House and Democratic leaders oppose the idea because they say it would force deep cuts to Medicare and other programs, and because they would prefer a deficit-reduction plan that also includes tax increases.
There can be no real progress without actual spending cuts. Debt-limit deal: will the cuts be phony? Chris Edwards (Cato), dailycaller.com, 6/16/11.
Conservative voters and Tea Partiers interested in real spending cuts need to watch closely when party leaders announce their grand debt-limit compromise in coming weeks. A deal that simply counts projected future savings against inflated discretionary baselines would be a fiscal fraud.
We do believe that – as stated in the 6/14/11 Wall Street Journal article – the panel will “hand off whatever beginnings of a plan it has crafted to [President] Obama and top party leaders . . . before the Fourth of July weekend.”
But given the complexity of the subject matter, high stakes and gulf between the two sides, we doubt the negotiators will have gotten very far by then. Besides, our political leaders would probably prefer to roll out a proposed deal at the last minute so the public will have limited time to evaluate it. “Accept this or there will be a financial crisis like you never say before, never mind the details.”
PUBLIC VIEWS: Many informed observers want a debt limit deal that is simple, neat, and timely. The substance of the deal seems to be regarded as secondary.
Consider the pronouncements of Fed Chairman Ben Bernanke, whose mantra for the past two years has been that the deficit needs to be reduced – but not yet. Don’t play politics with debt ceiling, Gregg Robb, WSJ MarketWatch, 6/14/11.
A delay in raising the debt ceiling could damage the special role of the dollar and Treasurys in global markets over the long term, he said. Bernanke urged the White House and Congress to quickly develop and enact a plan to cut the deficit.
Fitch and Moody’s have talked about downgrading US Treasuries if a debt limit deal is not reached soon. Fitch threatens US rating downgrade, Kalyan Nandy, Zacks, 6/9/11.
Though the government hit the debt ceiling on May 16, it still has buffer time till August 2, to avoid defaulting on its payment obligations. [Fitch] expects the debt ceiling to be raised during the buffer time. If the government fails to do so, the nation will default on its obligations, which would threaten whatever little economic stability the world has seen since the financial meltdown as the U.S. happens to be the largest borrower and issuer of the reserve currency, the agency said.
Economic experts are said to view the elimination of uncertainty as “bullish” for the economy, as illustrated by comments attributed to Bank of America Merrill Lynch economist Ethan Harris. “We need to get past this budget debate. It’s very debilitating for the economy.” What it would take to do a double dip, Justin Lahart, Wall Street Journal, 6/13/11. (no link available)
Some take a more guarded view, however, as shown by the predictions of Nouriel Roubini. “Perfect storm” may rock world economy by 2013, MoneyNews.com, 6/12/11.
We’re still running over a trillion-dollar budget deficit this year, next year and most likely in 2013. The risk is at some point, the bond market vigilantes are going to wake up in the U.S., like they did in Europe, pushing interest rates higher and crowding out the recovery.
Corporate executives reportedly like the Biden panel’s low-key approach. (They may also want to appear to be playing ball with the Administration.) Debt reduction talks inspire optimism in corporate America about recovery, Ian Swanson, the Hill, 6/16/11.
Chief executive officers of some of the nation’s largest companies believe important structural changes could emerge from the talks, led by Vice President Biden, that could boost hiring and business spending this year and beyond. *** Statements from Biden and Republicans including House Majority Leader Eric Cantor (Va.) have created the sense that adults are in charge of the debt talks, and that both sides agree a deal must be hammered out by the Aug. 2 deadline set by the Treasury Department.
Other thought leaders, such as journalists, professors, and government employees, are typically supportive of government spending programs – or at least that is our perception. They, too, are probably rooting for a quick and “painless” debt limit increase.
True, 150+ economists (including Stacie Beck, James O’Neill and William Poole of the University of Delaware) signed a statement saying any increase in the debt limit should be accompanied by spending cuts and budget reforms. There was no explanation, however, of what was meant by “budget reforms.” NTU, Brandon Graife, 6/1/11.
An increase in the national debt limit that is not accompanied by significant spending cuts and budget reforms would harm private-sector job growth and represent a tremendous setback in the effort to deal with our national debt.
http://www.ntu.org/governmentbytes/150-economists-debt-limit.html
Ironically, the segment of our society that seems most concerned about the details of a debt limit deal is the supposedly shortsighted, economically unsophisticated general public. Key results of a recent Washington Post-ABC News poll are recapped below. Poll: Americans split on debt limit, Jennifer Epstein, Politico.com, 6/9/11.
|
Would favor debt limit increase. |
Under no circumstances |
With deep spending cuts |
Without spending cuts |
Not sure |
|
23% |
51% |
15% |
11% |
http://www.politico.com/news/stories/0611/56582.html
Sadly, the American public does not believe that its preference for spending cuts and tax cuts – rather than the opposite – will be honored. Rasmussen Reports, 6/3/11.
Only 25% of all voters prefer a government with more services and higher taxes over one with fewer services and lower taxes. Sixty-one percent (61%) favor instead a smaller government with lower taxes. Just 31% think it is even somewhat likely that President Obama and congressional Republicans will reach an agreement to significantly cut long-term government spending trends before the 2012 elections.
SAFE has not changed its tune over the years; to the contrary, we have supported spending cuts, tax simplification, and regulatory common sense for the past 15+ years. The Past is Prologue, 6/6/11. Indeed, we have stepped up our legislative outreach efforts, with 11 letters to various members of Congress (both in Delaware and elsewhere) in the past six months.
http://www.s-a-f-e.org/contacting_legislators.htm
So if it seems we are getting more “mainstream,” that must be because other folks are moving in our direction.
* * * This Blog's replies * * *
I agree that the president and his party are pursuing policies that would bankrupt America, with a little help from some Republicans. Thank goodness there are only 17 months to go until the 2012 elections. – SAFE member in Arizona
Congress will not offer much of anything in the way of real spending cuts, because of all the sacred cows being protected. Take a look at what has been going on in Greece and our own state of California. I don’t believe there can be any real change without a market crash that forces our political leaders to push the “reset” button. – SAFE director
6/13/11 – Federal budget workshops – a good effort with limited results
Representative John Carney sponsored three Concord Coalition budget workshops on June 8.
|
Time |
Venue |
Setup |
Attendance |
|
9:00-11:00 AM |
Georgetown Cheer Center |
Tables |
80 |
|
1:00-3:00 PM |
Delaware State University |
Auditorium |
35 |
|
6:00-8:00 PM |
Delcastle Stanton |
Tables |
50 |
SAFE was represented at all three sessions. The tangible results of the workshops were negligible, but we learned some things by participating in them – including the importance of concentrating on a limited number of issues. Evidently, the KISS (“keep it simple, stupid”) principle still applies in the 21st Century.
SLIDESHOW: Jeff Thiebert, national grassroots director for the Concord Coalition, presented a series of charts showing historical and projected income versus outlays for the federal government. Data appeared accurate, and his talk was basically on target. Bottom line (no surprise to us): if things continue on the present track, the government will go bankrupt.
Jeff did not predict the date of collapse, although he did say (a) “the real problem” will develop as the baby boomers retire, and (b) it is OK to run a deficit during an economic recession.
It was also stated that the objective is not necessarily to balance the budget, i.e., deficit spending may be viewed as sustainable so long as the National Debt is not growing faster than Gross Domestic Product.
EXERCISE: The audience split into groups to consider a series of 35 “options” that would affect projected deficits. In theory, if one implemented all of the enumerated options that would reduce the deficit while blocking all options that would increase the deficit, the deficit could be cut by $5.3T over the next 10 years.
#Over half of this “gain” would be achieved by imposing a carbon tax, eliminating the tax exemption for employee healthcare benefits, phasing out the home mortgage interest deduction, increasing the maximum taxable earnings cap for the Social Security payroll tax, etc. To avoid revenue “losses,” the Bush tax cuts (all of them, not just those for high earners) would be allowed to expire and the Alternative Minimum Tax would proliferate to millions of additional taxpayers. Finally, GovCare would be retained so as to avoid the purported fiscal cost (primarily due to giving up tax increases included in the bill) of repealing it.
#General government spending would be cut by $912B, of which $750B would come from “freezing” all domestic discretionary spending – hardly an example of setting priorities and making choices. Also, experience has shown that budget freezes never work for long. We would favor targeted proposals, such as eliminating the Education Department, Energy Department, agricultural subsidies, corporate welfare, etc.
#Defense and homeland defense spending would be cut by $365B, of which $161B would come from freezing DOD appropriations at the 2011 level for five years and $111B from limiting TRICARE health[care] insurance benefits for military retirees and their dependents. Again, a freeze would avoid making choices that may need to be made. We also wonder why benefits for retirees should be considered defense costs; they do not support the nation’s current military capabilities.
#Spending on “entitlements” would be reduced by $1.2T over 10 years, primarily as a result of changes to Medicare and Medicaid.
CONDUCT OF EXERCISE: In the time available, it was impracticable to process all 35 options. Accordingly, after being given some time to get into the swing of things, the groups were asked to focus on a subset of options.
Thus, in the Delaware State session – which started late and was handicapped by auditorium seating unsuitable for breakout sessions – the teams addressed and reported out on one option from each of the four categories.
|
Category |
Option |
Deficit effect |
|
General spending |
Eliminate the one dollar bill |
$3B |
|
Defense spending |
Cancel Future Combat System Program (lighter, more efficient military vehicles) |
$22B |
|
Taxes |
Allow charity deductions only if one gives more than 2% of Adjusted Gross Income |
$219B |
|
Entitlements |
Gradually raise full retirement age for Social Security until retirement age reaches 70 (in 2035); the long-term effect would be far greater. |
$120B |
All of these options took time to discuss, irrespective of relative importance. And when the group captains reported at the end of the exercise, it turned out that the three groups had arrived at differing conclusions on every option (even the one dollar bill).
POLITICAL COMMENTARY: Representative Carney offered some personal perspectives at the workshops. His comments were off the cuff, and they varied from session to session. Here are some of the things he said.
Session # 1 (Georgetown), Observer A: Carney gave an introduction highlighting need for fiscal responsibility and indicated his preference that a rise in debt ceiling be accompanied by some spending reductions. Neither were quantified, but interesting to hear he supports some spending constraint.
Session #2 (Delaware State), Observer B: Like other freshman members of Congress, Carney has been briefed on the fiscal problem by Concord and others. He pronounced himself impressed by the seriousness of the situation. He characterized the debt limit talks as an opportunity to get a grip on spending. Congress must act, he said, or this country could wind up like Greece.
Carney wants to focus on economic output and jobs, however, not just reduce the deficit. Thus, he would be slow to phase out the mortgage interest deduction (a tax increase) while the housing market is in the doldrums. He also indicated a disinclination to make any Social Security cuts, reasoning that this program is comparatively well funded. (Actually, the status of the Social Security vs. Medicare trust funds is irrelevant – the issue is outlays versus income, and all government programs are in the same pot.)
“I’ve learned a lot,” Carney pronounced at the end of the session. Thank you for “helping me out.” He described his challenge as sorting through all the different opinions and voting for what is right for the country.
Session #3 (Delacastle): Carney arrived late due to another commitment, and he spoke mainly at the end. SAFE’s observers had divergent reactions;
Observer C: At the end, Carney gave a brief talk, which gave me some encouragement. He indicated awareness of the short-term danger, including the interest rate risk. I think he achieved his probable goal of convincing us that he is willing to break with the Democrat leaders. He stated that freshman members of Congress are taking the debt very seriously. He used the phrase, "Strong and growing economy". Specifically, he supports cutting the 35% corporate tax rate (while cutting deductions). His goal on that is to maximize tax revenues. He wants to get foreign profits brought back to the US.
Observer D: Carney tried to associate himself with the other incoming freshman representatives by posing as a fiscal conservative. The agenda was very tightly controlled and no off topic questions were taken. I buttonholed Carney after the session about “green energy,” and was appalled by his answers. I left after telling him we would never agree, as he seemed disinterested in any point of view - other than his own.
ASSESSMENT:
1. Representative Carney deserves credit for sponsoring these workshops. His attempt to engage Delawareans on the fiscal problem is commendable.
2. The Concord slideshow was informative, but neither Jeff nor Representative Carney conveyed a sense of urgency. Mention a problem that could have dire consequences 10 years down the line, and people will assume the problem can be ignored for now. Prospering inside the fretting zone, Ken Fisher, Forbes, 5/18/11.
[Investors can] safely ignore long-term phenomena like global warming, the bankruptcy of Social Security, the Chinese taking over, the socialization of America, the ballooning national debt, education going to hell or that terrible other political party. If any of these bogeys come to fruition, markets will start reacting when we are about two and a half years away from the real threat.
3. Some found the budget exercise frustrating because it did not tee up a series of clear-cut, logical options for discussion.
Observer C: I joined a table that looked promising. Made my pitch early about possible serious effects, possibly soon. The other members of the group seemed to agree. Later, however, some of the biggest options were ignored while $3 billion for eliminating the one-dollar bill was [per the facilitator’s instructions] discussed at length.
Observer D: This "meeting" was a joke! All of the attendees were given a questionnaire, designed to elicit responses on what to cut in the Federal budget. It was either an all or nothing proposition, or a question that was a choice between two government-run options. The supposedly "non-partisan" Concord Coalition, ran the show. They had a decidedly liberal bias.
The options in the exercise probably came closer to the way things work in Congress, however, than would the type of options we might envision. Legislative proposals often include a mix of good and bad features, as Representative Carney pointed out, and the members must vote “yes” or “no” on the package.
Thus, the idea of replacing the one-dollar bill with a coin has been kicking around in Congress for 15+ years. It is safer for members to take a position on nonsense issues like this than on eliminating or radically pruning cherished (by someone) spending programs that cannot withstand a rigorous cost vs. benefit analysis.
4. The insipid results of the workshop exercise cannot be attributed to “conservative” vs. “liberal” gridlock, as the participants seemed to be predominantly conservative.
Observer A: There was much discussion at the table (my table members were very conservative regarding spending and debt as was the audience generally). The groups broadly were only able to get through a few of the questions because of their scope and number of people offering opinions. Each table reported back to the larger group on four questions, with purpose not of getting an agreed answer but rather showing the supposed complexity of the issues and the variety of interests associated with them.
Observer B: Our group was primarily center of the road or conservative, yet it reached different conclusions on most issues than a predominantly Libertarian (fiscally conservative) group.
5. The results of the exercise did not matter, and there was no serious effort to collect the output sheets for evaluation. But the group discussions did demonstrate how difficult it is to resolve issues on a rational basis when people hold differing opinions.
Observer B: One group member argued against raising the Social Security retirement age to 70 because, among other things, it is “well known” that life expectancies will plunge in the future, i.e., the alleged fiscal problems of Social Security are a hoax. When I requested a source for this assertion, she said it is ‘being taught in Delaware’s schools.” Also, if the Social Security retirement age was raised, more people who cannot work would take disability benefits.
Another member decided the retirement age should not be raised to 70 because he would then be tempted to retire at 62 with reduced benefits instead of continuing to work until the “normal” retirement age. My suggestion that the early retirement option will disappear if the system is allowed to collapse made no impression.
6. The window of opportunity to prevent a fiscal meltdown may not remain open much longer, in our view, and the time to act is now. To use an analogy suggested by Rep. Allen West (R-FL), “It takes five miles to turn an aircraft carrier. If we don’t start now, we will never get this ship that is the U.S.S. America righted.”
Other new members of Congress seem to “get it” as well. Watch this video (1:53); it is inspiring. Freshman lawmakers make the case for government spending cuts, Heritage Foundation, 2/16/11.
The predominant features of the current political landscape, however, are deadlock and despair. Rick Manning, D.C.’s irreconcilable difficulties, NetrightDaily, 6/10/11.
Boldness in attempting to solve any problem is met with attacks by those who know that anyone who attempts to change the status quo is risking their political power and authority. So, the default response in Washington, DC is the “moderate” one, of doing nothing but tinkering around the edges of problems.
Unfortunately, the more than $14 trillion deficit our nation has amassed (more than $5 trillion since 2007) puts our entire economy in jeopardy, and time has run out for political gamesmanship.
No wonder Congress’s approval ratings are in the basement. Rasmussen Reports, 5/23/11.
A new Rasmussen Reports national telephone survey finds that just nine percent (9%) of Likely Voters think Congress is doing a good or excellent job. Fifty percent (50%) rate congressional performance as poor.
7. “Conservatives” need to get their act together. If they cannot agree about things among themselves, how can they expect to “outwit, outplay, and outlast” their intellectual opponents?
This is not a call for lock step uniformity. Differ on a dollar coin versus a dollar bill if you must, it won’t make much difference one way or another, and vote your convictions on defense spending.
But when it comes to addressing the fiscal problem, insist on bona fide spending cuts. This means one of two things: (a) legislative curtailment of “entitlements,” or (b) outright elimination of discretionary programs. Real cuts for the debt vote, Chris Edwards (Cato Institute), National Review, 6/7/11.
No freezes, no caps and triggers, no fooling. All in favor say “aye.”
6/6/11 – The past is prologue
Prepare for a change of pace. This entry will present some highlights from the SAFE archives versus the policy issues we normally focus on.
After 15+ years of preaching fiscal responsibility in government, while the situation improved in the late 1990s and has been deteriorating ever since, it may be time for some introspection.
Besides, (1) Webmaster Charles Kaszytski has just completed posting all 61 issues of SAFE’s quarterly newsletter on our Website (http://bit.ly/iZF0OT), making this record fully accessible for the first time, and (2) yours truly spent part of last week at a continuing legal education seminar in Harrisburg, PA.
We hope old hands will enjoy this trip down memory lane, and that other readers will be interested in learning more about SAFE (who we are, how we think, and what we have tried to accomplish). Please let us know if you have comments or would like to help.
# 1 Spring 1996– An organization named Seniors Against Federal Extravagance had been formed with about 100 dues paying members. The first president was Bill Morris (only current director whose name has been on the masthead since the beginning).
We are a grassroots, non-partisan group of senior citizens who are concerned about the Federal debt problem and the danger it poses to our children and grandchildren. We strongly oppose the big government agenda of AARP lobbyists and believe the solution to the debt problem is to cut spending more than Congress is even considering.
At the time, the federal National Debt was roundly $5 trillion dollars, or about $19,000 for every man, woman and child in the United States. Things are worse now:
|
|
1996 |
2011 |
|
|
|
1996 dollars |
2011 dollars |
2011 dollars |
|
Total debt |
$5T |
$7.2T |
$14.3T |
|
U.S. population |
270M |
270M |
311M |
|
Debt per person |
$19,000 |
$27,000 |
$46,000 |
# 3 Fall 1996 – The first annual meeting: “We met September 25 at Boscov's, Dover mall. WBOC-TV16 had contacted us in advance to schedule an interview with Bill Morris. The photographer waited for late arrivals and taped the small crowd. We were on the evening news and John Smith of Dover said the interview went well and the crowd didn't look as small as we had feared.”
# 4 Winter 1996 – “Up to now we have concentrated our efforts on getting organized, making our presence known, and growing in Delaware. Now, we are actively seeking members in other states. We have contacted state chairs of the Libertarian Party * * * you can help by letting your acquaintances anywhere in the United States, know about us.”
# 5 Spring 1997 – Bill Morris met with Congressman Mike Castle to discuss the SAFE agenda. Future meetings were contemplated with Senators Joe Biden and Bill Roth. Members in other states were encouraged to contact their respective members of Congress.
Some SAFE recommendations (which look a lot like our policy positions today): No new taxes . . . eliminate corporate welfare . . . abolish departments of Energy, Commerce, and Education . . . shrink welfare programs . . . stop sending federal tax revenues to the states with strings . . . eliminate subsidy payments . . . accept modest cuts in entitlement programs for seniors . . . streamline regulations . . . sell unneeded federal assets.
# 7 Fall 1997 – SAFE at Delaware State Fair: We obtained over 200 signatures on our petition, asking the government to cut spending, and offering to help by accepting "modest reductions" in entitlements to help our children and grandchildren. The three jars, labeled Gov't Too Small, Gov't About Right, and Gov't Too Large drew a lot of interest. *** the Gov't Too Large jar received about 90% of the pennies. *** Our thanks to booth operators (in order of appearance), Bill Morris, Bob Hammond, Robert Hollingsworth, Charles Joanedis, Bill Welsh, George Harper, Jerry Martin, Roland Downing, Bill Severns, Walt Kabis and John Skehan.
# 8 Winter 1997 – Cartoon expresses vision of easing burden on future generations:
# 9 Spring 1998 – On the principle that repetition is key in selling a message, SAFE was on a letter writing kick. Eleven members were credited with recent letters. “This is far ahead of what we've done before, but still not enough. We should be seeing at least one letter per week in the News Journal and in the State News. *** Remember, your letter does not have to be long and it does not have to be unique – feel free to use parts of other letters.”
An initial SAFE Website was transferred to Herbert Moss, who would take it to the next level. “ . . . we'll seek links from well-visited web sites, and we'll do our best to make it easy for web users to find us using search engines. This has the potential to multiply our membership throughout the U.S. Stay tuned.”
# 11 Fall 1998 – SAFE at Newark Community Day *** carried out a skit based on the cartoon [see #8, above] next to the stamp of this newsletter. We used two oversized pillowslips labeled "U.S. DEBT" and stuffed with wadded up newspapers. We recruited several different children to stagger under the load of the "U.S.DEBT." Then a senior citizen offered to help and took one of the two bags. The child and senior citizen walked around the area, with the latter calling out loudly the need for senior citizens to share the load, which was fun and drew a lot of attention.
# 12 Winter 1998 – Most of our 116 members live in Delaware -- we have 24 in other states. To enhance our ability to influence policies on the national level (members of Congress expect to hear from local constituents), SAFE will start pushing aggressively for members in other states. Section 501(c)(3) status has been applied for so we can seek grants from foundations.
We hope to be in second gear this year and high gear next year. Our mission is time-sensitive. When the baby boomers start to retire about 2008, it will become increasingly difficult to cut spending.
# 14 Summer 1999 – SAFE received its first grant. This came about after Bill Morris sent a SAFE newsletter to an acquaintance who not only joined SAFE but suggested that Bill attend a leadership conference at the Mackinac Center for Public Policy in Midland, MI. A man Bill met at the conference sent the grant – which had not been solicited!
We are actively seeking larger grants from foundations. This is essential if we are to grow rapidly and to develop the clout we need to help future generations.
SAFE’s share the burden skit (see # 11) was enacted several times on the Market Street Mall. The star was 10-year-old Meagan Cottrell. Three TV channels had been notified, but higher priority assignments won out.
Next time, we'll plan the skit for a public event where TV cameras are likely to be, and of course, notify producers or news directors in advance. Live and learn.
[Maybe it would be worth doing something similar in 2011, this time producing a video that could be posted on the Internet. Any volunteers?]
# 16 Winter 1999 – SAFE unsuccessfully sought a substantial grant for a direct mail appeal for members, etc. from two prospects. One of the target donors found us “too political,” which prompted some “now what” thinking.
Do we try to change SAFE to meet the criteria of these or other foundations? Do we study foundations large and small all over the U.S. and approach many that appear sympathetic? Do we become more political and drop the 501(c)3 status that is required to obtain foundation grants? Your Board of Directors will be considering these questions and we'd appreciate any comments or suggestions you'd like to offer.
# 17 Spring 2000 – Re goal of having at least one SAFE member in every state, we’re getting there. The only states where we lack members are: Alabama, Washington, D.C., Louisiana, Nebraska, New Mexico, Oklahoma, Oregon, Rhode Island, Wisconsin and Wyoming. You can help by recruiting a member in one of these states or identifying a good prospect.
Ed Fasig (a director since March 1999) assumed an additional role, becoming the SAFE treasurer – a position he holds to this day.
#18 Summer 2000 – “Future uncertain” story noted that “the present prosperity” would not necessarily “lift to a higher level and continue throughout the 21st Century” because “something that we can’t imagine might happen to make life very tough for future generations.” Such as [actual developments in brackets]: (1) A natural disaster [Hurricane Katrina in 2005, Japanese earthquake in 2011, etc.]; (2) A depression [housing bubble, financial panic of 2008, et seq.]; (3) An epidemic [some feared the swine flu outbreak of 2009 would be the “big one,” but maybe next time]; (4) A large jump in interest rates [not yet, but current fiscal and monetary policies could trigger hyperinflation]; (5) A war [9/11 attack in 2001 and ensuing “War on Terror”]; (6) One or more medical breakthroughs [average US life expectancy was 78.2 in 2009 vs. 76.7 in 1999, boosting cost of senior entitlements].
# 20 Winter 2000 – Two DuPont retirees, Barry Dorsch and Jerry Martin became SAFE directors.
Barry was Chairman of the Delaware Taxpayers Lobby and has extensive experience in other non-profit community activities.
Jerry is an experienced activist and has held responsible positions in many organizations including The Sons of the American Revolution and The Committee for Fair School Taxes.
# 22 Summer 2001 – SAFE sponsored a May 18 talk by Maurice McTigue, a former member of the New Zealand parliament who had headed a program to radically reduce government spending, to approximately 200 members of the Retired Men’s Luncheon Club. His talk was top notch, and he received a standing ovation.
While in Delaware, McTigue visited with staff members of the three members of Congress. (Senators Biden & Carper, and Representative Castle were in Washington.) He and SAFE Director Jerry Martin also had breakfast with two Delaware state representatives.
# 23 Fall 2001 – Several columns on SAFE subjects were submitted to newspapers around the country, one being a critique of the AARP. Here is a sample:
The AARP is a top-down organization. Decisions are made in the Washington D.C. office and rubber-stamped by handpicked groups of members.
How does the Washington D.C. office get its plans rubber-stamped? By selecting tractable members of the governing board and providing "bread and circuses" for the most active members. The AARP convention programs include a long list of big-name entertainers. The Washington D.C. office allows generous expense accounts for members who participate in official AARP activities.
# 24 Winter 2001 – Director Barry Dorsch was elected at the annual meeting as president-elect, to succeed Bill Morris as president in 2003.
# 26 Summer 2002 – SAFE wrote to the three members of Congress from Delaware (“the Members”) and others in opposition to proposed legislation to guarantee seniors their full Social Security benefits. Such a guarantee could impose a crushing burden on younger taxpayers if Social Security was not reformed and the system became insolvent.
Our action was in reaction to a lobbying campaign of the United Seniors Association, sort of a David versus Goliath situation.
On one side is SAFE, defending the future of the next generations. On the other side is AARP and other large senior’s organizations focusing on current benefits for seniors, and ignoring the interest of seniors in the future welfare of their children and grandchildren.
# 27 Fall 2002 – On Newark Community Day, Jason Allen Dempsey (Jerry Martin’s grandson) made the rounds with a sandwich board to advertise SAFE’s concern for younger Americans. This effort attracted favorable attention – well done.
# 28 Winter 2002 – SAFE prepared a column contrasting SAFE’s balanced approach with the AARP’s unrelenting advocacy of maximum benefits for today’s seniors. It was to be submitted to over 100 newspapers nationwide. Unfortunately, as reported in newsletter #29, it would be “printed in few if any of the papers.”
# 31 Fall 2003 – SAFE opposed a proposed prescription drug entitlement program, saying it would be unfair to coming generations at a time when Medicare was already deeply in the red. The AARP supported the proposal, which we attributed to its Washington, DC office ignoring “the wishes of most AARP members.”
# 32 Winter 2003 – SAFE President Barry Dorsch and founder Bill Morris were guests on the Rick Jensen talk show (WDEL 1150). The main topic was the just enacted prescription drug benefit for Medicare. Barry and Bill expressed SAFE’s opposition to the “pill bill” and to the big government bias of the Washington, D.C. office of AARP. Jensen and most callers seemed to be on the same wavelength.
Bill Whipple (appointed a director earlier in the year) was elected president-elect at the annual meeting, to succeed Barry Dorsch as president in 2005. A DuPont retiree, Bill is an attorney and financial consultant.
# 34 Summer 2004 – SAFE was on the Rick Jensen show again. Barry Dorsch and Bill Whipple did the honors, and the prime topic was putting Social Security on a sound basis. Jensen had also invited the AARP, but they declined.
# 35 Fall 2004 – Bill Morris and Bill Whipple attended an AARP event re “fixing” Social Security. The key speaker was Peter Orzag (who would later serve as the first budget director for President Obama), whose pitch was to raise taxes, tweak benefits, and hope for the best – anything but introduce personal retirement accounts (PRAs).
Why is the AARP so adamantly opposed to PRAs? We can speculate that they feel they own Social Security and don’t want to see it ever go. If the PRA approach works as we expect it to, the old pay-as-you-go Social Security system could disappear in a couple of generations. If so, we say good riddance.
# 36 Winter 2004 – Our new director has an intriguing background. Meet Steve McClain, who hails from West Virginia, was a military cargo plane pilot during the Vietnam War, and then served in the Delaware public school system as a teacher and middle school principal.
# 37 Spring 2005 – SAFE worked hard to support the introduction of personal retirement accounts for Social Security, which at the time was the subject of a proposal unveiled after President Bush’s reelection. We endorsed the Administration’s proposal as a start, but indicated a strong preference for the more far-reaching 6.2 Percent Solution proposed by the Cato Institute.
Actions taken: Requested audiences with the Members (resulting in meetings with Representative Castle and with staffers of Senators Biden and Carper), faxed a position paper to all 100 members of the US Senate, gave a talk to the Retired Men’s Luncheon Club, and published a column in the Delaware State News. However, the Administration’s Social Security proposal was poorly marketed and would go nowhere.
# 39 Fall 2005 – SAFE took an opinion survey on Social Security reform at Newark Community Day, with student support, garnering 263 responses. The respondents indicated continuing interest in real Social Security reform.
Two key points: (1) Most people see Social Security reform as an issue that should be addressed now. Forget whether the system is facing a “crisis” or a “problem,” the argument that our county can afford to let things slide has been rejected. (2) There is growing awareness that Congress is spending “excess” Social Security taxes for other programs, and people don’t like it. Among core workers (30-54), disapproval of this practice is virtually unanimous.
# 40 Winter 2005 – In a January 17th “Brainstorming Session,” the board decided on a name change. “Secure America’s Future Economy,” suggested by webmaster Charles Kaszytski, would combine the “SAFE” acronym with a positive image
Most of us will be seniors and we’ll still concentrate on the future well-being of the next generations – however, by removing the word “Seniors” we are more welcoming of younger Americans who share our goals and want to help.
We ditched “Against,” because it is negative. Our new name implies more than getting the government to spend less money. But we intend to be adamant, militant, vociferous, and effective, (add your own adjective) opponents of the present out-of-control government spending.
# 41 Spring 2006 – SAFE sponsored a talk by Citizens Against Government Waste president Tom Schatz to the Retired Men’s Luncheon Club. The talk was well received. We were disappointed that none of the Members chose to attend the event [one staffer offered to attend the lunch only, but we said it “wouldn’t look good” if he didn’t stay for the speech], and were also disappointed by halfhearted responses to a request that they take a pledge “to be straight about the budget mess.”
Two of the three Delaware Congressmen have responded, acknowledging that there is a real fiscal problem and offering a few ideas about how to mitigate it. We do not get the sense, however, that any of these gentlemen view the budget deficit (now, let alone in the future) as a matter of real urgency.
# 42 Summer 2006 – The Concord Coalition, Comptroller General David Walker, et al. came to Wilmington for a May 1st forum about deficit spending. SAFE directors Martin, Morris and McClain were in the audience.
The big threats, said the speakers, are (1) entitlement spending (already consumes half of the budget and will keep growing as “baby boomers” retire), and (2) interest expense (could take 100% of federal revenue by 2050 if debt grows as projected).
Senator Tom Carper and Representative Mike Castle spoke briefly. Carper said $300 billion of income tax is unpaid each year, and the government issues about $45 billion of overpayments. Castle would favor a line item veto.
# 43 Fall 2006 – Over one-third of SAFE’s members, from all over the country, responded to a July survey. 77% of respondents said our new name was an improvement; the feedback on our goals and activities was generally supportive.
SAFE strategy (as government’s fiscal situation has continued to deteriorate): 2/3 said we should “keep plugging,” 1/3 said to try new strategies (in many cases offering suggestions, which will be thoughtfully considered). No one voted for “giving up.”
SAFE Website: We appreciate the feedback from those respondents (about 25% of them) who visit the site. The navigation bar is now on top; we will work on “more graphics.”
SAFE newsletter: Your average rating was 4 on a scale of 5 (superior) to 1. We appreciate your feedback and will work on your suggestions.
Outreach efforts: Almost all agree that SAFE should be “sending letters to the editor and political leaders, cultivating media contacts, and networking with larger organizations such as Cato and Citizens Against Government Waste.” Your comments and suggestions will be taken into account in planning future SAFE initiatives.
# 44 Winter 2006 – We reported on a letter writing campaign against government grants, which add up to a substantial drain on the treasury. Bill Morris came up with the idea after reading a book by Chris Edwards of the Cato Institute.
For the past two months, your directors have been writing letters advocating elimination of federal government grants (some $475 billion per year). We have submitted one letter per week to Delaware’s largest newspaper, The News Journal, and also sent letters to the Delaware State News and Delaware County Daily Times (near Philadelphia).
It may seem radical to eliminate federal grants, which include a whole barnyard of sacred cows, but their availability leads to a lot of waste (see Grant Drawbacks, page 2). Moreover, this thrust honors the spirit of the 10th Amendment (1791): “the Powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people.”
# 46 Summer 2007 – Steve McClain and Bill Whipple attended a conference in Washington, D.C., sponsored by the National Taxpayer’s Union. 400+ fiscal conservatives from 40 states, speakers and panelists first rate, “nuts and bolts” strategies (this blog was one of the results), a realistic assessment of the battles that lie ahead.
#Always remember that cutting edge techniques are no substitute for a credible, convincing and appealing message. Content was king when the most efficient form of communication was to stand on a soapbox in the town square and talk to whoever would listen. It still is!
#Finally, what is it going to take to win? Forget a 90-day campaign to change America, such a vision is totally impractical and can only lead to disillusionment. The problems of an unwieldy, relentlessly invasive government that is in a deep financial hole took years to develop, and it will take years of dedicated effort to start turning things around. That being said, we left the conference feeling that SAFE is not a voice in the wilderness – there are some very fine people in other organizations, big and small, who share our values and vision. Together, we can make a difference!
# 48 Winter 2007 – Several SAFE directors attended a Fiscal Wakeup Tour stop in Baltimore, which resembled the 2006 event in Wilmington (Newsletter #42). Our impressions were reported in both the SAFE blog and newsletter.
At the Concord Coalition Baltimore fiscal Wake Up Tour, the well-informed speakers pulled no punches. A SAFE group from Delaware went by van. Speakers stressed the urgency of starting a solution; stressed that raising taxes won’t be enough, and framed the problem as a moral issue. We agree, but regret they could not be specific enough about solutions. That said, SAFE strongly supports the Fiscal Wake-Up Tour and we encourage all members to attend when feasible.
Daniel Kerrick was elected to the board at the annual meeting. An up and coming attorney, he was probably SAFE’s youngest director ever. “We look forward to benefiting from his different knowledge and perspective.”
# 49 Spring 2008 – SAFE directors Kerrick, McClain and Whipple attended a pre-release showing of I.O.U.S.A. in Philadelphia. The film was made to dramatize the coming fiscal crisis, and it did the job very effectively.
The near capacity audience was diverse and enthusiastic. Talking to people in the line, it quickly became evident that they knew what the film was supposed to be about and wanted to hear more. There was also awareness of the parallel to Al Gore’s film on “global warming,” which regardless of whether one agrees with it (we do not) has raised public awareness of this alleged threat.
Gee, said someone on the way out, this (I.O.U.S.A.) is the movie that should be called “An Inconvenient Truth.” Right, because it is inconvenient indeed that the country is on the verge of a fiscal meltdown and may have to curb its preference for leisure/consumption vs. work/production.
# 51 Fall 2008 – Once more into the breach at Newark Community Day, this time with a survey on global warming. The results – many of the 141 people who took the survey seemed to buy into the manmade global warming theory (public opinion has changed for the better since then). But we did enjoy displaying a cartoon created to lampoon the tendency of many to focus on the wrong issue.
Little did we know that a financial panic was about to erupt. It would bring the bankruptcy of Lehman Brothers, forced acquisition of Merrill Lynch, bailout of AIG, and collapse of Fannie Mae & Freddie Mac. Not the financial disaster we had been thinking about, i.e., insolvency of the US government, but still a scary sequence of events.
# 53 Spring 2009 – One of the tools in SAFE’s kit bag is to combat economic misconceptions, e.g., that government deficit spending is the key to recovery from an economic slump. As we have periodically pointed out, and felt the need to reiterate after the new Administration rammed a two-year, $800 billion “stimulus” package through Congress, history indicates otherwise.
The 1920-21 depression was severe. Unemployment went from 5.2% to 11.7%. It was over so rapidly that the federal government didn’t have time to get its hooks into it. Fortunately, Commerce Secretary Herbert Hoover was unable to convince President Harding to intervene rapidly enough. By the time Harding was persuaded, the depression was over and prosperity returned.
There were no bailouts. Prices and wages were reduced. Weak firms were promptly eliminated. Unemployment dropped to 6.7% in 1922 and 2.4% in 1923.
Both Hoover and Roosevelt employed government intervention after 1929 and it did not work.
# 54 Summer 2009 – Steve McClain and Bill Whipple attended the National Taxpayer’s Union conference, which was less upbeat than the one in 2007 (Newsletter # 46) – “conservatives” were still reeling from the 2008 election – but quite instructive. For instance, here are some tips from a breakout session on crafting one’s message.
ü Merely stating truth is not enough. Dale Carnegie.
ü Message should be simple, positive and conceptual.
ü Use emotion (anger or fear are effective).
ü Remember the “three Cs”: (1) Contrast (why your position is different); (2) Connectivity (why audience should care); (3) Credibility (why audience should believe you).
ü He who defines the issue wins the debate.
ü Stay on message! That’s an interesting point, but the real issue is . .
# 55 Fall 2009 – Barry Dorsch, Steve McClain, and Bill Whipple attended the “March on Washington” rally that marched down Pennsylvania Avenue and thronged for blocks around the west side of the Capitol Building.
Congress was not working on September 12th (a Saturday), and the president left town about the time demonstrators began to assemble in Liberty Plaza near the White House. We would imagine, however, that the nation’s political leaders are well aware of what took place.
Here is one oft-repeated punch line from the speakers stand: Can you hear us now? Can you hear us now? CAN YOU HEAR US NOW? The responses from blocks and blocks of demonstrators were deafening.
Let’s hope that the disappointment with the way things have been going in Washington of late will be remembered during the rest of this session of Congress. And we are proud to have been there!
Jerry Martin and Bill Whipple attended a September 2 “listening session” on healthcare with Senator Tom Carper and his staff. About 15 other members of the public were present, most of whom advocated more (not less) government spending on healthcare.
Showing that “old dogs” can sometimes learn new tricks, Bill Morris and Bill Whipple made videos for posting on the Website. Morris’s topic was global warming; Whipple spoke about the urgency of solving the fiscal problem. Now if we could just get some photogenic younger presenters . . .
# 56 Winter 2009 – Ryck Stout was elected to the SAFE board. A DuPont retiree, he avidly follows policy and political issues and maintains his own blog (Ryck’s Rationalizations) on Townhall.com.
Bill Whipple took over as the editor for the SAFE newsletter. Characteristically, Bill Morris had some new projects in mind that he was itching to get started on.
Now, I'll concentrate on the activities of "Climate Common Sense," the descriptive name of a new organization. In addition, I'll be actively promoting resurgence of nuclear power.
# 57 Spring 2010 – The healthcare bill (aka GovCare) was rammed through Congress despite the opposition of a majority of Americans. This “kill the bill” picture was taken at the “Code Red” rally in Washington on March 20.
GovCare is fiscally irresponsible (the alleged reduction of the deficit reflects tax increases + arbitrary Medicare cuts that Congress is unlikely to make in practice), in our opinion, and will accelerate rather than slow the rise in healthcare costs. We stand by SAFE’s proposals to empower healthcare consumers and doctors instead of government bureaucrats. http://www.s-a-f-e.org/healthcare.htm
The best way to clear the way for real healthcare reform would be to repeal the GovCare bill. This can happen if enough people keep up the fight, as was pointed out in a SAFE letter to the editor published on April 10. http://bit.ly/lYNjfa
# 59 Fall 2010 – SAFE had closely followed the public sessions (videos posted on line) of the Fiscal Commission, a bipartisan, 18-member body created to develop recommendations for deficit reduction. Our sense was that the FC recommendations would fall far short of solving the fiscal problem, so we urged the Commission to act more boldly. SAFE’s suggestions included the following:
(1) Set a goal of balancing the budget, not reducing the deficit to 3% of GDP by 2015.
(2) Diagnose the problem accurately. The root cause of the projected deficits is not declining tax revenues, it is rapid growth in government spending.
(3) Do not rely on budget process improvements. Government programs, even entire departments, need to be put on the chopping block. Entitlements must be restructured so they will be sustainable, with big changes for healthcare programs as well as Social Security.
(4) Since your time is up, propose that the new Congress establish three new commissions to finish the job in a timely manner.
The Spending Reduction Commission would be directed to develop a plan for reducing spending as a percent of Gross Domestic Product to 2000 levels. The reporting deadline would be 5/1/12. Congressional leaders would pledge an up or down vote on the plan before the 2012 elections.
The Tax Simplification Commission would recommend an overhaul of the tax law to reduce the burden on business, broaden the tax base, and be revenue neutral overall, also to report and be acted on before the 2012 elections.
The Regulatory Common Sense Commission would identify regulations that have outlived their usefulness and/or impose an unjustifiable burden on business, again to report and be acted on before the 2012 elections.
# 61 Spring 2011 – A letter signed by the SAFE directors was faxed individually to all 535 members of Congress. The basic points: cut federal government spending to 20% of Gross Domestic Product, streamline taxes and defang regulations – or we may all be very sorry when a fiscal meltdown hits. A copy of the one-page letter was in the newsletter. An expanded version was posted in the blog. SAFE to Congress: you need to do much, much better, 2/7/11.
5/30/11 – Never mind a 10-year plan; cut spending now Read Replies
Some people believe all “conservatives” think alike, but this is not so. We proved it again at a board meeting on May 26, while discussing whether SAFE should support a debt ceiling increase. This entry will recap the discussion without personal attribution.
Your faithful scribe had previously assumed the answer was YES. Of course the debt ceiling will be raised, but on what terms? 5/16/11
Nobody in a position of responsibility is suggesting the federal government’s debt limit will not be raised, as it always has been when needed. But a pitched battle can be expected about the details.
Going around the table, however, most of the directors said NO. They are tired of advocating spending discipline, and seeing our views ignored. We should take a stand. If that means a financial crisis so be it – the consequences of boosting the debt limit and allowing the National Debt to keep rising would be even more lethal.
Several directors said YES, but only with ironclad guarantees that spending will be cut by an equal or larger amount (no tax increases). If we ever trusted the government class to “do the right thing,” this trust has been squandered by decades of irresponsible fiscal management – facilitated and/or condoned by politicians on both sides of the aisle.
Everyone agreed on eliminating the Departments of Energy and Education, most government grant programs, corporate welfare, etc. By comparison, ideas offered by Delaware’s Congressional delegation have been timid at best. See, e.g., these News Journal columns: Rep. John Carney, Pair raising of debt limit with a long-term debt plan, 5/26/11; Senator Tom Carper, US must learn how to spend smarter, 5/12/11; Senator Chris Coons, Reckless budget cuts passed by House threaten citizens’ welfare, 2/28/11.
All of us agree that defense spending should be scrutinized for outdated programs and waste. Some directors would also like to eliminate new weapons programs such as the F-35, reduce force levels, pull back US forces from bases around the world, and eliminate foreign aid (except for humanitarian relief). Others believe such policies (like the isolationism of the 1920s) would imperil national security.
By the way, a failure to deal with the fiscal problem in a timely manner would surely result in the military being gutted – whatever the consequences. As Admiral Mike Mullen, Chairman of the Joint Chiefs, put it: “In a pinch, everyone knows what will get sacrificed first, and it won’t be the cushy entitlement programs that liberals have ballooned into debt sinkholes.” June 2010, hotair.com.
About those entitlement programs, the Ryan Plan would kill GovCare in its cradle and phase in Medicare and Medicaid changes. The details will need to be studied, but Representative Ryan deserves top marks for political courage. His plan does not propose adjustments to Social Security, however, which we view as an unfortunate omission.
We believe the long-term solution for Social Security is to empower younger workers to set up personal retirement accounts, but meanwhile the financial status of the system could be shored up by raising the retirement age for Social Security, tightening standards for disability awards, etc. Getting down to brass tacks on spending, 10/25/10.
In addition, one SAFE director proposes that seniors should offer to accept a 10% reduction (except for those below the poverty line) in current SS benefits. This would challenge the all too prevalent mindset that it’s OK to cut spending in every area except “programs of benefit to me,” possibly encouraging others to act selflessly as well.
Most of the directors questioned whether such an offer would help much in pushing for the spending cuts so urgently needed in other areas. Also, 90+% of all seniors would fight any reduction in current Social Security benefits, so the “offer” would wind up being a symbolic one. Still, it is true that a logjam cannot be broken without moving some of the logs, and the process has to start somewhere.
Current discussions of the debt level ceiling and deficit reduction are at an impasse, with no indication that even the SAFE minority view (raise the debt limit with ironclad guarantees of equal or greater spending cuts) will be accommodated.
The efforts of the bipartisan “Gang of Six” in the Senate have collapsed. Why is the Senate stalling on the debt debate? Senator Tom Coburn, Washington Post, 5/19/11.
That leaves the negotiations of six legislators (Representatives Cantor, Clyburn, & Van Hollen; Senators Baucus, Inouye, & Kyl) under the aegis of Vice President Joe Biden. Something on the order of $1T in spending cuts have supposedly been identified (no hint as to makeup, time period, or guarantees). However, Republicans say tax increases are off the table (so another $1T in cuts might be needed to cover a $2T debt increase), while Democrats insist that the deal must include tax increases. Poll: More Americans fear higher national debt than default, Lon Montgomery & Peyton Craighill, 5/24/11.
The Biden talks will predictably result in a proposal, probably a week or so before the early August “deadline” when Treasury Secretary Tim Geithner starts running out of fiscal tricks to disguise the fact that the government is already over the $14.3T debt limit.
The proposal will not satisfy the SAFE majority, which is unwilling to accept any debt limit increase, and we would be amazed if it satisfied the SAFE minority. There is a big difference between ironclad guarantees and a 10-year spending reduction plan that could easily be waived, sabotaged or renounced after the 2012 elections.
So if this effort is headed for near certain failure, what should SAFE propose as an alternative? Our idea is to demand that the Senate – having last week rejected both the Ryan plan (57-40) and the president’s FY 2012 budget (97-0) – propose its own budget resolution.
The availability of the recommendations of last year’s Fiscal Commission would provide a boost to this effort, i.e., the Senate Budget Committee (chaired by Senator Kent Conrad, who was also one of the 18 members of the FC) need not start from scratch.
We understand that Senate Democrats would rather criticize the Ryan Plan than offer a proposal on which they could be judged. The Dems’ “breathtaking” refusal to pass a budget, Byron York, Washington Examiner, 5/23/11.
Too bad! This country is drowning in debt, and the Democrats have an obligation to reveal where they stand – in detail, not just sound bites – so the competing proposals can be compared and debated publicly. Think tank project shows why Dems won’t offer a budget, Washington Examiner, 8/25/11.
This returns us to the question of why Senate Majority Leader Harry Reid, D-Nev., has said that Democrats would be "foolish" to present a budget. When multiple plans are compared fairly, side by side, it becomes clear that the Left's vision for America bears little resemblance to the nation we know today.
One SAFE director, a former pilot who has flown military aircraft all over the world, suggested an analogy for the current situation. Imagine we are flying in a C-133, and three of the four engines have conked out.
If the last engine dies, the plane will crash and burn. Or the pilot can attempt to bring it down in a controlled fashion, which would probably be the best course of action.
SAFE to Congress: This is not a drill; it is the real deal. Mayday, Mayday . . .
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Postscript: SAFE sent a letter to Vice President Biden et al. on May 31, which conveyed the substance of this entry. http://bit.ly/iCaPHT
I share your view on the seriousness of the problem. College classmate, South Carolina.
The blog entry and letter are clear, and much more "hard-hitting" than I used to see from SAFE. This type of input is not readily accepted, so it MUST be done by as many as possible, as often as possible to try to knock some sense into these politicians' heads! Retired finance executive.
How can we be assured of a 'guarantee' on spending cuts? I would want to see the agreed cuts put into legislative language and published for all to see. History shows that promises of action after the next elections could not be counted on. SAFE director.
5/23/11 – Tips for fiscal visionaries: policies and politics are closely connected Read a Reply
From the SAFE archives (fall 1998): “Our approach is to use the strength of our organization and the strength of our ideas in an intelligent way so we can advance our agenda. We use education, publicity, and persuasion. We try to influence individuals and organizations rather than oppose them.”
http://www.s-a-f-e.org/nwsltr/nwsltr11.htm
Very good, but such high-minded resolve often breaks down in practice because: (1) policies bearing on the size and reach of government are inherently political, and (2) the interested parties do not stick to fact-based, logical arguments.
This week’s entry illustrates other techniques: deceptive slogans, credibility attacks, stacked proceedings, and disruptive behavior – plus our thoughts on how to counter them.
Hopefully, the norms for public discourse are higher than some of these examples would suggest. Our advice to fiscal visionaries, however, is “be prepared” for the worst. That way, any surprises should be pleasant ones.
DECEPTIVE SLOGANS – In current discussions of the fiscal problem, certain expressions keep coming up. One is “shared sacrifice,” a shorthand way of saying deficits should not be reduced without raising taxes as well as cutting spending.
As discussed last week, we see no good reason why the budget cannot be balanced through spending cuts alone. Of course the debt ceiling will be raised, but on what terms? 5/16/11
Where does shared sacrifice enter in? Answer: Americans on the dole would sacrifice by receiving reduced government benefits; wealthy Americans would sacrifice by paying even more taxes than they do now. “Shared sacrifice” slogan equates taking and giving, burdens and benefits, Michael Medved, Townhall.com, 5/18/11.
How should fiscal visionaries respond to this slogan? Here are some suggestions:
First, ask who would be sacrificing what – thereby forcing your opponent to utter the “T” word. Also, observe that it would be impossible to shrink the deficit simply by raising taxes on the wealthy – and history proves it – so taxes on the general public would rise as well. Slaves to words, Thomas Sowell, Townhall.com, 5/17/11.
When the tax rate on the highest incomes was 73 percent in 1921, that brought in less tax revenue than after the tax rate was cut to 24 percent in 1925. Why? Because high tax rates that people don't actually pay do not bring in as much hard cash as lower tax rates that they do pay. That's not rocket science.
Second, point out the adverse economic effects of perpetuating government programs that were a bad idea in the first place or have outlived their usefulness. The issue this country faces is not shared sacrifice; it is the size and reach of government. Medved’s column.
Despite liberal attempts to exploit envy, the real battle of the budget isn’t a class-warfare feud between “the needy” and “the greedy” over who will pay what to whom. It is, rather, the eternal struggle over whether the government should shrink or grow; whether power brokers in the nation’s capital will command less or more of the wealth generated by the private sector.
Third, ask what sacrifices by the government class are contemplated – knowing in advance that an honest answer would be “not much.” Medved’s column.
The true shirkers aren’t wealth producers and job creators: They’re the politicians and other public employees who indignantly resist giving up their cherished programs and prerogatives. Not only do the president and his allies exclude these preening “public servants” from calls for shared sacrifice, but the White House actually wants to increase governmental expenditures for favored priorities like high-speed rail, wind farms, educational boondoggles, and other aspects of the “Winning the Future” (WTF) agenda.
CREDIBILITY ATTACKS – One of the oldest tricks in the book is to attribute your own flaws to your opponent, e.g., by stridently accusing them of ideological bias. See these examples from Media Matters, a Website that apparently exists for only one purpose, namely to attack Fox News, the Wall Street Journal, et al.
ü Fox's "Straight News" Anchor Martha MacCallum Regularly Advocates GOP Positions [MacCallum has referred to a flat tax as a “better idea,” suggested that the retirement age for Social Security should be raised, etc. Some Republicans have also said these things.] http://bit.ly/jfW2Kx
ü Right-Wing Media Twist The Facts On Right-To-Work States [Among the alleged errors was referring to states without right to work laws as “forced union” states because no one is legally obligated to join a union. They might need to join a union, however, in order to get a job.] http://bit.ly/jK4q5Q
ü Economists Dismantle Conservative Media's Latest "Stupid" Attack On Stimulus [“The right-wing media is hyping a study that attempted to measure the state-by-state unemployment effects of the stimulus, to claim that the bill actually destroyed jobs. But economists, including Nobel laureate Paul Krugman, have raised questions of ‘cherry picking’ and dismissed the study's findings.”] http://bit.ly/lugBde
To be complete, there is a somewhat similar group on the conservative side. Accuracy in Media’s efforts seem more constructive than those of Media Matters, however, at least in our opinion. http://www.aim.org/
If subjected to a credibility attack, there are three possible responses: admit error and/or clarify your prior statement, ignore the attack (“consider the source”), or fire back.
Which option is best? It depends on the circumstances, but fiscal visionaries should not hesitate to rebut misleading or irrelevant claims when this will help their cause. Would you prefer privatization or a death panel? Dan Mitchell, Cato Institute, 4/21/11.
While reformers obviously should avoid the unseemly rhetoric associated with the current Administration, they should copy the aggressive approach. Timidity is a recipe for defeat.
As an example, here is another Media Matters report to which one of the targets responded.
ü Fox Still Pushing Falsehood That Half Of Americans Are "Not Paying Taxes" [Fox cited federal income tax data from the National Taxpayers Union, while supposedly obfuscating the fact that the lower half does pay payroll and excise taxes.] http://bit.ly/huUyFq
“Media Matters is whining, but apparently not working . . .” was the title of the rebuttal. The National Taxpayer’s Union noted that (a) it is a staunch opponent of raising taxes on middle and lower income Americans, and (b) the alleged “falsehood” was merely a technicality since, in addition to paying nearly 100% of federal income taxes, the top 50% of income earners also pay roundly 90% of total federal taxes levied on individuals.
STACKED PROCEEDINGS – If a faction has relatively weak arguments to offer, it may use its political position to block a debate on the merits. Just such a scenario recently played out in Delaware.
The issue was a bill (HB 86) that would have resulted in Delaware’s withdrawal from a regional cap-and-trade regime known as the Regional Greenhouse Gas Initiative (RGGI).
A national cap-and-trade regime fell short in the last session of Congress and will not be resurrected in this one. Key reasons: linkage between a general (but intermittent) global warming trend since roughly 1800 and greenhouse gas emissions has not been proven, the observed warming trend is not necessarily harmful, and a forced conversion to “green” energy sources would be tremendously expensive yet have only a minor effect on global temperatures.
http://www.s-a-f-e.org/energy.htm
If these points are well taken, they apply a fortiori at a regional level. Whatever reductions in carbon emissions might be achieved would be miniscule on a global scale. Thus, it has been said the entire 10-year RGGI goal for carbon emission reduction would be “replaced by unregulated increases in Third World countries every 30 seconds.” Regional cap-and-trade revenue is wasted, David Stevenson (Caesar Rodney Institute), [Wilmington, Delaware] News Journal, 5/2/11.
Cap-and-trade schemes are dead globally and nationally, and several of nine other RGGI states are considering repeal. We should do the same before we are left with an orphaned program.
http://www.s-a-f-e.org/global_warming_2011.htm
Some disagreed with these assessments, but they were not necessarily anxious to have a real debate about the matter and risk finding that the public did not agree with them. Accordingly, the strategy for RGGI supporters in the state legislature (predominantly Democrats at this point) was to kill HB 86 in committee.
The crucial hearing and vote was scheduled for Wednesday, May 11, at 4:00 p.m., affording limited time for discussion. Worse, opponents of HB 86 were allowed to consume most of the time. The following account is based primarily on the notes of John Greer of Climate Common Sense (there was no report on what happened in the News Journal).
The leadoff witness FOR the bill to withdraw from RGGI was David Stevenson of the Caesar Rodney Institute. He got 5 minutes to speak. Democrat Rep. Dennis E. Williams then grilled him, mostly about costs/revenues. So far RGGI has cost Delaware electric customers $21 million, while generating $21 million in revenues. Stevenson said future costs could be much higher.
Testifying first AGAINST the bill was DNREC Secretary Colin O'Mara. O’Mara was also supposed to have 5 minutes, but seemed to get all the time he wanted for his PowerPoint presentation. The witness focused primarily on the uses for the money: (a) 65% to Sustainable Energy Utility goals (subsidizes solar and wind), (b) 15% for low-income Weatherization Assistance Program (fraud and abuse scandal reported by the News Journal "should not deter us"), (c) 10% to Greenhouse Gas Reduction Projects (reduced 26,000 tons/yr so far), (d) 10% for Administration.
Asked if he thought there might come a time when Delaware could withdraw from RGGI, O'Mara’s answers was when we get a national Cap-and-Trade program.
Other witnesses (people who had signed up to testify) followed, alternating people FOR and AGAINST. It had originally been said that each of these witnesses would be allowed 3 minutes, but the allowance was cut to 2 minutes because of the number of people wanting to speak.
SPEAKING FOR, John Greer concentrated on substantive arguments against RGGI. The most dramatic point came when he held aloft an 878-page book with nonstop footnotes (Craig Idso and S. Fred Singer, Climate Change Reconsidered: 2009 Report of the Nongovernmental International Panel on Climate Change, Heartland Institute) to debunk the supposed scientific consensus in favor of the man-made global warming theory.
John Nichols, who got through only one page of his prepared statement due to the two-minute rule, emphasized the delegation of authority to RGGI and the SEU, both non-governmental organizations that are neither elected nor accountable.
Dover Downs president said DD has hired consultants and invested extensively to reduce electric usage but RGGI is still costing them $130,000/yr. One legislator said this was not much for DD. The witness said DD just had its first-ever quarterly loss and management is very concerned.
Delaware State Chamber of Commerce head said the #1 impediment to new manufacturing businesses locating in Delaware is the high cost of energy.
Central Delaware Chamber of Commerce head said the cost of energy is critical to small business. The public should be told exactly how the RGGI funds are being used and why (implying that this arrangement is just a way to hide the extra costs).
Father Thomas Flowers of Smyrna DE said his parish spent $46,000 last year helping the needy pay their electric bills and that even small increases were serious problems for the poor. He said they get five calls a day asking for help with electric bills.
A farmer said high electric costs were a serious problem for him and other farmers.
SPEAKERS AGAINST withdrawing from RGGI included representatives of the Clean Air Council (global warming would cause heat-induced disasters) and Nature Conservancy (we must reduce carbon emissions).
Chad Tolman of the Sierra Club said RGGI was a matter of social justice, global warming could cost Delaware $10 billion per year based on the Stern Review, and we must save people in Bangladesh from drowning.
Cora Lee Price (?) said she believes in the science of global climate change and doesn't care what they do in China.
Activist Tom Noyes said better air quality would save billions in healthcare costs.
Attendees at the session politely applauded the testimony of the FOR speakers, but not the AGAINST speakers. However, this show of support was for naught.
To use a punch line from Survivor (a reality TV show), it was “time to vote.” HR 86 was tabled on a 4-3 party line vote. It will not come before the full house unless 21 House members petition it, which would require the support of all 15 Republicans plus 6 Democrats. “The tribe has spoken.”
So that’s it for one of the most important bills on the state legislative calendar? The outcome seems distinctly dissatisfying, but will probably not be reversible this year.
How can fiscal visionaries, energy realists, et al. counter this type of tactics? First, keep working to educate the general public, which in turn can hopefully influence the politicians. Second, make sure that your viewpoints are well publicized before the next election. Democracy will only work if We the People let our wishes be known.
DISRUPTIVE BEHAVIOR – This tactic is most likely in a situation where a faction has no reasonable basis for its position, and is simply trying to obstruct an adverse decision and/or intimidate those who think differently.
Remember the government employee demonstrators in Madison, Wisconsin, who among other things invaded the State Capitol complex for an extended period. How to keep big government going (for a while), 3/14/11.
Another recent example was a student demonstration in Phoenix, Arizona, which was prompted by a proposed change in the curriculum. All students had been required to take a course teaching history from a Mexican-American perspective (basically indoctrination in a viewpoint that many in the community might not share). Prompted by a new state law, the school board was poised to consider making the course an elective.
Students forced their way into the school board meeting and engaged in nonstop chanting, fist waving, etc. It was discovered that they had chained themselves together, and could not readily be ejected. The meeting had to be aborted, hopefully to be rescheduled under more favorable circumstances. Students protest change to Mexican-American studies class in Arizona, FoxNews.com, 4/27/11.
Glenn Beck stated on his TV show that the students had been egged on and coached by adult activists, e.g., Ward Churchill. A SAFE member in Arizona confirms that Churchill was involved, and also LaRaza (a Spanish language newspaper) and several “anti-American, pro-illegal alien groups.”
The following video completes the picture. These are not peaceful demonstrations in an appropriate venue, such as say the “tea party” marches on Washington, they are a reprehensible effort to disrupt a public meeting.
What is an appropriate response to this type of activity? Prosecuting some of the instigators might be a place to start, it seems to us, but fiscal visionaries should not attempt to “fight fire with fire.”
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More deceptive slogans might include: (1) “Everything must be on the table.” How about putting a copy of the U.S. Constitution on the table? (2) “No one is above the law.” Good idea, but corrupt politicians and illegal aliens seem to get a pass. Keep up the good work, exposing the political elites who are bankrupting our country. – SAFE member, Arizona
5/16/11 – Of course the debt ceiling will be raised, but on what terms?
Nobody in a position of responsibility is suggesting the federal government’s debt limit will not be raised, as it always has been when needed. But a pitched battle can be expected about the details.
This entry will frame the issue, including: (1) WHY a debt limit increase is needed; (2) WHEN action must be taken; (3) WHO are the players; and (4) WHAT do they want. Or in a nutshell, what happens when an “irresistible force” meets an “immovable object”?
Why – In early 2010, Congress passed legislation to raise the debt limit by $1.9T, bringing it to the current level of $14.3T. Fox News, 1/28/10.
Such an increase seemed generous at the time, but big deficits kept coming and the government is already bumping against the new ceiling.
Barring an increase, Treasury will have no authority to issue additional debt. It might be forced to stop payments for vital programs or default on scheduled debt payments, with unwelcome (at best) consequences. Here is how Treasury Secretary Tim Geithner put it in a 1/6/11 letter to Senate Majority Leader Harry Reid with copies to all members of Congress.
Failure to raise the limit would precipitate a default by the United States. Default would effectively impose a significant and long-lasting tax on all Americans and all American businesses and could lead to the loss of millions of American jobs. Even a very short-term or limited default would have catastrophic economic consequences that would last for decades. Failure to increase the limit would be deeply irresponsible.
Several paragraphs later, there was a lengthy list of “specific consequences” of a default, including possible nonpayment or delay in payment of military pay, Social Security & Medicare benefits, tax refunds, unemployment benefits to states, etc.
The picture was overdrawn, perhaps for the benefit of new members, but basically accurate. Stop living beyond our means (which would take big changes and time for implementation) or raise the debt limit – there is no other choice
When – In his 1/6/11 letter, Secretary Geithner said the debt limit would be reached between March 31 and April 15. He requested “that Congress act to increase the limit early this year, well before the threat of default becomes imminent.”
Action to reduce the deficit could follow. “I want to stress that President Obama believes strongly in the need to restore balance to our fiscal position, and he is committed to working with both parties to put the Nation on a fiscally responsible path.”
It was doubtful that Congress would swiftly raise the limit, a politically unpopular action. Geithner’s aim was probably to start creating a record of requests for action to which the Administration could point later while saying “we told you so.”
A 4/4/11 letter updated the forecast. Now the projected date for hitting the debt limit was “no later than May 16.” Moreover, Treasury could engage in financial gymnastics to postpone the day of reckoning by about eight weeks (e.g., until July 8).
The extraordinary measures currently available are: (1) suspending sales of State and Local Government Series (SLGS) Treasury securities; (2) determining that a “debt issuance suspension period” exists, which would permit the redemption of existing, and the suspension of new, investments of the Civil Service Retirement and Disability Fund (CSRDF); (3) suspending reinvestment of the Government Securities Investment Fund (G Fund); and (4) suspending reinvestment of the Exchange Stabilization Fund (ESF).
A 5/2/11 letter extended the deadline to August 2, although continuing to urge that Congress act sooner rather than later.
Largely as a result of stronger than expected tax receipts, we now estimate that these extraordinary measures would allow the Treasury to extend borrowing authority until about August 2, 2011, approximately three weeks later than was forecast last month. This is a projection and is subject to change based on government receipts and other factors during the next three months. While this updated estimate in theory gives Congress additional time to complete work on increasing the debt limit, I caution strongly against delaying action.
So is August 2 truly the “drop dead” date? Close to it, we think, but some members of Congress remain skeptical. Stakes rise on debt vote: House Republicans increasingly question the urgency of August deadline, Wall Street Journal, 5/13/11.
They note that Mr. Geithner has already postponed the deadline once [twice?], and they insist the U.S. can find ways to shift its money around and cut some spending immediately to avoid cataclysmic consequences.
Who – TIER ONE: The debt limit debate might be described as a negotiation between House Republicans and Senate Democrats, with the president (sometimes represented by the vice president) acting as mediator.
Thus, during relatively low stake negotiations over spending cuts for the current fiscal year, the president mediated between House Speaker John Boehner and Senate Majority Leader Harry Reid – and appeared to do a pretty good job. Government shutdown: a temporary reprieve, 4/11/11.
Similarly, the president has been meeting with both sides during the current discussions of a longer-term budget deal, and in some instances has cautioned against inflexible negotiating positions. Obama urges Senate Democrats to remain open to debt-ceiling negotiations, Perry Bacon & Zachary Goldfarb, Washington Post, 5/11/11.
In an hour-long session with Senate Democrats at the White House, Obama told his former colleagues not to “draw a line in the sand” in negotiations, said Senate Majority Leader Harry M. Reid (Nev.). Showing an unwillingness to compromise, Obama said, would not only limit the ability to reach a deal with Republicans but could also have a negative impact on financial markets.
At this point, however, the mediator role is a pose. Senator Reid is taking his marching orders from the president, and the current talks are a two-party negotiation with the president leading the Democrat team.
Consider the president’s State of the Union address on January 25, budget proposal for FY 2012 (submitted on February 14), and speech at Georgetown on April 13 outlining his deficit reduction plan (after the House Republicans had put their plan on the table). In none of these instances did the president play a “centrist” or “fiscal moderate” role. To win the future, do not let the government do it, 1/31/11; The budget: a “lowball” offer, 2/21/11; Stay alert: this will be a long, tough ride, 4/18/11.
TIER TWO – House Democrats will be unable to block actions by the House Republicans or initiate actions of their own, so they will have limited influence. Republican senators may have more clout as actions in the Senate can be filibustered.
Certain members of the Senate (e.g., the bipartisan Gang of Six) are working on compromise proposals, which might prove important if the main discussions break down.
TIER THREE – Outside advocacy groups across the ideological spectrum are following the action, posting comments, and reaching out to anyone willing to listen. Being one of these groups, albeit a very small one, we know the drill.
TIER FOUR –Then comes the general public, whose thoughts and feelings about spending, taxes, and the debt limit will be tracked through opinion polls, focus groups, social networking (Facebook, Twitter, etc.), and observation of live events.
There is widespread opposition to raising the debt limit at present. 70 percent of Republicans oppose raising debt ceiling, Dan Well, Newsmax.com, 5/13/11.
|
Re debt limit hike |
Republicans |
Democrats |
Overall |
|
Oppose |
70% |
26% |
47% |
|
Favor |
8% |
33% |
19% |
|
Not sure |
21% |
40% |
34% |
What – On what terms would the parties agree to a debt limit increase? For discussion purposes (and at the risk of over simplification), we will consider the viewpoints of Defenders, Attackers, and would-be Compromisers.
DEFENDERS – The president and his supporters would like a “clean” increase in the debt limit, meaning no conditions re cutting spending or otherwise shrinking projected deficits. Raise debt limit to avoid national catastrophe, Geithner warns Congress, Lori Montgomery, Washington Post, 1/6/11.
On the Sunday talk shows, Council of Economic Advisers Chairman Austan Goolsbee warned against "playing chicken with the debt ceiling," saying failure to increase the limit would spark "the first default in history caused purely by insanity." And on Thursday, the White House released remarks from a series of conservative commentators who agree that the debt ceiling must be allowed to rise. Among those supporting the White House position is former Bush administration Treasury secretary Henry M. Paulson, who released a statement Thursday warning that inaction "is simply not an option."
The fallback position is that some fiscal conditions may be acceptable, but only as a matter of political expediency. This is not the time to make big spending cuts, restructure entitlement programs, or for that matter hike taxes. Obama: Raise debt ceiling or risk global recession, Ben Feller, Washington Times, 4/15/11.
“I think it’s absolutely right that it’s not going to happen without some spending cuts,” the president told The Associated Press in an interview in his hometown, agreeing with House Speaker John Boehner’s assessment.
The Defenders’ closest approach to proposing meaningful deficit reduction came in the president’s speech at Georgetown on April 13, but the speech fell short in several respects (italicized excerpts are from the transcript).
• Demonstrated no sense of urgency. A serious plan doesn't require us to balance our budget overnight - in fact, economists think that with the economy just starting to grow again, we will need a phased-in approach - - - I'm proposing a more balanced [than the Ryan Plan] approach to achieve $4 trillion in deficit reduction over twelve years.
• Confirmed support for new initiatives, which would offset savings from cuts in established programs. Keep annual domestic spending low by building on the savings that both parties agreed to last week - a step that will save us about $750 billion over twelve years - - - [but] invest in medical research and clean energy technology - - - new roads and airports and broadband access - - - education and job training.
•Got specific about cutting spending in only one area – national defense. Secretary Gates has courageously taken on wasteful [defense] spending, saving $400 billion in current and future spending . . . [now we] need to not only eliminate waste and improve efficiency and effectiveness, but conduct a fundamental review of America's missions, capabilities, and our role in a changing world. I intend to work with Secretary Gates and the Joint Chiefs on this review, and I will make specific decisions about spending after it's complete.
•Touted government management as the key to “reducing the cost of healthcare,” versus empowering patients to make their own healthcare decisions. [Use] Medicare's purchasing power to drive greater efficiency - - - demand more efficiency and accountability from Medicaid - - - new incentives for doctors and hospitals to prevent injuries and improve results - - - strengthening an independent commission of doctors, nurses, medical experts and consumers who will look at all the evidence and recommend the best ways to reduce unnecessary spending.
•Overstated the case for raising taxes on high earners. In December, I agreed to extend [through 2012] the tax cuts for the wealthiest Americans because it was the only way I could prevent a tax hike on middle-class Americans - - - I refuse to renew them again.
ATTACKERS – House Budget Chairman Paul Ryan’s fiscal plan, released on April 5, envisioned that the deficits based on the president’s FY 2012 budget could be significantly reduced without raising taxes ($ in billions):
|
Fiscal year |
2012 |
2013 |
2014 |
2015 |
2016 |
2017-21 |
2012-21 |
|
President’s Budget |
(1,164) |
(901) |
(764) |
(748) |
(841) |
(5,053) |
(9,470) |
|
Ryan Plan |
(995) |
(699) |
(492) |
(434) |
(481) |
(1,988) |
(5,088) |
|
Improvement |
169 |
202 |
272 |
314 |
360 |
3,065 |
4,382 |
http://wapo.st/fA8UZg [click PDF of Ryan Plan, see Charts S-1 & S-2. Back calculated deficits for the FY 2012 budget (projected deficits per Ryan Plan + differences) differ from deficits shown in the original document, possibly reflecting subsequent adjustments of the FY 2012 data by OMB.)
The key was $6.2 trillion in spending cuts, attributable in large part to reduced healthcare outlays. GovCare would be repealed, cancelling out both expenditures and new taxes in that legislation. Medicare coverage would be converted to subsidized private insurance plans for future retirees. Medicaid would become a block grant program. Good ideas, we think, although the Defenders were sure to hate them.
Before leaving for the spring recess, the House Republicans approved the Ryan Plan as a template for the FY 2012 budget resolution. But their unity is now fraying and they may ultimately regroup under a different banner.
The focal point is the Medicare proposal, which has inspired dire warnings to seniors that Republicans want to chop their healthcare benefits. (Actually, no one over 55 would be affected.) Republicans slammed unfairly for Medicare plan, Donald Lambro, Townhall.com, 4/27/11.
This doesn't mean that Medicare does not need to be reformed to make it financially sustainable over the long term. But it is clearly a highly flammable issue that can only move forward by developing bipartisan support for needed reforms, and that means dealing with it on a separate budget track, perhaps under a special House-Senate panel to come up with changes that can pass Congress. Going out on a limb and passing a plan that only the Republicans will vote for, as happened in the House, was not smart politically, nor good legislative strategy.
More recently, in a speech to the Economics Club of New York, House Speaker John Boehner offered some guidelines for a debt limit increase. Transcript, 5/9/11.
Without significant spending cuts and reforms to reduce our debt, there will be no debt limit increase. And the cuts should be greater than the accompanying increase in debt authority the president is given.
We should be talking about cuts of trillions, not just billions.
They should be actual cuts and program reforms, not broad deficit or debt targets that punt the tough questions to the future.
And with the exception of tax hikes -- which will destroy jobs -- everything is on the table. That includes honest conversations about how best to preserve Medicare, because as we all know, with millions of Baby Boomers beginning to retire, the status quo is unsustainable.
Was Speaker Boehner advocating irresponsible behavior, which could endanger the U.S. credit rating? He suggested otherwise.
It's true that allowing America to default would be irresponsible. But it would be more irresponsible to raise the debt ceiling without simultaneously taking dramatic steps to reduce spending and reform the budget process.
Boehner’s position seems reasonable to us, but it is anathema to the Defenders. Unless someone takes a deep breath and backs off, it is hard to see the debt limit issue being resolved – and there is no way this issue can be put off until 2013.
COMPROMISERS – There are many people who would love to broker a “grand bargain” on the debt limit and other fiscal issues.
Some of the would-be Compromisers are on the inside, notably the previously mentioned “Gang of Six.” [Senators Saxby Chambliss (R-GA), Tom Coburn (R-OK), Kent Conrad (D-ND), Mike Crapo (R-ID), Dick Durbin (D-IL), and Mark Warner (D-VA).]
Then there are centrist outside groups, such as the Concord Coalition (Robert Bixby), Comeback America Initiative (David Walker), Peterson Foundation (Pete Peterson), and Committee for a Responsible Federal Budget (Maya MacGuineas).
Not to mention most of the mainstream media, including the editors of our local newspaper. Political games push politicians into corner, [Wilmington, Delaware] News Journal, 5/14/11.
http://www.s-a-f-e.org/members_microblog_2011.htm
Lots of bright people with interesting ideas, we could go on and on, but let’s stick to one point on which the Compromisers agree. The fiscal problem cannot be solved, they believe, without both spending cuts and tax increases. See, e.g., Tax aversion syndrome and our deficit future, Peter G. Peterson, Wall Street Journal, 7/24/10.
Some have tax aversion syndrome—they have never met a tax increase they didn't do everything in their power to block. While I believe that spending cuts must play a lead role in any solution to our long-term structural deficits, the sheer magnitude of the imbalances requires revenue increases.
Factually, we disagree. There is no inherent reason that the federal government must spend more than, say, 19% or 20% of Gross Domestic Product. And this amount of revenue can be raised without new taxes or material rate increases. See, e.g., SAFE’s SimpleTax proposal, which would be simpler and fairer than the current tax system, yet bring in 20% of GDP.
http://www.s-a-f-e.org/the_simple_tax.htm
A strong case can be made, moreover, that the fiscal problem has arisen due to out of control government spending – which would point to spending discipline as the solution. Federal spending grew more than ten times faster than median income, 2011 Budget Chart Book, Heritage Foundation.
Practically speaking, however, the Compromisers’ point is harder to refute. In any negotiation, both sides typically need to give some ground in order to reach agreement. And with the Defenders keen on raising taxes while the Attackers dream of cutting spending, it is hard to see either side scoring a total victory.
What is going to happen? Our crystal ball is a little cloudy right now, but if any readers “know” what is going to happen, we would love to hear from you.
5/9/11 – An administrative blitz: taking cover is not enough
With legislative gridlock likely over the next 18 months, we expect big government supporters to concentrate on advancing their agenda through administrative action (AA). Others have reached a similar conclusion. Washington’s “alphabet soup” poisonous to economy, Adam Hasner, Townhall.com, 12/6/10.
Not long after the Democrats took their electoral “shellacking,” John Podesta, of the George Soros funded Center for American Progress, suggested that "one of the best ways for the Obama administration to achieve results...is through substantial executive authority to make and implement policy."
Administrators with a broad mandate can achieve surprising results, as shown by these examples from last week’s entry: (1) an overly zealous prosecutor brought down a 28,000 person accounting firm, (2) an automotive task team stiffed the secured lenders in the Chrysler bankruptcy, and (3) the EPA classified CO2 (a natural component of the atmosphere, essential to life on this planet) as a “pollutant.”
This entry will review more examples in this vein, and then offer our thoughts about responding.
AA EXAMPLES (continued) –
4. Environmental Protection Agency – With its mandate to assure clean air and clean water, the EPA could potentially regulate all human activity (even breathing if CO2 is deemed a pollutant). The possibilities for wrecking the economy are apparent, and the agency’s track record is far from comforting. Dear EPA: shape up or ship out, 11/29/10.
Many current EPA thrusts seem questionable. Take its order (late December 2010) delaying an oil-drilling project in the Arctic, which we noted after posting Tips for fiscal visionaries: be persistent or get run over, 4/25/11, re the need to keep pushing for increased US oil production.
Shell Oil Company has spent five years and nearly $4B (including $2.2B for leases) on plans to drill for oil in waters offshore of Alaska. But the EPA’s Environmental Board withheld (or more accurately withdrew) the necessary air permits, so Shell had to postpone its drilling plans. The EPA found the drilling might endanger air quality for people living in the area (the nearest village, located 70 miles away, has a population of about 245). Shell was faulted for failing to consider emissions from an ice-breaking vessel when calculating overall greenhouse gas (actually nitrogen dioxide) emissions. EPA rules force Shell to abandon oil-drilling plans, Fox News, 4/25/11
Shell’s CEO bemoaned the regulatory delays (Interior Department permits also required). Shell cancels 2011 Arctic drilling plans, Phil Taylor, New York Times, 2/3/11.
Despite our investment in acreage and technology and our work with the stakeholders, we haven't been able to drill a single exploration well. Critical permits continue to be delayed, and the timeline for getting these permits is still uncertain.
“It just goes to show that their plans have been ill-conceived from the beginning,” exulted a representative of the Alaska Wilderness League, referencing an issue that was unrelated to the EPA action. “They're not ready to clean up a spill in the Arctic.”
In addition to delaying new oil output, the EPA’s order could contribute to a forced closure of the Trans Alaska Pipeline System, which is already operating at 1/3 of capacity due to declining production from existing wells. [Senator Lisa] Murkowski decries EPA board’s remand of Shell permits, Jean Chemnick, Greenwire, 1/5/11.
http://www.eenews.net/public/Greenwire/2011/01/05/6
If soaring gasoline prices matter to the American public, and we believe they do, then a change in attitude would seem in order.
5. Department of the Interior – Here is another challenge to oil drilling, arising in a very different location. The Permian Basin (West Texas and New Mexico) is a major source of US oil, which had been declining for decades but now holds renewed promise due to advances in drilling technology.
It seems that the little (less than three inches long) dunes sagebrush lizard, which might conceivably be affected by oil operations in the area, was placed under consideration for endangered species status by the Interior Department, U.S. Fish and Wild Service (FWS) in 2001. A decision is expected in December of 2011, goodness only knows what happened in the meantime.
On one side of the issue are people whose livelihoods depend on keeping the oil flowing; on the other side are environmentalists. Their respective viewpoints are irreconcilable, although the possibility of a settlement is mentioned, e.g., the oil companies might agree to pay for lizard research or whatever if this would make the issue go away.
Technically, listing the lizards as endangered would not impact oil and gas operations. But this would spawn new administrative issues, e.g., the Bureau of Land Management would need to consult with FWS “to ensure activities would not affect the [endangered] lizard or its habitat.” The likely result: economic disruption similar to that produced by “the battles in the Pacific Northwest over the spotted owl and those sparked in the Sacramento-San Joaquin River Valley over the delta smelt.”
No matter, the FWS is not required to consider economic consequences and the agency says its decision “will solely be made on the biological information and what we might receive during the comment period." Small lizard sparks big debate in NM, Texas, Susan Montoya Bryan, Business Week, 4/28/11.
We imagine common sense will prevail, with oil continuing to flow from the Permian Basin, but this is just one of hundreds of controversies under the Endangered Species Act – with seemingly endless administrative proceedings and litigation after that. At best, such activity entails a shocking waste of time, money and energy, and there is the potential for economic progress to be blocked. How long can the US afford such nonsense if it hopes to remain competitive with China et al.?
6. National Labor Relations Board – By way of background, private sector unions were strongly supported by the government during the 1930s. The Taft-Hartley Act of 1947 evened the scales. The unions have declined in power and influence since then, and only 7-8% of private sector workers are currently unionized. Some observers have advocated policy changes to reverse the decline of the unions, which they blame for the lack of growth in real (inflation adjusted) wage levels. Others say labor unions add no economic value as worker compensation is determined by supply and demand. Most US union members are working for the government, new data shows, Steven Greenhouse, New York Times, 1/22/10.
The NLRB is an “independent agency” created to administer the federal labor laws. As such, “it determines proper bargaining units, conducts elections for union representation, and investigates charges of unfair labor practices by employers.” The Board has five members, appointed for 5-year terms, who are assisted by an administrative staff including 33 regional directors. Columbia Encyclopedia, 2008.
One proposal for encouraging unionization efforts is the Employee Free Choice Act (aka “Card Check”), which would abolish the secret ballot in workforce representation elections. Congressional approval appears unlikely. Business leaders swarm hill to fight card check, Mark Tapscott, Washington Examiner, 3/3/10.
http://washingtonexaminer.com/node/113906
In early 2010, the NLRB was down to two members versus the normal five. The president nominated three new members, including union lawyer Craig Becker (a supporter of Card Check, etc.). Fifty-two senators supported Becker, but a filibuster prevented a vote to confirm him. Union-backed nominee blocked in Senate, Melanie Trottmann & Kris Maher, Wall Street Journal, 2/10/10.
In March 2010, the president appointed Becker during a Congressional recess. This “recess appointment” is effective until 12/31/11.
Since joining the NLRB, Becker has aggressively supported union positions. The president again nominated him for a regular appointment in February 2011, mainly as a gesture since Senate confirmation remains unlikely. Obama uses Craig Becker to stir up Big Labor, Washington Examiner, 2/21/11.
Now let’s turn to a pending unfair labor practice claim by the International Association of Machinists and Aerospace Workers (IAM) against Boeing. The NLRB has found reasonable cause to conclude that Boeing was removing work from Washington State, where its manufacturing base has long been located, by building a second plant in South Carolina (a “right to work” state). This could lead to a hearing, the imposition of sanctions, and litigation down the line.
In its complaint, the NLRB acknowledged “the rights of employers to make business decisions based on their economic interests.” But Boeing is said to have erred by making statements that “were coercive to employees” and taking actions “motivated by a desire to retaliate for past strikes and chill future strike activity.”
The suggested remedy: “an order that would require Boeing to maintain the second production line in Washington State.” However, talk about threading the needle, “the complaint does not seek closure of the South Carolina facility, nor does it prohibit Boeing from assembling planes there.” NLRB press release, 4/20/11.
Who said what? Boeing had requested a long-term no-strike clause as a quid pro quo for building a planned second plant (for the 787 Dreamliner) in Washington State. Given that the IAM had gone out on strike four times since 1989, costing Boeing a bundle, such a request hardly seems unreasonable.
The union refused, as was surely their right, so Boeing decided to build the new plant in South Carolina. Employment at the Washington plant did not suffer, however, indeed more workers were hired as production levels picked up. Federal labor board seeks to ground Boeing, Washington Examiner, 4/21/11.
It seems a bit as though the NLRB is trying to charge Boeing with “thought crime for complaining about the negative business impact of ‘strikes happening every three to four years in Puget Sound.’” Big Labor’s attack on democracy, Washington Times, 5/3/11.
Legally speaking, the NLRB looks to be off base. Its ruling would gut Section 14(b) of the Taft-Hartley Act, which empowers states to pass right to work laws, by “effectively requiring companies to continue manufacturing in union states – or be found guilty of a [labor] rights violation.” Congress vs. the NLRB, Wall Street Journal, 5/4/11.
There is also a whiff of opportunism. Is the real objective to extort a payoff from Boeing? Note this statement by the NLRB’s acting general counsel in the NLRB’s 4/20/11 press release.
“I have worked with the parties to encourage settlement in the hope of avoiding costly litigation, and my door remains open to that possibility.”
Where does the president stand on this matter? To our knowledge, he has yet to say anything about it – and these are his appointees. Obama’s silence on Boeing is unacceptable, [SC Governor] Nikki Haley, Wall Street Journal, 4/29/11.
While silence in this case can be assumed to mean consent, President Obama's silence is not acceptable—not to me, and certainly not to the millions of South Carolinians who are rightly aghast at the thought of the greatest economic development success our state has seen in decades being ripped away by federal bureaucrats who appear to be little more than union puppets.
7. Department of Health and Human Services – Here is an example that reminds us of the Arthur Andersen case (example 1). The common element is punishing people who are out of favor without charging them with criminal behavior and proving the charges. But this time the victim is not a firm; it is a person.
Forest Laboratories Inc., a second tier pharmaceuticals company (about $5B in annual sales), paid $313M to settle federal charges (allegedly pushing products for unapproved use by children, etc.)
Agreement to the plea bargain did not represent a determination of guilt; perhaps Forest simply chose not to undergo the expense and other effects of a protracted criminal trial. Several other pharmaceutical companies have faced similar charges, and some of them settled for considerably larger amounts. Obama, Sebelius target 83-year-old drug executive, Diana Furchtgott-Roth, Washington Examiner, 5/5/11.
Plea bargains for selling misbranded and off-label products are common. Eleven companies have paid more than $6 billion to the government in the past two years. Among them were Novartis, Allergan and Johnson & Johnson.
Nevertheless, after the plea bargain had been approved by the court and therefore could not be withdrawn by Forest, long-time CEO Howard Solomon received a 4/12/11 letter from the Inspector General’s office of Health and Human Services (HHS) advising that he would be banned from doing business with federal health programs. This meant no more Medicare, Medicaid, etc. reimbursements for Forest unless Solomon resigned or was forced from office, i.e., the company’s business operations would be crippled. Thirty days were allowed in which to respond.
HHS has had legal authority to blacklist company employees since 1996, and this authority has been exercised in some cases. Notably, CEO Marc Hermelin resigned as a director of KV Pharmaceutical Co. in 2010, becoming the first drug-company owner or executive barred from doing business with Medicare and Medicaid. The exclusions are said to be part of a broader effort to make executives and owners more accountable for companies’ actions and reduce fraud in the US health programs. Forest Laboratories’ Solomon may be barred from US programs, Jeffrey Young, Bloomberg, 4/26/11.
Similar action has not been taken in other cases, e.g., the CEOs of Novartis, Johnson & Johnson, etc. were not informed that the government would no longer do business with them. Obama, Sebelius target 83-year-old drug executive, 5/5/11.
HHS goes after some companies and executives, but not others. The fate of companies and individuals associated with them rest not on the rule of law, but on bureaucrats' whims. That discretion wreaks havoc with companies trying to interpret rules.
Forest issued a press release strongly supporting Solomon, who allegedly had no connection with the actions that had resulted in the legal settlement. Forest Laboratories’ chairman and CEO to challenge “unwarranted and unprecedented” potential action to exclude him from federal healthcare programs. Press release, 4/13/11.
Board member and Chairman of the Audit Committee William J. Candee III: It would be completely unwarranted to exclude a senior executive against whom there has never been any allegation of wrongdoing whatsoever. Mr. Solomon has always set a tone of the highest integrity from the top. *** At no time during the government's six year investigation of Forest was Mr. Solomon ever accused of any wrongdoing in connection with the matters settled in 2010.
Herschel S. Weinstein, Vice President and General Counsel: Numerous other major pharmaceutical companies have [pleaded] guilty to much more egregious offenses, and none of them has faced the exclusion of a senior executive who has not himself been convicted of a crime or pleaded guilty to a crime. We believe that HHS-OIG is contemplating using a statute that has never before been used under these circumstances and would be exceeding the bounds of its authority.
http://frx.com/news/PressRelease.aspx?ID=1550242
It has been suggested that someone in the Administration, perhaps HHS Secretary Kathleen Sebelius, bears a grudge against Solomon and wants to shut him up.
HHS says its action is about holding CEOs accountable, but it looks more like the Administration’s latest bid to intimidate the healthcare industry into doing its bidding on prices, regulations and political support for Obama-Care. This is the same agency that has threatened insurers with exclusion from new state-run health exchanges if they raise their premiums more than Mrs. Sebelius wants, or if they spread what she deems to be “misinformation” about the president’s health[care] bill.
In any case, it is difficult to see the pending action as an appropriate exercise of administrative power. Kathleen Spitzer, Wall Street Journal, 5/2/11.
CEOs are accountable for their actions, but it is simply unjust for a powerful regulator like Mrs. Sebelius to threaten a company with ruin if it doesn’t dismiss a CEO who has not had formal charges of proof of wrongdoing brought against him.
If HHS’s high-handed approach is tolerated, other agencies may want to follow suit. What a tool to make the point mentioned in last week’s entry that “government is running this show and don’t forget it.”
8. White House – The president is said to be on the verge of signing the first ever executive order dealing with campaign finance. If this happens, it would represent a stunning attempt to circumvent the legislative process. Senate sources: Obama close to signing Disclose Act executive order, Conn Carroll, Washington Examiner, 5/6/11.
The story begins with the US Supreme Court decision (1/21/10) in Citizens United v. Federal Electoral Commission, which vindicated the right of corporations (and also unions) to make political contributions to candidates and groups of their choosing.
http://www.law.cornell.edu/supct/html/08-205.ZS.html
The decision was viewed as “pro-business” and it struck a nerve, as evidenced by the president’s unwarranted lecture in the State of the Union address several days later. Racing towards destination unknown, Wesley Pruden, Washington Examiner, 1/29/10.
When the president inaccurately asserted that the court had “reversed a century of law,” Associate Justice Samuel Alito was captured on camera mouthing the words “not true,” which is apparently the judicial way of saying “you lie!” But Mr. Obama is a onetime law professor and it’s possible that his lecture was kindly intended to fill in the gaps of the legal knowledge of the learned justices seated before him.
Legislative proposals followed to undo or water down the Supreme Court’s decision, but they got nowhere. So what about an executive order to compel disclosure of campaign contributions by government contractors and more significantly (since government contractors are barred from making campaign contributions under federal law) their directors and officers? No need to go overboard in invading personal privacy, however, so labor unions and advocacy groups that receive federal grants would be exempted from the disclosure requirements.
The potential for abuse here is obvious. Obama to implement gag order by decree, Bill Wilson, NetRightDaily, 4/21/11.
As part of the contract-awarding process, the White House wants to know who is giving to whom and will surely make decisions based on that knowledge. This is corrupt Chicago-style political thuggery at its worst.
Senate Minority Leader Mitch McConnell, for one, is on record that such an executive order would be “outrageous” and will hopefully not be issued. Well said! Press release, 5/20/11.
It is my sincere hope that recent reports of a draft Executive Order were simply the work of a partisan within the Obama administration and not the position taken by the president himself. But he should make that clear.
FIGHTING BACK – Last fall, we offered some suggestions for a hypothetical Regulatory Common Sense Commission. Regulatory common sense requires eternal vigilance, 11/22/10; Dear EPA: shape up or ship out, 11/29/10. Although the situation has evolved since then, these ideas continue to make sense. Here is a brief summary.
ü Publicize problem of regulatory bloat before offering solutions.
ü Support “quick hit” results that Americans will understand, e.g., a reprieve for standard light bulbs.
ü Act selectively – some agencies and/or programs are out of control, others just need to be monitored.
ü Hold leaders accountable; they have ample power to rein in the offenders.
ü Push for direct action, e.g., legislative reversal (repeal Endangered Species Act, bar EPA regulation of CO2 emissions) or funds cutoff (federal aid to education, “green” energy subsidies), because procedural reforms do not work.
In addition, as a Regulatory Common Sense Commission has yet to be created, it might make sense to raise some regulatory issues in upcoming discussions re the debt ceiling, deficit reduction, etc. We will have more to say about this strategy in a future entry.
5/2/11 – Meanwhile, on the administrative front Read a Reply
From the standpoint of the president and his party, the current situation in Congress must seem like a big comedown after scoring an $800B fiscal stimulus package, GovCare, and GovFinance in the last Congress.
“Green” energy (Cap and Trade), immigration reform (aka amnesty), and other desired legislation remain stalled, and with the Republicans now controlling the House there will be little chance of punching them through the goalposts.
Indeed, the Democrats will be forced to play defense on spending levels and other issues for the time being. But maybe there is another way to win, as suggested by these lines from “Sixteen Tons.”
One fist of iron, the other of steel, If the right one don’t get you, then the left one will
http://www.ernieford.com/SixteenTons.htm
The other fist is administrative action (AA), which can generally be undertaken without new legislation ( thereby avoiding votes for which members of Congress could be held accountable). Given the complexity of the details and the public’s limited attention span, many people will not realize what is going on. And some smooth doubletalk (e.g., this Administration is pro-business) can help to minimize opposition.
This entry (the first in a two-part series) will present some examples to demonstrate the power of AA, staring with the doubletalk part.
MISDIRECTION – The president has attributed our country’s economic success to businesses and entrepreneurs, albeit also lauding the role of government. For example:
Now, the true engine of job creation in this country will always be America's businesses. I agree, absolutely. But Government can create the conditions necessary for businesses to expand and hire more workers. State of the Union address, 1/27/10.
I believe businesses like yours are the engines of economic growth in this country. You create jobs. You develop new products and cutting-edge technologies. And you create the supply chains that make it possible for small businesses to open their doors. *** Now, I also believe this: Government has a vital, if limited, role to play in fostering sustained economic growth and creating the foundations for you to succeed. Throughout our history, government has . . . set up basic rules of the marketplace . . . [made] those investments in common goods that serve the general welfare . . . provided a social safety net. Remarks to the Business Roundtable, 2/24/10.
Our free enterprise system is what drives innovation. But because it’s not always profitable for companies to invest in basic research, throughout our history, our government has provided cutting-edge scientists and inventors with the support that they need. That’s what planted the seeds for the Internet. That’s what helped make possible things like computer chips and GPS. Just think of all the good jobs – from manufacturing to retail -- that have come from these breakthroughs. State of the Union address, 1/25/11.
The pro-business comments tend to be less specific than the comments about the government’s role, providing a clue as to the president’s true views. Moreover, the president has lashed out at business groups and individuals who represented convenient scapegoats or were deemed uncooperative, as though to say “government is running this show and don’t forget it.” For example, he:
#Slammed insurance companies that had questioned certain aspects of the pending healthcare bill. Look in the mirror, Mr. President, Washington Examiner, 10/19/09. http://bit.ly/iMtZa1
Every time we get close to passing reform, the insurance companies produce these phony studies as a prescription and say take one of these and call us in a decade. Well not this time. The fact is the insurance industry is making this last-ditch effort to stop reform even as costs continue to rise and our health care dollars continue to be poured into their profits and bonuses and administrative costs that do nothing to make us healthy, that often actually go toward trying to figure out how to avoid covering people. And they are earning these profits and bonuses while enjoying a privileged exception from our anti-trust laws, a matter that Congress is rightfully reviewing.
#Condemned Congressional testimony of firms who were potentially liable for the BP oil disaster as a “ridiculous spectacle.” Obama slams BP, Transocean, Halliburton over Gulf oil spill, CBS News, 5/14/10. http://bit.ly/be7XLP
You had executives of BP and Transocean and Halliburton falling over each other to point the finger of blame at somebody else. The American people cannot have been impressed with that display, and I certainly wasn't.
#Supported claims the Chamber of Commerce was using foreign cash to fund campaign ads. Schieffer shoots down White House smear against the Chamber of Commerce, David Freddoso, Washington Examiner, 10/9/10. http://bit.ly/mo66q9
Similarly, many of the Administration’s policies boil down to promoting preconceived ideas of how the economy should function – with penalties for “bad” activities and subsidies, tax credits, etc. for “good” ones. Obama uses language of capitalism, tools of government, Timothy Carney, Washington Examiner, 1/26/11.
To make sense of Obama's economics talk on Tuesday [State of the Union address], or last week when he appeared at a General Electric factory with CEO Jeff Immelt - now chairman of his Council on Jobs and Competitiveness - you need to adopt an unusual view of the economy. Rather than a country that allows many different businesses and investors to compete, work together, sell, buy, and hire, the Obama vision of the American economy is a nationalistic one, with Obama the boss.
The overall pattern does not bolster investor confidence or promote economic recovery. To the contrary, it undermines the willingness to assume investment risk. It also causes business leaders to spend an inordinate amount of time currying favor in Washington instead of running their operations.
A similar pattern in the 1930s created what has been called “regime uncertainty,” thereby prolonging the depression in the US while other countries were recovering. New Deal or Raw Deal? Burton Folsom, 2009, pp. 245-252.
Synopsis: US increased its revenue from excise taxes more rapidly than any of the other nations surveyed – income tax rates were hiked for high earners and corporations and a tax was imposed on undistributed corporate profits – government spending programs fueled “insatiable demands by almost all groups of voters for special subsidies,” e.g., loans to banks and railroad, farm price supports, handouts for veterans, and even special high prices for silver. Lobbyists swarmed on Washington like bees on a honey pot.
http://www.s-a-f-e.org/new_deal.htm
Let’s hope the current borrow, spend, and in due course tax binge can be stopped, because the results might be even more costly this time.
AA EXAMPLES – Administrative overreach is hardly a new problem, and indeed our first example happened during the previous Administration. Nevertheless, we believe the problem has intensified over the last two years and could well get even worse. Some illustrative examples follow.
1. Department of Justice – Many questions were asked after the Enron debacle, and Arthur Andersen – which had been handsomely paid for providing auditing, accounting and consulting services to Enron, its single largest account – quite appropriately came under scrutiny.
How could Arthur Andersen have not realized that Enron was a financial house of cards? And what about a reminder to the engagement partner to ensure the firm’s record retention policy was being complied with (after which many documents were destroyed)?
The government was not able to make a substantive case for destruction of the documents under the then existing law. No matter, the entire firm was charged with obstruction of justice, resulting in its collapse.
The US Supreme Court threw out the conviction, basically finding an insufficient showing of criminal intent, but the damage had been done.
The Andersen decision is, of course, virtually meaningless to the human beings who once comprised the accounting firm. Prior to its indictment, Andersen was a $9 billion ‘‘big five’’ accounting firm with hundreds of partners and more than 28,000 employees. This company ceased to exist long before its conviction as, even before its trial, its clients fled and the firm was forced to slash its workforce and sell off its component services in response. At present, the company consists of approximately 200 people employed to process the claims filed against it. The reversal of its conviction cannot restore the partners’ investments or the employees’ jobs. The most it can do is add the $500,000 criminal fine to the pot of money available to pay Andersen’s civil settlements and judgments and somewhat reduce the prospect s of success for the civil litigants with suits against Andersen still outstanding. This is small consolation to those who saw their livelihoods destroyed.
Moral: to lessen the difficulties of proving guilt in “white collar” crime cases, prosecutors have been invested with enormous discretion – which can be abused (and in our opinion was abused here). The significant meaninglessness of Arthur Andersen LLP v. United States, John Hasnas, Cato Supreme Court Review, 2005.
The federal courts have largely dispensed with the principle of legality in order to give white-collar criminal statutes the broad interpretations necessary to “close the loopholes” in the law against dishonest business conduct. In doing so, however, they have invested federal prosecutors with exceedingly broad discretion to determine what constitutes a criminal offense.
2: White House – The long-term decline of the US automobile companies, which led among other things to bankruptcy proceedings for General Motors and Chrysler in 2009, is a well-known story.
Although we hold no brief for the company managements, which made one mistake after another over the years, government policies contributed to the outcome. Don’t bail out the Big Three, but an apology would be nice, 11/17/08.
When a firm is insolvent and there are not enough assets to go around, secured lenders are normally paid in full, other creditors share the remaining assets, and stockholders get nothing. But in the GM and Chrysler bankruptcies, the Administration exerted considerable pressure to ensure autoworkers would receive more favorable treatment than the other creditors. This example from the Chrysler bankruptcy demonstrates the point.
Most of the secured lenders had received Troubled Asset Relief Program (TARP) funds, giving the government leverage to demand acceptance of reduced payments for their loans. Some had not received TARP funds, however, and wanted full payment. The holdouts blocked a negotiated settlement, forcing a bankruptcy filing. Obama picks a fight with “speculators,” Eamon Javers, Politico, 4/30/09.
A group calling itself “The Committee of Chrysler Non-Tarp Lenders” put out a statement Thursday complaining that the negotiating process was unfair – because they were forced to deal with the banks that had taken significant government investment, and therefore were unfairly biased toward the government’s negotiating position. The group – which refuses to list its members – claims to represent about $1 billion in loans to Chrysler, and says its members have not taken any government TARP bailout money.
How did these lenders have the temerity to reject 29¢ on the dollar? Some were subsequently indentified as pension funds, who were simply seeking to enforce the terms of the investment contracts they had entered into. “Hope,” “Change,” and Lawsuits, Austin Hill, Townhall.com, 5/24/11.
. . . this past week, managers of two Indiana state pension funds, which were among the roster of Chrysler’s secured creditors, went to court to try to block Barack Obama’s forced “settlement.” The pension funds represent private retirement accounts of schoolteachers, and police officers, and the manager of one of the funds claimed that Obama’s plan would force the teachers and police officers invested with him to lose $4.6 million.
Hmm, sounds like these folks deserved better treatment. But when all was said and done, they did not get it.
The approved bankruptcy plan featured a sale of Chrysler’s best assets. The UAW received a 55% stake in the new Chrysler, Fiat an initial interest of 20% (which could be increased to 35% under certain circumstances), etc.
Secured lenders received the amounts offered initially, causing Indiana’s treasurer (who had intervened in the proceeding) to say, “unsecured creditors got better value than secured creditors, and that’s wrong.”
The bankruptcy judge wrote in his opinion, however, that “debtors are receiving fair value for the assets being sold” with “not one penny” of the debtors’ assets going to anyone other than the senior lenders. Chrysler set to emerge from bankruptcy, Aaron Smith, CNNMoney, 6/1/09.
This tortured logic spared the judge from frustrating the president’s publicly expressed wish that “speculators” not be rewarded. Many judges would have done the same thing.
3: Environmental Protection Agency – We turn now to a decision that may cost the US economy dearly – the EPA’s finding that Carbon Dioxide, etc. emissions endanger public health & welfare and should therefore be regulated as “pollutants.”
The proposed finding was published in May 2009, a decade after some 20 environmental groups had petitioned the EPA to regulate carbon emissions under the Clean Air Act. When the EPA declined to act in 2003, the matter was taken to court. In a 2007 decision (Massachusetts v. EPA), the US Supreme Court held (5-4) that the EPA was obliged to consider the matter. EPA regulation of CO2: a bad idea from any angle, 5/11/09.
Based on our review of the proposed finding, we urged the EPA to withdraw it and start from scratch. SAFE letter, 6/4/09.
ü Your description of the alleged global warming threat includes many questionable or exaggerated claims. Given that global warming stopped about ten years ago, for example, it is hard to credit the statement on page 18896 that “eight of the ten warmest years on record have occurred since 2001.”
ü Your findings were predetermined by the decision (noted on page 18894) to base them on the major assessment reports of the IPCC and the CCSP. Both of these organizations are institutionally invested in concluding that global warming is a grave problem requiring government-mandated intervention. Furthermore, the asserted protection of a “transparent peer-review process” is illusory. We understand that critical comments on the assessment reports of the IPCC and the CCSP by subject matter experts have been systematically ignored.
ü In lieu of relying primarily on the major assessment reports of the IPCC and the CCSP, we urge that you reconsider your previous decision (page 18894) and conduct “a new assessment of the scientific literature.” Such an approach would enable you to take the full range of scientific opinion into account, including the findings presented in the June 2009 report of the NIPCC.
http://www.s-a-f-e.org/epa_letter.htm
Ho, hum! The endangerment finding was finalized in December, shortly before the president’s scheduled appearance at the global climate conference in Copenhagen. EPA signals action on climate, News Journal, 12/8/09.
EPA Director Lisa Jackson is said to have "rejected claims by climate skeptics that the source of global warming remains in doubt." She is quoted as saying "the vast body of evidence not only remains unassailable, it has grown even stronger." [So much for the Climategate e-mails, which surfaced after publication of the EPA’s proposed finding, providing evidence of concerted efforts to stifle criticism of the manmade global warming theory.]
http://www.s-a-f-e.org/global_warming_2009.htm
The EPA now intends to issue regulations that will force utilities and manufacturers to reduce their carbon emissions. Given that (a) no such result was contemplated when the Clean Air Act was enacted, and (b) the Cap and Trade bill is dead in Congress, this plan seems out of line.
Nor is there any reason to expect the agency to avoid damage to the economy – such a concern is foreign to their institutional mindset. EPA’s train wreck could leave many in the dark, Ken Blackwell, Townhall.com, 4/23/11.
During a recent speech at Cleveland State University focused on small business in Ohio, President Obama described a goal of “knocking down barriers that stand in the way of your growth,” Unfortunately, his EPA couldn’t be more in the dark about how to translate that message into practice – with the agency poised to adopt more than 30 new, major regulations and over 170 major policy rules in the next several months.
Opinion on the carbon emissions issue is sharply divided along party lines, however, and many members of Congress may be inclined to duck the issue. GOP attempts to block EPA’s climate-change rules, Susan Ferrechio, Washington Examiner, 3/16/11.
Adding insult to injury, the lawsuit against the EPA that led to the current mess was probably paid for by taxpayers. Big Green lawsuits, Washington Examiner, 4/3/11.
Payments under [the Equal Access to Justice Act] are made by the U.S. Treasury to its Judgment Fund, which is funded by a permanent congressional appropriation. The fund is not audited, agencies aren't required to account in their budgets for payments mandated by court decisions in their areas of jurisdiction, and courts often seal settlements to prevent public examination. It's an open invitation for Big Green groups to file suits, knowing that win or lose, most if not all of their legal expenses will be paid by the government. Best of all for them, it's all but impossible to track who gets how much from the taxpayers from these suits.
TO BE CONTINUED – Alas, dear reader, we have run out of space. Tune in next week for a report on some AA efforts currently in play plus our thoughts on how champions of smaller, more focused, less costly government should respond.
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These 16 Tons lyrics also apply because the skyrocketing debt will be dumped on taxpayers soon enough: (1) “I owe my soul to the company store,” and (2) “another day older and deeper in debt.” Let’s hope Americans will dig their way out of this mess in November 2012. – SAFE member, Arizona
4/25/11 – Tip for fiscal visionaries: be persistent or get run over. Read Replies
It is nice to have the facts and logic on your side, but in a politicized debate (which might be about almost anything these days, with the possible exception of low calorie, organically grown apple pie) that is not enough.
Your intellectual opponents will change the subject, shift the blame, and/or urge you to shut up.
They will, in other words, say almost anything except that you have made a valid point that should be considered, accepted, and acted on.
An illustration of such tactics is provided by the following example, which opens with a fiscal visionary’s suggestion that soaring gasoline prices are due in significant part to government restrictions on domestic oil exploration and production.
Sounds logical, but you had better be prepared for an extended discussion that will repeatedly demonstrate the importance of this week’s tip: be persistent.
A PROPOSAL: Gasoline prices are expected to go over $5 per gallon this summer. In some areas, the price is already there. News photo, Washington D.C., 4/19/11.
That’s not good news for the economy, and it would be great to bring prices down. Let’s relax government restrictions on domestic oil exploration and production.
Not that oil would necessarily be “cheap” if more of the country’s needs were produced domestically, but at least the US would be less exposed to price spikes as the result of unrest in the Middle East and other volatile areas of the world.
There is persuasive evidence of a connection between high gasoline prices and domestic drilling restrictions, both in the Gulf of Mexico (since the BP accident a year ago) and elsewhere. Obama is running on empty with a full tank, Washington Examiner, 4/10/11.
As Americans watch skyrocketing gasoline prices (up an average of nearly 80 cents a gallon from this time last year) frustrate their hopes for economic recovery, they should be outraged by a new report on America's energy resources from the Congressional Research Service. ***At every turn, the report's pages reveal a plethora of untapped resources. We have enough oil to replace our imports from the Middle East for 50 years.
Granted it would take years to ramp up oil production in some of the areas in question, even with expedited review of environmental concerns, but that does not excuse endless inaction. We (and others) have made the case for more US oil exploration and production before, and if action had been taken earlier some results would be showing up by now. To drill or not to drill: that is the question, 7/7/08.
#Like it or not, there is no instant answer to high gas prices. Increases in energy production will be required as well as adjustments on the demand side, and such increases cannot be expected over night. Drilling for oil and gas in currently banned areas would take five to ten years to result in major increases in U.S. production.
#There was a time when the United States regarded itself as a rising country, which could do anything that its people wanted to. Seems to us that the country could use a bit more of that “can do” spirit today.
A recent Heritage study outlines an action plan for Congress and the Administration: (a) get moving on permits, (b) establish sensible review processes, (c) remove regulatory delays, and (d) limit currently endless litigation. What to do about high oil prices, Nicolas Loris & John Ligon, Heritage, 3/2/11.
And although the resulting increase in US oil production would take time, bear in mind that oil prices are not simply a function of current supply and demand – they also reflect expectations about future supply and demand. President’s policies feed oil price fire, National Center for Policy Analysis, 3/10/11.
Oil is bought and sold months before it is expected to be delivered. If traders are uncertain that the oil will be there to be delivered when it is required, then they bid up the price to lock in their share of supply. Certainly, the protests and street battles that are taking place in the Middle East where so much of the world’s oil either originates and/or must transit through, has added to the uncertainty.
http://environmentblog.ncpa.org/presidents-policies-feed-oil-price-fire/
While it may be difficult or impossible to restore stability in the Middle East, we think a bold change in government policy, designed to ramp up US oil production, might have an equally constructive effect on oil prices. What say you?
RESPONSE 1: CHANGE THE SUBJECT – Our intellectual opponents gladly offer “solutions” to the problem of high gasoline prices, but their ideas might very well make the problem worse.
#Bring back the windfall profits tax. Really, what would that accomplish? The oil companies would presumably pass the tax on to consumers, resulting in higher prices.
#Eliminate tax breaks and subsidies that the oil companies currently enjoy. Maybe, but again this would inflate gasoline prices – not lower them. Also, it would be unfair to cut out such “corporate welfare” for the oil companies without comparable changes for the business community in general – including “green” energy firms that get far more help on a proportional basis.
#Forced conservation, e.g., by tightening the corporate average fuel economy requirements for the auto companies as was announced by the president on May 19, 2009. This will create more disruption than the kind of adjustments motorists make voluntarily when gasoline prices rise to disturbing levels, e.g., by limiting the ability of consumers to decide for themselves what kind of vehicles they want to drive. Expect some unintended consequences. The high cost of “green” energy, 5/25/09.
To meet the mileage requirements, motor vehicles would be made smaller, lighter and less powerful. The resulting cars would be more dangerous to drive than big cars, so there would be more traffic deaths. And consumers dissatisfied with the new cars would tend to keep their old cars on the road longer, thereby slowing the reduction of real pollutants such as ground level ozone, particulate matter, carbon monoxide, and sulfur dioxide. (Sources omitted, see original.)
# Develop liquid fuels to replace gasoline in motor fuel, e.g., biofuels. Sounds plausible, but there are a slew of drawbacks. Use of corn-based ethanol inflates US and global food prices (by diverting corn to fuel production) and has major environmental drawbacks versus fossil fuels. Similar problems apply for proposals to produce ethanol from biomass, and there are even questions as to whether the energy content of the ethanol exceeds the energy required to produce it. Only farmers and ethanol producers truly benefit from the ethanol program. The false promise of green energy, Morriss, et al., Cato Institute (2011).
http://www.s-a-f-e.org/green_energy.htm
# Then there is the cheerleading for proposals to phase out coal-fired power plants and generate electricity with “renewable” (notably wind and solar) energy.
See, for example, a two-page spread on alternative energy research programs that would supposedly help to lessen this country’s “dependence on foreign oil.” University of Delaware’s Energy Institute: Power for the People, Ken Mammarella, [Wilmington] News Journal, 4/20/11.
Catalysis (enzyme aided transformation of glucose to fructose) . . .Vehicle-to-grid (scheme to create electric cars with batteries that could send power back to the grid during peak demand periods). . .Industrial processes (if all the industrial boilers in the US were painted with low-emissivity paint, $420 million a year in heat loss could be avoided . . . Fuel cells (hydrogen-burning buses) . . . Magnets (stronger magnets would be more energy-efficient) . . . Solar cells (objective is to cut costs; the Department of Energy’s new SunShot initiative aims to reduce the cost by “roughly 75% to $1 per KWH) . . Wind ( eight or more projects are planned on various aspects of wind power, including design, maintenance, and administrative issues) . . .
For the envisioned expansion of renewable energy to have a beneficial effect on oil imports and gasoline prices, it would also be necessary to persuade or bribe Americans to acquire electric cars and trucks.
In the interests of brevity, we will not get into the unrealistic assumptions that underlie the renewable energy/electric vehicle scenario. Suffice it to say that Americans will still be driving gasoline-powered vehicles 20 or 30 years from now. The false promise of green energy, pages 18-19.
Changes in the mix of energy sources will come gradually. *** Electricity will largely be generated by a mix of coal, natural gas, and nuclear power plants for decades. *** Most of the energy will continue to come from petroleum for decades.
http://www.s-a-f-e.org/green_energy.htm
In short, none of these ideas would be effective to moderate gasoline prices in the foreseeable future – bringing us back to our proposal to ramp up US oil production.
What say you?
RESPONSE 2: SHIFT BLAME – When it comes to blaming someone other than the US government for high oil prices, the usual suspects are other oil producing countries, US oil companies, and speculators. Facts to support the claim may be useful, but are not strictly necessary.
There was much talk about obscene oil company profits in 2008, for example, which did not bear close scrutiny. Pain at the pump: why energy prices are soaring, 4/21/08.
If the $41 billion net profit that ExxonMobil earned in 2007 (an up year) is deemed “too high,” what should the number have been? A 10% profit margin does not seem outrageous to us, and other leading companies reported comparable or higher margins (e.g., AT&T 10%, Coca-Cola 21%, GE 13%, Microsoft 27%).
The current thrust is investigating the activities of oil traders, who may have engaged in “speculation.” Obama says new task force will examine gas prices, Julie Pace, Washington Examiner, 4/21/11.
With the 2012 campaign in mind, the White House is anxious to show the public it's taking action to address rising gasoline prices. *** [The president] said [Attorney General Eric] Holder was forming the Financial Fraud Enforcement Working Group. The task force will focus some of its investigation on "the role of traders and speculators" in the oil-price surge, Obama said, and will include several Cabinet department officials, federal regulators and the National Association of Attorneys General.
Similar investigations in the past have not come up with much, however, and we doubt the result will be different this time. Sure, there can be linkage between futures trading and current prices, but that does not mean motorists are being gouged because someone has cornered the oil market. Gas prices, speculation, and the price of tea in China, Thomas Firey, Cato, 4/14/11.
Futures prices for some commodity like oil or gasoline can affect current prices — but if and only if those futures cause producers, consumers, or stockpilers (i.e., people who buy and hold commodities for future sale, aka speculators) to change their behavior in some way that would affect supply and demand today. *** [Oil and gas are] expensive to store — petroleum is heavy, dirty, emits fumes, and is combustible. For that reason, not a lot of oil or gasoline is stockpiled for the long term (beyond the Strategic Petroleum Reserve). With that said, there has been some building of oil stockpiles in recent weeks, but it’s not dramatically higher than the stockpiling usually seen prior to the summer driving season — and gasoline stocks have been declining.
Note that anticipated shortages of oil are not the only reason for high oil prices in the futures markets. A declining US dollar may also be important. Less tends to be said about this factor, however, perhaps because of the linkage to government monetary and fiscal policies. Saudis, Soros and other billionaires we finance, John Ransom, Townhall.com, 4/23/11.
Whoever’s right [about spare oil production capacity], speculators are bidding prices up not because of a diminished supply of oil, but because of over-supply of dollars. Inflation is a monetary mechanism. When there is too much money, prices are going to go up. It’s the definition of inflation. Unfortunately we have a Federal Reserve Bank that forgot its main duty of fighting inflation and instead acts as Cheerleader-in-Chief for speculation.
So back to our point, which is the desirability of facilitating increased domestic oil production to reduce the need for imports and also contribute to US jobs, not to mention royalties and taxes paid to the federal and state governments. What say you?
RESPONSE 3: BRUSHBACK – When rational arguments fail, the discussion is likely to turn emotional – and possibly abusive. The basic theme is that “we” feel very strongly about XYZ, so you should necessarily see things the same way. Do you feel like we do, Mike Adams, Townhall.com, 4/20/11.
[I gave a speech at the University of New Hampshire] on the topic of campus speech codes. During the Q&A, one student asked whether I supported reinstating slavery. Another student asked whether I was in favor of straights beating gays with baseball bats. My responses to both questions were similar: I asked each to sit down after letting them know they should be ashamed of themselves for asking such absurd (and accusatory) questions. [There was considerable ensuing pushback from the audience.]
I walked out of the auditorium that night surrounded by five armed police officers. We passed a glass display case that had been shattered by students who spray-painted a swastika on the flyer advertising my speech. Just as we were passing that shattered monument of left-wing emotional sensitivity an assistant dean caught up with me. He shook my hand, and thanked me for coming to UNH. But then he ruined the moment by saying that he felt I needed to be “more sensitive towards the students who did not share (my) views.”
So be prepared for emotional appeals to prevent currently restricted areas from being explored for oil and gas. Witness this environmentalist call to arms, illustrated with pictures of a sea lion (or seal?) and polar bears, at a time (in 2010 before the BP oil spill in the Gulf) when consideration was being given to opening certain offshore areas.
President Obama and his administration will decide the fate of California’s coast and America’s Arctic. We must send a loud and resounding "no!" to drilling off California or Alaska!
http://pacificenvironment.org/article.php?id=3000
Ditto the specter of global warming (aka climate change), which is often invoked in moralistic terms because the scientific evidence is so unconvincing. Gore to young activists: Battle industry lobbyists to turn the tide on climate, Ben Geman, The Hill, 4/15/11.
Gore said the Civil Rights movement was fueled by youth questioning their parents about legal discrimination, and he drew a link to climate change.
“When they could not answer that moral question coming straight from the conscience of young people, that is when the laws began to change,” Gore said. “You need to ask,‘tell me again why its all right to put 90 million tons of global warming pollution into the atmosphere every 24 hours, 20 percent of it will still be there in 20,000 years.'”
OK, fine, the environment and wildlife are important – but so is the economy and promoting human welfare. And by the way, drilling technology is a lot more sophisticated, safer, and less disturbing of the environment than it used to be.
As for global warming, Mr. Gore, when are you going to accept Lord Monckton’s challenge to a public debate? Such an event could prove very instructive, we think.
Climate alarmists on the run, Oxford University, Students lose faith in warming, Washington Times, 5/31/10.
So one more time, let’s talk about relaxing the current restrictions that have been impeding US oil production for the past four decades.
And if we still can’t agree, maybe that is what elections are for.
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Mainstream media has basically ignored any connection between domestic oil production restrictions and soaring gasoline prices. “The Business & Media Institute found that out of the 280 oil price stories the network evening shows have aired since the 2010 Deepwater Horizon oil spill, only 1 percent (3 stories) mentioned Obama's drilling ban or other anti-oil actions in connection with gasoline prices.” http://bit.ly/hnFi8a - SAFE director
Update (Fox New, 4/25/11): the EPA has issued an order blocking Shell drilling in the Arctic by denying air permits that was to have started this summer after 5 years of effort and nearly $4 billion spent to date by the company. Such projects are needed to combat declining production from the Alaska North Slope, which could force closure of the Trans-Alaska pipeline. http://fxn.ws/gaq8ob
Isn't it true that even the fed's taxes on gasoline exceed the profits of the oil companies on a cents/gallon basis? Certainly, federal, state and local taxes must be greater in total. And the governmental bodies involved do nothing to find, develop, refine, distribute and sell anything. No risk; outsize reward. – SAFE director [Point well taken. From the 4/21/08 entry, Pain at the pump: why energy prices are soaring: (1) On average, U.S. drivers pay federal + state excise taxes of about 50¢ a gallon (47.0¢ on gasoline, 53.6¢ on diesel) for motor fuel. (2) Income taxes are levied on oil company profits as well, and the total taxes imposed on the industry generally exceed company profits. Between 1981 and 2006, according to the Tax Foundation, “government collected $1.65 trillion in total taxes after adjusting for inflation. That is 65 percent more than the combined earnings of the 16 largest domestic oil companies during the same period.”]
4/18/11 – Stay alert: this will be a long, tough ride. Read Replies
Relatively few Americans expect any significant long-term spending cuts before the 2012 elections, Rasmussen, 4/13/11.
As for a balanced budget, the voters will believe it when they see it. Rasmussen, 4/14/11.
Nearly two-out-of-three voters (64%) think they are unlikely to see a balanced budget in their lives, with 26% who say it is Not At All Likely. *** Interestingly, voters ages 18 to 29, those who will live the longest, are even more skeptical about the chances for a balanced budget in their lifetimes than are those who are older.
But wait, what’s so tough about balancing the budget? Only one thing: while some of our political leaders want to cut spending, others want to do anything but. Such disagreement about the size and reach of government was evident in the latest chapter of the budget battle, and it also underlies policy differences in other (non-budgetary) areas.
This entry will attempt to survey the entire battlefield. Think of it as a “what’s wrong with this picture” game. Wikipedia entry.
. . . a picture of an otherwise normal scene contains some unusual elements not typically found in that setting, or in reality. For example, the picture could be of a school bus, with "wrong" elements including one window containing a fishbowl instead of a child's head and bus wheels of donuts or pizza. The viewer is challenged to identify the full list of "wrong" things.
BUDGET DEAL – As previously reported, an agreement was reached on April 8 to set a spending level ($38 billion in spending cuts) for the balance of fiscal year 2011.
As details surfaced, some conservatives denounced the spending cut package as smaller than promised. Indeed, according to the Congressional Budget Office, the actual spending cuts will work out to about one-half of the nominal total. Spending deal cuts only $20 billion to $25 billion, Stephen Dinan, Washington Times, 4/14/11.
No matter, the deal was duly passed by the House (with 59 GOP defections) and the Senate (15 Republicans, 3 Democrats, and one independent voted “no”). 2011 spending bill clears Congress, Stephen Dinan, Washington Times, 4/14/11.
Presumably the president signed the bill, since a government shutdown was not announced, but we have found no specific confirmation of this.
FISCAL YEAR 2012 AND BEYOND – We previously summed up the Ryan Plan, which was published on April 5th as a proposed budget template for Fiscal Year 2012 et seq. Government shutdown: a temporary reprieve, 4/11/11.
Meanwhile, House Budget Chairman Paul Ryan rolled out a proposed FY 2012 budget that reflected some $6 trillion less spending in the 10-year projection period than the president’s FY 2012 budget. The cuts included GovCare repeal, conversion of Medicare coverage to subsidized private insurance plans for future retirees, and conversion of Medicaid to a block grant program.
The president responded on April 13, in a speech delivered at Georgetown University. Here is the transcript; there is no underlying document providing additional details.
The president’s “new foundation” speech (theme: rebuilding the US economy on rock versus sand) in the same venue on 4/14/09 – at a time when his party controlled both houses of Congress and things were going his way – provides a useful standard for comparison. Here is a sample from the 2009 speech.
But let's not kid ourselves and suggest that we can solve this problem by trimming a few earmarks or cutting the budget for the National Endowment for the Arts. That's just not true. (Applause.) Along with defense and interest on the national debt, the biggest cost drivers in our budget are entitlement programs like Medicare, Medicaid, and Social Security -- all of which get more and more expensive every year. So if we want to get serious about fiscal discipline, and I do, then we're going to not only have to trim waste out of our discretionary budget -- which we've already begun -- we will also have to get serious about entitlement reform.
If so, why did the president not include entitlement reform and other meaningful spending cuts in the FY 2012 budget (submitted 2/14/11)?
The deficit reduction speech on April 13 was briefer than the “new foundation” speech, short on details (except about proposed tax increases), and sharply partisan in tone. It drew an unusually negative reaction from many observers, of which a sampling follows.
ü Key tenets of the Obama deficit reduction plan, delivered during a speech at George Washington University in Washington, D.C., include cutting defense spending, reducing spending on Medicare and Medicaid (something already pledged as a part of Obamacare), breaking a commitment to continue Bush-era tax rates by seeking increased taxes on businesses and Americans considered to be wealthy, and ambiguous lower rates of domestic spending. Project 21, http://bit.ly/hItMOT
ü So basically what we’re getting from the regime is a sales pitch and history revision. We are hearing that America’s greatness only began with the redistribution of wealth; Social Security, Medicare, Medicaid … and a sales pitch to can this government get even bigger because he is now defining economic prosperity as more and more government involvement in everybody’s lives. Rush Limbaugh, http://bit.ly/fmAqIH
ü In effect, the president has moved to the left. He has embraced the Democrats’ so called progressive caucus in the House by slashing defense and jacking up taxes, all while offering no serious entitlement reform. Larry Kudlow, http://bit.ly/fwg7yj
ü It’s hard to compare this White House scheme, which consists of 13 pages of talking points and rhetoric, with Mr. Ryan’s 73 pages of charts, graphs and numbers giving precise details on funding levels. The Congressional Budget Office already has produced a preliminary score for how much the Republican plan would save in entitlement spending, explaining that “less private saving would be absorbed by federal borrowing - which would also tend to boost future output and income.” The plan would produce a real $89 billion cut in 2012 spending compared to 2011. Washington Times, http://bit.ly/dZDT9x
ü Washington's spending crisis is now so serious that professional politicians like Obama defy reality when they claim the deficits can be eliminated by increasing taxes on the top 2 percent of Americans. Washington Examiner, http://bit.ly/f9VZic
ü I [have] rarely heard a speech by a president so shallow, so hyper-partisan and so intellectually dishonest, outside the last couple of weeks of a presidential election where you are allowed to call your opponent anything short of a traitor. But we're a year and a half away from Election Day and it was supposed to be a speech about policy. Charles Krauthammer, http://bit.ly/fINe65
ü Mr. Obama did not deign to propose an alternative to rival Mr. Ryan's plan, even as he categorically rejected all its reform ideas, repeatedly vilifying them as essentially un-American. "Their vision is less about reducing the deficit than it is about changing the basic social compact in America," he said, supposedly pitting "children with autism or Down's syndrome" against "every millionaire and billionaire in our society." The President was not attempting to join the debate Mr. Ryan has started, but to close it off just as it begins and banish House GOP ideas to political Siberia. Wall Street Journal, http://on.wsj.com/e15euW
An additional dimension of the speech: Representative Paul Ryan et al. had been invited to attend and were seated in the front row. Some observers thought the president’s remarks showed no disposition to build bridges or pave the way for “bipartisan” cooperation, but rather were meant as an insult. Rush [Limbaugh]: Obama [is] a “vindictive little guy,” Andra Varin, Newsmax.com, 4/14/11.
Never mind the proposal about ongoing discussions to be presided over by the vice president, because this bridge had been blown up before the president reached it.
. . . in early May, the vice president will begin regular meetings with leaders in both parties with the aim of reaching a final agreement on a plan to reduce the deficit by the end of June.
For sure, Ryan et al. had little good to say about the president’s proposals afterwards. Paul Ryan on Obama’s speech: “excessively partisan, dramatically inaccurate, and hopelessly inadequate,” Daniel Halper, Weekly Standard, 4/13/11.
And discussions with the vice president were viewed as a charade. Ryan rolls his eyes at new “Biden Commission,” Kevin Glass, Townhall.com, 4/14/11.
Ryan said Obama "wants another commission – the Biden Commission. We've had so many commissions… why don't we just do our jobs? We keep punting to other people."
Two days later, on April 15, the House (with no Democrat votes) passed the Ryan Plan. It is only a budget blueprint, and there is no chance that the Senate will follow suit. Still, the action made a rather dramatic statement. House passes $6 trillion spending cut plan, Andrew Taylor, Washington Examiner, 4/15/11. http://bit.ly/ecCG24
The next move will not be about the fiscal year 2012 budget, per se, but rather about the debt limit increase that will necessarily come to the fore when Congress returns to Washington.
House Republicans will agree to a debt limit increase, but only with concessions on the spending side. Boehner: no chance for “clean” bill on debt limit, Lucy Madison, CBS News, 4/10/11.
Boehner argued that “there’s no plan to deal with the debt we’re facing,” and that Republicans would not vote to increase the limit unless Democrats conceded something "really, really big."
For his part, the president admits that spending cuts will be required, but he will surely strive to minimize them. Obama: raise debt ceiling or risk global recession, Ben Feller (AP), Washington Times, 4/15/11.
The president also said that he doesn’t expect either side to get everything it wants in deficit negotiations and that he’s pushing for “a smart compromise that’s serious.”
He warned of dire consequences if the debt ceiling is not raised before it hits its limit of $14.3 trillion in mid-May. But he said some questions about where the government trims its operations will have to be left [tilt!] until after the 2012 presidential election.
Stay tuned, there will be many twists and turns in this story before it is done.
ON THE LIGHTER SIDE – When the US Post Office put out a new stamp depicting the Statue of Liberty, most people probably assumed that the landmark shown was located on Ellis Island in the New York harbor.
You just can’t be too careful these days! For reasons we have not seen satisfactorily explained, the stamp actually used the image of a replica in Nevada. The Lady Liberty is a Las Vegas teenager, Kim Severson & Matthew Healey, New York Times, 4/14/11.
The post office, while perhaps chagrined, is standing by the stamp but changing its informational material about it.
GASOLINE PRICES – As readers are surely aware, the price of motor fuel has soared in recent months. Unrest in the Middle East is an important factor, but restrictions on exploiting domestic petroleum resources have contributed as well.
Although it gives us no joy to say, “we told you so,” looks like our recent prediction about gasoline prices will come true ahead of schedule.
12/2/10, A3, Obama nixes new offshore drilling for oil: BP spill showed need for better rules, Associated Press – Reversing a position taken earlier this year, shortly before the BP oil spill in the Gulf of Mexico, the Administration has announced that it will not propose any new oil drilling in waters in the Atlantic Ocean and eastern Gulf [off the Florida coast] “for at least the next seven years.” The stated reason is lessons taught by the BP oil spill, including the need to “focus on creating a more stringent regulatory regime.” [Drilling will supposedly resume in the central and western Gulf, although there have been bitter complaints from the oil industry about the substitution of a “permitorium” (very slow approval process) for the supposedly lifted drilling moratorium in these areas. The government’s anti-drilling policies are almost guaranteed to keep oil imports high and promote rising gasoline prices as the economy hopefully starts to rebound. Be prepared for $5 a gallon gasoline within the next 12-18 months.]
http://www.s-a-f-e.org/global_warming_2010.htm
We recently (3/21/11) suggested to members of Congress from Delaware that they should support a more rational energy policy.
Since the oil shocks of the 1970s, the government’s mantra has been that energy is scarce, dangerous, and costly – dictating a preference for conservation over production and justifying government regulation & rationing.
We think the goal should be energy that is plentiful, reliable, and cheap – dictating more attention to energy production and increased reliance on free market mechanisms.
FOOD PRICES – Here is another area where prices are shooting up, both in this country and around the world. US warns of quickly rising food prices in 2011, Greg Brown, moneynews.com, 1/26/11.
And one of the price drivers is the US program for subsidizing the use of ethanol in motor fuel, a policy so deeply flawed that even global warming guru Al Gore now disavows it. US corn ethanol “was not a good plan,” Gerard Wynn, Reuters, 11/22/10.
Gore: “One of the reasons I made that mistake is that I paid particular attention to the farmers in my home state of Tennessee, and I had a certain fondness for the farmers in the state of Iowa because I was about to run for president.”
The effect of diverting corn to motor fuel is also pushing up meat prices, as shown by the problems of Delaware chicken producers.
4/10/11, F1/F9, Chicken companies feeling pinch as corn prices soar: high cost of feed ingredients also likely to hit consumers, Jonathan Starkey – Hmm, corn prices are at 3-year highs and have doubled in a matter of months. This in turn is raising a prime cost for poultry producers, and will almost surely contribute to a worrisome spike in food prices. Not good news for the public, and of course there is a reason corn prices are soaring – for readers patient enough to turn to the continuation page and look for it. Purchases of ethanol, a federally subsidized biofuel, “are expected to consume 40 percent of the corn crop this year, according to the USDA [US Dept. of Agriculture].” [Congress should wake up and kill the ethanol mandates, tariffs and subsidies that are having these predictably bad results – not to mention raising costs for motorists and taxpayers alike. The only beneficiaries are corn farmers and the ethanol producers.]
MONETARY POLICY – Although both energy and food prices are on the rise, the Federal Reserve continues to pursue ultra relaxed monetary policies that are supposedly necessary to spur economic recovery. It is claimed that these policies will not trigger a dangerous level of inflation because the “core rate” of inflation (excluding food and energy costs) is modest.
Some of the Federal Reserve governors are skeptical, but Chairman Ben Bernanke and Vice-Chair Janet Yellen seem determined to stick to the current policy for at least the next few months. Check out this recent speech by Yellen. Inflation pressure from higher commodity prices won’t last, Fed’s Yellen says, LA Times, 4/11/11.
Bernanke and Yellen insist there’s no good reason for the Fed to consider raising short-term interest rates from the current near-zero level.
For one, Yellen said, futures contracts for key commodities are signaling “prices will roughly stabilize near current levels or even decline in some cases.” Oil futures for May delivery closed at $109.92 a barrel Monday, while the price for December delivery was $111.83, or less than 2% higher.
Yellen also stressed another of Bernanke’s favorite themes, which is that there’s low risk of commodity prices fueling an inflation spiral because wage growth has been lousy, a consequence of the labor glut.
However, inflation is probably being understated by present reporting methods. Inflation actually near 10% using older measures, John Melloy, CNBC.com, 4/12/11.
http://www.cnbc.com/id/42551209
Also, the Fed’s policy could lead to a run on the US dollar – which in turn would fuel more inflation and sharply higher interest rates. [Government] shutdown threat is not all that ails the dollar, Larry Kudlow, Townhall.com, 4/8/11.
There’s no question that the potential U.S. debt bomb from overspending is a backdrop fear for investors. Long run, that bomb could be just as much a dollar destroyer as the over-easy Fed. And perhaps the debt bomb and cheap money are ultimately two sides of the same coin.
But in the short run, after the government shutdown goes away, the big problem behind the sinking dollar is a stubborn Fed with its head in the sand, and with its failure to see world monetary and commodity threats closing in all around it.
REGULATORY OVERKILL – One way to increase the size and reach of government is to tax (and/or borrow) and spend. Another tack is to impose requirements on the private sector, thereby shifting the costs of government policies to the firms or persons being regulated. We have pointed out the huge regulatory burdens of government on the economy before, and it is essential to keep them in mind. See, e.g., Regulatory common sense requires eternal vigilance, 11/22/10, and Dear EPA: Shape up or ship out, 11/29/10.
http://www.s-a-f-e.org/blog.htm
Probably the biggest issue currently is the push to expand “renewable” energy by whatever means can be found, from the EPA’s brazen attempt to regulate carbon emissions (after Congress declined to enact “cap and trade” legislation) to the new grants and subsidies for renewable energy that the president wants to include in the budget. Thus, in his recent deficit reduction speech, he accused his opponents of wanting to make a 70% [why not 100%?] cut in “clean energy” expenditures, which supposedly showed their “deeply pessimistic” vision of the country’s future.
From where we sit, the really pessimistic vision of the future would be the triumph of big government – placing the rest of us in a state of dependency and subservience.
STATE AND LOCAL GOVERNMENTS – Separate and apart from the problems of the federal government, there is a similar set of problems at the state and local levels – which adds to the overall burden and ineffectiveness of government.
Some state leaders are struggling to make things better, but others seem to be digging the hole deeper. Jerry Brown: California, country facing “regime crisis” similar to the Civil War, LA Times, 4/10/11.
“If we don’t get taxes, if we don’t get cuts, we’re gonna have a hard time balancing the budget. Many of the Republicans told me, “We’re not taxing and we’re not cutting. It’s your job — you’re the governor.”
http://losangeles.cbslocal.com/2011/04/10/jerry-brown-gop-stalling-budget-reform/
No matter, California continues to move ahead with renewable energy legislation that will undermine its economy and ability to support itself. (And it will also resist offshore drilling at all costs.) Governor Brown signs law requiring 33% of energy be renewable by 2020, Patrick McGreevey, LA Times, 4/13/11.
Despite feeling very strongly that the federal government must not and cannot be allowed to bail out failing states or municipalities, we know it will not be easy to make this stick if California, Illinois, or whatever collapses.
There would be some surprised and angry people in such a situation, believe it! Bear in mind the recent unpleasantness in Madison, Wisconsin.
WHAT’S WRONG WITH THIS PICTURE – Big government is here, there, and everywhere. We must stop digging, row for shore, or whatever analogy you prefer – and the window of opportunity is closing fast.
Note: Congress will be in recess (“state work period” in Senate speak) until April 29. If you feel the urge to contact your representative or senators about the foregoing issues, or any others, this might be a good time.
* * * This Blogs' Replies * * *
I think the two parties are on track to keep spending until the economy collapses. There is little hope unless we have another financial crisis. – SAFE director
[If so, the next financial crisis will result in changes that are not only deeply disagreeable but also irreversible. See, e.g., “5 things that will happen to you when America goes bankrupt,” John Hawkins, Townhall.com, 4/12/11. http://bit.ly/dL7Dzk]
Attach the Debt Authorization to a Balanced Budget Amendment. This should have an implementation period of 7 years - to give time to get to a balanced budget. Once we have balanced budgets, we can begin to pay down the debt - and we will stop borrowing.
Some features of amendment - All funds must be included including entitlements, defense and interest. Accounting must conform to accounting laws for private companies. Taxes can only be increased with a 2/3 vote of each house of Congress. Provision can be overridden ONLY in the cases of declared war or declared national emergency and a 2/3 vote of each house of Congress. -- Joe Hilliard, PA
1. Gov. spending should be brought back as close as possible to the taxpayer. The way it is now it is viewed as "free" money. Nothing is saved by refusing Federal funds since they will just go to someone else. In short, we need much smaller Government.
2. Eliminate government departments such as the Department of Education. Having been a school superintendent, I saw much waste and few benefits from Federal involvement. Same can be said of agricultural subsidies.
3. Everyone should be paying some tax so they all feel the effects of spending.
4. There should be much more stringent rules for the spending of welfare funds. I have seen commodities being sold to obtain money to buy liquor and much spent on non-essential food and drinks such as soda pop. – Richard Kirsch, SAFE member, South Dakota
4/11/11 – Government shutdown: a temporary reprieve
This entry will update a story from the last issue of the SAFE newsletter and offer our assessment of where things seem to be headed.
On February 19, the House passed $61 billion in spending cuts for FY 2011 (the current year; no agreed budget to date). Given the $1.6 trillion deficit projected for the year, this was a modest adjustment. Nevertheless, supporters of the big government express attacked the proposed cuts as draconian.
$10 billion in spending cuts were agreed to in exchange for two short-term extensions of the continuing resolution for FY 2011. The next action deadline is April 8, when the continuing resolution is set to expire again.
Hopefully, Congress will agree to a respectable cut in FY 2011 spending this time – and then start working on much bigger cuts for FY 2012.
http://www.s-a-f-e.org/nwsltr61.htm (mailed 4/4/11)
A BUSY WEEK: # Tuesday, April 5 – The president summoned House Speaker John Boehner and Senate Majority Leader Harry Reid to the White House and urged them to find common ground on the FY 2011 impasse. No agreement resulted, however, and the president publicly slammed Speaker Boehner after the meeting. Obama-Boehner fight gets ugly, Chris Stirewalt, Fox News, 4/6/11.
After a White House meeting with Boehner and Senate Majority Leader Harry Reid Tuesday, Obama went to the pressroom to rip Boehner for playing “games” with the process and “quibbling around the edges” of the nation’s fiscal problems.
Boehner then responded with a press conference of his own saying that Republicans would not be “put into a box” by the president and said Democrats are using “smoke and mirrors” to create the false appearance of spending cuts.
Meanwhile, House Budget Chairman Paul Ryan rolled out a proposed FY 2012 budget that reflected some $6 trillion less spending in the 10-year projection period than the president’s FY 2012 budget. The cuts included GovCare repeal, conversion of Medicare coverage to subsidized private insurance plans for future retirees, and conversion of Medicaid to a block grant program. Fiscal realists hailed the package as a serious proposal. See, e.g., Paul Ryan’s fiscal framework, Chris Edwards, Cato Institute, 4/5/11.
The White House reaction, expressed in a statement that afternoon, was along the lines of “nice try.” WH field reax to Ryan Plan, Conn Carroll, Washington Examiner, 4/6/11.
The President believes that dramatically reducing America’s long-term deficit is essential to growing our economy and winning the future. ... But while we agree with [Ryan’s] ultimate goal, we strongly disagree with his approach. Any plan to reduce our deficit must reflect the American values of fairness and shared sacrifice. Congressman Ryan’s plan fails this test.
The president threaded the needle in further conversations with the press by (a) attacking the GOP for blowing FY 2011 spending cuts out of proportion, while (b) sidestepping the Ryan proposal for FY 2012 et seq. Fox News, 4/6/11.
Obama sought to reclaim the momentum with his press conference blasting Boehner for not acting like a “grownup” and casting Republican objections as petty. *** That left the president fighting short-term cuts sought by Boehner and without an answer to Ryan’s long-term proposal. Obama has been broadly criticized for failing to address the nation’s fiscal problems in his own budget proposal or to embrace the recommendations of his own debt commission. The president still doesn’t have a position on these issues, but did promise Tuesday a “long conversation” on the subject. [We can hardly wait!]
# Wednesday, April 6 – Speaker Boehner called a press conference and challenged the president’s pose of moral superiority. Fox News, 4/6/11
The president is certainly entitled to disagree with our budget, but what exactly is his alternative? If he wants to have an “adult conversation” about solving our fiscal challenges, he needs to lead instead of sitting on the sidelines.
The president was headed out of town for the day, but Reed and Boehner were invited back to the White House that evening.
Meanwhile, Speaker Boehner secured agreement from his caucus for another stopgap proposal – a one-week continuing resolution combined with $12B in spending cuts and extension of military spending at current levels through 9/30/11 (to ensure the troops would continue getting paid on time). 4/6/11, GOP, Democrats remain far apart as government shutdown looms, Susan Ferrechio, Washington Examiner, 4/6/11.
The evening meeting at the White House stalemated. Late-night spending talks make progress but yield no deal, Stephen Dinan, Washington Times, 4/6/11.
House Speaker John A. Boehner, the top Republican who met with Mr. Obama, said there is still no agreement on an overall dollar amount for spending cuts, or on what legislative add-ons will be included in any final spending deal. But all sides agreed their staffs would continue working after the high-level White House meeting.
# Thursday, April 7 – Reacting to the GOP one-week, $12B in cuts proposal, the president announced that he would veto such a measure – which he labeled “a distraction” – if it reached his desk.
Hours later, the House passed the stopgap resolution, on a largely party line vote, in effect calling the president’s bluff. Obama vows to veto short-term bill, Stephen Dinan, Washington Times, 4/7/11.
Speaker Boehner and Majority Leader Reid met twice more with the president, once during the day and again in the evening – no breakthrough. Time’s up: Obama and GOP scramble to halt shutdown, Ben Feller, Washington Examiner, 4/8/11 (3:27 a.m.)
#Friday, April 8 – The media set up countdown clocks, and the hours until shutdown dwindled despite reports of discussions behind the scenes. Finally, around 11:00 PM, Speaker Boehner and Majority Leader Reid announced that a shutdown had been averted
With little more than an hour to go before a midnight government shutdown, President Obama and congressional leaders said Friday night they struck a tentative deal to give themselves more breathing space as they finalize a long-term [until 9/30/11] bill to cut $37.7 billion in spending [for FY 2011; as we understand it, this figure includes $10B in cuts from previous continuing resolutions].
All concerned put a positive spin on the outcome. Congress reaches deal to avert shutdown, Stephen Dinan et al., 4/8/11 (11:45 PM).
Boehner: “I’m pleased that Senator Reid and I and the White House have been able to come to an agreement that will in fact cut spending and keep our government open.”
Reid: “This is historic, what we’ve done.” Reportedly, the cuts were the biggest non-defense spending cuts in the country’s history when judged by dollar amount.
The president: “Like any worthwhile compromise, both sides had to make tough decisions and give ground on issues that were important to them. That’s what the American people expect us to do. That’s why [they] sent us here.”
THE PATH FORWARD: Realistically, the celebration was overdone. Much bigger fiscal issues remain in play, and they are not likely to be resolved so easily.
# Issue one is the FY 2012 budget. Despite our enthusiasm for the Ryan Plan ($6 trillion in spending cuts over 10 years!), it will not win ready acceptance. Defenders of the status quo will predictably express concern about projected deficits, but then blast every spending cut proposed as counterproductive or unfair. See, e.g., “Complaints about budget plan veer off path,” Jonah Goldberg, Townhall.com, 4/8/11.
The Ryan plan is "a path to poverty for America's seniors & children and a road to riches for big oil" Nancy Pelosi announced on Twitter. Meanwhile, Rep. Jan Schakowsky, D-Ill., proclaimed the Ryan plan a "war on seniors," even though current seniors -- and anyone 55 and older -- are entirely exempt from Ryan's Medicare proposal.
Opponents of the Ryan Plan have two basic choices. They can continue denying that there is a serious fiscal problem – this alienates no one but is getting hard to support with a straight face.
Or they can propose steep tax increases (ostensibly on the “rich,” actually on everyone) coupled with reckless cuts in defense spending. House progressives to release liberal alternatives to Ryan budget plan, Philip Klein, Washington Examiner, 4/7/11.
The progressives’ alternative, dubbed “The People’s Budget,” promises to reduce the debt and return the nation to surpluses with a combination of massive tax increases and defense cuts. I believe that the proposals outlined below would do tremendous harm to national security and the economy. Its goal for revenue as a percentage of the economy – 22.3 percent – would represent the highest rate of taxation in American history (see PDF). While that sort of revenue model may work on paper, in reality, given the economic disincentives it creates as well as the likelihood of increased tax avoidance, it would ultimately be fiscally unworkable.
As for the Republicans, having run the Ryan Plan up the flagpole, they had better give it the support that it deserves – which will require real political courage.
Some attacks on proposed spending cuts during the past week were vicious, such as these comments (all reported without apparent condemnation).
ü Facebook event: Let’s dump trash at Boehner’s pad, by CNN’s Ed Hornick, Political Ticker, 4/7/11. http://bit.ly/hs5pDb
ü Nancy Pelosi calls GOP budget [re proposal to defund Planned Parenthood, which was dropped in the final deal] “a war on women,” Jennifer Epstein, Politico, 4/8/11. http://politi.co/g5Uzuv
ü Government shutdown a “functional equivalent of bombing innocent civilians,” D.C. delegate (Eleanor Holmes Norton) says, CBS News, 4/7/11. http://bit.ly/gYztyv
And if such comments surfaced during the preliminary skirmish, there will surely be many more like them in the months ahead.
The president's faithful allies in the [Mainstream Media] and the lefty Beltway portals such as Politico and The Hill have already begun the pounding, ready to relay any outrageous quote from any source on the imagined impacts of the budget cuts.
It would be easy to give the Ryan Plan lukewarm support rather than truly embracing it – missing the opportunity to make a real difference. Winning the FY 2012 in the fall budget means winning the FY 2012 showdown now, Hugh Hewitt, Townhall.com, 4/6/11.
The plan is already defining the GOP's vision for the future of the country and the GOP's nominee will have to defend it throughout the summer and fall of 2012 so he or she ought to get started practicing doing so now. The temptation will be to trim and to distance, to save room for maneuver, but that temptation should be resisted. The Ryan budget of 2011 could be the equivalent of Kemp-Roth of 1978, the legislative proposal that sets the stage for the defeat of an exhausted and exhausting failed incumbent.
#Issue two is the prospective need to raise the debt ceiling from $14.3 trillion to, say, $16 trillion. Action will be needed by mid-May, according to Treasury Secretary Tim Geithner, and we would be inclined to accept his latest estimate as realistic. Geithner warns US to hit debt ceiling by May 16, Rachelle Younglai, Reuters, 4/4/11.
Previously, the Treasury had forecast that the $14.3 trillion statutory debt limit would be reached between April 15 and May 31. As of Friday, Treasury borrowing stood just $95 billion from the ceiling.
Practically speaking, there is no reasonable alternative to raising the debt ceiling. The government cannot be forced to default on its debts. However, it should be possible to extract some concessions to fiscal responsibility in return. Our wish list: approval of the Ryan Plan (although timing would be a problem), repeal of GovCare, ban on EPA regulation of carbon emissions, etc.
Emotionally, however, debt is even less popular than deficits. So if Speaker Boehner had trouble corralling his tea party supporters for the FY 2011 deal, we can imagine even greater difficulties in getting them to vote for a big increase in the debt ceiling.
Making a deal on this issue without a government shutdown is likely to be a huge challenge, and remember that the deadline is only about 5 weeks away.
ASK THE RIGHT QUESTION: A question that keeps coming up regarding a government shutdown is who the American people would blame for any resulting confusion, inconvenience, or cost.
Political folklore has it that President Clinton bested the Republicans in the shutdown of late 1995. A case can be made that the current situation is different, and that the president might wind up on the short end of the stick. Obama set up as hero or zero in budget showdown, Hayley Peterson, Washington Examiner, 4/7/11.
Recent opinion polls suggest that the two sides would be blamed to about an equal extent for a shutdown – and 63% of voters think a shutdown would be bad. Voters still split on blame for possible shutdown, Jon Cohen & Paul Kane, Washington Post, 4/4/11.
With a potential federal government shutdown closing in, the public remains split down the middle when it comes to which side it would blame for a work stoppage, according to a new Washington Post poll. In the poll, 37 percent say they would fault the Obama administration for a partial federal shutdown. The same number would blame the Republicans in Congress. Those figures are nearly the same as in late February, despite five weeks of fierce budget negotiations and positioning on the issue.
Fairly or not, however, we think a shutdown might backfire on the Republicans. A likely stumbling block is the tendency of the public to “kill the messenger,” i.e., blame whichever political party reports that the government is out of money. Political statistics, Thomas Sowell, 4/5/11.
When Congress votes for all sorts of benefits, without voting for enough taxes to pay for them, they get the support of those who have been promised the benefits, without getting grief from the taxpayers. It's strictly win-win as far as the welfare-state politicians are concerned. But it is strictly lose-lose, big-time, for the country, as deficits skyrocket.
Anyone who says that we don't have the money to pay what was promised is accused of trying to destroy Social Security, Medicare or Obamacare-- or whatever other unfunded promises have been made. It is like blaming the bank for saying that the check bounced.
Accordingly, we would like to see a different question posed – not who is to blame for the shutdown, i.e., didn’t play nice, but who has suggested the best ideas for solving the fiscal problem? Such a question would potentially work better for would-be fiscal reformers than defenders of the status quo, and it could certainly be addressed more objectively than the blame question. 57% okay with government shutdown if it leads to deeper budget cuts, Rasmussen, 4/1/11.
Republicans want to make more spending cuts in the current budget than Democrats do, but 36% of voters think it would be better to avoid a government shutdown by authorizing spending at a level most Democrats will agree to. Fifty-seven percent (57%) would rather have a shutdown until Democrats and Republicans can agree on deeper spending cuts.
Stay tuned – this story has a long way to go.
4/4/11 – A glum anniversary for GovCare
The 2,000+ page healthcare “reform” package was enacted in March 2010, by a whisker-thin margin, with no Republican support.
Many Americans would like to see GovCare repealed, thereby clearing the way for real reform.
58% now favor healthcare repeal, Rasmussen, 3/28/11.This is the 54th weekly survey tracking support for repeal of the health care law. Support for repeal has ranged from a low of 50% to a high of 63%. In 53 out of the 54 weeks, support for repeal has topped opposition by double digits. Consistently, Democrats have strongly opposed repeal while Republicans overwhelmingly favor it. Among those not affiliated with either major party, 55% favor repeal and 36% are opposed.
Indeed, the House of Representatives voted
for GovCare repeal in January, although this action was blocked in the Senate.
Attention has now shifted to attempts to defund implementation of the
legislation, although it remains to be seen how effective such an effort can be.
And two federal court judges have ruled the legislation unconstitutional – virtually guaranteeing that the US Supreme Court will rule on this question.
Undaunted, the Administration is pushing ahead with plans for implementation, insisting the public will come to appreciate this legislation as it is put into effect (most of the key provisions are to be effective in 2014).
There’s a lot of misinformation out there. The fact is the Affordable Care Act holds insurance companies accountable, lowers health care costs, guarantees more choice, and enhances the quality of care for all Americans..
http://www.whitehouse.gov/healthreform/myths-and-facts#healthcare-menu
The arguments in favor of GovCare seem forced, however, and with a long, tough fight in prospect this may be a good time to review them.
FREE STUFF – Defenders of GovCare like to cite discrete benefits of the legislation while ignoring associated costs and drawbacks. The little-known benefits of healthcare law, Senator Tom Carper, (Wilmington, DE) News Journal, 3/23/11.
No charge physicals – gradual elimination
of the “doughnut hole” in the prescription drug benefit for Medicare – young
Americans permitted to stay on their parents’ healthcare insurance (HCI) plans
through age 26 – insurance companies not permitted to deny coverage for
preexisting conditions – etc.
http://www.s-a-f-e.org/members_microblog_2011.htm
But it turns out that there is no “free lunch” after all. Take the new rules for young adults. The ObamaCare anniversary case makes young Americans gag, Romina Boccia, Townhall.com, 3/29/11.
Millennials are supposed to celebrate that they can now “choose” to remain on their parents’ health care plans until they turn 26. Sure, that seems like good news for some unemployed twenty-somethings, but this benefit comes with a significant cost.
Research shows that this provision alone has increased premium rates by one percent for families everywhere. One percent may not sound like much, but this is just one of many mandates that will push premiums higher.
As for Senator Carper’s claim that the donut hole phase-out would be paid for by pharmaceutical companies versus taxpayers, this does not mean the benefit would be “free.” To the contrary, companies would pass the cost on to consumers via higher prices.
EXPANDED ACCESS – Of all the arguments that can be made for GovCare, the most credible is that the legislation would increase the number of Americans with HCI coverage. However, the improvement would be less sweeping than is often supposed.
First, over 20 million Americans would remain uninsured in 2019. So if you had any illusions that the advocates of universal healthcare coverage are satisfied with this legislation, prepare yourself to keep hearing how millions of Americans are uninsured and this is a national crisis that must be fixed.
About 1/3 of the uninsured would be illegal immigrants. Most of the remainder would be relatively young and healthy, belying projections of reduced insurance costs through bringing the young and the healthy into the insurance pool.
Second, many of the persons added to the insurance rolls would wind up with Medicaid or CHIP coverage versus employee plans. “Given that roughly a third of physicians no longer accept Medicaid patients, these individuals may still find significant burdens to access, despite their newly insured status.” Bad Medicine: A Guide to the Real Costs and Consequences of the New Healthcare Law, Michael Tanner, Cato Institute (2010), pp. 26-27.
http://www.cato.org/pub_display.php?pub_id=11961
LOWER COSTS – GovCare supporters claim this legislation would reduce healthcare costs, but their arguments ring hollow. Consider the following statement from the White House Website:
The health policy experts and economists who have looked at this legislation have said we are pursuing every possible mechanism to reduce health care costs. The Congressional Budget Office found that health insurance reform will reduce the deficit by over $100 billion in this decade and by more than $1 trillion over the following 10 years.
http://www.whitehouse.gov/healthreform/myths-and-facts#healthcare-menu
This statement treats the numerous tax increases included in the GovCare bill (more than $669 billion in new or increased taxes over the first 10 years alone, Bad Medicine, p. 19) as though they were cost savings.
Credit is taken for projected cuts in Medicare outlays that Congress may or may not make. Thus, “no one in Washington seriously believes that [the Doc Fix] cuts will actually occur. In fact, congressional Democrats have introduced a separate bill, the Medicare Physicians Payment Reform Act of 2009 (HR 3961), effectively repealing the cuts.” Bad Medicine, p. 30.
Finally, much of the bill’s cost is shifted off the federal books onto businesses, individuals and state governments through mandates and other regulatory requirements. And it seems quite possible, if history is any guide, that the cost of new healthcare benefits in the law have been underestimated. Bad Medicine, p. 31.
MORE CHOICES – In our view, the skyrocketing costs of healthcare in this country have been due primarily to government mandates and subsidies, which have made ample financial resources available for healthcare services while eliminating incentives for patients and doctors to control expenditures.
GovCare would reverse much of the progress made in recent years toward more consumer-directed healthcare, e.g., health savings accounts (HSAs) and flexible spending accounts (FSAs).
Although the legislation does not prohibit HSAs or FSAs as such, it would: (a) double the tax penalty for HSA withdrawals not used for qualified medical expenses; (b) cut the maximum tax-exempt contribution to an FSA in half, i.e., from $5K to $2.5K; and (c) tighten the definition of “qualified medical expenses,” e.g., by excluding over-the-counter medications obtained without a doctor’s prescription.
The new 80% minimum medical loss ratio requirement would put high deductible (HD) plans for catastrophic coverage into question, which arguably are the only true form of HCI coverage and should certainly be available if individuals are considered competent to choose what kind of HCI coverage they want to carry. Bad Medicine, pp. 13-14.
In short, the effect is to block consumer–oriented healthcare reform in favor of increased government control. We think this is clearly a move in the wrong direction.
In a similar vein, it is intended to undercut Medicare Advantage programs that currently compete with traditional Medicare coverage. The rationale is that Medicare Advantage programs cost 14% more on average in annual premiums, thereby providing an unjustifiable windfall to the insurance companies. See this statement from the White House Website.
Today, Medicare pays Medicare Advantage insurance companies over $1,000 more per person on average than Original Medicare. These additional payments are paid for in part by increased premiums by all Medicare beneficiaries - including the 77 percent of seniors not enrolled in a Medicare Advantage plan. The new law levels the playing field by gradually eliminating Medicare Advantage overpayments to insurance companies. There is no provision in this legislation that caps or reduces Medicare Advantage enrollment; access to competitive, high-quality Medicare Advantage plans will continue.
This “overpayment” claim is disingenuous because Medicare Advantage plans have offered substantial additional benefits, e.g. preventive-care services, coordinated care for chronic conditions, routine physical examinations, skilled nursing facility stays, routine eye and hearing examinations, glasses and hearing aids, and more extensive prescription drug coverage than was available under Medicare Part D. Bad Medicine, p. 16.
By the way, SAFE’s proposal for long-term Medicare reform is to build on the Medicare Advantage model by ending traditional Medicare Coverage for participants retiring after a given date, e.g., January 1, 2012. In search of real healthcare reform, May 2009, recommendation 6.
Private insurance companies would be empowered to offer Senior Healthcare plans with specified terms (insurance coverage, deductibles, etc.) to subsequent retirees. Medicare would pay the insurance companies a fixed amount per senior insured, hereinafter referred to as the Medicare Contribution, thereby enabling the insurance companies to quote lower premiums.
The Medicare Contribution would be adjusted for age and individual health problems (as identified at time of retirement) to avoid creating a disincentive for insuring high-risk seniors.
The average Medicare Contribution would be indexed for inflation, thereby stabilizing Medicare’s outlays per senior in real economic terms. Over time, major savings in Medicare outlays could be expected versus the current system.
Medicare’s role in directly paying healthcare providers, which has impeded innovation in the industry, would fade away. In our opinion, the results should be beneficial for all concerned.
In short, the claim that GovCare enhances choices for healthcare consumers glosses over the fact that insurance companies will not offer HCI arrangements that cannot be provided profitably under the law. Whatever the choices available under GovCare, they would be of the tweedledee versus tweedledum variety. This is not a prescription for curing what ails the US healthcare system.
FLEXIBILITY – Hundreds of companies have been granted waivers from requirements of the law, and the president’s team is now working with the states on budget-cutting plans that will result in thousands of people being dropped from the Medicaid rolls. Kathleen Sebelius (HHS Secretary) and Nancy Anne DeParle (White House Deputy Chief of Staff) keep health[care] reform going, Alison Vekshin & Drew Armstrong, Business Week, 3/3/11.
Note, however, that waivers are being granted as a matter of strategy versus conviction – and they cannot be counted on as a permanent feature of the healthcare landscape.
All the forbearance has a goal: push implementation of Obama's besieged overhaul through to completion, without worsening the political discord. "We wanted the least disruption possible," says DeParle, before 2014, when everyone must purchase health insurance and most employers must provide coverage or pay a fine. "They found if they weren't flexible they were going to end up being criticized for being the cause of lots of people losing their coverage," says Robert Laszewski, president of Health Policy and Strategy Associates, an Alexandria (Va.) consulting firm that works with health insurers. "I give the Obama team credit for being careful here. It is just realpolitik."
NO HEALTHCARE TAKEOVER – The notion that the government is taking over the healthcare system is indignantly rejected by this White House statement:
The Affordable Care Act puts people, not health insurance companies or government, in charge of health care. The new law strengthens the existing employer-based health insurance market while making the market fair for consumers by implementing landmark consumer protections. Families and individuals that don't have access to affordable coverage can receive tax credits to help them purchase coverage in the private health insurance market. There is no government-sponsored, public, or "single payer" plan in the law.
To the contrary, as already discussed, GovCare would impose new obstacles on consumer-directed vehicles for healthcare coverage.
Moreover, this statement ignores the fact that two federal district court judges have already held GovCare unconstitutional because it would force consumers to purchase HCI coverage they might not actually want. How does that square with putting consumers in charge or complying with provisions of the Constitution calling for a federal government of limited and enumerated powers? If the constitutionality of GovCare was upheld, what if anything would be left that the government could not do?
The next phase in the court battles will be oral arguments in the 4th Circuit (May 10th) and 11th Circuit (June 8th), respectively. If one or both of the decisions are upheld, the case will presumably go on to the US Supreme Court in the fall term and probably be decided around June 2012.
It is true that the GovCare provisions do not extend to rationing, death panels, or a “single payer” plan. There was too much public resistance. But critics believe the system is designed to fail and thereby fuel demands to “finish the job.” Rep. Burgess (R-TX): Obamacare designed to fail, force socialized medicine, Henry Reske & Kathleen Walter, Newsmax.com, 3/23/11.
[Burgess] maintains that the law is simply unworkable, citing the more than 1,000 waivers granted to businesses, unions, and even entire states to avoid compliance with some provisions.
“The waiver activity . . . speaks for the poor construction, and the poor drafting, and the poor implementation of this law so far,” he said. “But here’s the other part of that deal, these waivers are for a year’s time. What’s going to happen in October, November, and December of this year when those waivers start to expire? Pretty clearly they will have to be extended and then what is the long term strategy if you’re having to provide long term waivers for people so they won’t be affected by this thing what in the world is the long term strategy, what is the Plan B when this thing doesn’t work and it clearly is not going to work?”
* * *
What a mess! Too bad the GovCare supporters ignored SAFE’s suggestions for real healthcare reform, posted in 2009, which would go a long way toward addressing the fundamental problem of the US healthcare system – soaring costs due to government rules and subsidies
Trying to fix the healthcare system by piling on more rules and subsidies is like trying to put out a fire with gasoline.
3/28/11 – A status report on the budget brawl
Consider how the DC tussle over fiscal policy has proceeded thus far. Somehow. things do not seem to be headed in a constructive direction.
Events: 1/19 - House votes to repeal GovCare (January 19); blocked in Senate; 1/25 - State of the Union address advocates spending cuts that would be largely offset by “investments” in high-speed rail, the Internet, and education; 2/14 – President’s FY 2012 budget projects 10-year deficit of $7.2T ($9.5T per the CBO); 2/19 – House passes bill to cut spending by $61B for balance of FY 2011; 3/2 – Spending cutoff for FY 2011 postponed for 2 weeks with $4B in spending cuts; 3/17 - Spending cutoff for FY 2011 postponed for 3 weeks with $6B in spending cuts; 3/18 - 64 senators ask president to get involved in wide-ranging budget talks.
Deadlines: 4/8 - Spending cutoff for FY 2011; 4/30(?) - US debt will hit $14.3T limit.
The best strategy is compromise wrote the Washington Examiner after the mid-term elections, quoting James Madison to make the point that the founders would have agreed. With GOP victory, time for political compromise, Washington Examiner, 11/3/10.
Americans want less spending, less regulation, less government, but they also expect their elected leaders to forge ahead in that effort forcefully and with due regard for the difficulties along the way. That means they must compromise. The measure of how they perform will be the degree to which they accomplish what the people expect them to do, which is to send Washington to the fat farm.
In a recent editorial, however, the same newspaper expressed concern that Republicans were being frustrated at every turn and risked getting nothing of substance accomplished unless they started taking a tougher line. Democrats rope-a-doping Republicans on spending, Washington Examiner, 3/15/11.
As Rep. Mike Pence, R-Ind., said before Tuesday's House vote on the latest continuing resolution, "It's time to take a stand for taxpayers and future generations. Things don't change in Washington, D.C., until they have to. It will not be possible to put our fiscal house in order without a fight. By giving liberals in the Senate another three weeks of negotiations, we will only delay a confrontation that must come. I say, 'Let it come now. It's time to take a stand.' ... House Republicans need to tell liberals in the Senate, 'This far and no further.' Nobody wants a government shutdown, but unless we take a stand, we will shut down the future for our children and grandchildren.”
So how are things likely to come out? In an attempt to answer this question, we will (1) frame it from the standpoint of the key players, (2) factor in the state of public opinion, and (3) offer some thoughts on how to keep up the pressure for spending cuts.
FRAMING THE ISSUE: A previous entry (1/10/11) discussed a book about a political prediction computer model that has supposedly proved useful in predicting and perhaps even shaping the outcome of political disputes. The Predictioneer’s Game: Using the logic of brazen self-interest to see and shape the future, Bruce Bueno de Mesquita, Random House (2009).
http://www.s-a-f-e.org/game_theory.htm
Everyone knows that events involving inanimate objects can be accurately predicted if you know the rules and have all the relevant facts. If a rock is dropped from a window, it will accelerate at a prescribed rate until it hits the ground. Strike a match in the presence of hydrogen and oxygen and there will be an explosion. Etc.
Things get more complicated when one is modeling a political dispute because the players can adopt various strategies, e.g., fight, compromise, or run away. And the players try to guess what their opponents will do as a guide to their own decisions.
Game theory seeks to provide guidance in such situations. Define the “game,” identify the players, analyze how the game works, and your strategies and outcomes can be improved. Thus, you need never lose another game of Tic Tac Toe.
If a game involves many possible moves (e.g., chess) and/or numerous participants (an electoral campaign), the best strategies and likely outcome are hard to determine. No surprise, therefore, that game theorists use computer models – such as Mesquita’s Political Prediction Model (PPM).
The PPM has been applied to a wide range of issues, from how to improve results from the Israeli/Palestine peace process to deterring corporate fraud. Never mind the merits of the issue, the drill is to identify the key players and rate them in terms of their (a) preferences as to the solution, (b) influence in the decision-making process, and (c) determination that the issue be decided as they would prefer. Express the scores in numerical terms, input them in a computer, and predictions will follow that (says Mesquita) are far better than could be obtained through intuitive reasoning.
Be prepared for what may seem a cynical view of human behavior. Although politicians are not necessarily out to hurt anyone, their primary objectives are to gain and retain power. Mercenaries will change sides in a conflict for comparatively small sums of money. Etc.
Tactics to retain power may vary with the situation. Thus, King Leopold II, who ruled Belgium from 1865 to 1909, was simultaneously an enlightened ruler of his native land and a despicable tyrant over the Belgian Congo. Predictioneer’s game, page xiv.
When rulers need the support of many – as was Leopold’s situation in Belgium – the best way to rule is by creating good policies [or at least putting on a good act]. When leaders rely on only a few to stay in control – as was the case for Leopold in the Congo – their best bet is to make the few fat and happy, even if that means making everyone else miserable.
Presumably the PPM could be used to assess how much progress will be made in cutting spending between now and 2012. We would envision the inputs looking something like this using a 1 (lowest) to 5 (highest) scale.
|
PLAYERS |
SPENDING CUT GOALS |
CLOUT |
DETERMINATION |
|
GOP House, traditional |
3 |
15% |
5 |
|
GOP House, tea partiers |
5 |
15% |
5 |
|
DEM House |
1 |
5% |
4 |
|
DEM Senate |
1 |
25% |
4 |
|
GOP Senate |
3 |
10% |
5 |
|
President |
1 |
30% |
5 |
If so, the model would presumably predict victory for defenders of the status quo. Sorry, but 60% beats 40% any day of the week. And the ambitious aims of the tea partiers are clearly hopeless. Game over; buy gold and Swiss Francs.
PUBLIC OPINION: There is one imponderable, which is what the public wants to see happen.
Remember how the Washington Examiner read the results of the mid-term elections: Americans want their elected leaders “to send Washington to the fat farm.” If so, and one should always be humble in divining what the public wants, Americans might vote any perceived obstructionists out of office in 2012.
The president had the first move, and he could have supported a spending rollback in his State of the Union address and FY 2012 budget. We expressed the hope that he would do so. SOTU and budget preview, 1/17/11.
. . . for all our skepticism, we would be delighted if the president submitted a truly austere budget. Such action on his part could change the tone in Washington and pave the way for solid progress on the fiscal problem.
However, presumably based on a careful political assessment, the president chose another path. His apparent strategy is to talk enough about fiscal responsibility to sound like he is in favor of it, but avoid offering proposals for significant spending cuts or changes to entitlement programs – placing the onus on the Republicans to make the first moves and risk going further than the public wants. To win the future, do not let the government do it, 1/31/11.
Following the party line, Democrat members of Congress have vociferously attacked the relatively minor ($61B is only 3.7% of the projected deficit) spending cuts that Republicans proposed to make in FY 2011 – without offering cuts of their own. See, e.g., Reckless budget cuts passed by House threaten citizens’ welfare, Senator Chris Coons, (Wilmington, DE) News Journal, 2/28/11.
I am eager to take further steps for deficit reduction [namely?], but spending cuts cannot come at the expense of key investments in growing our economy.
http://www.s-a-f-e.og/members_microblog_2011.htm
Behind the scenes,
however, Democrats in Congress have been growing restive. Perhaps they fear
being set up as obstructionists, with the president abruptly switching gears and
offering to serve as an “honest broker” between the feuding factions. They would
also like to try and change the subject from spending cuts to raising taxes, but
do not foresee getting much traction without presidential reinforcement.
Democrats demand Obama’s budget help, Alexander Bolton, The Hill, 3/10/11.
On March 18, 64
senators asked the president to get more involved in the budget talks. Their
letter referred, among other things, to the efforts of a group of senators – the
so-called “gang of six”: Saxby Chamblis (R-GA), Michael Crapo (R-ID), Tom Coburn
(R-OK), Kent Conrad (D-SD), Richard Durbin (D-IL), and Mark Warner (D-VA) – to
craft a deficit reduction package along the lines of the Fiscal Commission
recommendations of last December. Sixty-four senators call on Obama to take up
tax and entitlement reform, Erik Wasson, The Hill, 3/18/11.
Beyond FY2011 funding
decisions, we urge you to engage in a broader discussion about a comprehensive
deficit reduction package. Specifically, we hope that the discussion will
include discretionary spending cuts, entitlement changes and tax reform.
Senators Tom Carper
and Chris Coons were among the signers, and a News Journal editorial lauded all
concerned for showing “common sense.” Members, 3/21.
http://www.s-a-f-e.org/members_microblog_2011.htm
We are less
enthusiastic about this move, for several reasons. For one thing, to the extent
that people read the Constitution any more, it provides (Article I, Section 7)
that “all bills for raising revenue shall originate in the House of
Representatives.”
There would be the
potential for cutting the House Republicans out of the process – which would
certainly be inappropriate. Our understanding is that the House Republicans are
working on far-reaching FY 2012 budget proposals to be unveiled in April. Why
not see what they come up with before attempting to preempt their efforts?
And just by signing
the letter, Democrats can say they supported deficit reduction despite not
having put any concrete proposals on the table. In the vocabulary of game
theoretician Mesquita, this is known as making “cheap promises.”
As for what the
general public expects, a recent Washington Post poll suggests slippage for
Republicans. Most Americans supposedly think tax increases will be needed in
addition to spending cuts (Q-13), and that the Republican leadership has not
been willing enough to compromise with the president on the deficit. (Q-14)
The first conclusion
is arguable, but not the second one. The president and his supporters in
Congress have made no attempt to negotiate about the fiscal problem, so there is
no basis to conclude that the Republicans have been unwilling to compromise.
Is there any way to
sharpen the public’s understanding of what is really going on in Washington, as
opposed to what people may think is happening?
KEEPING UP THE
PRESSURE: Once again, we will take a somewhat jaundiced view of the nation’s
political leaders. Our source is a California attorney and law teacher.
Seminar on Mastering the Toughest-to-Craft Credibility Arguments! Robert Musante,
Philadelphia, PA, 3/11/11.
It is not our intent
to malign any individual politician or class of politicians (e.g., “liberals”).
We do not claim that leaders in the private sector are necessarily more honest
than government leaders. Nor do we rule out the possibility that some
politicians act based their perception of the public interest at times versus
their own self-interest.
But leaders often tell
people what they want to hear and then pursue their own agendas. If a failure
results that leads to litigation, moreover, the leader will attempt to evade or
deny responsibility. Some may see such an assessment as “poisoned by
irredeemable cynicism,” but Musante advises them to withhold judgment until “you
have taken as many as ten depositions of opposing parties [with a lot] at stake
in the litigation.”
Cases in which
impeachment evidence exists, e.g., DNA or a videotape, are pretty
straightforward. If no such evidence happens to exist, the deposing attorney’s
job will be much harder.
The chance that your
brilliant cross-examination will force an adverse deponent (AD) to change his
story is remote, but it may be possible to undermine the AD’s credibility. Here
is the recommended plan of attack.
The AD will try to
straddle the fence in answering questions. I might have said XYZ. I don’t
remember. I thought it was true at the time. I acted in good faith.
Using leading
questions, the attorney presents the AD with stark choices. For example, the AD
either did or did not say XYZ. If the statement is admitted, that’s good,
because the AD is now locked in. If the statement is denied or the AD continues
waffling, the AD’s credibility may suffer.
Now the foregoing
principles apply in a litigation context, so what do they have to do with
politics? Not much, except for one thing, which is that Musante’s seminar uses
videotapes of political figures (e.g., Bill Clinton, Hillary Clinton, George
Bush, and Donald Rumsfeld) being questioned – in most cases by commentators like
“Tiger Tim Russert” rather than attorneys – to illustrate how even the highest
leaders will attempt to obfuscate the truth and answer questions to their own
advantage.
We do not mean to
suggest that politicians should be put under oath and subjected to
cross-examination; such a procedure would seem repellent. But all of us (bloggers,
journalists, and informed citizens) need to become more aware and less tolerant
of waffling on the issues.
For example, the
current procedure for presidential debates ensures bad questions and worse
answers. It is time to make a change. We would like to see a real debate
between the candidates, like the Lincoln-Douglas debates, never mind having a TV
commentator select and pose the questions. Famous last words: “my plan will cut
taxes,” 10/10/08.
Maybe it is time to
stop settling for misleading half answers to questions that were not asked very
clearly in the first place. Maybe the country should demand a real debate about
the coming fiscal meltdown before it is too late.
A real debate! We
like the sound of that. But 2-1/2 years on, we are still waiting to see it
happen. How about next month?
And let’s hope the
attackers do not neglect their best argument, which is that most Americans doubt
the country’s economy is on the mend as a result of the Administration’s current
policies – which are producing rising gasoline prices, rising food prices, and
stagnating real incomes. The Keynesian president: anti-growth agenda results in
historic sense of malaise, Washington Times, 3/25/11.
So far, the GOP
strategy of short-term budget extensions with noncontroversial cuts in spending
has only put off the inevitable showdown between the two competing visions for
the country’s future. The Keynesian model has failed once again. The time has
never been better for the right to articulate a coherent, limited government
philosophy against a president who looks increasingly out of touch.
3/21/11 – Japanese nuclear plant damage: a big setback for nuclear power.
We had another topic
in mind for this week’s entry, but given the high profile situation at the
Fukushima plant let’s talk about nuclear power instead.
The story began when a
massive earthquake and ensuing tsunami struck Japan on March 11. Thousands were
killed or missing, many more were displaced from their homes, and enormous
damage resulted to the nation’s infrastructure. Among the many problems
reported: several nuclear power plants were experiencing overheating due to
power system failures that disabled the normal cooling systems.
Was there a risk of
similar incidents involving US nuclear power plants? The initial coverage was
encouraging. “If a tsunami were to ever hit the East Coast,” emergency planning
officials said, “it would have little impact on this region’s nuclear power
plants.” But SAFE doubted this attitude would last. “Based on past experience,
we have a hunch the environmentalists will reach different conclusions – be
prepared to read about the vulnerability of nuclear plants to earthquakes, etc.
for a long time to come.” Most nuke plants near Del. shielded: river locations
far from ocean, (Wilmington, DE) News Journal, Aaron Nathans, 3/12/11.
http://www.s-a-f-e.org/global_warming_2011.htm
Sure enough, ensuing
events at the Fukushima plant and the reactions thereto soon became the main
story, overshadowing overall disaster-related suffering and the relief
operations that were in process.
The public reaction
does not bode well for the future of nuclear power, nor for the availability of
cheap and abundant energy from any source. Too bad! Economic realists should
try to put this matter into perspective before negative attitudes harden, much
as we attempted to do after the BP offshore drilling accident last year.
Disaster in the Gulf: environmental effects and political fallout, 6/7/10.
THE STORY: Within
hours, some environmental extremists were saying the Japanese quake demonstrated
the urgency of combating manmade global warming. Never mind the absence of a
logical connection between the two topics. Some respond to Japan earthquake by
pointing to global warming, Amanda Carey, Daily Caller, 3/11/11.
The media coverage
trended in a similar direction over the next several days, increasingly
overstating concerns about the situation.
3/13/11
(News Journal)
- Overheating reported at a Japanese nuclear plant (Fukushima) after the
earthquake/tsunami disabled the cooling systems; partial meltdowns possible in
three reactors. Some 170,000 people within a 12-mile radius ordered to
evacuate, although no deaths reported due to the nuclear plant problems.
According to the reporters, “virtually any increase in dispersed radiation can
raise the risk of cancer."
3/13/11
(News Journal)
– More discussion about the risk of comparable incidents in nuclear power plants
near Delaware. Industry and government officials continue to sound reassuring,
but some people are not satisfied. Listen to Frieda Breyhill, who has been
warning for years about the possible consequences of an earthquake – even a
small one. “These plants sit on swamp land with no hard bottom,” which could
lead to the reactors being compromised in an earthquake. Some researchers
believe this region may be peppered with subterranean fault lines so deep they
have never been fully investigated. And a representative of Senator Tom
Carper’s office says “the U.S. nuclear industry has to be ready to respond to
any potential challenge, whether it is a mechanical malfunction, human error, a
natural disaster, or a terrorist threat.”
3/14/11
(News Journal)
– The front page headline conflates projected death toll from the overall
disaster with problems at the nuclear power plant that have caused few deaths
[one plant worker dead, two missing, according to one account we have read]:
“Japan expects toll past 10,000: second blast rocks nuclear power plant.”
3/15/11
(News Journal)
– “Nuclear plant spews radioactivity: crisis in Japan escalates with new
blasts.” Japanese Prime Minister Naoto Kan advised the public in a TV address
that “the level [of radioactivity in the vicinity of one of the reactors] seems
very high, and there is still a very high risk of more radiation coming out.”
Therefore, it would be advisable for people who had not been evacuated to stay
indoors.
Per the reporters,
“this is the worst nuclear crisis Japan has faced since the atomic bombing of
Hiroshima and Nagasaki during World War II.” However, according to a Q&A
sidebar: “Of the more than 180,000 people evacuated, up to 160 may have been
exposed. And at one point, officials said the radiation detected outside [how
far outside?] one unit in a one-hour period represented the allowed rate for an
entire year.”
3/15/11
(News Journal)
– Growing pressure reported “for a closer look both at aging reactors and plans
for new plants around the mid-Atlantic and across the country.” As shown by a
diagram, Delaware is blanketed by the overlapping 50-mile circular emergency
evacuation zones drawn around nuclear plants in NJ, PA, and MD. Senator Tom
Carper’s office is “in constant contact with a 24-hour operations center
established by the Nuclear Regulatory Commission after the disaster in Japan.”
3/16/11
(News Journal)
– “Japan abandons nuke plant: Rising radiation may signal breach of reactor
core.” The biggest danger may not be the reactors themselves, but rather spent
fuel pools where loss of water can expose fuel rods to the air and result in
overheating and the release of radiation. And if workers are not allowed on
site due to radiation exposure risks, it will be hard to prevent such results.
3/17/11
(News Journal)
– “Race to avoid meltdown at plant: US officials warn of high radiation danger
from exposed fuel rods.” Military helicopters drop water on an overheating
reactor, and efforts to restore normal cooling systems underway. Hopefully, a
massive release of radioactive materials can be averted. But anxiety continues
to build, due at least in part to the US government reaction. Thus “the White
House recommended Wednesday that US citizens stay 50 miles (80 kilometers) away
from the stricken nuclear plant, not the 20-mile (32 kilometer) radius
recommended by the Japanese.”
3/18/11
(News Journal)
– Overshadowing the nuclear power situation in Japan (“Fixing Japan plant could
take weeks”) and UN authorization of a “no-fly zone” for Libya, the lead story
was “Spent fuel rods piling up at nuclear plants near Del.: 5m pounds
radioactive waste held at NJ site.”
Text in the
accompanying illustration implied a cooling pool capacity problem. "Because the
spent fuel rod cooling pool is near capacity at Hope Creek and Salem unit 1 and
Unit 2 nuclear plants in New Jersey, some spent rods are now being encased and
stored at an above-ground area on the site." There were also quotes from
several nuclear activists, e.g., Norm Cohen of UNPLUG-Salem.
Federal regulators
allow nuclear plants to hold spent fuel rods outdoors for 60 years after a
reactor's final shutdown, and they are considering extending this period to 120
years. New Jersey, other states, and "a long list of environmental groups" are
protesting this ruling. Delaware Governor Markell has referred this issue to
the Delaware Emergency Management Agency.
3/19/11
(News Journal)
– Most notable Fukushima news was that Tokyo Electric had laid a
new power line, which would potentially permit plant workers to restart normal
cooling systems. The story seemed to be waning, and it was demoted to page 2.
Still, “the entire world [remained] on alert, watching for any evidence of
dangerous spikes in radioactivity spreading from the six-reactor facility, and
fearing that damage to the Japanese economy might send ripple effects around the
world.” Also, the Japanese government – possibly in response to US pressure –
raised the accident classification from Level 4 to Level 5. This placed the
event “on a par with the Three Mile Island accident in Harrisburg, Pa., in 1979,
and signified that its consequences went beyond the local area.”
Evidence of widespread
radiation hazards sounded unimpressive. Thus, “radiation levels about 19 miles
northwest of the [plant] rose at one time Friday to 0.15 millisieverts per hour,
about the amount absorbed in a chest X-ray. While levels fluctuate, radiation
at most points at that distance from the facility have been far below that.” No
matter, US officials stood by their “recommendation that people stay 50 miles
away from the Fukushima plant.”
IMPLICATIONS: The
quake-related damage to the Fukushima nuclear plant was serious. It remains to
be seen what the cleanup will cost the plant operator, or indeed whether the
plant can ever be restarted. Resulting power outages will also have adverse
economic implications for industrial and residential consumers. Look for
stepped-up regulation of the industry, which was already being monitored very
closely (at least in the US, and probably in Japan and elsewhere). Insurance
costs will rise as well.
But the foregoing is
not what worries us. Our concern is with irrational reactions, which could
prevent nuclear power plant construction – and perhaps even forced closure of
existing nuclear power plants that currently provide 20% of US electric power
needs.
It is no answer to
leave such judgments to scientists, as the News Journal recommended in an
editorial on March 15.
So far experts have
rated the Japanese nuclear situation as less serious than the Three Mile Island
accident in 1979, which “halted the American nuclear power industry [building of
new plants] for a generation.” This time, “anti-nuclear hysteria shouldn’t
dominate the discussion, as it did in 1979. At the same time, the genuine risks
should be honestly aired . . . based on the science, not the politics.”
In the field of energy
policy, at least, science is becoming increasingly politicized. That does not
mean scientists should not be listened to, but it does suggest a need to probe
the reasons for their conclusions (as well as the basis for dissenting
opinions). No proof man causes global warming, Fred Singer, Washington Times,
12/28/10.
Some cite the fact
that the climate has warmed since 1900 and the level of carbon dioxide in the
atmosphere has increased. True - but correlation is never proof of causation. In
Europe, the birthrate is decreasing and so is the number of storks. Does this
correlation prove that storks bring babies? Besides, the climate cooled for much
of the 20th century, from 1940 to 1975, even while CO2 was increasing rapidly -
and it has not warmed in the past decade.
There are people
itching to write off nuclear power as too dangerous, no matter what scientists
might have to say. Column by Eugene Robinson – March 16
(News Journal).
“It seems unlikely
that the Fukushima crisis will turn into another Chernobyl” and “Japanese
authorities seem to be making all the right decisions.” Possibly, “Japanese
engineers will eventually get the plant under control.” And “as President Obama
and Congress move forward with a new generation of nuclear plants, designs will
be vetted and perhaps altered.” But so what, “because the one inescapable
lesson of Fukushima is that improbable does not mean impossible.” And in the
case of fission reactors, “the worst-case scenario is so dreadful as to be
unthinkable.”
The only way to combat
this type of logic is to challenge it head on. What sort of worst-case scenario
do you have in mind? Isn’t it true that all technologies involve scary risks,
starting with the discovery of fire? Were not more people killed by the Chicago
fire (in 1871) than by the Chernobyl, Three Mile Island, and Fukushima nuclear
accidents put together? And so forth.
Other observers are
ambivalent about nuclear power. Although concerned about perceived radiation
hazards, they see it as the only viable candidate to replace fossil fuel and
thereby “save the planet” from manmade global warming. 5 myths about global
energy, Michael Levi, Washington Post, 3/16/11.
More than 30 years
after Three Mile Island, the unfolding crisis in Japan has brought back some of
the worst nightmares surrounding nuclear power — and restarted a major debate
about the merits and the drawbacks of this energy source. Does nuclear energy
offer a path away from carbon-based fuels? Or are nuclear power plants too big a
threat? It’s time to separate myth from reality.
Levi goes on to say
the biggest problem with nuclear power is cost, not safety, albeit acknowledging
that the two subjects are connected.
Concerns about safety
lead to extensive regulatory approval processes and add uncertainty to plant
developers’ calculations — both of which boost the price of financing new
nuclear plants. It’s not clear how much these construction costs would fall if
safety fears subsided and the financing became cheaper — and after the Fukushima
catastrophe, we’re unlikely to find out.
OUR THOUGHTS: We hold
no brief for nuclear power unless it is cost competitive – and if Levi is right,
coal and natural gas may have the edge for new power plants. (Existing nuclear
power plants are almost certain to be economic, as their high initial costs have
already been covered.)
Based on present
technology, the prime alternatives for producing electric power are coal,
natural gas, and nuclear fission. If wind and solar power producers think they
can compete, let them try – so long as the government does not attempt to prop
them up.
Here is how to pick
the winner(s). (1) Impose appropriate (not unclear, unreasonable or excessive)
regulatory requirements. (2) Terminate subsidies and/or tax preferences for all
energy sources. (3) Let the free market decide. Energy consumers should
appreciate the results.
Rattling off
principles is one thing, of course, and applying them is quite another.
Judgments will be required, and there may be some close calls. But just as
fossil fuel power plants should not be penalized for emitting CO2, in our
opinion, nuclear power deserves common sense regulation. Here are three policy
suggestions based on reactions to Fukushima.
# Assess radiation
risks realistically – The “virtually any increase in dispersed radiation can
raise the risk of cancer” mindset is based on an assumed linear extrapolation of
damage between severe radiation levels and zero radiation. Such an assumption
has been shown to be incorrect. Low levels of radiation may actually be
beneficial, a phenomenon called "Hormesis." GW microblog, 2/25/10.
An experiment
occurred by accident in Taiwan, starting in the early 1980's. A Taiwan steel
company accidentally mixed highly radioactive cobalt 60 into a commercial batch
of steel. The steel was then used to make reinforcing rods (rebar), which were
used in constructing 1,700 apartments. When the error was discovered 15 years
later, officials surveyed past and present apartment dwellers. They expected to
find much more than the statistical norm of 160 cancers but, to their
astonishment, found only 5. Terrestrial Energy, William Tucker, 2008, p. 315.
http://www.s-a-f-e.org/global_warming_2010.htm
Here is a recent
column along similar lines. A glowing report on radiation, Ann Coulter,
Townhall.com, 3/16/11.
With the terrible
earthquake and resulting tsunami that have devastated Japan, the only good news
is that anyone exposed to excess radiation from the nuclear power plants is now
probably much less likely to get cancer. *** Amazingly, even the
Soviet-engineered disaster at Chernobyl in 1986 can be directly blamed for the
deaths of no more than the 31 people inside the plant who died in the explosion.
# Avoid zero risk
mentality – No technology is zero risk and without harmful effects. So if
such a standard was imposed for nuclear power plants, as suggested in Eugene
Robinson’s column, there could be only one outcome. Shut down all the existing
plants, and do not build any new ones.
Using the same logic,
one can make a case against any technology, as was suggested by our earlier fire
versus nuclear power example. And indeed, the current Administration seems
intent on severely limiting domestic oil drilling, coal mining, and the
coal-fueled power plants that produce about 45% of this country’s electric
power. The predictable economic effects would be ugly. See, e.g., Obama’s
regulators kowtow to Big Green, imperil economy, Washington Examiner, 12/25/10.
President Obama's top
two Cabinet appointees on environmental issues are running neck and neck in
their race to see who can issue the most job-killing, growth-suffocating
bureaucratic edicts. Regardless of who "wins" their contest, of course, the
losers will be the rest of us. We will have to endure long-term double-digit
unemployment, skyrocketing energy and utility costs, and the loss of individual
freedom that inevitably accompanies the growth of government regulation.
The alternative to
zero risk thinking is to use informed judgment in risk assessments. Perhaps
exposure to major earthquakes should be considered before locating any more
nuclear power plants in California, for example, because that state is in an
earthquake zone and has experienced several severe quakes since 1900 (most
notably the “Great San Francisco” earthquake of 1906). Major California
earthquakes, Century National.
http://www.cnico.com/pgs/earth-3.html
But it would be absurd
to assume the same exposure to earthquakes in the middle Atlantic region, where
the earthquakes of record have all been comparatively minor and no fault lines
have been identified that would be likely to cause a major quake.
Similarly, there is no
reason to worry about a nuclear power plant being struck by a large meteor from
outer space. Although such an event could certainly happen unless human beings
could detect the incoming object and find some way to stop it, the probability
is too remote to worry about.
# Permit recycling
– Remember all those spent fuel rods accumulating in long-term storage at the
New Jersey plants. Although we think the News Journal story exaggerated the
hazards involved by a wide margin, there is a way to minimize the storage of
nuclear materials and also improve the economics of nuclear power plants.
Other countries
recycle nuclear fuel, which makes sense from an economic standpoint, but the US
prohibited recycling during the Carter Administration for fear that terrorists
could intercept spent fuel shipments and use the plutonium in the fuel to make a
bomb. Beats us how the alternative of transporting spent fuel to a centralized
national depository was supposed to reduce this exposure, but in any case the
Yucca Mountain, NV project has now been killed leaving the issue of what to do
with spent fuel rods in limbo.
Also, spent fuel
contains all four plutonium isotopes. Only Pu239 can be used for a bomb, and
its separation from the other isotopes would be prohibitively difficult. See
Terrestrial Energy", William Tucker, 2008.
CONCLUSION: “Never let
a crisis go to waste,” it is said, and we agree. Instead of using the
quake-related damage at Fukushima as an excuse to double down on the energy
policies (for nuclear power, fossil fuels, etc.) that have been in vogue since
the oil price shocks of the 1970s, however, let’s hope this experience will lead
to some creative new thinking.
For nearly 40 years,
the government’s mantra has been that energy is scarce, dangerous, and costly –
dictating a preference for conservation over production and justifying
government regulation & rationing.
We think the goal
should be energy that is plentiful, reliable, and cheap – dictating more
attention to energy production and increased reliance on free market mechanisms.
Never mind the
partisan infighting or who deserves credit, Washington, please get the job
done. Now!
3/14/11 – How to keep big government going (for a while)
As discussed last
week, Social Security (and indeed the government as a whole) resembles a Ponzi
scheme wobbling on the brink. Now what?
Our suggestion is to
downsize the federal government. Cut spending to not more than 20% of Gross
Domestic Product (GDP), vastly simplify the tax system, and rationalize
government regulations. SAFE to Congress: you need to do much, much better,
2/7/11.
Folks on the other
side see things differently. We expect them to adamantly resist any real
reduction in the size, reach or cost of government.
Consider the tactics
used to fight a plan to balance the Wisconsin state budget by, among other
things, requiring government workers to pay a larger share of the cost of
pension and healthcare benefits and removing these benefits from collective
bargaining in the future. Democratic senators fled the state so there would not
be a quorum; union workers called in sick (many obtaining fake medical excuses);
raucous protestors occupied the statehouse for days. Wis. Dems flee to avoid
anti-union vote; other states eye similar measure, Andrea Billups, Washington
Times, 2/17/11.
The impasse was
eventually broken by presenting the restrictions on collective bargaining as a
non-budget bill (not subject to the quorum requirement), which passed and has
been signed into law. Stay tuned for the legal challenges, including attempts
to recall Republican senators, and more demonstrations. Wisconsin Gov. Walker
signs anti-union bill, Chicago Tribune, heraldnet.com, 3/12/11.
Union supporters seem
to view the state’s fiscal difficulties as somebody else’s problem. In
Wisconsin and Washington, broke ain’t bad, Debra Saunders, Townhall.com, 3/8/11.
Forget Wisconsin's
projected two-year $3.6 billion budget shortfall. Forget this year's $1.65
trillion in federal deficit spending. Any claim that Wisconsin -- or Washington
-- is broke, [Michael] Moore claimed, is "a Big Lie." *** "The country," Moore
assures, "is awash in wealth and cash. It's just that it's not in your hands."
However questionable
Moore’s conclusion, he does identify a key issue. The big government express
cannot keep going without lots of money, and supporters are looking for ways to
get it. The basic possibilities are to raise taxes, keep borrowing, or be
creative. But as will be discussed, none of these ideas could work for long.
RAISE TAXES: This
sounds easy. Hike tax rates on high earners, impose a carbon tax or Value Added
Tax, whatever it takes to balance the budget. After all, European countries
collect substantially higher taxes (as a percentage of GDP) than the US; why not
copy them? Never mind that Europe’s economic future looks bleak. The new road
to serfdom: a letter of warning to America, Daniel Hannan, Harper-Collins
(2010).
The EU is a depressing
example of what the United States might turn into: a federation that is prepared
to sacrifice prosperity for the sake of uniformity. *** A state can raise taxes
only up to a certain point before capital begins to flow into overseas
jurisdictions. It can offer its workers generous social entitlements only up to
a certain point before entrepreneurs, firms, and eventually whole industries
start to relocate to more attractive regimes.
http://www.s-a-f-e.org/road_to_surfdom.htm
Those who resist the
idea of raising taxes will be labeled unreasonable (or worse). Willie Sutton
wept, Paul Krugman, New York Times, 2/17/11.
. . . if you’re
serious about the deficit, you should be willing to consider closing at least
part of this gap with higher taxes. True, higher taxes aren’t popular, but
neither are cuts in government programs. So we should add to the roster of
fundamentally unserious people anyone who talks about the deficit — as most of
our prominent deficit scolds do — as if it were purely a spending issue.
But higher taxes would
slow economic growth and job creation, not to mention nibbling away at tax
compliance. The Washington war on investment, Larry Kudlow, Townhall.com,
8/6/10.
Saving is a good
thing. Stocks, bonds, bank deposits, money-market funds, commercial paper,
venture capital, private equity, real estate partnerships -- all that saving is
channeled into business investment. And whether that capital goes into new
start-ups or small businesses or large firms, it finances the kind of new
investment in plants and equipment and software and buildings that ultimately
creates jobs and family incomes. And that, in turn, spurs consumption.
Accordingly, tax
increases would produce less additional revenue than projected. Congressional
testimony of Chris Edwards, Cato Institute, 2/26/10.
If Congress raised the
top income tax rate from 35 to 39.6 percent, the government would gain 4.6
percentage points on the money in the top bracket. But reported income would
fall modestly, and that fall would offset a substantial portion of the revenue
gain. [A recent paper suggests] that raising the top two rates would cause
reported income of affected taxpayers to fall three percent, which would be
enough to offset about 40 percent of the expected static revenue gain.
http://www.cato.org/testimony/ct-ce-20100223.html
And some of the new
revenue would go into new spending instead of being applied against the
deficit. Witness the tax provisions included in GovCare in an effort to make
the projected fiscal effects of that legislation look better.
Thus, to use some
hypothetical numbers, a $1 billion increase in taxes might net $600 million in
additional revenue, of which half would be used for new spending, leaving $300
million to reduce the deficit.
In other words, it
would take a $3B tax increase in taxes to equal the effect of a $1B spending
cut. We doubt the budget would ever get balanced at that rate. And guess what,
many political leaders are not even promising to try. Neither GOP not Democrats
plan balanced budget in next decade, Terry Jeffrey, Townhall.com, 3/9/11.
#House Democratic Whip
Steny Hoyer: "I don't think you can get there in 10 years. I think it's going
to take a longer time. We've dug such a deep hole."
#House Republican
Majority Leader Eric Cantor: “It is very difficult to balance the budget within
10 years without cutting seniors benefits now.”
KEEP BORROWING: Almost
everyone agrees that projected deficits and debt are unsustainable, yet many
people are reluctant to support decisive action. Maybe the timing will be
better in the future, e.g., after the next election or when the unemployment
rate is back to normal levels.
There are also
objections to the specific spending cuts being proposed. Senate Dems answer
House GOP on spending cuts, Reid predicts bills will fail, Trish Turner,
FoxNews.com, 3/4/11.
. . . [Senator
Majority Leader Harry] Reid repeatedly called the House GOP legislation
"mean-spirited" and "political," describing the legislative process there as "a
mad rush to see who could do the most sensational amendment." The GOP proposal,
which passed the House, would have cut $61 billion from 2010 spending levels,
while the Democrats' plan calls for $6.5 billion in new cuts, in addition to a
$4 billion reduction agreed to in a bipartisan stopgap bill signed Wednesday by
the president.
Do our intellectual
opponents truly believe spending cuts at this point could abort the economic
recovery, or are they simply stalling? Either way, we think they are
underestimating the risks of delay. “Like the Titanic bearing down on an
iceberg, this country is steaming towards catastrophe.” Out with the old, in
with the new, 12/20/10.
Other countries have
paid a heavy price for reckless borrowing. The same could surely happen here.
Professor Laurence Kotlikoff, University of Delaware, November 2004.
Government spending
has ratcheted up, taxes have been cut, and our senior entitlement programs
(Social Security, Medicare & Medicaid) will explode because the baby boomers are
about to start retiring and people will be living longer and longer. We face a
fiscal gap of $51 trillion (including $6 trillion for the recently enacted
prescription drug benefit for Medicare). Never mind that the Federal debt in
outside hands is less than $5 trillion at this point [currently nearly $11
trillion], “our country is bankrupt right now.” Indeed, as Professor Kotlikoff
sees it, we are in worse shape than Argentina. If the problem is allowed to
continue, look for hyperinflation and a fiscal meltdown. It’s happened in many
other countries, we are not immune.
http://www.s-a-f-e.org/generational_storm.htm
As government debt
rises, lenders will demand higher interest rates, putting budget balance further
out of reach. The central bank may be able to contain interest rates by
creating more money if the government has borrowed in its own currency, but only
at the risk of runaway inflation. This Time is Different: Eight Centuries of
Financial Folly, Carmen Reinhart & Kenneth Rogoff, Princeton University Press
(2009).
http://www.s-a-f-e.org/this_time.htm
So while rising debt
could defer the day of reckoning, it might also amplify the eventual disaster.
BE CREATIVE: The basic
idea is to accomplish objectives by indirection that would be blocked if pursued
directly. A series of examples will be discussed.
#Let’s say there is
staunch opposition to taxation of a given service or transaction. Perhaps it
can be defused by calling the levies something else, e.g., “911 Surcharge” and
“Universal Connectivity Charge.” Sample wireless phone bill, fcc.gov.
http://www.fcc.gov/cgb/phonebills/WirelessPhonebill.html#911 Surcharge:
#Although fines are
levied for enforcement purposes, revenue may also be a factor. The feds and
California in mortal combat, Bruce Bialosky, Townhall.com, 2/14/11.
[California has]
escalated the penalties for every conceivable driving infraction into the
stratosphere. For example, if you forget to notify the Department of Motor
Vehicles (DMV) within ten days of your address change, it will now cost you
$214. A jaywalking ticket will set you back $191. Not using your seat belt now
lightens your wallet by $148. And if you commit the ultimate of infractions –
parking in a disabled zone for a second time – you’re looking at forking over
$1,876.
#The cost of a
spending program is readily identifiable; tax credits are less likely to be
noticed. No wonder tax credits have been created as a form of welfare (e.g., the
Earned Income Tax Credit), incentives for trading in older cars and installing
solar panels, etc. Some tax credits are refundable, so many “taxpayers” receive
overall refunds. The 0% tax rate solution, Peter Ferrara, Wall Street Journal,
7/14/09.
Long before President
Barack Obama took office, the bottom 40% of income earners paid no federal
income taxes. Because of refundable income tax credits like the Earned Income
Tax Credit (EITC), in 2006 these bottom 40% as a group actually received net
payments equal to 3.6% of total income tax revenues, according to the latest
Congressional Budget Office data.
http://online.wsj.com/article/SB124753094923135901.html
#Regulation can vastly expand the reach of government by
leveraging the tax revenues that are available. Regulatory common sense
requires eternal vigilance, 11/22/10.
[One] study estimates
regulatory compliance costs [borne by the private sector] in 2009 as follows:
Economic $630B, Environmental $236B, Tax compliance $208B, Workplace $113B. The
$1.2 trillion total about equaled annual revenues from individual and corporate
income taxes. Government enforcement costs add to the overall burden. They are
running about $50B per year.
Proposed actions of the Environmental Protection Agency provide a
sobering case in point. Close the EPA; it’s time to stop funding carbon
mysticism with taxpayer dollars, Washington Times, 3/3/11.
. . . the EPA
announced Tuesday that it had revised the deadlines imposed on certain companies
for reporting so-called “greenhouse gas” production. A facility that
manufactures paper, for example, would have to determine whether it “emits
25,000 metric tons of carbon-dioxide equivalent (CO2e)” per year. The agency
guesses that this covers about 10,000 businesses which would then be forced to
measure their carbon-dioxide output, maintain detailed records and submit
reports to EPA busybodies. All of this extra work
. . . increases the EPA’s power over the private sector in the name of fighting
the purported effects of global warming.
#Government grants can
be used to buy influence by, in effect going into partnership with grantees.
Downsizing the federal government, Chris Edwards, Cato Institute (2005).
[Grants are commonly]
used by the federal government to influence state or local government programs.
Some $426 billion in grants were paid in 2005, ranging from $186 billion for
the federal share of Medicaid and the $71 billion cost of the Dept. of Education
(mostly grants) to “hundreds of more obscure programs that most taxpayers have
never heard of.” The result is to encourage overspending for the stated grant
purposes, foster federal, state and local bureaucracies to document compliance
with federal mandates, and reduce flexibility and innovation at the state level.
http://www.s-a-f-e.org/downsizing_government.htm
#Another tool is
“quasi-autonomous non-governmental organizations,” typically funded in part by
the government. Quangos have more operational flexibility than government
agencies, and are particularly favored in the environmental advocacy area.
One Quango that has
been much in the news lately (we don’t have space for all the juicy details) is
the Corporation for Public Broadcasting (CPB), “a private, non-profit
corporation that was created by Congress in 1967,” and its Public Broadcasting
Service (PBS) and National Public Radio (NPR) affiliates. In addition to its
own programming, CPB “invests in more than 1,000 local radio and television
stations . . . their services, their programs, and their ideas.” CPB
self-description.
http://www.cpb.org/aboutcpb/whatis.html
CPB et al. provide
some quality programming, and SAFE is not about to declare war on Sesame Street
or Masterpiece Theater. It does seem reasonable to question, however, whether
this activity should receive government funding. GOP focuses on NPR’s
subsidies, not its politics, Byron York, Washington Examiner, 3/10/11.
People watch and enjoy
ESPN but don't believe it should be federally subsidized. They watch the History
Channel, the Food Channel, the news channels, the old movie channels -- all
without believing those should be federally subsidized. Why shouldn't they feel
the same way about NPR?
#Other governments
have tapped private assets to bolster their finances. Thus, Argentina seized
retirement savings accounts to cover debt payments in 2008, supposedly shielding
private investors from losses due to global financial turmoil. Argentina makes
grab for pensions amid crisis, Matt Moffett, Wall Street Journal, 10/22/08.
There have been
recurring rumors that something similar might happen in this country, although
so far the supporting evidence is limited. See, e.g., Beware of Congress’s
threat to tax 401Ks, Elizabeth MacDonald, FoxBusiness.com, 10/31/08.
It is a fact that
Teresa Ghilarducci and others testified at a 10/7/08 hearing chaired by Rep.
George Miller (D-CA) re the impact of the financial crisis on retirement
accounts.
Ghilarducci did
advocate the termination of tax breaks for 401(k)’s, and the establishment of
Guaranteed Retirement Accounts (GRAs) to replace them. She had previously
presented these ideas in other venues, e.g., Money Magazine.
http://www.newschool.edu/nssr/news.aspx?id=18826
However, Ghilarducci
denies that she has ever advocated the seizure of 401(k) assets. FactCheck.org,
11/19/08.
Fast forward to
February 2010, and “the first annual report” of the Middle Class Task Force
chaired by Vice President Joe Biden. The report highlighted the following
proposals re “enhancing retirement security.”
The Administration
will require most employers who do not currently offer a retirement plan to
enroll their employees in a payroll-deduction IRA unless the employee opts out.
The Budget also simplifies and expands the Saver’s Credit to provide a 50
percent match on the first $1,000 of retirement savings for families earning up
to $65,000 and providing a partial credit to families up to $85,000. We will
also make this credit fully refundable.
As for GRAs, they were
described as a vehicle that “would give workers a simple way to invest a portion
of their retirement savings in an account that was free of inflation and market
risk, and in some versions under discussion, would guarantee a specified real
return above the rate of inflation.”
Further
study was recommended.
Some conservative
observers concluded the worst. Obama Administration plans to seize 401(k)
retirement accounts, Joe Wolverton, NewAmericans.com, 5/5/10.
. . . Barack Obama and
his congressional co-conspirators have consistently and unapologetically set out
to systematically nationalize the economy of the United States: first the banks;
then the insurance companies; then the auto industry; then healthcare; and now
the piece de resistance, the private savings accounts of millions of
middle-class Americans.
There has also been
speculation about 401(k) assets being used to prop up union pension plans.
“Guaranteed” retirement accounts, Becky Fenger, SonoranNews.com, 11/10/10.
http://www.sonorannews.com/archives/2010/101110/fenger.html
Our guess is GRAs will
not be pushed for now (there has been no recent buzz about the Middle Class Task
Force), but the idea has probably not been abandoned. Stay alert!
The “be creative”
heading is broad, and this discussion has surely not exhausted the
possibilities. Still, two conclusions seem justified: (1) such options are
unlikely to prove more helpful in balancing the budget than tax increases (which
we have already rated as ineffective for that purpose); and (2) there could be
toxic side effects, e.g., federal grants tend to promote more state and local
spending, and regulatory agencies are not known for self restraint.
3/7/11 – Social Security is burnt out, now what?
Read
Replies
SAFE member Harry
Thompson of Tucson, Arizona has asked us to remind readers of Charles Ponzi’s
birthday (born March 3, 1882). The point is not to celebrate Ponzi’s
activities, but rather to note his contribution to American political thought.
We will start by
placing Ponzi’s activities in historical context, link them to Social Security,
etc., and then survey the path forward.
ROBBING PETER TO PAY
PAUL: Charles Ponzi became notorious in the 1920s for fraudulent investment
schemes. His basic technique: solicit investments by offering outsized returns,
pay early investors with funds received from later investors, and default if
(when) the flow of new investment funds proved insufficient to keep going.
Convicted of investment fraud, he served two prison sentences and was eventually
deported.
Similar approaches had
been used by other swindlers. But Ponzi’s schemes were so brazen and he
practiced them on such a large scale that the term “Ponzi scheme” came into vogue to
describe investment proposals of this general nature.
Among entrepreneurs
who have followed in Ponzi’s footsteps, former Nasdaq Chairman Bernard Madoff
stands out. His investment advisory empire collapsed in 2008, resulting in
losses to thousands of investors estimated at $50+ billion. Madoff became a
target for public scorn and anger. He was tried, convicted, and sentenced to
150 years in prison.
One might think Madoff
would be ridden with remorse at this point, and prison authorities initially
placed him on “suicide watch.” This precaution proved unnecessary. A survivor
by nature, he quickly adjusted to the prison routine and connected with a
journalist on the outside to “set the record straight.”
Madoff began with the
intention of meeting client needs, he says, and never meant to cheat anyone.
The situation just got out of hand. Victims will receive a substantial amount of
money back. Other people made big mistakes too. The Madoff Tapes, Steve
Fishman, New York Magazine, 2/27/11, especially page 9.
He sees himself at
this stage as a kind of truth-teller. He has disdain not only for the industry
but for the regulators. “The SEC,” he says, “looks terrible in this thing.” And
he doesn’t see himself as the only guilty party on Wall Street. “It’s
unbelievable, Goldman … no one has any criminal convictions. The whole new
regulatory reform is a joke. The whole government is a Ponzi scheme.”[Do you
suppose Madoff has been reading our blog? See, e.g., Madoff writ large,
1/12/09.]
http://nymag.com/news/features/berniemadoff-2011-3/
What motivates
swindlers like Ponzi and Madoff? No doubt the reasons vary, but Madoff’s
experience (as related to Steve Fishman) is probably illustrative. It’s a story
of ego, greed, the adulation of investors who wanted in, and a big dose of
rationalization.
Madoff had run an
investment advisory business for years, as well as other legitimate securities
activities, and was prospering financially. But in the 1990s, he found himself
with lots of client money and a shortage of attractive places to invest it.
Madoff started
borrowing from his investors’ capital to pay out those solid returns. The
returns, false though they were, were their own advertisement. New money started
pouring in, saving him in the near term. And this was a different sort of money,
the kind that came from bankers who wouldn’t have given Madoff the time of day
earlier in his career. ***“It feeds your ego. All of a sudden, these banks which
wouldn’t give you the time of day, they’re willing to give you a billion
dollars,” he explained. “It wasn’t like I needed the money. It was just that I
thought it was a temporary thing, and all of a sudden, everybody is throwing
billions of dollars at you. Saying, ‘Listen, if you can do this stuff for us,
we’ll be your clients forever.’ ”
So Madoff took the
money. While he waited for the market to wake up, he parked their billions in
treasuries earning 2 percent a year, while generating statements that maintained
they were earning about 15 percent—fantastic money in a slow market. He couldn’t
bring himself to tell them that he had failed. “I was too afraid,” he said.
For a while, Madoff
envisioned that he might be able to climb out of the hole, but he eventually
realized this would be impossible. His only option was to keep digging – so he
did just that, although it became increasingly distasteful.
Madoff
felt he had to handle every inquiry from a significant investor. “He’d pick up
the phone wherever he was—he wouldn’t go places on earth where he couldn’t be
reached by phone,” said a person who worked with him. *** Outwardly, Madoff
basked in the admiration the scheme brought him, but it was a humiliation too.
“I would stare out the window,” he said. “Sometimes I would talk to myself.”
SOCIAL SECURITY: We
have no proof that Ponzi’s investment schemes were considered in designing
Social Security, but the government did opt for a “pay as you go” approach that
could potentially leave future retirees holding the bag. Why is Social Security
often called a Ponzi scheme? Cato Institute, 5/11/99.
Social Security does
not make any real investments -- it just takes money from later "investors," or
taxpayers, to pay benefits to earlier, now retired, taxpayers. Like Ponzi,
Social Security will not be able to recruit new "investors" fast enough to
continue paying promised benefits to previous investors. Because each year there
are fewer young workers relative to the number of retirees, Social Security will
eventually collapse, just like Ponzi's scheme.
http://www.socialsecurity.org/daily/05-11-99.html
If Social Security collapses at some point, no one will be sent to prison like
Ponzi or Madoff were. After all, the program was authorized by Congress, which
is in charge of writing the nation’s laws.
As a reminder of the enthusiasm with which the new venture was launched, check
out this 1936 poster urging workers to “join the march to old age security.”
http://www.ssa.gov/history/marchs.html
Many early retirees earned a great return on their payments into the system. And
writing for Newsweek in 1967, a Nobel laureate economist predicted the good
times would continue. The “beauty” of Social Security by Paul Samuelson,
scrivener.net, 2/1/05.
The beauty of social
insurance is that it is actuarially unsound. Everyone who reaches retirement age
is given benefit privileges that far exceed anything he has paid in -- exceed
his payments by more than ten times (or five times counting employer payments)!
How is it possible? It
stems from the fact that the national product is growing at a compound interest
rate and can be expected to do so for as far ahead as the eye cannot see. Always
there are more youths than old folks in a growing population.
More important, with
real income going up at 3% per year, the taxable base on which benefits rest is
always much greater than the taxes paid historically by the generation now
retired.
Social Security is squarely based on what has been called the
[eighth] wonder of the world -- compound interest. A growing nation is the
greatest Ponzi game ever contrived.
http://blog.scrivener.net/2005/02/beauty-of-social-security-by-paul.html
Perhaps Professor Samuelson overlooked (1) the propensity of Congress to sweeten
retirement benefits, (2) public resistance to endless tax increases, and (3)
demographic trends that would result in a steadily declining ratio of active
workers to retirees. In any case, Social Security was “broke” by the early
1980s.
The Greenspan Commission recommended higher payroll taxes, income tax on a
portion of Social Security benefits (a veiled benefit cut) for higher income
retirees, and a two-year increase in the normal retirement age by 2027. The
changes were enacted into law and hailed as ensuring the solvency of Social
Security for the next 75 years.
The changes were more than sufficient initially. Social Security became a cash
cow, generating some $2 trillion of surplus revenues that Congress spent for
other purposes. But by 2010, the program was again running a cash deficit (at
least temporarily, due to the recession). Clamor builds for another Social
Security fix, 8/16/10.
Here are some historical statistics to show how the program has grown over the
years. Bear in mind that the data are not inflation adjusted, e.g., a dollar in
1936 was worth about 15 times what a dollar is worth now (http://bit.ly/8UfR4o).
Place blame where it belongs, Stephen Mauzy, Ludwig von Mises Institute,
1/20/10.
Social Security
benefits totaled $35 million in 1940, soared to $961 million by 1950, rose again
to $11.2 billion by 1960, trebled to $31.9 billion by 1970, quadrupled to $120.5
billion by 1980, doubled to $247.8 billion by 1990, and nearly trebled again to
$650 billion by 2009.
That's a lot of cash outflow, requiring a lot of cash inflow. The
tax rate in the original 1935 rendition was 2%, half paid by the employee and
half paid by the employer on the first $3,000 of earnings. Today, the rate is
12.4% on the first $106,800 of an employee's taxable earnings. In short, we've
gone from a maximum dual contribution of $60 a year to maximum dual contribution
of $13,243 — a 7.5% average annual increase.
At this point, there are two basic options for Social Security – neither of
which will appeal to fans of the system. (A) Keep it afloat with periodic tax
increases and benefit cuts, a doable but politically thankless task. (B) Offer
personal accounts for younger workers, gradually converting the crown jewel of
the New Deal into a funded retirement plan.
See the
Social Security page of this Website.
http://www.s-a-f-e.org/social_security.htm
In short, Social Security is a burnt out case – setting up new programs would be
much more fun.
THE BIG PICTURE: So is
Social Security the biggest Ponzi scheme (in substance, not legally) of all
time? Perhaps not, because the entire federal government can be viewed in a
similar light. Madoff writ large, 1/12/09.
Counting unfunded promises for future Medicare and Social
Security benefits, the government has dug a $56.4 trillion (as of 9/30/08)
fiscal hole [that] is said to be growing by $2-3 trillion per year *** the
incoming administration and Congress are focusing on proposals that would
exacerbate the problem – supposedly as the necessary antidote to the current
economic recession. And the tactics being used to sell the package bear an eerie
similarity to the marketing of the Madoff funds.
Update: the fiscal hole grew to $61.9 trillion by 9/30/09 and it is probably
over $65 trillion by now. The Citizen’s Guide, Peterson Foundation, April 2010.
http://www.pgpf.org/Take-Action.aspx (download)
We are not the only ones who have compared the government to a Ponzi scheme, by
the way. See, e.g., Ponzi scheme on the Potomac, Minnesota Governor Tim
Pawlenty, Politico.com, 2/1/10.
In a
Ponzi scheme, organizers create the illusion of profit for early investors by
siphoning money from later participants. It works until there is not enough
income to pay the promised dividends, exposing the fraud and leaving everyone
broke. That is essentially what the federal government is doing, as it continues
to spend and promise far more than can ever be paid for by current and future
revenues.
http://www.politico.com/news/stories/0110/32282.html
As might be expected,
people are starting to realize what is going on. There is even respectable
support for spending cuts. The public no longer sees government shutdown as a
“train wreck,” Michael Barone, Washington Examiner, 3/1/11.
[Pollster] Scott
Rasmussen reports that 58 percent of likely voters would rather have a
government shutdown until both parties can agree on spending cuts, while only 33
percent would prefer spending at the same levels as last year.
Liberal poll critics
may say, correctly, that the question frames the issue the way Republican
politicians would like. But that's the point. Republican politicians today have
a much better chance to persuade voters to view issues the way they do than they
did in the Clinton-Gingrich days.
Hmm, so not only is
Social Security no fun any more but the “Ponzi scheme on the Potomac” is looking
tired as well.
NOW WHAT: Will
hardcore liberals belatedly embrace fiscal austerity? Maybe a few, but the
typical reaction will be to search for ways to keep on spending. Dems have zero
desire to make budget cuts, Bruce Bialosky, Townhall.com, 2/28/11.
For those who see
spending cuts as the most effective way to combat the fiscal problem, as we do,
the liberal stance may seem counterintuitive. Can’t they see it would be in
their political self-interest to help solve the problem instead of playing a
blocking role?
But human behavior is
not simply based on self-interest; it is also powerfully influenced by ideas –
which once adopted are resistant to change. See, e.g., The Intellectuals and
Socialism, Friedrich A. Hayek, University of Chicago Law Review, 1949.
The world is too complex for human beings to start from scratch
in evaluating the information with which they are bombarded on a daily basis.
The solution is to use a set of ideas as a filter. “That’s all I need to know;
obviously, the answer is XYZ.”
“Intellectuals” review ideas and transmit the ones of which they
approve to the masses. By intellectuals, Hayek means people who do a lot of
generalized abstract thinking, e.g., journalists, teachers, ministers,
commentators, writers, artists, and also scientists and doctors when addressing
issues outside their specific areas of expertise.
Even though their knowledge may be often superficial and their
intelligence limited, this does not alter the fact that it is their judgment
which mainly determines the views on which society will act.
And how do intellectuals assess the issues of the day? Why by
relating new information and views to the ideas they already hold.
It is perhaps the most characteristic feature of the intellectual
that he judges new ideas not by their specific merits but by the readiness with
which they fit into his general conceptions, into the picture of the world which
he regards as modern or advanced.
In Hayek’s estimation, as of 1949, intellectuals of the liberal (aka
socialist) persuasion were more numerous and influential than conservative
intellectuals. And he resisted the temptation to denigrate his intellectual
opponents, stressing that their beliefs needed to be understood and refuted
rather than simply opposed.
Why do liberal thinkers look to government action as the solution
to economic problems? Simple, this is the obvious way to have a planned economy
instead of letting people and companies do what they want and hoping for the
best.
In particular, there can be little doubt that the manner in
which, during the last hundred years, man has learned to organize the forces of
nature has contributed a great deal toward the creation of the belief that a
similar control of the forces of society would bring comparable improvements in
human conditions. That, with the application of engineering techniques, the
direction of all forms of human activity according to a single coherent plan
should prove to be as successful in society as it has been in innumerable
engineering tasks, is too plausible a conclusion not to seduce most of those who
are elated by the achievement of the natural sciences.
In short, liberals may make a few tactical adjustments, but they
will not lose faith in big government programs any time soon.
OK, where could the money
come from to keep all of the existing programs going (and ideally start some new
ones)? Our intellectual opponents see three basic options: raise taxes, keep on
borrowing, or get creative.
Tune in next week for a discussion of these options, and how we think they would
turn out.
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I’ve found Hayek’s writings to be
tedious and wordy, but am looking forward to the "creative" liberal approach! – SAFE director
Thanks for my 15 seconds
of `”fame.” – Harry Thompson
2/28/11 – The budget: will Congress save the day?
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SAFE blasted the budget proposed by the president for FY 2011.
This was not a plan, we said, for paying off the National Debt, bringing
spending in line with revenues, or even keeping the National Debt from growing
faster than the overall economy. Sorry, but the budget was dead on arrival,
2/8/10.
Few people were paying attention. Indeed, Congress did not even
pass a budget resolution for FY 2011, as contemplated by its own procedures.
Pass a budget or take a pass? Ed Feulner, Townhall.com, 5/25/10.
We again blasted the president’s proposed budget for FY 2012.
Not only was the projected deficit reduction inadequate, but it lacked
credibility as well. The budget: a “lowball” offer, 2/21/11.
What a difference a year can make. This time the budget is hot
news, and quite a few people seem to be on the same page as us. See, e.g.,
Obama’s budget blarney, Washington Times, 2/15/11.
Mr. Obama is cleverly trying to focus attention on the purported
$1 trillion of 10-year savings while ignoring the fact that the monstrous debts
America faces are his fault. His “painful cuts” are in fact minor trimming on
government programs he spent two years fattening up. Federal outlays are 37
percent higher than they were four years ago. That is a trillion dollars of new
annual spending.
As the president chose not to propose a responsible budget, it
appears that Congress (or at least the House Republicans) will take a crack at
it. The supporters of big government are not about to stand down, however, and
public support may prove fickle when the discussion gets to specific spending
cuts.
This entry will review the budget situation and offer some
thoughts on where things may be headed – in the short, medium, and longer term.
SHORT TERM: The first skirmish is not about
the mind-numbing budget projections over the next 10 years, nor even the
proposed FY 2012 budget. House Republicans are seeking to cut spending in the
current fiscal year, which is nearly halfway over already.
Not that there is time to make a real dent in the $1,645 billon deficit for FY
2011, but the House passed a spending bill (HR-1) in the early morning hours of
Saturday, February 19, which would reduce “discretionary” spending for the
balance of the year by $61 billion (3.7% of the projected deficit). House GOP
pushes through historic spending cuts, Stephen Dinan, Washington Times, 2/19/11.
Scores of amendments were offered from the floor and voted on during
consideration of HR-1. Among the cuts approved: $450M for an alternate engine
for the F-35 Joint Strike Fighter, which the Pentagon does not support (they
would prefer to work with a single contractor), and $34M to keep a National Drug
Intelligence Center open in Johnstown, Pennsylvania (the late Rep. John Murtha’s
district).
The action got messy at times, with some cuts tied to “investment” in other
spending versus reducing the deficit, but the overall result was favorable and
the openness of the debate represented a refreshing contrast to the practice in
recent years (under House leaders from both parties). House breaks old taboos
in cutting spree; Murtha’s project taken off dole, Washington Times, 2/16/11.
In the first
freewheeling spending debate the House has held in years, Democrats and
Republicans teamed up to take on entrenched defense interests and to rewrite a
GOP 2011 spending bill to cut about $800 million from NASA and from homeland
security research and development, and send the savings to fund local police and
firefighters.
Not one House Democrat
voted for HR-1 in its final form, and there have been constant complaints that
spending cuts would put government employees out of work, penalize the needy,
abort the recovery, and/or threaten national security. Barrack Obama plays
hardball with veto threat, David Rogers, Politico, 2/15/11.
http://www.politico.com/news/stories/0211/49603.html
Democrats say the
president’s budget for FY 2011 has been cut already since the continuing
resolution now in effect is based on FY 2010 spending levels ($41B less than the
president asked for FY 2011). And Republicans counted this $41B towards their
campaign promise of cutting $100B from FY 2011 spending, albeit saying it was
not enough. Democrats counter with cuts of their own, Stephen Dinan, Washington
Times, 2/21/11.
With Congress in
recess last week (President’s Day break) and the continuing resolution set to
expire on March 4, there has been much talk about a “government shutdown” if the
parties cannot reach a compromise. Democrats, Republicans in budget standoff as
shutdown looms, Julie Hirschfield Davis, Bloomberg.com, 2/23/11.
#Senate Majority
Leader Harry Reid of Nevada said he will bring up a temporary spending measure
next week to keep the government operating at current levels into early April
and buy time for talks on a longer-term plan.
#House Speaker John
Boehner rejected Reid’s proposal for a stopgap measure without additional cuts,
insisting as he has previously that any new funding bill contain more spending
reductions. If Reid refuses to act on the Republicans’ measure, the House will
take up a temporary one “that also cuts spending,” Boehner said in a statement.
If this were just a
question of whether to spend $61B more or less, the obvious answer would be
“split the difference.” But much more is at stake. The Republicans reportedly
want to defund cherished initiatives of the president and his party, and,
although we have been unable to find a handy summary of HR-1 in its present
form, such a design is evident from the text of the bill. See, e.g., Section
1746, p. 276 (EPA regulation of greenhouse gases); Section 1816, p. 292 (GovCare
implementation); and Section 2203, p. 316 (high-speed rail).
http://thomas.loc.gov/ (search for HR-1, 112th Congress, text of
legislation, version 2)
The Republicans are
wary of being blamed for a government shutdown, but they cannot afford to come
across as pushovers. Memories of 1995 haunt GOP as shutdown talk grows, Charles
Babington, Washington Examiner, 9/21/11.
Republican lore
portrays the 1995-96 shutdown as a political disaster. Lawmakers who lived
through it have vowed: Never again.
"There's absolutely no
way" House Republicans will allow a shutdown, said Rep. Jerry Lewis of
California, first elected in 1978. "It was a big mistake when Newt did it."
For their part,
Democrats may be inclined to resist compromise in hopes of maneuvering the
Republicans into a political trap – but they cannot afford to come across as
totally uncooperative because the public seems to be tiring of nonstop
government spending.
At last report, a
two-week extension of the continuing resolution was being worked out that would
include a token $4B in spending cuts (primarily the cancellation of unused
earmarks). Government shutdown solution [deferral?] appears near, Stephen Dinan,
Washington Times, 2/25/11. (Check out the December 1995 photo of a youthful
Rep. John Boehner in action.)
Assuming a two-week
extension of the continuing resolution materializes, what will happen when it
expires?
No one really wants a
government shutdown, so the tendency will be to make a deal on the budget
dollars and defer a showdown on the GOP’s controversial proposals to defund
GovCare implementation, etc. That’s fine; there will be ample opportunity to
revisit these issues in coming months.
MEDIUM TERM: For FY
2012, we hope the Republicans will propose a major reduction in the deficit. To
this end, they should continue pressing for cuts in discretionary spending and
defunding Administration plans for more of it. This will not get anywhere near
cutting government spending to 20% of GDP, however, unless they also propose to
start capping and/or rolling back existing “Human Resources” (HR) outlays. SAFE
to Congress: you need to do much, much better, 2/7/11.
The distinction between “discretionary” and “mandatory” spending
is unhelpful. ALL spending programs must be scrutinized in the search for
saving opportunities. The biggest opportunity for spending cuts is in the
“Human Resources” portion (OMB “super function” category) of the budget, which
has been growing faster than the economy for decades and now represents 2/3 of
the total budget. [HR includes Social Security, Medicare, Medicaid, education,
government employee benefits, etc.]
House Budget Chairman
Paul Ryan (R-WI), for one, is ready for action. And he has a growing number of
supporters within the House Republicans.
Along with conference
chairman Kevin McCarthy, Mr. Ryan has been doing an internal road show for all
87 House freshman and many senior members on the looming debt and entitlement
crackup, three sessions a week, six or eight members at a time. 10 minutes of
PowerPoint, 50 minutes of questions and listening.
As for the predictable
AARP demagoguery, political attack ads, media sob stories, etc., the Republicans
must be willing to take their chances. Ryan’s charge up entitlement hill, Paul
Gigot, Wall Street Journal, 2/19/11, no link available.
Ryan: The way I look
at things is if you want to be good at this kind of job, you have to be willing
to lose it. Number two, the times require this. And number three, if you don’t
believe in your principles, and applying those principles, what’s the point?
The Republicans can
surely extract some concessions on government spending in upcoming negotiations
over raising the $14.3T debt level, albeit not without raising the “government
shutdown” charge again. The nervousness of their opponents is evident from
statements already made about this matter. See, e.g., Goolsbee says failure to
raise U.S. debt would be “catastrophic,” William McQuillen, Bloomberg.com,
1/2/11.
“I don’t see why
anybody’s playing chicken with the debt ceiling,” [Austan] Goolsbee [chairman of
the US Council on Economic Advisers] said today on ABC’s “This Week” program.
“If we get to the point where we damage the full faith and credit of the United
States, that would be the first default in history caused purely by insanity.”
However, defunding
cherished Administration initiatives may prove easier said than done. Whether by
design (“they are absolutely hiding the ball” gripes Representative Dave Camp)
or otherwise (government employees do a lot of multitasking says the White
House), for example, the president’s budget does not include a line item for
GovCare implementation that can be readily zeroed out. Obama budget hides
healthcare spending, hiring, GOP foes say, Associated Press, Washington Times,
2/22/11.
Likewise, actions to
pare future outlays for Social Security, Medicare, Medicaid, etc. will take
determination, time, and a lot of discussion. There is no easy way to convince
people that they must give up existing or anticipated benefits of this nature
for the good of the country.
If the members of
Congress actually sat down and started working on the fiscal problem, major
progress could be made quickly – but this is unlikely to happen. The only
realistic outcomes are a “grand bargain” or continuing political warfare.
Some Republicans might
find the idea of a “grand bargain” enticing, but there could be no real
breakthrough unless the president was willing to move towards the center – not
just rhetorically, but in substance. Given the tenor of his SOTU address and
proposed FY 2012 budget, this seems quite unlikely.
Accordingly, the most
effective strategy for the Republicans may be to push for spending cuts at every
opportunity but avoid a battle they cannot hope to win at this point (perhaps
the situation will be different after the 2012 elections). A budget deadlock
will defeat Obama, but a compromise might save him, Dick Morris and Eileen
McGann, Townhall.com, 2/16/11
Like a guerilla army,
never go to a shutdown (a general engagement), but keep coming up with cuts,
compromising, letting the government stay open for a few more weeks, letting the
debt limit rise a few hundred billion, and then come back for more cuts and
repeat the cycle.
And don't just demand
spending cuts. Go for defunding of Obamacare, blocking the EPA from carbon
taxation and regulation, a ban on card check unionization, and constraints on
the FCC's regulation of the Internet and talk radio. Put those items on the
table each time, each session.
All right, no one said
restoring fiscal responsibility is easy? If it were, as the saying goes,
someone would have done it already.
LONGER TERM: The
fiscal problem will never be solved without a public consensus about what needs
to be done, so fiscal visionaries (whether observers like us or politicians)
must find effective ways to sell their ideas. Some suggestions and examples
follow.
Balancing the budget
is not “rocket science,” so boil the task down to a simple, readily verifiable
rule of thumb. One suggestion is that the key to success is to ensure the
government grows less rapidly than the private sector. Spending restraint, part
I: Lessons from Ronald Reagan and Bill Clinton, Dan Mitchell (7-minute video),
Cato Institute, February 2011.
http://www.youtube.com/watch?v=hJneSSGLnSI
Governor Chris
Christie of New Jersey pulls no punches on fiscal issues, and he has a knack for
explaining the need for spending cuts in a way that everyone can understand.
See, e.g., his talk to the American Enterprise Institute. Daniels and Christie
light fuse under GOP lawmakers, Michael Barone, Washington Examiner, 2/19/11.
My children's future
and your children's future are more important than political strategy. You're
going to have to raise the retirement age for Social Security. Whoa, I just said
it, and I'm still standing here. I did not vaporize.
We have to reform
Medicare because it costs too much and it is going to bankrupt us. Once again
lightning did not come through the windows and strike me dead. And we have to
fix Medicaid because it's not only bankrupting the federal government, it's
bankrupting every state government.
Some people have a
different answer in mind, namely raising taxes to cover the deficit. Their
“solution” would not only weaken the economy (the ultimate source of tax
revenues), but also encourage continuing spending growth. Thus, a Value Added
Tax of about 8% would be required to eliminate the projected deficits in FY 2013
et seq. – and we are skeptical that such a levy would do the job in practice.
VAT rates needed to erase Obama deficits, Scott Hodge, Tax Foundation,
2/16/11.
http://www.taxfoundation.org/blog/show/27047.html
Indiana Governor Mitch
Daniels has offered another rule of thumb, which has served his state in good
stead. “We spend less money than we take in.” He adds that taxes should be set
no higher than is truly necessary.
We believe it wrong
ever to take a dollar from a free citizen without a very necessary public
purpose, because each such taking diminishes the freedom to spend that dollar as
its owner would prefer. When we do find it necessary, we feel a profound duty
to use that dollar as carefully and effectively as possible, else we should
never have taken it at all.
In addition to the
fiscal visionaries on one side of the debate and dedicated liberals on the
other, Daniels points out, there are many people in the middle who do not pay
much attention to what the government is doing most of the time.
To win, fiscal
visionaries must reach out to these people – in a positive way – and convince
them of what needs to be done. It would also help, as Daniels suggests, if they
“liked us, just a bit.” National debt “is the new Red menace,” transcript of
his dinner talk (if you can spare the time, the 40-minute video is engaging) to
CPAC, 2/12/11.
In conclusion, to borrow a line from commentator Sean Hannity, “let not your
heart be troubled.” The fiscal problem may seem overwhelming, but we can solve
it.
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We have said quite a
bit about two threats if government spending is not drastically curtailed: huge
tax increases or sharply higher inflation. A third possibility is the
confiscation of wealth, such as via a mandated conversion of private retirement
funds into government-controlled accounts. This ploy has been used elsewhere,
e.g., Argentina, and ideas have been suggested in this country that might have a
similar effect.
http://www.humanevents.com/article.php?id=36823 --
SAFE director
2/21/11 – The budget:
a “lowball” offer
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The president’s budget
for FY 2012 was released a week ago. Check out this picture of multiple copies
being unpacked for the Senate Budget Committee, as though the document was of
great significance.
But for all its heft
and highfalutin rhetoric, the new budget offers no solutions for the fiscal
problem, is loaded with ideological baggage, and dodges responsibility. Our
analysis follows.
NO SOLUTIONS: The
president’s talking points are essentially unchanged from 2009: he inherited a
bad situation, the road is rocky right now, but be patient and everything will
work out. “My Budget” will cut the deficit to a “primary balance” level of 3.2%
of Gross Domestic Product (GDP) by 2015. FY 2012 Budget, 2/14/11, p. 20.
. . . the President
has put forward a Budget that builds on what he has already accomplished by
further restraining spending and tackling our long-term fiscal challenges, while
continuing to expand investments in areas that are critical to long-term
economic growth. Specifically, the Budget puts the Nation on the right course:
toward a sustainable level of deficits of 3 percent of GDP by the middle of this
decade. What is significant about this accomplishment is not just reaching
primary (non-interest) balance, but that we do so while putting the Nation on a
course that leads to further reductions in subsequent years. Redirecting our
fiscal path in this positive direction is a significant accomplishment, one
which will take tough choices and shared sacrifice – and is essential for the
long-term competitiveness of the American economy.
http://www.whitehouse.gov/omb/budget/Overview/ (download PDF)
What’s not to like
about this? Well, for one thing, it is not enough to reduce the deficit. The
budget should be balanced. Yet in the 10-year projection, the deficit would
bottom at 2.9% of GDP (in FY 2018) and then start rising again.
Also, it is easier to
project reduced deficits than to actually achieve them. Consider how the
outlook for FY 2011 & 2012 has soured over time.
Budgeting for
fiscal years 2011 & 2012 (dollars in billions)
FY 2011 (ends
9/30/11)
FY 2012 (ends
9/30/12)
Budget date
Receipts
Outlays
(Deficit)
Receipts
Outlays
(Deficit)
2/4/08
$3,076
$3,171
-$95
$3,270
$3,222
$48
2/26/09
2,713
3,625
-912
3,081
3,662
-581
2/1/10
2,567
3,834
-1,267
2,926
3,755
-828
2/14/11
2,174
3,819
-1,645
2,627
3,729
-1,101
Ouch! Just three
years ago, although acknowledging a bad outlook for FY 2008 (the deficit came in
at $459B), the president said the budget could be balanced by FY 2012.
President George W. Bush, SOTU address, 1/28/08.
Just as we trust
Americans with their own money, we need to earn their trust by spending their
tax dollars wisely. Next week, I'll send you a budget that terminates or
substantially reduces 151 wasteful or bloated programs, totaling more than $18
billion. The budget that I will submit will keep America on track for a surplus
in 2012.
http://millercenter.org/scripps/archive/speeches/detail/4454
An economic recession
struck with full force a few months later, understandably throwing the FY 2009
budget projection off course. But deterioration of the FY 2011/2012 outlook
since 2009 is another matter, and the president does not deserve a pass for
failing to deliver on his promise to halve the huge FY 2010 budget deficit
($1.2T) by FY 2012. Address to Congress, 2/24/09.
And yesterday I held a
fiscal summit where I pledged to cut the deficit in half by the end of my first
term in office. My administration has also begun to go line by line through the
Federal budget in order to eliminate wasteful and ineffective programs. As you
can imagine, this is a process that will take some time. But we have already
identified $2 trillion in savings over the next decade.
http://millercenter.org/scripps/archive/speeches/detail/4612
The “cut the deficit
in half” promise looks out of reach now, and no one is talking about it any
more. Might projected improvement in the out years of the current budget prove
equally unreliable?
Fiscal Year
2012 (dollars in billions)
Budget date
Receipts
Outlays
(Deficit)
2/26/09
2/14/11
Change
On the receipts side,
the indicated slippage breaks down as follows:
FY 2012, $B
2/26/09 Budget
2/14/11 Budget
Individual
income taxes
$1,393
$1,141
Corporate
income taxes
369
329
Payroll taxes
1,052
925
All other
267
232
TOTAL RECEIPTS
$3,081
$2,627
Lower receipts reflect
some revised assumptions about the tax law, e.g., deletion of $79B of “climate
revenues” from the all other category due to defeat (at least for the time
being) of the “cap and trade” bill.
More importantly, the
economic assumptions in the 2/26/09 budget have been dialed back. GDP for
calendar year 2012 is now assumed to be $16.7T versus $16.0T and the assumed
unemployment rate is 8.6% versus 6.0%. Fewer people working – lower income –
less tax revenue.
FY 2012 outlays have
risen $67B (1.8%) since the 2/26/09 budget, which may not seem like much, but
they are up 20% from the 2/4/08 budget. Moreover, the 2009 to 2011 outlay
comparison is distorted by the inclusion of interest expense.
FY 2012 net interest
has been reduced from $383B in the 2/26/09 budget to $240B, despite higher debt
(public debt is now forecast to hit $11.9T by the end of FY 2012). The secret:
lower assumed rates on Treasury debt (1.0% on 91-day bills and 3.6% on 10-year
notes, producing a blended rate of say 2%.)
If lenders began to
question the soundness of US government debt, interest rates would spike on new
borrowings and rollovers alike. The budget projection shows annual interest
expense rising to 3.5% of average public debt ($494B) by FY 2015 and 5.4%
($844B) by FY 2021. And this should not be considered a “conservative” or
“worst case” scenario; interest rates could easily rise faster and higher.
Let’s see, $14T (average public debt for FY 2015) x 10% = $1.4T!
Few observers are
predicting such a dire outcome, but financial experts recognize that it could
happen. Thus, there was considerable nervousness in December about the apparent
bond market reaction to the “tax cut” deal. Market alarm as US fails to control
biggest debt in history, Liam Halligan, UK Telegraph, 12/11/10.
. . . yields have
been kept historically and artificially low by “quantitative easing (QE)” – in
other words, Federal Reserve Chairman Ben Bernanke’s virtual printing press. Now
borrowing costs are 28pc higher than a month ago, with the 10-year Treasury
yield reaching 3.33pc last week, an already eye-watering debt service burden can
only go up.
In short, as many
observers have noted, this is not a sound budget. See, e.g., The seriousness
primary, Michael Gerson, Townhall.com, 2/18/11.
All the elements of a
status quo budget are present. A dependence on rosy economic assumptions to
lower deficit projections. The deferral of two-thirds of deficit reductions
until after 2016, when the ex-president is safely writing his third
autobiography. The symbolic cuts in minor programs, attempting to obscure a
national debt that will double on his watch (if he's re-elected), then triple by
the end of the decade.
Granted, the fiscal
problem is too big to solve in a year or two, but what is to be gained by
deferring a meaningful response until after the next election, the return of
full employment, or whatever? As the saying goes, “tomorrow never comes.”
IDEOLOGICAL BAGGAGE: The FY 2012 budget is quite consistent with the president’s
preview in the State of the Union message, on which we previously commented.
There is no need to repeat our thoughts about the folly of “investing” in
high-speed rail and renewable energy, the urgent need for deeper spending cuts,
and so forth. To win the future, do not let the government do it, 1/31/11.
But the more closely one examines the details of the budget, the uglier they
look. Favoring a big government agenda is one thing, although our inclinations
are otherwise. What we mean by “ideological baggage” is a pattern of
tenaciously defending every past or hoped-for liberal victory and intellectual
dishonesty. Some examples follow:
#Regardless of one’s belief about who should pay taxes and how much, a
comprehensive overhaul of the present tax system seems long overdue. To
implement SAFE’s SimpleTax proposal, almost all tax exemptions, deductions and
credits would be eliminated. Ditto the Alternative Minimum Tax. Then tax rates
would be set to yield the agreed amount of revenue (as a % of GDP) and no more.
There would be ample opportunity to debate the details of the tax rate table,
but the issue would be resolved on an overall basis rather than argued over and
over.
http://www.s-a-f-e.org/the_simple_tax.htm
Although the president characterizes the tax system as “a complex, inefficient,
and loophole-ridden mess,” his proposals would do nothing to simplify it.
ü
Income tax rates for high-income taxpayers (but not the middle class) would be
raised in 2012 by allowing the Bush tax cuts to expire.
ü
Instead of repealing the Alternative Minimum Tax (AMT), a 3-year “patch” of this
monstrosity would be “paid for” by a permanent across-the-board 30% reduction in
itemized deductions for high-income taxpayers.
ü
The tax rate on qualified dividends and capital gains would be set at 20% for
high-income taxpayers. (Although this adjustment is shown as a “tax cut” in the
table on p. 183, we would note that the current rate is 15%.)
ü
Earned income tax credit would be liberalized for larger families, the childcare
tax credit expanded, and the American opportunity tax credit (an education
subsidy) extended. Page 183.
ü
Scores of tax law changes are proposed for business, including extension of
several tax credits and creation of some new ones. Pages 183-187.
#
It is repeatedly stated (e.g., on pages 8, 14, and 25) that GovCare will reduce
the deficit. This claim is based on the inclusion of new taxes in the bill and
other fiscal sleight of hand; it does not deserve to be taken seriously. #
The budget is salted with praise for individual initiative and opportunity, as
exemplified by this statement on page 1: “We believe in a country where everyone
who is willing to work for it has the opportunity to get ahead; where the small
businessperson with a dream or entrepreneur with a great new idea has their best
chance to make them a reality; where any child can go as far as their talent and
tenacity will take them.”
It is also stated that the fiscal problem cannot be solved without “tough
choices” and “shared sacrifice.”
In terms of specifics, however, the emphasis would be placed on entitlement
programs, government-run initiatives, and sacrifices for high achievers and
disfavored groups.
ü
Re Social Security reform, p. 27. “Reform should strengthen retirement security
for the most vulnerable, including low-income seniors [and] maintain robust
disability and survivor’s benefits.”
ü
Re college education, pp. 32-33: “by 2020, we will once again have the highest
proportion of college graduates in the world.” [Is this necessarily a good
thing? Overeducated workers may wind up being discontented.] And “to boost the
number of college graduates we need to make it easier for students to afford a
postsecondary education and support efforts to increase the number of students
who get their degree.”
ü
Re taxes, as indicated above: Raise effective tax rates for the successful,
while extending and/or expanding tax credits for the disadvantaged.
ü
Re energy policy: A host of subsidies and incentives would be provided for
renewable energy. Meanwhile, 12 tax breaks for oil, gas, and coal companies
would be eliminated, “raising nearly $46 billion over the next decade” (p. 22),
and “immediate steps” would be taken “to make [oil] production safer and more
environmentally responsible.” Pages 34-37.
RESPONSIBILITY: As discussed, the proposed budget would not solve the fiscal
problem. And while there are references to the need for further action, these
opportunities would be delegated to the president’s political opponents.
# Taking on many of
these long-term funding issues [other than non-security, discretionary spending]
will take months, if not years, of discussion and deliberation. Page 23.
# The President is
calling on the Congress to work with the Administration on corporate tax
reform.” Page 26.
# [The president]
calls on the Congress [to] work in a bipartisan fashion to strengthen Social
Security for years to come, albeit subject to a set of principles that
effectively rules out any solution except tax increases. Pages 26-27.
The opposition
predictably faulted the president for lack of leadership. Republicans blast
Obama 2012 budget proposal, Guy Benson, Townhall.com, 2/14/11.
Senate Republican
Leader Mitch McConnell: “This is not an I-got-the-message budget. It’s
unserious, and it’s irresponsible...This budget was an opportunity for the
President to lead. He punted.”
Senate Budget
Committee Ranking Member Jeff Sessions: “The president has spoken in recent days
about winning the future. But his budget reads more like a blueprint for losing
the future. It puts us on the road to decline. It simply spends, taxes, and
borrows too much . . .”.
House Budget Committee
Chairman Paul Ryan: "We need to get the debt under control right now, or else
we're guaranteeing much more pain later on -- European-style austerity
measures. We have to win this war against big government or else the kind of
pain we're going to have in the future is going to be really ugly."
Some Democrats were
critical as well. Obama budget offers inertia, not hope and change, Michael
Barone, Washington Examiner, 2/15/11.
Senate Budget
Committee Chairman Kent Conrad: "It's not enough to focus primarily on the
non-security discretionary part of the budget."
Erskine Bowles,
co-chair of the now disbanded Fiscal Commission: The budget goes "nowhere near
where they will have to go to resolve our fiscal nightmare."
Now it is the Republicans’ move, and they have begun in an
interesting way. Tune in next week for an update.
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The promise of future
spending reductions is nonsense and all concerned know it. The president et al.
are willing to run huge deficits, whatever the economic consequences, because
they are fixated on wealth redistribution. – SAFE director
2/14/11 – Jobs: do not
let the perfect be the enemy of the good.
Read Replies
This entry will be
about employment ( the flip side of unemployment), an oft-cited justification
for stimulative fiscal and monetary policies. We will cover the current state
of employment, appropriate goals, and our suggestions for the path forward.
CURRENT STATE: Here
are some overall data for the US. The employment situation – January 2011,
Bureau of Labor Statistics (BLS), 2/4/11, Table A.
In millions
Jan. 2010
Nov. 2010
Dec. 2010
Jan. 2011
Population*
236.8
238.7
238.9
238.7
Labor force**
153.4
154.0
153.7
153.2
Employed
138.5
138.9
139.2
139.3
Employed %
90.3%
90.2%
90.6%
91.0%
Unemployed %
9.7%
9.8%
9.4%
9.0%
*16 and over,
excluding people serving in the military or incarcerated.
**Members of the
population seeking employment.
http://www.bls.gov/news.release/empsit.nr0.htm
By historical
standards, the rate of employment is low. A rate of 95% (or 5% unemployed)
would be deemed normal. Still, a 0.7 percentage point improvement over the past
year looks positive – and appears consistent with the belief that an economic
recovery is under way – until one considers the other data in the table.
Population rose by 1.9
million in 2010 without any growth in the labor force, reflecting a growing
number of people who are not seeking employment and are therefore not reported
as “unemployed.” The ratio of employment to population actually declined from
58.5% (138.5/236.8) to 58.4%.
Unless job growth can
be speeded substantially, employment will not return to the “normal” 95% level
any time soon. Maybe this goal will be reached by 2018, but it could take a lot
longer. Doing the math on a jobless recovery, Brad Schiller, Wall Street
Journal, 2/9/11 (no link available).
Some commentators say
the jobs situation has been headed south for years, with the adverse trend
masked by an apparently low unemployment rate as more women decided to stay
home, etc. The phantom 15 million, National Journal, Jim Tankersly, 1/21/11.
The Great Recession
[2008-2009] wiped out what amounts to every U.S. job created in the 21st
century. But even if the recession had never happened, if the economy had simply
treaded water, the United States would have entered 2010 with 15 million fewer
jobs than economists say it should have. [How do economists know there should be
15 million more jobs? Perhaps the people concerned should decide the “right”
number.]
Many manufacturing and
administrative jobs have been eliminated for good, fueling claims that US-based
companies are selfishly reinvesting profits from downsizing and outsourcing in
other countries.
The simple truth is
that American firms are either returning the spoils of globalization and
technology to their shareholders, spending them on new projects abroad, or both.
“Globalization isn’t the problem,” says Howard F. Rosen, a labor economist and
visiting fellow at the Peterson Institute. “U.S. companies are investing in
plants and equipment, just not in our borders.… They are privatizing the gains
of globalization. That’s really it. They’re our gains!”
The employment rate
varies considerably, with teenagers (74%) and minorities (blacks 84%, Hispanics
88%) coming in well below the average (91%). BLS, 2/4/11 report.
The employment picture
also varies considerably from state to state, currently ranging from a 96% rate
in North Dakota to 88% in California and 86% in Nevada. BLS, Local area
unemployment statistics, December 2010.
http://www.bls.gov/web/laus/lauhsthl.htm
GOALS: When
politicians talk about improving the employment picture by creating jobs, they
generally focus on high skill, well-paid manufacturing and administrative jobs.
For example, consider the “win the future” picture painted by the president in
the State of the Union address.
None of us can predict
with certainty what the next big industry will be or where the new jobs will
come from. Thirty years ago, we couldn’t know that something called the
Internet would lead to an economic revolution. What we can do -- what America
does better than anyone else -- is spark the creativity and imagination of our
people. We’re the nation that put cars in driveways and computers in offices;
the nation of Edison and the Wright brothers; of Google and Facebook. In
America, innovation doesn’t just change our lives. It is how we make our
living.
Fine, but remember the
adage about the need to walk before running. With continual productivity gains
due to technological progress, it is hard to visualize the net addition of
millions of highly skilled and paid jobs in a competitive global economy.
And many of the people
who lost their jobs in the recession were only marginally productive so creating
great replacement jobs for them may be a tall order. 10 percent unemployment
forever? Tyler Cowen & Jayme Lemke, Foreign Policy, 1/5/11.
As time passes, it is
harder to avoid the notion that a lot of those old jobs simply weren't adding
much to the economy. Except for the height of the housing boom -- October 2007
through June 2008 -- real GDP is now higher than it has been in the entirety of
U.S. history. The fact that the United States has pre-crisis levels of output
with fewer workers raises doubts as to whether those additional workers were
producing very much in the first place.
Granted, a government
can organize projects that will put people to work, as Egypt did thousands of
years ago when it built pyramids or the US did in the 1960s when it sent
astronauts to the moon. But did these mega projects of the past represent the
highest and best use of the resources available?
More to the point, who
is to say high-speed rail and renewable energy projects represent the best use
for this country’s resources today? Jobs would be created, but quite possibly at
the cost of killing jobs that would otherwise be funded by the private sector.
Perhaps it would make
sense for the government to include some more modest goals in the mix, such as
making it easier for teenagers to enter the workforce and encouraging displaced
workers to resume gainful employment.
PATH FORWARD: What
would the current rate of employment be if there were no minimum wage and no
government-provided unemployment benefits? Who knows, but the rate would
probably be several percentage points higher than 91%.
Although the minimum
wage (now $7.25 per hour) is justified as protecting workers from exploitation,
it actually has the effect of blocking employment of some people that it is
supposed to help. The young and the jobless, Wall Street Journal, 10/3/09.
. . . the mandated
increase to $7.25 took effect in July [2009], and right on cue the August and
September jobless numbers confirm the rapid disappearance of jobs for
teenagers. The September teen unemployment rate hit 25.9%, the highest rate
since World War II and up from 23.8% in July. Some 330,000 teen jobs have
vanished in two months. Hardest hit of all: black male teens, whose unemployment
rate shot up to a catastrophic 50.4%. It was merely a terrible 39.2% in July.
ONE: Outright
elimination of the minimum wage might be considered “extreme,” but at least
the federal and state governments should refrain from any further
increases. Over time, inflation would erode its economic effect.
Meanwhile, the minimum rate could be lowered for teenagers to help them get
started in the workforce.
There is also evidence
that unemployment benefits motivate displaced workers to defer a return to the
workforce by not looking as hard as they might, declining less than stellar
offers, etc. Obama’s jobless crisis, Washington Times, 4/20/10.
Historically, long and
generous benefits are the cause, not the cure, for long-term jobless rates. The
more something is subsidized, the more of it you get. People only receive
benefits as long as they are unemployed. In the past, one way people got back
into the labor force was by taking a part-time job, but now this means
forfeiting unemployment checks as well as subsidies to buy health insurance. For
many, part-time work worsens their circumstances more than no work at all.
Unemployment
compensation in this recession has been markedly more liberal than in the past,
which has increased its adverse side effects. The folly of subsidizing
unemployment, Robert Barro, Wall Street Journal, 8/30/10 (no link available).
In a recession, it is
more likely that individual unemployment reflects weak economic conditions
rather than individual decisions to choose leisure over work. Therefore, it is
reasonable during a recession to adopt a more generous unemployment insurance
program. In the past, this change entailed extension to perhaps 39 weeks of
eligibility from 26 weeks, though sometimes a bit more and typically conditioned
on the employment situation in a person’s state of residence. However, we have
never experienced anything close to the blanket extension of eligibility to
nearly two years.
We have shifted toward
a welfare program that resembles those in many Western European countries.
TWO: Abandoning
unemployment compensation benefits would be a tough sell, and on a
short-term basis they may have a constructive effect. We would recommend
against extending them for long periods, however, lest they come to be seen
as an “entitlement” versus temporary assistance.
It is cheerfully
conceded that recommendations 1 & 2 would serve to increase employment at the
low end of the spectrum, contributing more to the self-respect of the
individuals concerned than to the wealth and prestige of the nation. Perhaps
such a result sounds rather modest. It beats fostering illusions, however, about
the jobs that marginally qualified applicants can expect. Here’s the real story
on America’s unemployment, Steve Adams, Washington Examiner, 12/27/09.
Growing evidence
suggests that something far more fundamental than just another economic cycle
may be going on. The modern office/factory-model job as we know it actually
could be headed for extinction. Goodbye, permanent employment. Hello, contingent
work, contractual employment and "composite" careers.
Ergo, workers should
become more flexible and entrepreneurial instead of hoping that the government
will bring back the good old days.
More and more of us
will need to learn how to make a living as self-employed professional
independent contractors or as entrepreneurs who start our own businesses. The
good news is there will still be work for those who know how to get it. We can
all take our cue from the many organizations that have had to make radical
changes to survive -- change product lines, even rebrand their very identity.
As for the continuing
(and hopefully growing) availability of high-end jobs, we would certainly hope
the US will maintain its economic leadership rather than allowing China et al.
to take over. But there can be no guarantees. Keeping up, let alone “winning
the future,” will require a world-class educational system, highly skilled
workers, and a sophisticated technology and manufacturing base.
About the educational
system, we think the key is improving schools at the local level – not
subjecting them to more and more federal and state supervision. We will refrain
from a detailed discussion, but consider this update from the Chesapeake Science
Point Public Charter School (championed by SAFE member Spear Lancaster et al.).
CSP press release, 2/7/11.
Anne Arundel County's
Chesapeake Science Point Public Charter School continued its winning ways last
Saturday, finishing FIRST in both the team and individual portions of the
Annapolis Chapter regional MathCounts competition. Twenty-three CSP middle
school students competed at the event, sponsored by the Annapolis Chapter of the
Maryland Society of Professional Engineers and held at the Anne Arundel County
Community College. CSP students earned SEVEN of the top TEN individual scores,
with special congratulations to sixth grader Ryan Budahazy for finishing FIRST
in the individual competition.
THREE: Eliminate
the federal role in education. Support educational choice, including a
robust network of charter schools. See the Education page of this Website.
Entrepreneurs working
in garages or spare bedrooms may spark innovation, as they have in the past.
Picture of former garage of Steve Jobs.
http://cicorp.com/apple/garage/index.htm
But the resources and
capabilities of large organizations will be needed to scale up and capitalize on
innovative ideas, and the government should encourage their efforts. How can
this best be done?
One idea is
razzle-dazzle investment programs, to be proposed and guided by the government.
But such programs would cost a lot of money, necessarily recouped from the
private sector (the government has no money of its own), and there can be no
assurance that the benefits would be commensurate.
Take the high-speed
rail proposal, for example, which is projected to cost $50+ billion over six
years (plus operating losses forever) and has limited public support.
High-speed rail: Obama’s gift that nobody wants, Washington Examiner, 2/10/11.
. . . the vast
majority of Americans prefer private cars and commercial airplanes over
tax-supported trains, be they of the high-speed or light-rail variety. Amtrak's
chronic inability to make a profit reflects this reality, and it is even more
evident in data comparing public mass transit and private passenger cars in
daily commuting. Contrary to the claims of high-speed rail and mass transit
enthusiasts, the presence of such systems does not lure drivers out of their
cars and into trains.
Our proposal would be
to define the government’s role as maintaining a favorable environment for
private firms, and empower said firms to make investment decisions based on the
working of the free market.
Big government
enthusiasts may see business-friendly taxes and regulations as having limited
potential to revitalize the economy. The phantom 15 million, National Journal,
Jim Tankersly, 1/21/11.
Lawmakers have still
barely touched the question [of why U.S. job creation has “stalled so
spectacularly in the past decade”]—they are too focused on taxes, regulation,
and government spending, policy areas that hardly any economist has suggested as
explanations for our lost decade of job growth. Researchers are just starting to
piece together the evidence, and no one can yet finger the culprit.
However, we do not
find this assessment (taxes and regulations are not the real problem) persuasive
– and the weight of the evidence seems to be on our side.
The US corporate
income tax rate is the second highest in the world (and will be the highest when
Japan’s rate is lowered). It is time to stop talking about this and fix it so
as to help make US-based business operations more competitive.
As for regulatory
burdens in this country, they are both substantial and growing. We would doubt
that Chinese businesses have to put up with anything comparable. Regulatory
common sense requires eternal vigilance, 11/22/10.
Another study
estimates regulatory compliance costs in 2009 as follows: Economic $630B,
Environmental $236B, Tax compliance $208B, Workplace $113B. The $1.2 trillion
total about equaled annual revenues from individual and corporate income taxes.
Ten Thousand
Commandments 2010, Clyde Crews, Competitive Enterprise Institute, 4/15/10, pages
7-13.
To cite but one
specific example (there are many to choose from), government policies have
restricted the development of domestic petroleum reserves since the 1970s. As a
result, nearly 60% of this country’s oil is now imported. Many more US workers
could be employed in oil exploration and production with different policies, yet
the current Administration seems to be tightening the restrictions instead of
relaxing them.
The moratorium on deep
water drilling in the Gulf of Mexico after the disastrous BP accident has been
formally lifted now, but the government is moving at a glacial pace on industry
requests. 103 Gulf of Mexico drilling plans await government approval, Heritage
Foundation, 2/4/11.
The federal government
has not approved a single new exploratory drilling plan in the Gulf of Mexico
since lifting its deepwater drilling moratorium on Oct. 12. There are currently
103 plans awaiting review by the Bureau of Ocean Management, Regulation and
Enforcement.
The Interior
Department has also impeded oil exploration and development in the huge onshore
areas that it controls. Obama’s regulators kowtow to Big Green, imperil
economy, Washington Examiner, 12/28/10.
Big Green
environmentalists went nuts in 2003 when Gail Norton, [Interior Secretary Ken]
Salazar's predecessor in the Bush administration, liberalized Interior's public
lands management process to enable more energy development. So Salazar has
invented out of whole cloth a "Wild Lands" designation that entirely circumvents
the congressionally sanctioned process.
At bottom, our private
sector approach would preserve the one source of long-term competitive advantage
that the US possesses over China et al., namely consumer demand in free markets
(which the US has traditionally maintained) makes sounder economic decisions
than government bureaucrats. The alternatives being proposed would erase this
advantage, leaving no way to compete except by cutting costs and wages or
attempting to block imports into the US market.
As a case in point,
consider the root causes of the bleak employment situation in California, which
could well be a harbinger for the future of this country. Massive budget
shortfall – steep taxes – draconian state regulation of the energy sector –
public schools near rock bottom – most generous welfare system in the nation.
Jerry Brown, a modern Sisyphus, Victor Hanson, Townhall.com, 2/10/11.
So in truth, the
state's problems involve a larger "California philosophy" that is relatively new
in its history, one that now curbs production but not consumption, and worries
more about passing laws than how to pay for them.
FOUR: Rationalize
taxes and government regulations that are imposing an inappropriate burden
on business firms, and in the process reduce the government’s fiscal
problem. See the Energy and Taxes pages of this Website for detailed
discussion.
COMING UP: The
president’s proposed budget for FY 2012 is due to be released today. Tune in
next week for our analysis.
*
* * This Blogs Replies
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I was in a florist
shop last week, run by a fellow and his sister, and asked if government
regulation had any negative effect on his business. His first reaction was that
he had moved to Delaware from Philadelphia and the business climate was much
better here. In further conversation, however, he admitted reluctance to hire
some part time help, like a student to do basic chores, because he could not
afford to pay the minimum wage and was also concerned with getting stuck with
healthcare costs. I wonder if Vice President Biden ever really talks
to businesspeople in his home state. – Retired finance executive.
I
agree the government is not adept at creating jobs, but that does not mean it
will stay out of the way. Many members of the public have an unrealistic view
of the ability of the government to run the economy. Also, members of Congress
point to programs as proof that they are “doing something” about unemployment,
whether or not there is any proof that the programs are achieving useful
results. – SAFE director
2/7/11 – SAFE to Congress: you need to do much, much better
Read Replies
The letter mentioned
at the end of last week’s entry has been sent individually (primarily via fax)
to the 535 members of the two houses of Congress. It presents a sweeping
proposal to cut spending, simplify taxes, and reform regulations.
http://www.s-a-f-e.org/contacting_legislators_2011.htm#February_2,_2011
We kept the letter
short by referencing previously posted materials, but would imagine that few
readers will review all the references. Accordingly, as promised in the PS,
here is an expanded version (the added material is in blue font).
If you agree with our
ideas, please reinforce them and pass them on! Or offer your own suggestions
for solving the fiscal problem; SAFE does not claim to have a monopoly on good
ideas. And as always, we would greatly appreciate your feedback.
February 2, 2011
MEMBERS OF THE UNITED STATES CONGRESS:
SAFE is an all-volunteer, grassroots organization, based in
Delaware, which advocates smaller, more focused, less costly government.
Additional information about us may be found on our Website.
We and other fiscal realists are appalled by the growth of
government spending, deficits and debt. To quote the Fiscal Commission
(December 2010 report), “after all the talk about debt and deficits, it is long
past time for America’s leaders to put up or shut up.” Unfortunately, the
Commission’s policy recommendations did not go nearly far enough.
Unless decisive action is taken soon, we foresee a fiscal
meltdown that would have disastrous effects for the United States – knocking it
out as the world’s economic leader, ushering in a period of hyperinflation
comparable to what Germany experienced in 1923, and causing untold social
misery. In brief (see the cited blog entries on our Website for detailed
discussion), here is what we believe needs to be done:
1.
Cut total spending to not more than 20% of Gross
Domestic Product via (a) targeted cuts to “discretionary spending,” and (b)
phased-in restructuring of “mandatory” programs.
10/25/10.
Reduction of spending to 20% of GDP will take several years to accomplish, but
this should not be used as an excuse to defer action until “the time is right.”
Congress needs to get started now!
The distinction between “discretionary” and “mandatory” spending is unhelpful.
ALL spending programs must be scrutinized in the search for saving
opportunities.
The biggest opportunity for spending cuts is in the “Human Resources” portion
(OMB “super function” category) of the budget, which has been growing faster
than the economy for decades and now represents 2/3 of the total budget.
ü
Social Security – Raise (a) the early retirement age from 62 to 65, and (b) the
normal retirement age from its current level to 70. These changes should be
phased in over the next decade. Also, tighten the eligibility requirements for
disability benefits, which have grown to one dollar in six of Social Security
outlays.
ü
Medicare – Provide capped funding for private insurance coverage to future
retirees. Traditional Medicare coverage would be phased out as current retirees
pass on. For discussion, see In Search of Real Healthcare Reform, May 2009,
proposal 6.
http://www.s-a-f-e.org/healthcare_reform.htm (click link to page 18).
ü
Medicaid – Have the states assume full responsibility for Medicaid. The federal
government would provide block grant funding without attempting to dictate the
coverage provided. Once established, block grants would be indexed for general
price inflation. See In Search of Real Healthcare Reform, proposal 4.
ü
Education – State school systems tend to be administratively top
heavy already; a federal overlay is overkill. Education page, this Website. We
have similar reservations about federal programs for higher education, which are
projected to more than double between now and 2015. Accordingly, eliminate
federal expenditures for secondary and higher education and let the state
governments and private sector run the show.
ü
Government employee benefits – Federal government should follow the example of
private industry and convert its defined benefit pension plans to defined
contribution savings plans (aka 401-Ks).
ü
Food stamps –Tighten eligibility requirements.
ü
Veteran benefits – While no one wants to skimp in this area, we can envision
considerable savings from eliminating VA hospitals and covering the cost of
treatment for veterans in private sector facilities.
There are also many opportunities for savings in other areas of the budget. The
following ideas are meant to be illustrative rather than exhaustive.
ü
Eliminate corporate welfare, agricultural price supports, and alternative energy
subsidies.
ü
Instead of embarking on an extravagant new program for high-speed rail,
eliminate the current subsidies for Amtrak.
ü
Follow through on the plans already being made by Defense Secretary Robert Gates
et al. to prune defense spending to the extent this can be done without
degrading the nation’s military capabilities.
ü
Trim federal employee pay and benefits (often excessive vis-à-vis comparable
positions in the private sector).
ü
Sell the post office to FedEx or UPS; sell some of the vast federal
landholdings.
ü
Ramp up oil gas and licensing in currently off limits areas.
2.
Overhaul the tax system, with the goal of
collecting revenue in a manner that is simple, efficient, and perceived as
fair. Our SimpleTax proposal illustrates how this might be done.
11/1/10 &
11/8/10.
To minimize the damage from withdrawing money from the private sector to cover
the agreed level of federal government spending (up to 20% of GDP), the tax
system should be overhauled to (a) apply evenly to diverse industries and
economic activities, (b) reduce clerical burden for all concerned, and (c)
foster voluntary compliance.
Tax rules should be understandable and relatively stable (not in constant
flux). Keep rates low and broaden the base. Ensure that the vast majority of
the population pays taxes, even if the burden varies with ability to pay.
Specific changes to the existing tax system would include the following:
ü
Payroll taxes – The current levies seem generally appropriate, but the rates are
at about the maximum tolerable level in our judgment. Any proposed increases
should be intently scrutinized. The Medicare tax increase for high earners that
was included in the GovCare legislation will hopefully be eliminated via repeal
of GovCare, an action needed to clear the way for real healthcare reform.
ü
Excise taxes – To raise more revenue with less fuss: (a) hike the federal tax on
motor fuels to 50¢ per gallon, crediting the added revenue to general revenues
vs. the highway trust fund; (b) continue air transport taxes at current levels;
and (c) eliminate all other federal excise taxes (e.g., ceding exclusive
jurisdiction over alcohol and tobacco taxes to the states).
ü
Estate and gift taxes – In addition to being contentious, these taxes are unduly
complex for the amount of revenue they raise. The federal government should
cede exclusive jurisdiction over estate and gift taxes to the states.
ü
Corporate income tax – Cut the top rate to 20%, while eliminating the host of
special exemptions, deductions and tax credits (other than the foreign tax
credit) that are currently in effect.
Finally, sweeping changes would be made in individual income taxes. Here is a
summary:
ü
To end duplicative taxation of corporate earnings, exclude dividends from
standard corporations and capital gains from investment in their stock from the
taxable income of shareholders. Income and capital gains from “pass through”
entities (S corporations and partnerships) would remain taxable to the owners.
ü
Employee benefits should be taxed in the same manner as salaries and wages,
rather than treated as tax exempt in some instances. That includes the cost of
employer-provided healthcare insurance. See In Search of Real Healthcare
Reform, recommendation 2.
ü
Lower the personal tax exemption to $1,000, which once established would be
indexed for inflation. Taxpayer business expenses would continue to be
deductible, and the foreign tax credit would continue to avert double taxation
of international income.
ü
All other income tax exemptions, deductions (mortgage interest, charitable
contributions, state and local taxes, childcare, casualty losses, etc.) and tax
credits (Earned Income, Child, energy, etc.) would be eliminated. Note: while
some of these tax preferences have arguable merit, a case-by-case review would
trigger endless debate.
ü
Repeal the Alternative Minimum Tax, a bad idea when it was enacted in an attempt
to ensure that wealthy people paid at least some income tax, which is
potentially applicable to some 30 million taxpayers today because Congress
neglected to index it for inflation.
ü
After the foregoing changes, income tax rates at all income levels could be cut
by 5+ percentage points. Here is an example, which compares the contemplated
SimpleTax rates to the 2009 actual rates for a married couple, filing jointly.
SimpleTax
2009
actual
Income
bracket
Tax rate
Avg. rate*
Avg. rate*
$0-30K
5%
5.0%
12.2%
31-70K
10%
7.9%
14.0%
71-140K
20%
14.0%
19.6%
140-300K
25%
19.8%
25.7%
300K+
30%
<30%
<35%
*Calculated for income at bracket top.
3.
Review existing and proposed regulations to
eliminate burdens on the private sector that are impeding economic growth and
job creation. 11/22/10 &
11/29/10.
The drag effect of government regulations on the private sector is hard to
quantify, but clearly substantial – and growing. Given that the US economy is
the ultimate source of tax revenues, burdensome regulations have contributed
importantly to the fiscal problem.
Of course, regulations are necessary or appropriate in many areas. Congress
needs to home in on the existing and proposed regulations that go too far and
entail an unjustifiable curtailment of personal liberty and/or economic damage.
Here are a few examples:
ü
Mandated phase-out of incandescent light bulbs after 2012. CFLs are expensive,
less long lasting than they are supposed to be, and will in due course
contaminate landfills with mercury.
ü
Ban on high-flow toilets and functional showerheads. Washington Times 11/11/10.
ü
Overbearing airport screening versus other techniques for protecting travelers –
need we say more.
ü
Overlap between federal and state requirements, e.g., there is no reason for
both the federal and state governments to regulate nuclear power plants (we
would suggest giving the Nuclear Regulatory Commission exclusive jurisdiction).
ü
The ethanol support program benefits no one except corn farmers and ethanol
producers. Even Al Gore has now admitted that this program is bad policy, yet
Congress has kept perpetuating it.
ü
Punitive regulation of conventional power plants, coupled with tax credits and
other subsidies for renewable (wind, solar, etc.) energy plants. The rationale
that the government should force a shift to renewable energy in order to head
off catastrophic global warming looks increasingly improbable. See the Energy
page of this Website.
We would welcome the opportunity to provide further input.
Please let us know how we can help.
Respectfully,
SAFE Board of Directors
*
* * This Blogs Replies
* * * Nice letter – we’re also trying
to bring spending down to 20% of GDP as soon as possible. – Brian Riedl,
Heritage Foundation
This challenge [restoring accountability and fiscal
responsibility to the federal budget] is not something that I take lightly.
Moving towards a more balanced budget will take creative thinking by leaders in
both parties. There are a number of different steps that I believe the Senate
should take to begin to reduce the deficit, not the least of which is returning
to a process of drafting, debating and adopting annual budget bills. I also
believe we must streamline our tax policy to make paying and collecting taxes
more straightforward and efficient to the benefit of both taxpayers and the
Treasury. – Senator Chris Coons, in a 2/15/11 letter
1/31/11 – To win the future, do not let the government do it
Our expectations for
the State of the Union address were modest (see 1/17/11 entry), but the
president undershot them. Although his 62-minute speech struck a moderate
“tone” and was interrupted by applause 80 times, it lacked meaningful substance.
At least that is our
view, but we would hasten to add that the speech was well received by many
Americans. This suggests the president said things people wanted to hear, even
if some may have doubted his sincerity and/or intentions.
Conclusion: SAFE and
other fiscal visionaries have a big job ahead if we hope to arouse a slumbering
nation in time.
RECEPTION: Polls taken
after the speech indicated that most Americans liked what they heard, probably
because the president talked about issues they are concerned about. The speech
that could’ve been, Nicole Kurokawa, Townhall.com, 1/26/11.
CBS News found that
91% of the public approved of the speech, findings that were closely echoed by
CNN. It’s unsurprising, seeing how the speech’s major themes – competitiveness,
innovation, growth, job creation, and deficit reduction – have been top
priorities across the political spectrum for a long time.
Other pluses according
to public relations pro Rich Galen: The president sounded eminently reasonable
and open to the viewpoints of all concerned.
Gone from this speech
was the angry Obama: The challenge [last year] to the Justices of the Supreme
Court sitting just a few yards away. Replacing it was a call for students to
celebrate the "winner of the science fair" not just the winner of the Super
Bowl.
The message was down
to earth, easy to follow and upbeat. We can do this! State of the Union,
Rich Galen, Townhall.com, 1/26/11.
#The President touched
all the right notes, in the right order, with the kind of delivery which is
second, in my lifetime, only to Ronald Reagan's ability to deliver a line.
#The
most important element of the President's speech was its optimism. He
challenged Americans to "out-innovate, out-educate, and out-build the rest of
the world” – [as when the US beat the Soviet Union to the moon after they put
the first satellite in orbit, thereby unleashing] a wave of innovation that
created new industries and millions of new jobs.
Business and labor
leaders alike have lauded the president’s proposals for “investing” in national
infrastructure. Chamber of Commerce and AFL-CIO praise Obama, Michael Shear, New
York Times, 1/26/11.
[From the joint
statement of Tom Donohue and Richard Trumka:] “Whether it is building roads,
bridges, high-speed broadband, energy systems and schools, these projects not
only create jobs and demand for businesses, they are an investment in building
the modern infrastructure our country needs to compete in a global economy.”
It is not apparent,
however, that the SOTU address bolstered the president’s poll numbers.
Rasmussen Daily Tracking Poll.
Jan. 25
Jan. 26
Jan. 27
Jan. 28
Jan. 29
Strongly
approve
30%
31%
28%
28%
28%
Strongly
disapprove
35%
37%
39%
38%
37%
Approval index
-5%
-6%
-11%
-10%
-9%
And a focus group
video (6:16) from Atlanta suggests a lack of trust. Consider the words
or phrases chosen to characterize the speech: optimism, platitudes, wishful,
empty, redundant, political, not connected with America, hyperbole, conflicting,
hopeful but not compelling. Almost everyone said the speech was below his or
her expectations and felt it was about politics versus principles. Voters react
to State of the Union, Frank Luntz, Fox News (Sean Hannity), 1/25/11.
CONTENT: The
recession is waning, said the president, but the longer-term economic outlook is
challenging. Fast changing technology, strong competition from China et al.,
growing need for brains versus brawn (steel mills that once needed 1,000 workers
can now do the same work with 100), mediocre results from our educational
system. So how will the US “win the future?” SOTU address, advance copy,
National Journal, 1/25/11.
“Our free enterprise
system is what drives innovation,” but basic research is not always profitable
so the government must lend a hand at times. From this seemingly modest
starting point, the president touts one government funded or inspired program
after another. Obama uses language of capitalism, tools of government, Timothy
Carney, Washington Examiner, 1/26/11.
To make sense of
Obama's economics talk on Tuesday, or last week when he appeared at a General
Electric factory with CEO Jeff Immelt - now chairman of his Council on Jobs and
Competitiveness - you need to adopt an unusual view of the economy. Rather than
a country that allows many different businesses and investors to compete, work
together, sell, buy, and hire, the Obama vision of the American economy is a
nationalistic one, with Obama the boss.
Here are the
president’s investment proposals, which could hardly be implemented without
expanding the size and reach of government (the opposite of SAFE’s agenda).
·
We’ll invest in biomedical research, information technology, and especially
clean energy technology -- an investment that will strengthen our security,
protect our planet, and create countless new jobs for our people.
·
With more research and incentives, we can break our dependence on oil with
biofuels, and become the first country to have a million electric vehicles on
the road by 2015.
·
By 2035, 80 percent of America’s electricity will come from clean energy
sources. Some folks want wind and solar. Others want nuclear, clean coal and
natural gas. To meet this goal, we will need them all -- and I urge Democrats
and Republicans to work together to make it happen.
·
.
. . if we want innovation to produce jobs in America and not overseas -– then we
also have to win the race to educate our kids. And Race to the Top should be
the approach we follow this year as we replace No Child Left Behind with a law
that’s more flexible and focused on what’s best for our kids.
·
And over the next 10 years, with so many baby boomers retiring from our
classrooms, we want to prepare 100,000 new teachers in the fields of science and
technology and engineering and math.
·
.
. . higher education must be within the reach of every American. That’s why
we’ve ended the unwarranted taxpayer subsidies that went to banks, and used the
savings to make college affordable for millions of students. And this year, I
ask Congress to go further, and make permanent our tuition tax credit –- worth
$10,000 for four years of college. It’s the right thing to do.
·
We’ll put more Americans to work repairing crumbling roads and bridges. We’ll
make sure this is fully paid for, attract private investment, and pick projects
based [on] what’s best for the economy, not politicians.
·
Within 25 years, our goal is to give 80 percent of Americans access to
high-speed rail. This could allow you to go places in half the time it takes to
travel by car. For some trips, it will be faster than flying –- without the
pat-down. As we speak, routes in California and the Midwest are already
underway.
·
Within the next five years, we’ll make it possible for businesses to deploy the
next generation of high-speed wireless coverage to 98 percent of all
Americans.
Can “clean energy” and
electric cars (goals set without regard to cost), high-speed rail, more spending
on roads and bridges, more federal intervention in education, etc. solve this
country’s economic problems? Count us as skeptics, and we are not alone.
Heritage responds to the State of the Union, James Gatusso, 1/25/11.
American entrepreneurs
do not need grants from Washington in order to compete, they don’t need
incentives from bureaucrats in order to compete. The Steve Jobs’ of the future
are not applying for federal grants, or federal “challenges.” What they need is
for Washington to get out
of their way — to tax them less, regulate them less, and leave them alone. Yet,
there was nothing in [the president’s] remarks that provided hope that these
burdens would be lifted anytime soon, save for a short reference to regulatory
reform, and even that was hedged with defense of regulation. Until the need to
free enterprise — rather than guide it — is addressed — the entrepreneurial
spirit of Americans will remain leashed, and all the NASAs in the world will not
improve our competitiveness.
Then there is a
problem that really is up to the government, namely balancing its own budget.
The president acknowledged the problem, albeit without taking responsibility.
. . . the final
critical step in winning the future is to make sure we aren’t buried under a
mountain of debt.
But his proposals for
reducing deficits were unimpressive. Let’s take a look.
And to help pay for
[clean energy research], I’m asking Congress to eliminate the billions in
taxpayer dollars we currently give to oil companies.
The suggestion that
the oil industry is being subsidized by the current tax system seems far fetched
– particularly considering the excise taxes levied on gasoline.
See also Heritage
responds to the State of the Union, James Gatusso, 1/25/11. “These tax breaks
allow oil companies to expense a portion of the huge upfront costs they incur
for developing new oil sources. The specific provisions would not be necessary
if the tax code rightly allowed all businesses to expense their capital
investments. Taking them away from oil companies will increase the cost of oil
for all Americans and be a step in the wrong direction for the tax code.”
A makeover of the
corporate tax system, which would eliminate loopholes and lower the corporate
tax rate.
A similar idea is
incorporated in SAFE’s SimpleTax proposal, and the president’s suggestion would
certainly be worth exploring. However, revenue neutral tax reform cannot be
expected to result in major deficit reductions.
Freeze annual domestic
spending for the next five years, so as to reduce the deficit by more than $400
billion over the next decade. This freeze will require painful cuts. Already,
we’ve frozen the salaries of hardworking federal employees for the next two
years. I’ve proposed cuts to things I care deeply about, like community action
programs. The Secretary of Defense has also agreed to cut tens of billions of
dollars in spending that he and his generals believe our military can do
without.
Given the proposed
investments in clean energy, high-speed rail, education, etc., we wonder whether
the president will actually propose a $400 billion reduction in deficits over
the next decade or is simply shifting dollars from one category to another.
Let’s see what the numbers look like when the FY 2012 budget is submitted.
Even if genuine, a
$400 billion spending cut would not make a dent in overall budget deficits. A
Congressional Budget Office projection, released the day after the SOTU address,
shows a deficit for FY 2011 alone of $1.5 trillion with limited improvement
until 2013 (when the Bush tax cuts will expire under current law).
$ in trillions
Actual
Est.
Baseline
projection
Fiscal year
2010
2011
2012
2013
2014
2012-21
Revenues
$2.2
$2.2
$2.6
$3.1
$3.4
$39.1
Outlays
$3.5
$3.7
$3.7
$3.8
$4.0
$46.1
Deficit
$1.3
$1.5
$1.1
$0.7
$0.5
$7.0
http://www.cbo.gov/doc.cfm?index=12039
I recognize that some
in this chamber have already proposed deeper cuts, and I’m willing to eliminate
whatever we can honestly afford to do without. But let’s make sure that we’re
not doing it on the backs of our most vulnerable citizens. And let’s make sure
that what we’re cutting is really excess weight. Cutting the deficit by gutting
our investments in innovation and education is like lightening an overloaded
airplane by removing its engine. It may make you feel like you’re flying high
at first, but it won’t take long before you feel the impact.
The Republican budget
approach would reportedly cut spending over the coming decade by $2.5 trillion,
which would be better than $400 billion but still far from enough – even if the
president was disposed to go along (doesn’t sound like he is).
Moreover, neither
party has been very specific about where they would economize. It is easier to
propose spending cuts in the abstract than to tell “ordinary citizens which
benefits will be pried from their cold, dead hands.” For the budget crisis, a
fake solution, Steve Chapman, Townhall.com, 1/27/11.
Now, most of the cuts
and savings I’ve proposed only address annual domestic spending, which
represents a little more than 12 percent of our budget. To make further
progress, we have to stop pretending that cutting this kind of spending alone
will be enough. The bipartisan fiscal
commission I created last year made this crystal clear.
If the president is
willing to prune entitlements, his ensuing comments did not show it.
. . . nonpartisan
economists have said that repealing the health care law would add a quarter of a
trillion dollars to our deficit. Still, I’m willing to look at other ideas to
bring down costs, including one that Republicans suggested last year -- medical
malpractice reform to rein in frivolous lawsuits.
The deficit reduction
claim is based on counting additional taxes in the GovCare legislation as a
program cost savings and other fiscal chicanery. Everything starts with repeal,
Charles Krauthammer, Washington Post, 1/21/11.
We like the idea of
medical malpractice reform, but it could not be expected to reduce the
government’s overall outlays for healthcare programs by a great deal.
. . . a bipartisan
solution to strengthen Social Security for future generations . . . without
putting at risk current retirees, the most vulnerable, or people with
disabilities; without slashing benefits for future generations; and without
subjecting Americans’ guaranteed retirement income to the whims of the stock
market.
Having expressed
support for strengthening Social Security in principle, the president rules out
all ways of doing it except tax increases.
And if we truly care
about our deficit, we simply can’t afford a permanent extension of the tax cuts
for the wealthiest 2 percent of Americans. Before we take money away from our
schools or scholarships away from our students, we should ask millionaires to
give up their tax break. It’s not a matter of punishing their success. It’s
about promoting America’s success.
The president went on
to express receptiveness to a systematic overhaul of the tax law. Such an
overhaul, e.g., SAFE’s SimpleTax proposal, would render the status of the Bush
tax cuts moot.
http://www.s-a-f-e.org/the_simple_tax.htm
In the coming months,
my administration will develop a proposal to merge, consolidate, and reorganize
the federal government in a way that best serves the goal of a more competitive
America. I will submit that proposal to Congress for a vote –- and we will push
to get it passed.
Government
reorganization cannot be evaluated in the abstract, but there could be some
worthwhile savings involved. We will wait to see what specific changes are
proposed.
And because the
American people deserve to know that special interests aren’t larding up
legislation with pet projects, both parties in Congress should know this: If a
bill comes to my desk with earmarks inside, I will veto it. I will veto it.
We can and do welcome
this commitment; let’s hope the president means it.
Summing up, the SOTU
address suggests that the Administration will repackage and push a big
government agenda.
No more will be heard
about “cap and trade” for now, but the proposed “clean energy” goals would
achieve the same results.
The Administration’s
education agenda is presented as essential to national competiveness; there is
no apparent intention to consider alternatives.
Only modest changes to
GovCare will be accepted without a political brawl.
Finally, the president
has no intention of leading on the fiscal problem. As one reader observed after
the SOTU address, “he punted, out of bounds.”
Congress has
institutional power to take the fiscal problem in hand, but time is short and
the absence of presidential leadership will hurt. Hard choices cannot wait
another year, Senator Tom Coburn [R-OK], Washington Examiner, 1/25/11.
President Obama had an
opportunity to give budget and entitlement reform real momentum in his State of
the Union address but stopped short. He did what presidents often do and
deferred the hard choices to Congress. No doors were slammed, and areas for
cooperation remain open. Yet, the task of putting our nation on a sustainable
path will be much more difficult absent strong presidential leadership.
Or as Representative Paul Ryan (R-WI) said in his response to the
SOTU address:
Speaking candidly, as
one citizen to another: We still have time… but not much time. If we continue
down our current path, we know what our future will be.
Just take a look at
what’s happening to Greece, Ireland, the United Kingdom and other nations in
Europe. They didn’t act soon enough; and now their governments have been forced
to impose painful austerity measures: large benefit cuts to seniors and huge tax
increases on everybody.
Their day of reckoning
has arrived. Ours is around the corner. That is why we must act now.
PATH FORWARD: All
right, say we are right. How can SAFE reach enough people about the fiscal
problem to help generate a groundswell for change, and what points might prove
most persuasive?
Following a lively
discussion on January 28, the directors signed a message to the members of
Congress. Tune in next week for an update on this project.
1/24/11 – GovCare:
Round 2
No policy area has
been covered more intensively in this blog than healthcare; there were 16
entries about the subject in 2009 alone. After GovCare was enacted in March
2010, however, there seemed to be little more to say about healthcare for the
time being – so we stopped talking about it.
Things changed on
January 19, when the House of Representatives voted to repeal GovCare. This
entry will focus on three points: (1) Why did the repeal vote happen?
(politics); (2) Would repeal be a good thing? (policy); (3) What should happen
now? (strategy).
POLITICS: GovCare
proved far less popular than its supporters envisioned, and the proposal unified
the minority party in opposition. A prerequisite for victory was a 60-seat,
filibuster proof Senate majority, which the majority party enjoyed during only
two periods (from 7/7/09 to 8/25/09, and from 9/24/09 to 2/4/10). Even so, it
took just about every trick in the Congressional playbook to win. Obamacare
mess is legacy of Dems’ moment of power, Byron York, Washington Examiner,
12/30/10.
Although many factors
contributed to Republican gains in the subsequent elections, negative feelings
about the GovCare legislation had a significant impact. Obamacare R.I.P.:
Americans head to polls to reject socialist medicine, Washington Times,
10/29/10.
Nov. 2 is the nation's
referendum on Obamacare. No other issue has so polarized the public and shed
light on the policy failings of the left. The midterm elections represent the
last, best hope for millions of Americans who don't want to see the healthcare
law's most onerous provisions ever take effect.
After winning the
elections, the Republicans naturally felt obligated to honor their pre-election
promise to scrap GovCare. An early vote for repeal was a given, and everyone in
Washington expected it. Obama, new GOP lawmakers are on collision course, Byron
York, Washington Examiner, 11/3/10.
Here's Barack Obama's
problem when it comes to dealing with newly elected Republican members of
Congress. They are convinced they won because voters rejected Obama's agenda of
national health care, spending and bailouts. But Obama cannot admit that his
agenda -- his legacy -- is fundamentally flawed and that voters repudiated it.
The result will be irreconcilable conflict.
POLICY: The GovCare
legislation has many shortcomings, but for present purposes it should suffice to
point out three big ones.
# GovCare was peddled
on the basis that it would provide better healthcare for all Americans,
including those who lacked healthcare insurance (HCI) coverage, at lower cost.
And as we noted early on, such claims came from the top. Happytalk blossoms in
the nation’s capital, 7/6/09.
Consider the
president’s keynote remarks at the Forum on Health Reform (White House,
3/5/09). Those who do not have healthcare insurance should be enabled to get
it, he told the audience. Those who are satisfied with their healthcare
insurance should be able to keep it and pay less. And his version of healthcare
reform is “one of the best ways, in fact maybe the only way” to “get our federal
budget under control.”
Nothing has happened
since 2009 to dispel our skepticism. Inoculating against true healthcare
reform, Steve Chapman, Townhall.com, 1/20/11.
Critics have noted
many flaws in President Barack Obama's health care overhaul: It's too expensive,
too intrusive, too coercive and too complex. But one central defect that
accounts for much of the other mischief: the pretense that making us all better
off is a miraculous, cost-free bonanza.
# GovCare has been
touted as a way to get the most troublesome area in the federal budget
(healthcare outlays) under control. The bill as written was scored by the
Congressional Budget Office as reducing budget deficits, and the current repeal
proposal is seen as having the opposite effect. CBO’s preliminary analysis of
H.R. 2, the repealing the job-killing healthcare law act, 1/6/11.
As a result of changes
in direct spending and revenues, CBO expects that enacting H.R. 2 would probably
increase federal budget deficits over the 2012–2019 period by a total of roughly
$145 billion (on the basis of the original estimate), plus or minus the effects
of technical and economic changes that CBO and JCT will include in the
forthcoming estimate. Adding two more years (through 2021) brings the projected
increase in deficits to something in the vicinity of $230 billion . . .
http://cboblog.cbo.gov/?p=1750
Among the problems
with the deficit reduction conclusion, tax increases in the GovCare bill are
counted as offsets to increased sending (instead of being applied to reduce the
deficit). Additional information on CBO’s preliminary analysis of H.R. 2,
1/7/11.
We have been asked to
provide the revenue and direct spending components of [the $230 billion]
total. Extrapolating the estimated budgetary effects of the original health care
legislation and accounting for the effects of subsequent legislation, CBO
anticipates that enacting H.R. 2 would probably yield, for the 2012-2021 period,
a reduction in revenues in the neighborhood of $770 billion and a reduction in
outlays in the vicinity of $540 billion . . .
http://cboblog.cbo.gov/?p=1759
According to critics,
e.g., Representative Paul Ryan (R-WI), the new chairman of the House Budget
Committee, GovCare would increase the deficit if it was being viewed
realistically. GOP disputes deficit effect of health[care] law repeal, Seth
McLaughlin, Washington Times, 1/6/11.
When Democrats enacted
their healthcare plan, they included hundreds of billions of dollars in new
taxes and in spending cuts to existing government healthcare, which CBO said
would more than offset the increased spending and lead to a reduced deficit. ***
Mr. Ryan said he thinks the Democrats' healthcare law will lead to $700 billion
in deficits.
As a case in point,
the enactment of similar legislation in Massachusetts has had a disastrous
effect on that state’s finances. As Massachusetts health[care] “reform” goes,
so could go Obamacare, Robert Samuelson, Washington Post, 7/19/10.
What's occurring in
Massachusetts is the plausible future: Unchecked health spending shapes
government priorities and inflates budget deficits and taxes, with small health
gains. And they call this "reform"?
# GovCare would
exacerbate the disconnect between the consumption and payment of healthcare
services, which has left patients and healthcare providers with little incentive
to economize and fueled skyrocketing healthcare costs. Repeal and replace,
National Center for Policy Analysis, 1/17/11.
Patients: The ACA [GovCare]
forces people to spend their premium dollars on first-dollar coverage for a long
list of diagnostic tests. Yet if everyone in America takes advantage of all of
the free preventative care the ACA promises, family doctors will be spending all
their time delivering care to basically healthy people - with no time to do
anything else. At the same time, the ACA encourages the healthy to over consume
care, it leaves chronic patients trapped in a third-party payment system that is
fragmented, uncoordinated, wasteful and designed for everyone other than the
patient.
Doctors: The people in
the best position to find ways to reduce costs and increase quality are the
nation's 778,000 doctors. Yet today they are trapped in a payment system
virtually dictated by Medicare. The ACA promises to make this problem worse by
encouraging even more unhealthy government intervention into the practice of
medicine.
Perhaps the idea is
that government bureaucrats should determine what healthcare services are to be
reimbursed, which would result in de facto rationing of healthcare such as may
be found in the UK, Canada, et al. If so, this point has not been explained to
the American public. New Medicare chief rejects idea of rationing, Ricardo
Alonso-Zaldivar, Washington Times, 9/13/10.
The nation's health
system cannot be transformed by rationing medical care, President Barack Obama’s
new Medicare chief [Dr. Donald Berwick, the subject of a controversial recess
appointment during the summer of 2010] said Monday in his first major speech.
*** Conservative critics have seized on previous comments by Dr. Berwick, such
as this one from an interview last year: "The decision is not whether or not we
will ration care - the decision is whether we will ration with our eyes open.
And right now, we are doing it blindly."
Without either
rationing or patient/ doctor incentives to control healthcare consumption,
spending will continue to spiral up as it has been doing for the past half
century. A different result cannot be expected unless someone in the healthcare
system is given both incentives and the power to say “no.”
To summarize,
proponents of GovCare have sold this country a bill of goods. For Republicans,
healthcare reform begins with repeal of new law, Charles Krauthammer,
[Wilmington] News Journal, 1/22/11 [no link available].
That a healthcare
reform law of such enormous size and consequence . . . could be sold on such
flimflammery is astonishing, even by Washington standards.
In effect, GovCare
focuses on the wrong problem (inclusiveness of HCI coverage) and would make the
real problem (healthcare costs) worse instead of better. SAFE comments to
members of Congress from Delaware, 3/15/10.
It simply is not true
– as has been claimed repeatedly – that GovCare would reduce healthcare costs.
The prices of healthcare services, products, and insurance coverage (like all
economic goods) is determined by supply and demand. Increase costs for
healthcare providers and provide millions of additional people with “free” (or
below cost) coverage, while doing nothing to expand supply, and watch prices go
through the roof. The argument that government bureaucrats could run the
healthcare system more effectively than the private sector ignores decades of
experience with government-run programs.
http://www.s-a-f-e.org/contacting_legislators_2010.htm#March_15,_2010
If one takes the wrong
road, what should be done? Turn around and go back! Similarly, it would make
sense to repeal GovCare and start over instead of attempting to fix this, that
and the other problem with this huge and complex program.
STRATEGY: There has been plenty of criticism of House Republicans for insisting
on a vote to repeal GovCare. This action was labeled beforehand as
irresponsible grandstanding and a diversion from the “real issues.” See, e.g.,
the remarks of the members of Congress from Delaware as reported by the News
Journal on January 19.
ü
Senator Tom Carper criticized the proposed repeal as “fiscally irresponsible,”
citing the aforementioned CBO report.
ü
Senator Chris Coons expressed willingness to consider specific changes to
GovCare, but characterized repeal as “nothing more than a symbolic waste of time
and taxpayer dollars. Now isn’t the time to refight old political battles. Now
is the time to come together to create jobs and grow our economy.”
ü
A spokesman for Representative John Carney said repeal “is not the answer to
addressing our nation’s exploding healthcare costs. *** Democrats and
Republicans should be working together to improve the law and implement
effective reforms that contain healthcare cost drivers and reduce the deficit.”
http://www.s-a-f-e.org/members_microblog_2011.htm
In the Senate,
Majority Leader Harry Reid has reportedly said he will not schedule a floor vote
on the GovCare repeal bill. Repeal vote just GOP’s first step, Politico,
1/17/11.
Minority Leader Mitch
McConnell (R-Ky.) will try to keep the Senate from becoming the place where the
repeal bill goes to die.
But nobody expects him to succeed.
McConnell will
push for a vote on the House bill after the body returns next week, even though
Majority Leader Harry Reid (D-Nev.) has made clear that he will do everything he
can to block the measure.
The apparent defense
strategy will be to ignore or trivialize the repeal measure rather than
confronting it openly. Consider this press release by Senator Reid, 1/21/11.
“Thanks to health
insurance reform, nearly 21,000 Nevada seniors have already received $250
tax-free rebate checks to help them afford their prescription drug medication,”
said Reid. “Do advocates of repealing health insurance reform expect them to
send their checks back? Instead of trying to raise prescription drug costs on
Nevada seniors, proponents of repeal should start working to create jobs and
strengthen our economy.”
http://reid.senate.gov/newsroom/pr_012111_healtcarereform.cfm
And in his weekly address, the president focused on trade talks with the
president of China and the appointment of Jeffrey Immelt, CEO of GE, to head a
new Council on Jobs and Competiveness, while saying nothing about the challenge
to GovCare.
The repeal vote showed the Republicans are serious, however, and GovCare
proponents are probably more concerned than they are letting on. House vote to
repeal more than symbolic, David Limbaugh, Townhall.com, 1/21/11.
The House's bold fulfillment of its promise to repeal is
invigorating, signaling that our elected officials finally do get it, that at
least for now, we [conservatives] won't be witnessing business as usual in
Washington. It is an emphatic statement that we have allies in the government
who are in this fight with us, who may even be leading this fight to save
America from the insidious encroachments of socialism.
To be sure, the Democrat-controlled Senate is unlikely to vote for GovCare
repeal any time soon, and the House Republicans will need to pursue other
avenues if they hope to make progress between now and the next elections. But
not to worry, because additional efforts to deter and reshape GovCare are
coming.
One strategy will be piecemeal attacks on selected aspects of GovCare. House
GOP begins long drive to dismantle Obamacare, Byron York, Washington Examiner,
1/20/11.
Obamacare is filled
with vulnerable provisions. In addition to the [draconian 1099 reporting
requirements], there's the individual mandate (which is also being challenged in
court), cuts to Medicare, and the long-term care measure called the Community
Living Assistance Services and Supports Act, better known as the CLASS Act.
During the Senate's Obamacare debate in December 2009, some Democrats voiced
reservations about each of those provisions.
Another idea is GOP proposals directed to lowering overall healthcare costs,
e.g., by capping medical malpractice awards and attorney fees and permitting the
sale of HCI across state lines. GOP offers hints on Obamacare alternatives,
Susan Ferrechio, Washington Examiner, 1/20/11.
Then there is the
option of defunding programs designed to prepare for the implementation of
GovCare in 2014, notably the writing of new regulations by the Health & Human
Services Department and IRS preparations to enforce the individual mandate.
Defunding would probably spark government shutdown charges, but its use has been
threatened already. Repeal vote just GOP’s first step, Politico, 1/17/11.
We will spend the good
part of the year, if not all the year, finding where we can defund or unfund
Obamacare as it progresses,” [House Appropriations Committee Chairman Hal Rogers
(R-Ky.)] said on “The Hugh Hewitt Show” earlier this month.
Looks like the second round on GovCare will be a messy and protracted battle,
but hopefully the results will be worth it. Stay tuned!
1/17/11 – SOTU and budget preview
Read Replies
The president will deliver the State of the Union (SOTU) Address on Tuesday,
January 25, with the proposed budget for FY 2012 to follow on February 1. This
budget could advance the cause of fiscal sanity in Washington – or represent a
rearguard action. Our predictions follow.
ROLLOUT: All told, the budget will be in the news for about ten days – as has
become the norm. Will 2011 budget be released before the State of the Union?
Stan Collender, Wall Street Pit, 1/13/11.
Tues., 1/25
Next few days
Sunday talk shows
Tues., 2/1 et seq.
President outlines budget themes in SOTU
Selective interviews & briefings
Treasury Secretary Tim Geithner, OMB Director Jack Lew,
et al.
Budget document released, ensuing review & discussion
But activity should not be confused with constructive action. Last year’s
budget was recklessly irresponsible (PAST), and it seems unlikely that this
year’s budget will be a whole lot better (PRESENT). Fiscal visionaries will need
to keep the pressure on if they hope to see real progress (FUTURE).
PAST: A year ago, the president spoke of “the massive fiscal hole in which we
find ourselves.” His proposed response: (1) a three-year freeze of domestic
discretionary spending to start in 2011, (2) efforts to eliminate wasteful
spending programs, and (3) higher taxes for oil companies, investment fund
managers, big banks, and high earners.
These proposals offered little hope of eliminating deficits, as was made clear
in the FY 2011 budget released a few days later.
FISCAL YEAR, $
in billions
2010
2011
2012
2013
2014
2015
2016/20
2011/20
Baseline
deficits
1,430
1,145
934
940
934
983
5,704
10,640
Overseas
contingency operations
9
37
(41)
(75)
(83)
(87)
(478)
(728)
Upper-income
tax provisions dedicated to deficit reduction
(1)
(34)
(41)
0(50)
(60)
(68)
(426)
(678)
All other-net
118
119
(24)
(88)
(85)
(76)
(548)
(702)
Budget
deficits
1,556
1,267
828
727
706
752
4,252
8,532
The president further pledged to appoint a fiscal commission that would be
required “to provide a specific set of solutions by a certain deadline . . .
because I refuse to pass this problem on to another generation of Americans.”
Not good enough, we thought at the time (2/8/10 entry), so “Congress should bin
the president’s budget.” Our recommendation was submitted to the members of
Congress from Delaware, but to no avail. Indeed, Congress failed to pass a
budget resolution at all. Pass a budget or take a pass? Ed Feulner,
Townhall.com, 5/25/10.
The president followed through by appointing a Fiscal Commission. It did a good
job of publicizing the gravity of the fiscal problem, and did not recommend a
Value Added Tax (as detractors had predicted). Net income tax increases (via
elimination of tax deductions and credits) were proposed, however, and the
Commission’s spending cut proposals (except for the military) lacked vigor or
specificity.
Eleven of the 18 commissioners voted “yes,” versus 14 “yes” votes required, so
the Commission’s report was not formally submitted to Congress. Still, the
report is a matter of public record and will probably receive consideration.
Fiscal Commission sets stage for further discussion, 12/6/10.
The only clearly positive development in 2010 was the results of the November
elections, which demonstrated widespread concern about government spending and
deficits. Perhaps if America’s political leaders took heed of the public mood,
a program to put the government’s fiscal affairs in order could be started in
2011.
PRESENT: There has been much discussion about how the House Republicans plan to
force spending cuts, but the president will make the first move with his
budget. What line is he likely to take?
As a reference point, we went back to 1995 when President Clinton faced a
somewhat similar situation (the Republicans won control of both houses of
Congress in the 1994 mid-term elections). It stands to reason that President
Obama might be contemplating a similar strategy now.
Moreover, the current Administration has called on several former members of the
Clinton team of late
ü
Erskine Bowles (a chief of staff for Clinton) as one of the co-chairs (and the
clear leader) of the Fiscal Commission;
ü
Jack Lew for a return engagement as director of the Office of Management and
Budget;
ü
Gene Sperling is back as top White House economic advisor;
ü
William Daley (a secretary of Commerce under Clinton) as White House chief of
staff;
ü
Bruce Reed (headed the Domestic Policy Council under Clinton) as executive
director for the Fiscal Commission and now the vice-president’s chief of staff;
ü
Bill
Clinton himself, who appeared with the current president at a White House press
conference in December to support the “tax cut” deal.
Clinton began his SOTU address in 1995 by acknowledging that the Republicans had
won control of both houses of Congress:
If we
agree on nothing else tonight, we must agree that the American people certainly
voted for change in 1992 and in 1994. And as I look out at you, I know how some
of you must have felt in 1992.
I must
say that in both years we didn't hear America singing, we heard America
shouting. And now all of us, Republicans and Democrats alike, must say, "We hear
you. We will work together to earn the jobs you have given us. For we are the
keepers of a sacred trust, and we must be faithful to it in this new and very
demanding era."
Clinton also acknowledged the desirability of balancing the budget, albeit
reserving the right to differ about the specifics.
I know
many of you in this chamber support the balanced budget amendment. I certainly
want to balance the budget. Our administration has done more to bring the budget
down and to save money than any in a very, very long time. If you believe
passing this amendment is the right thing to do, then you have to be straight
with the American people. They have a right to know what you're going to cut,
what taxes you're going to raise, and how it's going to affect them. We should
be doing things in the open around here. For example, everybody ought to know if
this proposal is going to endanger Social Security. I would oppose that, and I
think most Americans would.
And he co-opted some talking points of the right, including “smaller, less
costly, and smarter” government (eerily close to the SAFE mantra) and “choice
and competition.”
The
New Covenant approach to governing is as different from the old bureaucratic way
as the computer is from the manual typewriter. The old way of governing around
here protected organized interests. We should look out for the interests of
ordinary people. The old way divided us by interest, constituency, or class. The
New Covenant way should unite us behind a common vision of what's best for our
country. The old way dispensed services through large, top-down, inflexible
bureaucracies. The New Covenant way should shift these resources and
decision-making from bureaucrats to citizens, injecting choice and competition
and individual responsibility into national policy. The old way of governing
around here actually seemed to reward failure. The New Covenant way should have
built-in incentives to reward success. The old way was centralized here in
Washington. The New Covenant way must take hold in the communities all across
America. And we should help them to do that.
http://millercenter.org/scripps/archive/speeches/detail/3440
Other politicians had talked about cutting spending, said Clinton, but he was
doing it.
You
know, for years before I became President, I heard others say they would cut
government and how bad it was, but not much happened. We actually did it. We cut
over a quarter of a trillion dollars in spending, more than 300 domestic
programs, more than 100,000 positions from the federal bureaucracy in the last
two years alone. Based on decisions already made, we will have cut a total of
more than a quarter of a million positions from the federal government, making
it the smallest it has been since John Kennedy was President, by the time I come
here again next year.
Clinton’s shift to the center was basically tactical, as suggested by his “bit
off more than we could chew” explanation for dropping a universal healthcare
proposal.
Now, I
still believe our country has got to move toward providing health security for
every American family. But I know that last year, as the evidence indicates, we
bit off more than we could chew. So I'm asking you that we work together. Let's
do it step by step. *** We ought to make sure that self-employed people in small
businesses can buy insurance at more affordable rates through voluntary
purchasing pools. We ought to help families provide long-term care for a sick
parent or a disabled child. We can work to help workers who lose their jobs at
least keep their health insurance coverage for a year while they look for work.
And we can find a way—it may take some time, but we can find a way—to make sure
that our children have health care.
And Republican opposition to his FY 1996 budget would lead to a brawl later in
the year. Budget impasse sends government into second partial showdown, CNN,
12/16/95.
If no emergency
spending measure is passed by Monday the effects will be broader. Nine cabinet
departments and multiple agencies will be partially closed. These include those
departments and agencies for which no appropriations bills have been passed.
Among them: the departments of Interior, Commerce, Health and Human Services,
Labor, Justice, State, Education, Housing, Veterans' Affairs, the Environmental
Protection Agency and NASA. All told, some 260,000 "non-essential" workers
would be asked to stay home, about a third of the number furloughed during the
last budget stand-off in November.
http://www.cnn.com/US/9512/budget/12-16/index.html
Although the current situation differs from the one in 1995, we predict that
President Obama will take a similar approach in his SOTU address.
Look for graceful acknowledgment of the Republican takeover of the House, a call
for bipartisan cooperation, and a pledge to reduce the deficit when and as this
can be done without impeding the budding economic recovery.
The president will characterize the ramping up of government spending on his
watch as necessary to combat the gravest economic setback since the Great
Depression.
GovCare may be cited as a step towards long-term fiscal stability, a view that
depends on counting the tax increases and projected cost savings in this
legislation as an offset to the new spending that it authorizes. In any case,
the president will express firm opposition to proposals for repealing GovCare.
Credit will be claimed for appointing the Fiscal Commission, and its
recommendations will be cited as evidence of what can be achieved when the
parties work together. Some of the recommendations may be reflected in the
proposed FY 2012 budget.
We do not expect significant reduction of projected deficits in the proposed FY
2012 budget, however, because – among other things – the Fiscal Commission
projected only gradual improvement if its recommendations were implemented. The
Moment of Truth, Report of the National Commission on Fiscal Responsibility and
Reform, December 2010, p. 64.
BUDGET
DEFICITS - $ in billions
Fiscal Year
2011
2012
2013
2014
2015
Total
FY 2011 Budget (Feb. 2010)
1,267
828
727
706
752
4,280
Commission’s report (Dec. 2010)
1,192
949
646
455
421
3,663
% Change
(5.9)%
+14.6%
(11.1)%
(35.6)%
(44.0)%
(14.4)%
But for all our skepticism, we would be delighted if the president submitted a
truly austere budget. Such action on his part could change the tone in
Washington and pave the way for solid progress on the fiscal problem.
FUTURE: We anticipate that the Republicans in Congress will push for spending
cuts, coupled with an overdue overhaul of the tax system and more sensible
regulatory policies. However, it would be a mistake to expect too much.
First, at the risk of stating the obvious, legislation passed in the House can
be sidetracked or rejected in the Senate. While we are all in favor of
repealing GovCare, it seems unlikely that such a bill will reach the president’s
desk any time soon.
Second, the law of fiscal momentum must be considered, i.e., spending programs
in motion tend to stay in motion. It will take time and effort to turn the ship
of state around.
Third, the zeal of the Republicans for spending cuts may flag when it comes to
specific programs of interest to their constituents. As a case in point,
consider the entrenched opposition to ending agricultural support programs.
Food stamps are expected to be untouchable “during this prolonged economic
downturn.” Most of the other items enjoy strong backing as well, on both sides
of the aisle, and have survived previous attacks. Farm bill fight could sow
division in the GOP, Joseph Weber, Washington Times, 1/9/11.
The last "Republican
revolution" in Congress in the mid-1990s sparked a drive to fundamentally
rewrite the federal system, with a "Freedom to Farm" law designed to wean
farmers off government subsidies and price supports. But much of the reform was
rolled back in the 2002 and 2008 farm bills. The $288 billion bill in 2008
increased farm-subsidy payments even in a time of record profits for U.S.
growers.
So without meaning to sound negative, it seems clear that spending cuts may not
be as deep as we would like. Thus, the Republicans are currently talking in
terms of cutting spending by some $100 billion a year. Although this sounds
like a lot of money, it only represents about 3% of current budget
expenditures. To make real dent in spending, government leaders must get past
the idea that eliminating waste, fraud, and abuse is enough – and be
willing to put entire programs, and even departments, on the chopping block.
Are politicians serious about spending cuts? John Stossel, Washington Examiner,
1/12/11.
At the same time, the budget cutters in Washington need to be politically
savvy. If they push too hard, too fast and wind up being outmaneuvered by the
spenders, their current public support could evaporate.
Please help us to educate the country and its political leaders about the
importance of addressing the fiscal problem in a constructive way. In brief,
the solution is smaller, more focused, less costly government.
* *
* This Blogs Replies *
* *
Barring a major
financial event, like Fitch or SP downgrading our AAA credit rating or a few big
banks going down, there will be no attempt to seriously cut anything because the
Tea Partiers don't have enough votes as yet. – SAFE director
1/10/11 – Game theory is a powerful tool, but it cannot engineer the future
Fiscal visionaries
will never be able to convert the hard-core supporters of bigger, more
pervasive, and costlier government. If we are to preserve the US government’s
credit rating and the economy that backs it up, it will be necessary to beat our
ideological opponents, negotiate with them, or perhaps do a bit of both.
We support the idea of
principled negotiation, but not deciding political issues on the basis of
expediency (e.g., game theory). In the end, there will be no substitute for open
and robust confrontation.
NEGOTIATION: A
previous entry offered members of the 18-member Fiscal Commission some advice
about engaging each other. Resolving the fiscal mess: SAFE responds to a
fictional inquiry, 7/19/10.
Our prime source was a
book about negotiations between people who disagree at a fundamental level – and
probably do not like each other. Bargaining with the Devil: When to negotiate,
when to fight, Robert Mnookin (Harvard Law School), Simon & Schuster (2010).
Do not confuse a decision to negotiate with weakness. A party
should evaluate its interests, the best alternative to a negotiated agreement (BATNA),
and the expected outcome of the BATNA. Factor in the costs of negotiation, both
direct (time and money) and indirect (delay and diversion of organizational
energies). And consider the practicality of a possible settlement, e.g., would
the other side be likely to honor it and what would happen if they didn’t.
http://www.s-a-f-e.org/bargaining.htm
Although the
Commission’s efforts ended in stalemate, there will be new possibilities for
negotiation in Washington over the next 18 months. There will also be ample
opportunity for the political confrontation and gridlock that many observers
expect.
GAME THEORY: But what
if there are many players involved in a situation, and their sequential
interactions are too complex for the human mind to grasp? Then perhaps game
theory can be used to advantage. The Predictioner’s Game: Using the logic of
brazen self-interest to see and shape the future, Bruce Bueno de Mesquita,
Random House (2009).
Since it was developed
in 1979, according to one fan, Mesquita’s “intriguing and accurate political
science model” has been proven again and again. Thus, “the Defense Department
made him predict 17 different foreign negotiating issues” and “his model got all
17 outcomes right!”
Negotiation is
generally the best way to resolve differences of opinion, says Mesquita (like
Mnookin), because the alternatives are very, very costly. Page 88.
Wars and litigation
are inefficient ways to resolve problems. They almost never end in a decisive
victory. Instead they usually end in a negotiated settlement. Both sides find a
deal they could, in principle, have arrived at without all the costs that
finally brought them to the negotiating table.
But the parties and
their advisors typically spend too much time worrying about the merits of the
case; his firm uses a different approach. Page 89.
Remember the
information we seek in expert interviews. None of it is about how meritorious
anyone’s position is. It’s all about calculating how much they care about the
result and ferreting out how much they care about getting personal credit.
Business managers often care a lot about the results; lawyers often care a lot
about credit that results in getting more business and building their
reputations for the next suit.
With only a few people
involved in a situation, “seat-of-the-pants wisdom and experience” may be enough
to develop an effective negotiating strategy. When there are many players with
varying opinions and motivations, the analysis becomes “much more complicated
than anyone could possibly keep straight in their heads.” The solution: hire a
game theory expert (e.g. Mesquita’s firm) to do some sophisticated computer
modeling.
Thus, in a large
company embroiled in criminal litigation with the US Department of Justice,
Mesquita was supposedly able to “engineer” a better settlement for the client
than would have been achieved if pre-trial discussions had proceeded along the
contemplated lines (with hardliners within the DOJ eventually forcing their boss
into a hardball negotiating stance). Pages 89-101.
Mesquita studiously
ignored the merits of the legal issues; all that counted was the client’s data
and the logic of his firm’s computer model. “We are not experts on the
substance of the problems we analyze, and generally we know little even about
the industry involved, so there is no reason for anyone to take our personal
opinions seriously.” Page 98.
The author is not shy about suggesting that other knotty problems can be
addressed in a similar fashion. Page 102.
This process involves exploiting or altering people’s perceptions
of a situation by looking within the model’s round-by-round output to work out
who is responsible for shifts in positions and how to counter these shifts if
they have bad consequences for the client. The process is no different whether
the problem is resolving Iran’s nuclear program, figuring out what al-Qaeda is
likely to do, or facilitating the merger of companies. Every one of those
situations involves humans who are not all that different from one another,
regardless of where they go to sleep at night.
Hmm, Mesquita seems to
be making some pretty bold claims. Let’s kick the tires a bit.
First, what do we know
about Mesquita’s background? Turns out that he is a professor at New York
University and a senior fellow at the Hoover Institution. He is said to be an
expert in international conflict, foreign policy formation and nation building.
His resume is replete with publications, honors, and prestigious
associations.
http://www.hoover.org/fellows/10201
Second, what do his critics have to say? Here is a review of the
Predictioneer’s Game by a self-identified “quant,” which rates the book as
“brilliant and intensely irritating.”
On the plus side,
Mesquita is credited with “an awful lot of good, clear, insightful analysis.”
He gives examples of
political and diplomatic predictions he has made, discussing the inputs and
basic form of the analysis. There are accounts of corporate and legal struggles
where he maneuvered to an outcome favorable to his clients. He also applies the
methods to history, to ask what might have happened. This is all fascinating
stuff, and the data and conclusions speak for themselves.
On the other hand, Mesquita’s claims of predictive accuracy are called
unsubstantiated, the logic of his model is not clearly and fully explained, and
several of the success stories do not seem credible. Also, the only example
given of a failed prediction – that HillaryCare would be adopted in the 1990s –
is attributed to an unlikely reason (the fall from grace of Representative Dan
Rostenkowski, D-IL)
Third, we are leery of predictive models that ignore the merits of the issues
under consideration. Is the idea that public policy issues should be decided
based on sheer political expediency? Sounds like a ticket to societal decline.
Along those lines, here is another book that sounds worth reading (albeit far
from cheerful): “How the West Was Lost: Fifty Years of Economic Folly – And the
Stark Choices Ahead” by economist Dambisa Moyo. Without change US will almost
certainly become a socialist nation, UK Telegraph, 1/8/11.
Moyo says the idea of
unintended consequences is a running theme in both Dead Aid and How the West Was
Lost, with policies that Western populations have rallied around as great ideas
turning out to produce detrimental results. In this way, she says, Western
governments have implemented laudable notions like the idea that everyone should
have a roof over their head, receive access to food and be supported in old age
by pensions. These have led to unfortunate outcomes in terms of capital, labour
and productivity, the key ingredients for economic growth.
Perhaps our point does not apply in the foreign policy context, e.g., trying to
anticipate the future moves of Al Qaeda. But Mesquita’s model has also been
applied to domestic issues, e.g., predicting the fate of HillaryCare (as
mentioned previously) and the likely success of regulations on greenhouse gas
emissions (the prediction in that instance was that GGE regulations would not
work but technology changes would).
The potential misuse of a game theory approach seems evident. We think
politicians should at least strive to resolve policy issues on the merits
instead of basing their positions on polls, the advice of political strategists,
and/or “black box” computer models.
POLITICAL CONFRONTATION: There
seem to be no end of complaints about the inability of the two major parties to
get along, which supposedly prevents things from getting done in Washington.
See, e.g., Partisan paralysis in Washington must stop, Senator Chris Coons
(D-DE), News Journal, 1/6/11.
http://www.s-a-f-e.org/members_microblog_2011.htm
Who is to say, however, that getting things done in Washington is necessarily
desirable; it depends on what those things are. If no tax increases get
approved and Congress continues to block “cap and trade” legislation, we can
live with that.
And if this country is on a fundamentally wrong course,
as fiscal visionaries believe, it is hard to imagine the course being changed
without a fight. Negotiations cannot work unless the other side concludes they
are holding a losing hand, which in our opinion would require a major change in
public attitudes that could only be brought about by open and spirited
confrontation.
Some may think the public is ahead of the politicians in realizing that major
changes are needed. What about polls showing that only 27% of Americans believe
the country is headed in the right direction, etc.? Right direction or wrong
track, Rasmussen, 1/5/11.
This begs the question, however, of what “the right direction” is thought to
be. Also, other polls suggest that the public’s views are tinged with
cynicism. More voters expect to be unhappy with the new Congress, Rasmussen,
1/4/11.
#A new Rasmussen Reports national telephone survey finds that 67%
of Likely U.S. Voters – two-out-of-three – think it is at least somewhat likely
that most voters will be disappointed with Republicans in Congress before the
2012 elections. This includes 37% who say it is Very Likely.
#The only good news for Republicans is that even more voters
predict unhappiness with congressional Democrats by 2012. Eighty-two percent
(82%) think it is at least somewhat likely that most voters will be disappointed
with Democrats in Congress before the 2012 elections, including 53% who believe
it is Very Likely. Only 14% say that’s not very or not at all likely to be the
case.
This is not to advocate closing doors. If the other side turns out to be more
accommodating than we anticipate, perhaps negotiations could prove fruitful. We
are also all in favor of civility, e.g., fiscal visionaries should attack
misguided policies rather than their intellectual opponents.
But in the end, if members of the new Congress (and House Republicans in
particular) want to make a difference, they will need to be openly
confrontational – although careful to avoid overreach that could squander public
support. How to defeat Obama, Dick Morris & Eileen McGann, Townhall.com,
1/5/11.
It will not be time for the faint-hearted. The conservatives
seeking to block arbitrary expropriation of vast segments of our private sector
will be accused of irresponsibility and worse. But every one of the elements of
the confrontation agenda has one thing in common: The public agrees with the
Republicans ***[so long as they avoid straying] over the line of public opinion
themselves by cutting Medicare or Social Security.
CONCLUSION: Some may be upset about the prospect of confrontation; we say “bring
it on.”
1/3/11 – The time for
politics as usual is over.
Let’s start with a bit
of levity – this entry will get serious soon enough.
On 12/31/10, the
Washington Times published (with tongue in cheek) some imaginary headlines for
future news stories. Among them:
ü
Bin Laden found working as TSA screener, Napolitano says his skills “useful for
the job”
ü
President [labels] balanced budget proposal “irresponsible”
ü
China forecloses on United States, vacate order to take effect in 2 weeks
ü
Pelosi reads Obamacare bill: “Shocking what's in there”
ü
Sugar banned as drug, DEA doubles staff
ü
Matt Drudge wins Pulitzer
ü
Sen. Murkowski resigns, Bristol appointed to fill vacant seat
ü
Weather average everywhere, climate change blamed
ü
IRS worker dies in [Form] 1099 avalanche
http://www.washingtontimes.com/news/2010/dec/30/editorial-year-ahead/
Then we recall a James
Thurber story from “Fables for Our Time,” in which the protagonist experiences
one disaster after another. Thurber’s moral (a saying of Robert Louis
Stephenson with a twist): “The world is so full of a number of things, that I am
sure we should all be as happy as kings – and you know how happy kings are.”
Hold that thought as this entry progresses.
DÉJÀ VU: We recently
became aware of a critique of the New Deal, written by a Hillsdale College
professor, which should be a “must read” for the historians among us. New Deal
or Raw Deal, Burton Folsom, Threshold Editions (2009).
http://www.s-a-f-e.org/new_deal.htm
Everyone knows that
New Deal policies did not end the Great Depression, but most historians have
credited President Roosevelt with a good effort. Not Folsom, who says these
policies were designed primarily to maintain FDR’s political power.
This is a disturbing
thesis, which we are not necessarily prepared to embrace. The 1930s are long
over, after all, and what difference does it make now? Except that many
policies of that era are still (or again) in play today.
FDR seized on under
consumption as the cause of the depression, and he proposed to fight it with
government spending that would boost demand. Hmm, that sounds familiar!
He gave lip service to
fiscal responsibility, promising repeatedly to reduce spending and balance the
budget, with no intention of keeping these promises. Such chicanery remains
common on both sides of the political aisle.
Hoover had already
hiked income tax rates on the well to do, reversing the rate cuts championed by
former Treasury Secretary Andrew Mellon in the 1920s, but FDR raised them still
higher (and at one point suggested a top rate of 100%). His rationale was
“fairness,” not maximizing revenue. (Other tax policies of his Administration
had an inconsistent effect. The biggest source of federal tax revenues during
the New Deal was regressive excise taxes.) Shades of the recent debate about
extension of the Bush Tax cuts for high earners, with a rematch promised in
2012.
Minimum wage
legislation, the Social Security scheme, and government support of labor union
organizing tended to perpetuate unemployment by raising employment costs. This
is still happening today.
Believing that
inflation would help the poor and punish the rich, FDR favored industry price
fixing schemes (the National Recovery Administration), agricultural price
support programs, and government regulations that were sure to make goods more
expensive.
The NRA was ruled
unconstitutional, but many of the other programs (and extensions thereof) remain
in play. Moreover, the Federal Reserve is now following policies, e.g.,
“Quantitative Easing,” that are explicitly designed to encourage inflation – a
goal that strikes us as misguided and could easily get out of control.
Now if all this is
true, or even half of it, why have so many historians lauded FDR as one of the
greatest US presidents? Folsom says his colleagues have embraced “the
progressive view of history,” from which standpoint FDR was arguably justified
in striving for “results” without worrying about the niceties of Constitutional
process.
FDR remains a hero of
the Democratic Party, and we have no problem with this. We are less forgiving
of the Republican Party, which has not done much to push things back in the
other direction.
According to Folsom
(New Deal, page 261), “Republicans have had the most electoral success when they
have challenged government programs, as Ronald Reagan did in 1980 and as
congressional Republicans did in 1994.”
Folsom also notes,
however, that Republican presidents have typically tried to “break the New Deal
coalition by outspending – or spending more shrewdly – than the Democrats.” New
Deal, page 262.
ü
Eisenhower instituted the interstate highway program
ü
Nixon (in 1972) raised Social Security benefits by 20%, with the tax increase
not to begin until after the election
ü
Bush 41 expanded the Department of Education
ü
Bush 43 pushed through a prescription drug benefit for seniors (aka the pill
bill) and, although Folsom does not point this out, expanded the Department of
Education some more.
THE PATH FORWARD: In
the new Congress, the Republicans will control the House and have more members
in the Senate. Has the time finally come for a reversal of the big government
policies that have been strangling the US economy and threaten to result in
financial disaster? Maybe, but we are not holding our breath.
The economy remains
weak, which will surely fuel demands for continued deficit spending and/or
actual tax cuts. Congress must resolve to build on tax cuts in 2011, Donald
Lambro, Townhall.com, 12/23/10.
Many economists say
the economy will need to grow by 4 to 5 percent to bring unemployment down by 1
percent, and that kind of growth isn't in the cards for the remaining two years
in Obama's term under his remedial, anti-growth policies. Moratoriums on
drilling have pushed oil prices to their highest point in years, shoving
gas[oline] prices into record territory. Home values remain flat. And healthcare
costs are rising faster under government-run Obamacare.
No telling just when it will hit, but a sovereign debt crisis is coming to
America in a form overlooked by the Fiscal Commission’s recent report. It will
begin with an epidemic of defaults on municipal obligations, driven in large
part by gold-plated benefits for municipal workers.
Thus, the leaders of Hamtramck, Michigan say their only realistic option is to
file a municipal bankruptcy. If the city is allowed to do this, which would
require state approval, “30 Michigan cities will quickly follow suit.” Many
other municipalities around the country are in a comparable situation, including
the big cities. As governments go broke, public employee unions must share the
pain, Washington Examiner, 12/28/10.
Providing federal funds to keep states and municipalities going would simply
defer corrective action and allow the budget hole to get deeper. The next
financial crisis, Adam Bitely, getliberty.org, 12/29/10.
Adding more to the
national debt just to balance state budgets for a year is the last thing we need
if we ever want to climb out of the economic pit that government overspending
has put us in to. It is time for Congress to do what is right for our nation,
and stand up to the public employee unions who only care about their own
treasuries.
http://blog.getliberty.org/default.asp?Display=2938
Point well taken, but be prepared for some real human misery in the mix.
Consider this story, which begins with a report of a retired fire marshal, 58
years old, found dead in his home because “he had no money to pay his bills and
he was too proud to accept help from his neighbors.” America’s public pension
crisis has tragic consequences, Mark Hemingway, Washington Examiner, 12/25/10.
[Pritchard, Alabama]
tried to declare bankruptcy, but state law forbids the town from ducking its
pension obligations and a judge wouldn't allow it. The city just stopped paying
its pensions. Pritchard's 150 retired city employees are reduced to showing up
at city council meetings begging for money to get through the Christmas season.
The Republicans have made encouraging statements about their eagerness to cut
spending, but they will not hold all the cards in the new Congress. It is also
unclear that they are envisioning cuts big enough to make a real difference.
If a proposal to eliminate the Departments of Energy and Education, agricultural
subsidies, corporate welfare, etc. is coming, we have not heard about it.
Fundamental reform of Social Security, Medicare or Medicaid does not seem to be
on the radar screen either. The House may pass a bill to repeal GovCare, but it
will not get far so long as the Democrats hold the Senate and the White House.
The Republicans have a better chance of stopping new raids on the Treasury than
of undoing past legislation, but even in this role they should be prepared for
some wailing and gnashing of teeth. Smiling Dems will soon cry “Washington is
Broken,” Byron York, Washington Examiner, 12/23/10.
Declaring the first order of business in the House to be reading the
Constitution is purely symbolic, but it sends a message and will not take all
that long. The requirement that every bill cite a section of the Constitution
that authorizes it will prove a waste of time. A more meaningful reform might
be to require that bills be kept reasonably short and written in “plain
English.” Good governance, Linda Chavez, Townhall.com, 12/31/10.
Contrast the language of the Constitution with the convoluted and
arcane measures that have been enacted in the last several years. The Patient
Protection and Affordable Care Act is only the most recent and egregious bill
passed by members of Congress who hadn't had time to read, much less fully
understand what they were proposing.
There will be continuing efforts to marginalize the “Tea Party” branch of the
Republican Party. Leaders from the GOP establishment will be inclined to cut
deals with the president, enhancing his stature. The GOP may well nominate a
“steady as she goes” presidential candidate in 2012, such as Mitt Romney or
Governor Haley Barber. A new year of Republican mistakes, Floyd & Mary Beth
Brown, Townhall.com, 12/25/10.
Meanwhile, time is running out. The only solution is a balanced budget
amendment, says Ken Blackwell, because our political leaders will not act like
adults without it. America’s financial future: Our choice . . . but not for
long, Townhall.com, 12/23/10.
The need has never been greater for the U.S. to balance its
budget by cutting spending. But as the President and Congress have once again
shown, it simply will not take that difficult step unless it is forced to do so.
For that reason, we need a balanced budget amendment—ideally one patterned after
the amendment proposed by PassTheBBA.com.
Blackwell is focused so intently on the need to balance the budget that he
blames the “tax cut” deal for increasing deficits by nearly $1 trillion. We do
not agree that a decision to forego a big tax increase in 2011 was
irresponsible; the urgent need is to cut spending.
Subject to this qualification, SAFE would support a balanced budget amendment –
although passing a BBA might prove very difficult.
A balanced budget amendment to the Constitution, either
prohibiting deficit spending except in time of declared war or requiring a 2/3
majority to approve deficit spending in any given year, would be a tremendous
help – if it could be adopted.
http://www.s-a-f-e.org/budget_discipline.htm
Blackwell suggests a strategy, however, that might be worth a try. Tie debt
ceiling vote to balanced budget amendment, Townhall.com, 12/29/10.
While Reps. Ryan
and Kingston appear to be on the right track in arguing Republicans should not
give away a debt ceiling vote for free – here’s my modest proposal:
Republicans should
agree to raise the debt ceiling only if Democrats also agree to vote for a
balanced budget amendment resolution.
After all, extracting spending concessions would likely have a
short-term impact -- but passing a balanced budget amendment would fundamentally
address our nation's addiction to spending indefinitely.
Maybe this suggestion is a winner, maybe not, but it reflects a willingness to
think outside the box, which will be clearly be necessary if this country is to
avert a fiscal meltdown.
All in favor, please say “aye.”
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