Secure America's Future Economy

SAFE’s “hit nail on head” blogs:   2012

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12/24/12 – Five golden rings      Read Replies

Why is SAFE still working on the day before Christmas?  Our entries usually go out on Mondays and that’s how the 2012 calendar happens to fall.  In the spirit of the season, however, we will refrain from an update on the “fiscal cliff” – although the politicians may continue haggling about it after Christmas – and forego an entry on New Year’s Eve.

Having chosen the above title, we tried to think of five positive things to write about.  At a societal level, that’s not too easy these days – five leaden rings would have been a cinch – but here are some inspiring stories of individual heroes. 

1. Harold Hamm – Raised on a farm in Oklahoma, Hamm moved to Enid (an oil town) when he was a junior in high school and decided that the petroleum industry would be his passion in life.  He started working in an oil field after graduation, initially driving tank trucks, and reached out to mentors who were willing to share their knowledge of various aspects of the business.

After a couple of years, he found a co-signer and started his own tank truck company.  A little later he started an oil exploration company and came up with an idea for drilling a well based on his theory that the oil from an old producing well was coming from an intermediate oil-bearing formation that no one had realized existed. 

Some people wondered, “what was this young guy doing,” as Hamm went about acquiring drilling rights.  A few invested in his company, however, and he was able to borrow enough more to drill a $100K well based on his theory.  It hit, producing 20 barrels of oil an hour.  Then he drilled another well, five miles away, which produced 75 barrels of oil an hour.  Thus began the discovery of a 6-million-barrel oil field. 

The first two wells enabled Hamm to pay off his debt and attend college.  He would go on to found Continental Resources, which today holds the largest single position in the Bakken Field in North Dakota/Montana, and become a multi-billionaire. Birth of a wildcatter, Christopher Heiman, Forbes Life, 12/24/12. http://onforb.es/UpFoNo

Our country has benefitted greatly from Hamm’s success.  Thus, North Dakota has the lowest unemployment rate in the country these days and the Bakken Field is contributing to declining (for the first time in decades) US oil imports.

Many people helped Hamm to succeed, including the mentors that he acknowledges to this day, but the government – which subjects oil companies to a mountain of pettifogging regulations and lusts to raise the tax burden on them as well - doesn’t deserve much credit.  How North Dakota became Saudi Arabia, Stephen Moore, Wall Street Journal, 10/1/11.  http://on.wsj.com/o9wAlD

2. Salman Khan – Khan Academy may be the largest school in the world, but you would never guess this from appearances.  Stuffed into a few large rooms of a 1960s office building in Mountain View, California, it serves millions of students on-line. 

Salman Khan, the 36-year-old founder, holds multiple degrees from MIT and Harvard.  Most of the 37 employees are software designers with experience at places like Google and Facebook.

KA has an inventory of 3,400 short (10 minutes or less) instructional videos on all kinds of subjects, from basic to advanced, which come with interactive quizzes and tools to track student progress.  Khan personally designed over 3,000 of these instructional modules.

The school mission is simple yet profound: “a free world-class education for anyone anywhere.”  Formed as a nonprofit, KA has received over $16M in contributions from the likes of Ann Doerr, Bill Gates, Reed Hastings, and Eric Schmidt.  There are assurances of more funding to come.

By Khan’s reckoning, the “impact per dollar” payoff is huge. One man, one computer, ten million students, Michael Noer, Forbes, 11/19/12.

We have a $7 million operating budget, and we are reaching, over the course of a year, about 10 million students in a meaningful way. If you put any reasonable value on it, say $10 a year–and keep in mind we serve most students better than tutoring–and you are looking at, what, a 1,000% return?


Khan tells the KA story in a videotaped (7:53) interview that is well worth watching. Among other things, he describes a new educational model in which students learn at their own pace and verify mastery before moving on.  http://onforb.es/ZQ433j

This model could change the world.  Maybe it could even be used to help Americans learn why the budget cannot be balanced without cutting spending, what the evidence concerning the causes of global warming actually is, and why the Constitution was written as it was.

Also, many teachers and professors may either have to find new ways to add value in the educational process or be put out of business.

3. Marie Gadsden – Economist Thomas Sowell is one of our favorite columnists.  His writings are pithy, informative, and infused with common sense. 

In a column several months ago, Sowell recalled one of his teachers at Howard University who did a lot more than teach him freshman English.  Let’s see – powerful letter of recommendation to Harvard, referred him to a Cambridge landlord who rented him a room, and even put him in a touch with a lovely young student at Radcliffe. 

Mrs. Gadsden and Sowell kept in touch, mostly by mail (she spent much of her time teaching in Africa), until her death over half a century later.  And at one point in his career, she gave him some invaluable advice.

Sowell had returned to Howard University for a year of teaching.  As fate would have it, a student in his summer economics course had studied under Gadsden in Africa.  The young woman seemed intimidated by economics, and she was falling behind.

Sowell consulted his former teacher, who was back in Washington at the time.  In the course of the conversation, Gadsden told him in no uncertain terms that he must fail the student unless she did passing work.

The only other option was to offer some tutoring.  The student responded and started doing B work.  Counting earlier test scores, however, her grade averaged to a C.  That’s the grade Sowell gave her, and it was a good thing he did. The death of Mrs. G, Thomas Sowell, Townhall.com, 3/30/12.

When I saw Mrs. Gadsden later, she said, "Our friend was overjoyed at getting a C in your course! She was proud because she knew she earned every bit of it."


That was the Mrs. G I knew. And I never expect to see anyone like her again.


4. Texas volunteers – In the wake of “Superstorm” Sandy, there have been some highly critical reports about the relief efforts of the Federal Emergency Management Agency (FEMA) in the hardest-hit areas, e.g., Staten Island.  According to an article by Peter Earle in the Sept. 2012 issue of the Free Market, a monthly publication of the Ludwig Von Mises Institute, this is no surprise as “state authorities have rarely been first to respond to disasters, and often get in the way when they finally [arrive].” 

In contrast, according to Earle, “local individuals and small, flexible groups are suited for prompt, decisive reaction.”  He goes on to describe private (generally effective) vs. government (slow and heavy handed) relief efforts in some past disasters, e.g., the Great Chicago Fire (1871), Galveston Hurricane (1900), and San Francisco Earthquake (1906).

FEMA did not exist in those days, of course, but we are reminded of a story of more recent vintage – and here it is again.  “Don’t mess with Texas,” SAFE newsletter 64 (winter 2011). http://bit.ly/Zk3IXR

After reading our blog entry (Federal Family Flim Flam, 9/5/11) about the government’s overblown response to Hurricane Irene, a reader forwarded an account of how a community in Texas fought one of the rash of wildfires that plagued the Lone Star State this year.  Quite a story!

As background, the state government had requested that the wildfires be declared a natural disaster so emergency federal funds would be available.  Despite the unprecedented severity of the wildfires, this request was denied.

The Tri-County (Montgomery, Grimes & Waller) fire threatened the homes, businesses, and safety of the local residents.  They organized to fight it.

Most of the fire fighters were from volunteer fire companies in the area.  They had little experience with wildfires, but pitched in to get the job done.  An experienced team from California provided invaluable assistance.

Two mothers, with a staff of twenty volunteers, most of them women who had sons, daughters, husbands, and friends on the fire lines, organized the logistical support.

They figured out what sort of supplies the fire fighters would need, posted the requirements on Facebook and talked with some TV reporters. The supplies started rolling in.

They set up a base at a local high school, where the fire fighters could come to eat, sleep, and regroup.

The California team was impressed by the scope and efficiency of the operation; so were some relief workers from the Red Cross who stopped by.

Then FEMA arrived and told the volunteers they had to leave, FEMA was here now. They were obnoxious, bossy, got in the way, and criticized everything. The volunteers refused to back down and kept doing their job, and doing it well.


Next FEMA said the HEB (“Have Everything Better” Super Markets) supplies and kitchen had to go, that was blatant commercialism. Kenna (one of the organizers) said they stayed.


FEMA threw “a wall-eyed fit” about chewing tobacco and cigarettes being available in the commissary area. Kenna said the firefighters had requested them, and they were staying.


Bottom line: A fire the California experts said would take 2-3 weeks to get under control was 100% contained in 8 days. So much equipment and supplies were donated that 3 container trucks were loaded with the excess and sent to help set up a similar relief center for fire fighters in Bastrop. “And that’s the way we do it in Texas!”

5. Lydia Springer – It takes courage to speak out about issues when many people feel otherwise, risking disdain, insults, and more tangible consequences.  Think of Socrates (asked too many question), Galileo (challenged conventional wisdom), the founding fathers of this country (started a revolution), etc.

Here is an example of courageous commentary, which we selected because it (A) is well reasoned and grounded in the facts, (B) identifies a crucial challenge for conservatives, and (C) conflicts with the predominant views of the writer’s peer group (single moms).

Are you puzzled by the outcome of the recent elections?  Perhaps the problem is your assumption that truth and the facts were the deciding factor.  For many people the deciding factor was perceptions, e.g., “our guy gets it and the other guy does not” or “Republicans are mostly aging white males” who “cannot relate to women” and “don’t support minorities.”

Or take the claim that high earners don’t pay their “fair share” of taxes.  The president’s supporters have been perfectly willing to buy into this claim, no matter that there is very little substance behind it.

They have no idea what the facts are and they don’t care. The perception is that the wealthy and successful in this country have a moral obligation to “share” [whatever they have].

With the schools and media in the Left’s corner, most people never hear conservative principles articulated – and therefore don’t understand them.  Yes, Fox News, the Wall Street Journal, et al. do a good job – but they are preaching to the choir, not the mainstream.

Conservatives need to come up with better strategies for getting their views out there, and they can’t afford to play it safe. 

We must promote personal responsibility and the importance of fiscal sanity among Obama’s Perception demographics – knowing all the while we will be viciously attacked by liberals. As a party, we cannot hide from these challenges. As a country, we cannot ignore the need.

Conservatives may also need to adjust their talking points in some cases.  Take the pro-life policy.

The reality is, the pro-life policy of social conservatives alienates young women and drives the narrative that we are the party that threatens personal freedoms. While protecting the life of an unborn child is undeniably the noble choice, pro-life conservatives must reassure women that their right to choose will not be compromised by election of a Republican to the White House.

And if conservatives don’t do these things, they will have reason to regret it.  Democrats will blame Republicans when the president’s policies “send our nation into chaos and depression,” and then “come up with a candidate for 2016 who is well versed in the manipulation and lies that demonize conservatives.”  The mainstream media can be counted on to further promote the negative perceptions about conservatives “while ignoring truth and reality.”   

A bit of a downer, what, but Springer’s concluding paragraph offers a ray of hope in that the popular perceptions are “wrong.”  That is, conservatives are right on the facts if they can just make people see it.  Trump card of the Left: Perception over truth, Lydia Springer, politicaloutcast.com, 11/20/12. http://bit.ly/1063iBV

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And with that, dear readers, this blog is done for the year.  Happy holidays, and look for our next entry on Monday, January 6.

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Very interesting stories.  Good job. – SAFE director 

That's great dedication: working on Christmas Eve!  I hope someone in Republican Party HQ is listening, and particularly that he/she will institute meaningful action before the GOP loses further market (sorry, electorate) share. – Retired IBM executive

top      wwhipple3@verizon.net

12/17/12 – Fiscal cliff notes            Read a Reply

The latest DC budgetary showdown has been focused on averting the so-called ‘fiscal cliff’ at yearend versus making good policy choices for the longer term.  As of three weeks ago, it seemed likely that the nation’s leaders would find a way to “kick the deficits and debt can down the road again.”  Stepping back from the fiscal cliff, 11/19/12.

Most of the “cliff” issues could readily be settled this month, in our opinion, but a tax system overhaul and entitlements restructuring will require further review and discussion (which should begin promptly in January).  RX for the fiscal cliff, 11/26/12.

A summary of SAFE’s recommendations was sent to Congressional leaders on both sides of the aisle (http://bit.ly/Ten4VM) and packaged as a Dec. 10 column for the Delaware State News (http://bit.ly/VMFxiv).

Meanwhile, negotiators have made little apparent progress, and it now appears likely that the government will go over the cliff at yearend for lack of an agreement.  Why is there an impasse?  How bad would a cliff plunge be?  What about the path forward after that?  Our answers follow.

Impasse – The first meeting at the White House on Nov. 16 was reportedly cordial, and participants spoke afterward about getting a framework for a big deal enacted by the weekend before Christmas.  Hill leaders buoyed by White House talks on fiscal cliff, Dave Boyer, Washington Times, 11/16/12. http://bit.ly/ZY8UNr

On Nov. 17, however, the president devoted his weekly address to urging that Congress “pass a law right away to prevent a tax hike on the first $250,000 of anyone’s income.”  The Bush tax cuts on income above this level would be left to expire at yearend, thereby hiking tax rates on high earners vs. curbing their tax preferences as Republicans had proposed. http://1.usa.gov/TYfH6D (Essentially the same point would be made in the president’s weekly addresses of Dec. 1 and Dec. 8).

And on Nov. 18, House Minority Leader Nancy Pelosi flatly rejected “a possible compromise that would leave rates the same, but cap deductions for high earners.” No Deal On “Fiscal Cliff” Without Tax Rates Increase, Tim Brown, FreedomOutpost.com, 11/18/12.  http://bit.ly/UAWhTp

Subsequent statements and actions suggest that the president et al. are not looking for a quick resolution of the “cliff” issues except on their terms: big tax increases for high earners and businesses coupled with limited, if any, net spending cuts. Some observers speculate that the president’s real objective is to fracture the unity of House Republicans and thereby sap their ability to block other items on his agenda. It’s nothing but a power play, Charles Krauthammer, Washington Post, 12/6/12. http://wapo.st/UqxRh4

Policy wise, the case for raising tax rates on high earners is weak. 185 economists to Congress: “Fiscal cliff tax hikes risk economic damage,” Bob Beauprez, Townhall.com. http://bit.ly/UWjunj

•Increasing taxes would likely slow or reverse our nation’s fragile economic recovery and undermine long-term growth. Restraining the growth of expenditures, however, would help stabilize the government’s fiscal imbalance and create a more conducive environment for robust expansion.

•In particular, Congress should avoid raising marginal tax rates on income and taxes on investment, such as capital gains and dividends taxes. These types of taxes most directly and meaningfully affect job creation.

(Among the signers were four UD economists: Stacie Beck, James Butkiewicz, Eleanor Craig & James O’Neill. See also http://www.s-a-f-e.org/delaware_chatter.htm (12/15/12) re a News Journal column by Beck & Craig.) 

House Speaker John Boehner may be prepared to yield on tax rates to reach a deal – as he seemingly signaled by putting “revenue on the table” at the outset.  To satisfy his base, however, he must get some major spending cuts, not just promises to consider cuts later.  By last week, he was reduced to lamenting that “we’re still waiting for the White House to identify what spending cuts the president is willing to make as part of the balanced approach that he promised the American people.” Boehner: Can we just be honest about this? We’re broke, Erika Johnsen, hotair.com, 12/11/12. http://bit.ly/XPu2r5

Perhaps a deal will be struck soon, if only a deal that sets the stage for more haggling, but some observers are beginning to doubt that anything will be agreed to this year. Why the fiscal cliff is a snooze, Howard Kurtz, The Daily Beast, 12/10/12. http://bit.ly/TXr3Hj

For the moment, both sides are merely going through the motions. Obama proposes bigger tax hikes and says the Republicans should get specific about spending cuts. Boehner refuses to raise tax rates and proposes taking a huge chunk out of health-care entitlement programs. Neither side has given more than an inch or two.

The president and Boehner have met several times behind closed doors, most recently a 50-minute session on the evening of Dec. 13, and at this point the deal/no deal decision is pretty clearly in their hands.  Edging closer to the “fiscal cliff”: Obama, Boehner mum after talks, Seth McLaughlin, Washington Times, 12/13/12. http://bit.ly/UF0OpC

As the city, the markets and the world weigh in on a possible “fiscal cliff” deal, it’s increasingly clear that only two opinions will count in the end.  Lawmakers have been reduced to bystanders as they wait to see whether President Obama and House Speaker John A. Boehner can produce a deal.

We don’t know what will happen, of course, but just in case let’s consider what the consequences of going over the fiscal cliff might be.

Plunge – Fed Chairman Ben Bernanke has used “fiscal cliff” as a catchy reference for the tax increases and spending cuts scheduled to take place at yearend, but he apparently didn’t originate the idea (and no one seems to know how it did get started). Who started the latest “fiscal cliff” buzz? Annalyn Kurtz, CNN Money, 11/9/12  http://bit.ly/TdKjRM

No doubt the person responsible was a big government fan because fiscal cliff conveys a doomsday result – being plunged into another economic recession - as a result of cutting spending and raising taxes on the middle class.  Splat! Surely one wants to take responsibility for that.  Deferring on budget no longer an option, CBO says, Stephen Dinan, Washington Times, 8/22/12. http://bit.ly/ReSKww

Now, Congress and Mr. Obama are grappling with 2013 and beyond, and CBO said their options range from immediate belt-tightening and a double-dip recession that clears the economic and fiscal air, to continuing to pump money into the economy and delay, but likely worsen, an eventual reckoning.

The elements of the “cliff” are many and varied; there is no need to view them as an all or nothing proposition.  Some outcomes seem clearly appropriate, such as patching the AMT (pending its repeal) and allowing the payroll tax cut to expire.  Others might be deemed harmful, e.g., expiration of some (or all) of the Bush tax cuts, but could be deferred to permit time for fundamental reforms, e.g., an overhaul of the entire tax system. 

Wouldn’t it make sense to narrow the controversy by agreeing before yearend as to which of the impending changes will be allowed to take place, which will be cancelled, and which will be held over for further review?  Certainly, as was duly reflected in our policy recommendations. RX for the fiscal cliff, 11/26/12.

But if the only alternatives are to (A) plunge over the cliff, or (B) accept a plan (e.g., the president’s proposals) that would perpetuate economic stagnation and speed this country towards a disastrous fiscal meltdown, a plunge might be the lesser of two evils.

Path forward – Let’s say it is early January, and the government has indeed gone over the cliff.  The dreaded sequester of discretionary spending is now in effect to the tune of $109B for the first year.  Taxes have been increased (at least on paper) by half a trillion dollars per year.  Even after these changes, however, the fiscal year 2013 deficit is still estimated to come in at around $400B.

Stock prices have taken a hit, businesses are trimming their payrolls, the rating agencies renew their threats to cut the US credit rating again, European officials (led by IMF head Christine Lagarde) warn that global economy will founder unless the US gets its fiscal house in order, and the mainstream media plays up the story for all it is worth.

The Republican-controlled House passes legislation to retroactively extend the Bush tax cuts and business expensing provisions, patch the Alternative Minimum Tax, cancel the estate tax rate hike, and cancel the sequester of defense spending. 

The Democratic-controlled Senate blocks the House bill and passes legislation to reinstate the Bush tax cuts only on the first $250K of income (letting most of the income tax increase stand for high earners), patch the AMT, and renew wind energy credits and other “extenders.”

Both sides go all out to make their case to the American public.  Meanwhile, fundamental reforms of the tax system and entitlement programs get lost in the shuffle, although it is vowed that these issues will be dealt with after the 2014 elections.

Which side would carry the day in this scenario.  Probably the Democrats, we think, but this point can be argued either way.  For example:

For once, Republicans must ignore all calls and jump off cliff, Matt Towery (a veteran of the 1995-96 budget war recalls how Clinton was pulled towards the political center when the GOP “shut down the government”), Townhall.com, 12/13/12, http://bit.ly/SWUUBU

Resisting the “no surrender” temptation, Philip Klein (having lost the 2012 elections, he argues, the GOP must “make some accommodation for reality” by agreeing to tax rate increases for high earners), Washington Examiner, 12/12/12, http://bit.ly/SYgvbY

If Congress and Obama kick the can down the road with a "tax the rich" temporary solution in December, Obama will roll everyone next year. Promises by the administration of spending cuts in the future or assertions that "existing cuts" are future ones are hollow and silly. What leverage will the GOP have next year that will be stronger than the cards they hold now? The answer: none.

What happens when Harry Reid holds a vote on a bill that lowers rates on the middle class? Will Republican senators vote against it? If so, their challengers can run ads attacking them for voting against a massive middle-class tax cut. ***And when, in all likelihood, such a bill passes with near-unanimous support in the Senate, what does it do to the House GOP's low-tax brand if their members [block] the same tax cut?

Hold your nose, Republicans, and take a dive off the cliff into the uncertain waters of temporary unpopularity. You won't drown, and you will force the other guy to have to start swimming just as hard.

Republicans' best option . . . is to make Bush-era tax rates permanent for income under $250,000 . . . [which] wouldn't necessitate giving in to Obama's demands for larger tax increases in [exchange for] inconsequential tweaks to entitlement programs.

Leaving calculations of political advantage aside, however, we think there would be two  notable benefits from going over the fiscal cliff.

First, this would bring home to the American public – in a way that the political rhetoric in vogue has failed to do - that there is no quick fix for the fiscal problem. 

Most political leaders appreciate the problem, but many seem preoccupied with other concerns.  Consider this response (http://bit.ly/UPVtd9) to SAFE’s recommendations (including a no budget/no pay rule) for navigating the fiscal cliff:

Thank you for taking the time to contact me regarding [spending] sequestration.*** I was one of 38 members to vote for a budget proposal . . . modeled after the Simpson-Bowles deficit reduction plan ***As we near the January 2nd deadline, I will continue to work with my colleagues in the House to devise a responsible deficit reduction plan that will preserve crucial programs and make investments in our economy.

And for Americans who had been buying the line that the fiscal cliff could be averted by raising tax rates for high earners, it might be an eye opener to realize that their own taxes had just gone up by a significant amount.

Second, discussions of the fiscal problem would be more productive if they were conducted publicly, as Senator Jeff Sessions (R-AL), ranking minority member of the Senate Budget Committee, argues in a 12/12/12 Wall Street Journal column. “We can’t fix the budget in secret” is posted on (http://www.sessions.senate.gov/public/).

Here are some advantages of open debate that Senator Sessions points to:

1. Permit a wide range of views to be considered instead of allowing only a chosen few to participate. 

Washington has become possessed by the idea that a small group of negotiators, meeting in secret, can solve the deep, painful and systemic problems plaguing this country with a single "grand bargain," produced at the 59th minute of the 11th hour.

2. Facilitate serious work on the issues, which Senator Sessions sees taking place in the Senate. We have suggested roles for the House Ways and Means Committee and a Joint Entitlements Committee, and would certainly favor an open process for them as well.

•No one denies that good people have been trying hard, but what have all these secret talks produced? Temporary fixes, stopgap measures and another set of emergency deadlines.

Amendments should be offered as part of an open process to modify and perfect legislation. The debate should be brought to the Senate floor. It may take dozens of votes, even scores, to reach a consensus.

3. Restore a sense of purpose to the US Senate [and to Congress as a whole, we would add].

Members of the Senate must reassert their chamber's historic role as the national institution where the great challenges of our time are debated, clarified and ultimately resolved in public view.

4. Make clear to the American public what is going on instead of running a “black box” type of operation.

. . . the American people need to be in on the process and have the opportunity to voice their opinion on concrete proposals. Have we forgotten that it is their future that is at stake?

5. Make it easier to track what elected leaders are doing and, if appropriate, hold them accountable.

If some of our constituents are disappointed in the results or the votes cast by their senator, at least they can know that nothing was hidden from them, that everything was laid on the line for the future of this great Republic. They will know which senators gave their all to deal wisely and courageously with the great challenge of our time—and they can hold accountable those who did not.

Here’s a cartoon that makes that last point (just think of Uncle Sam as representing the voters, or at least the ones who are paying attention).



Updates re “secret” talks: (A) According to sources, Speaker Boehner has offered a higher tax rate for annual income of over $1M, but wants “chained CPI” inflation adjustments for Medicare, etc. that would “save hundreds of billions over the next decade.”  Politico.com, 12/15/12 (9:48 PM), http://politi.co/TlQh39; (B) The president reportedly believes this offer “is not enough” and “there is much more to be worked out before [he] can reciprocate,” Reuters, 12/15/12 (11:02 PM), http://reut.rs/UJ6dfE.

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Don’t assume that whatever revenue increases are accepted will reduce the deficit. Unless and until the current spending spree is reined in, trillion dollar deficits will continue. No deal should be struck until there is a budget with fixed limits on department spending. – SAFE director

I agree, going over the cliff could be the best thing for Republicans.  They could come back in early Jan and reduce middle income taxes. – SAFE director

top      wwhipple3@verizon.net

12/10/12 – Never mind a war on obesity            Read a Reply

Last week’s entry provided an overview of what to expect as GovCare is implemented: continuing run-up in healthcare and healthcare insurance (HCI) costs, many Americans still without HCI, growing federal (vs. employer or state government) control, and de facto healthcare rationing (especially for the elderly). 

True, we said, there is a possibility of efficiency/effectiveness gains over time from restructuring the healthcare industry.  The government should not lead the restructuring process, however, because government-driven solutions entail too much collateral damage.  Now let’s use a specific example – the potential healthcare cost savings from reducing obesity - to demonstrate the point.

BACKGROUND: At an Imagine Delaware forum on healthcare in mid-November, Bettina Tweardy Riveros (healthcare policy adviser for the governor) stated that two-thirds of Delawareans are overweight.  This causes a variety of health problems, e.g., 113K residents suffer from diabetes or pre-diabetes.  If half of these people shed the excess pounds, one might expect a big reduction in medical treatment costs. The (Wilmington, DE) News Journal, http://bit.ly/IS7Ktq (11/21/12)

This apparent opportunity is not limited to Delaware.  “Nearly half of the US population will be obese by 2030, with those severely obese making up over ten percent of the population.”  If the number of overweight Americans could be stabilized rather than continuing to grow, it has been estimated, $550B in healthcare costs could be saved in the next 20 years. Controlling obesity will save over half a trillion dollars, Medical News Today, 5/7/12.  http://bit.ly/IIB60w

One reaction to these statistics might be that individual Americans determine what they eat and whether they exercise or not, so if they don’t choose to take care of themselves that’s too bad.  Everyone has an economic stake in the matter, however, because people with unhealthy life styles drive up HCI premiums and/or taxes for the rest of us.

The panelists at the Delaware forum seemed to think the healthcare system should address the obesity problem in some fashion. Thus, Dr. Robert Laskowski (Christiana Care) called the concept of personal responsibility “pretty complicated,” and suggested healthcare providers “need to make it easy to do the right thing so patients can be accountable.” 

Before considering what sort of program might make sense, let’s probe the purported linkage between obesity and serious health problems.  The first step is quantification, i.e., at what point does one’s weight become a problem?

Absolute weight is not a suitable standard because tall people naturally weigh more than shorter people.  Accordingly, Body Mass Index (BMI) is calculated by dividing weight in kilograms by height in meters squared.  Thus, if Mr. X weighs 100 kg (about 220 pounds) and is 2 meters (about 6.5 feet) tall, his BMI is 100/4 = 25.  

High or low BMI is a risk factor for premature death, but the relationship is typically U-shaped versus linear.  With very high BMI (30+ is considered “morbidly obese”) or very low BMI (anorexia, etc.), the “likelihood of dying too soon increases dramatically,” but BMI is “a very gentle risk factor” between these extremes. Indeed, “yo-yo” weight changes as the result of sporadic dieting are considered a bigger problem than being modestly overweight.  The Last Well Person, Dr. Nortin Hadler, McGill-Queens University Press (2004). http://www.s-a-f-e.org/wellperson.htm

Re diabetes, obesity is commonly identified as a major risk factor – both for adults and children – but statements to this effect often neglect to specify the degree of obesity involved.  See, e.g., Diabetes – diseases caused by obesity, Walter Jamison, ezinearticles.com, 2007. http://bit.ly/UFS3xR

Moreover, there is evidence of a more specific cause for the surge in diabetes than obesity per se. And it turns out that the U.S. has been the world’s largest producer and consumer of the offending product since the 1970s - due in large part to farm subsidies.  Global high fructose corn syrup [HFCS] use may be fueling diabetes increase, Katherine Harmon, Scientific American, 11/27/12.  http://bit.ly/UU5fNN

INDIVIDUAL ACTION: The foregoing information is readily available, so why don’t individual Americans act on it?  After all, their very lives (not to mention the wellbeing of their dear ones) may be at stake if they don’t control their diets and/or fail to get enough exercise.

A threshold problem is the economic abundance our country enjoys, which has encouraged Americans to become a nation of “couch potatoes.”

Processed foods and restaurant meals are tempting and relatively affordable - most workers are now engaged in service and information processing activities versus manual labor - television and the Internet make it unnecessary to leave home for entertainment - welfare programs, such as unemployment benefits, food stamps, and disability benefits, enable recipients to drop out of the workforce altogether.

Almost anyone could stop snacking, avoid fried foods, walk up the stairs instead of taking the elevator, visit the gym more often, or whatever.  It seems like a “no brainer” to take such steps.  But current convenience can trump the risk of adverse consequences at some indefinite point in the future. The Innovator’s Prescription: a disruptive solution for healthcare, Christensen, Grossman and Hwang, McGraw Hill (2008), pp. 171-2. http://bit.ly/9ijYGR

People who don’t want to do something that they know they should do have marvelously inventive abilities to ignore what they know.  They resolve to start tomorrow, or conclude that it’s okay if they just don’t do it.

•Maintaining health is a job that only a minority of people prioritize in their lives.  For the rest, becoming healthy only becomes a priority job after they become sick.

Strange as it may seem, an economic incentive to lose weight (say a reduction in one’s HCI premium) would get more attention than the risk of serious health consequences. In other words, “improve my financial health” is a stronger motivator than “maintain my physical health.”  There are legal barriers to providing HCI discounts for those who manage their weight or comply with prescribed therapies (e.g., testing their blood glucose frequently) for chronic conditions such as diabetes, however, while the cost of treating those who develop serious health problems as a result of doing otherwise is subsidized.   Christensen et al., pp. 172-4. 

Don’t look for any major modifications of the aforesaid barriers and/or subsidies under GovCare, which is primarily directed to imposing new requirements on healthcare providers versus encouraging individuals to act more responsibly.

In sum, individual action is at best a partial answer to the so-called obesity epidemic.  Who else could contribute to solving this problem?

EMPLOYERS: Stung by rapidly rising HCI premiums yet reluctant to cut the healthcare benefits provided to their employees, some employers have implemented wellness programs to provide guidance and positive reinforcement of compliant behavior. 


Judging from the success stories, such programs work pretty well – although it may take a while to get results.   Centers for Disease Control and Prevention, LEAN Works! – A workplace obesity prevention program, video (3:37) http://1.usa.gov/194nnw

The applicable techniques apparently include renegotiating cafeteria contracts to provide healthier food options (sales reportedly go up), providing or subsidizing workout facilities, and communicating awareness and knowledge about the tie-in between employee health and HCI premiums (presumably including the employee portion).  One HR manager is quoted that every dollar spent on the company’s wellness program has reduced HCI premiums by $7 – an impressive return on investment.

The foregoing programs reflect the initiative and efforts of the private employers concerned, which the CDC documented after the fact.  Kudos for all concerned, including the CDC! The government can often accomplish more by learning and encouraging than by dictating.  Christensen et al., p. 425.

. . . the employers that now pay for healthcare, and the companies that make healthcare products and provide healthcare services, need to initiate the regulatory changes that enable disruption.  They must do this in the way that disruptive deregulation has always occurred – by innovating where the regulations can’t reach, don’t apply, or are off the radar screens that regulators most intensely monitor.

Recently proposed Dept. of Health and Human Services regulations list “preventive and wellness services and chronic disease management” as one of ten categories of “essential health[care] benefits” that must be included in qualifying HCI policies. The other nine categories run the healthcare gamut (except for dental care?), i.e., ambulatory patient services, hospitalization, maternity and newborn care, mental health and substance use disorder services, prescription drugs, rehabilitative and habilitative services and devices, laboratory services, and pediatric services (including oral and vision care). 

The requirements for a wellness plan are rather general, e.g., it “must have a reasonable chance of improving health or preventing disease and not be overly burdensome for individuals.”  Such a plan can “reward patients who lower their cholesterol, for instance, by cutting premiums.” Federal government releases long-awaited health[care] reform rules, Maggie Fox, NBC News, 11/20/12. http://nbcnews.to/WtTP7l

Sounds OK, except why permit premium cuts only to reward patients who lower their cholesterol?  Is HHS truly concerned with patient wellbeing or is it doing a favor for the pharmaceutical companies that sell Lipitor and other anti-statin drugs?

In general, for reasons discussed last week, GovCare will make the provision of HCI by employers more onerous and expensive.  It seems likely that the number of people covered by employer plans will shrink, and in any case tens of millions of Americans will get their HCI coverage through Medicaid, CHIP, or the new government-run exchanges.  So let’s consider how the government is likely to combat obesity.

GOVERNMENT PROGRAMS:  It is often claimed that GovCare will lower healthcare costs by encouraging better practices, e.g., wellness and preventive care, coordinated care networks focused on achieving better outcomes vs. functioning on a fee for service basis, etc. Here are some illustrative comments from the recent News Journal series on healthcare. http://www.s-a-f-e.org/delaware_chatter.htm

Senator Tom Carper: GovCare “expands access to healthcare and improves health outcomes while also lowering costs.”  Thus, “Delawareans will purchase quality and affordable health[care] insurance on a state exchange that forces insurers to compete for customers on a level playing field while giving individuals and small businesses the same buying power as large companies.” And prevention and wellness programs will provide “win-win” outcomes. (10/28/12, story D)

Representative John Carney: Rising healthcare costs are a big problem.  We need “systemic change in the way healthcare is delivered,” e.g., by encouraging healthcare providers “to focus on the quality, rather than the number, of [healthcare] procedures.” Also, focus on prevention rather than treatment plus realize savings from electronic medical records to support “more coordinated and efficient care.” (10/28/12, story D)

Rita Landgraf (DE HSS secretary) reportedly believes “healthcare changes at the national level and in the state focus on changing behavior and, in the process, lowering the cost of medical care.”  GovCare “talks a lot about evidence-based medicine” and “there is going to come a time we only pay for strategies that work.”  (10/28/12, story E)

“Healthcare accountability [under GovCare] garnered significant focus during the discussion,” e.g., hospitals will be “penalized for readmitting Medicare patients for the same illness within 30 days of first receiving care” and there will be “some reforms for paying physicians for good outcomes, rather than paying for every visit and every test patients receive.” (11/21/12 story on the Imagine Delaware forum)

Dr. Robert Laskowski of Christiana Care is reportedly a “big fan” of GovCare.  He is “optimistic – as nearly everyone on the panel seemed to be – about the promises it could bring.”  Indeed, “value-based initiatives, at Christiana and throughout the state, are [already] giving Delaware a leg up in solving some of the problems in the current healthcare system.” (11/21/12)

However, the goal of fostering innovation seems contradictory to the prime focus of GovCare: establishing rights to defined HCI benefits while limiting the ability of insurance companies to adjust premiums for risk factors (no differentiation based on gender or preexisting medical conditions; unrealistically limited differentiation based on age).  We are therefore inclined to agree with critics who doubt the provisions aimed at fostering innovation will prove effective, as illustrated by the following comments from the News Journal series. http://www.s-a-f-e.org/delaware_chatter.htm

Tom Kovach (at the time a candidate challenging Rep. John Carney) suggested that GovCare will not foster meaningful competition in providing healthcare and HCI. He would support legislation to open up the system for “different types of medical coverage, including major medical and doctor provided plans, in order to fit the very different needs of patients.”  He also advocated tangible incentives (tax credits, liability protections) for “doctors willing to volunteer their time in clinics” and for “patients to obtain preventive care.”  (10/28/12, story D)

Wayne Smith (CEO of Delaware Healthcare Association, a trade group representing Delaware hospitals and health[care] systems) noted several issues with the GovCare provisions:  (A) Accountable Care Organizations would bring healthcare providers together to manage population health under a single per-person payment to be shared by all the participating providers.  However, initial federal regulations were “so onerous that organizations indicated they would not participate.”  A new framework is in the works, but “still provides less clarity than hoped for.”  (B) GovCare will create new demands for healthcare services, but no increase in the trained professionals to do the work.  (C) Healthcare is changing from an individual to a group practice approach, and some government agencies are supportive.  However, other government agencies (e.g., the FTC and the California Attorney General) are impeding collaboration.  Everyone needs to get on the same page. (10/28/12, column F)

We would also expect a government goal of combating obesity to expand beyond the confines of the healthcare system to the regulation of a variety of other economic activities, with the potential for considerable curtailment of individual freedom.

Thus, one provision of GovCare “requires restaurant chains with at least 20 locations or franchises to post calorie counts next to prices on menus, menu boards and drive-through menus.  *** Other nutrition data, which must be available on request, would include calories from fat, cholesterol, sodium, carbohydrates, sugars, dietary fiber and protein.” Bad medicine: A guide to the real costs and consequences of the new healthcare law, Michael Tanner, Cato Institute (updated 2011). http://bit.ly/AoUaNJ (download PDF).

Good idea?  Perhaps some consumers will make healthier selections as a result of these requirements, but the ones who do are probably health conscious already.  On the other hand, the cost of these requirements – which will be passed on to consumers via higher prices – should not be underestimated.  Obamacare’s pizza price, 11/23/12, Washington Times. http://bit.ly/XMkQ7N

[The OMB] listed the menu display imposition as the third most burdensome statutory requirement enacted that year, forcing retail outlets to expend 14,536,183 work hours every year just to keep Uncle Sam happy. [And the FDA] decided on its own initiative to sweep certain convenience stores and pizza delivery storefronts under the calorie-count requirement [and is] even micromanaging compliance, down to determining the sizes of fonts that can be used on menu signs. Small-business franchisees will bear the majority of the burden. *** The signage overload is also headed for grocery stores that feature items like fresh bakery goods and food bars. Store owners must either slap up the signs everywhere or label each individual product. *** This ultimately affects the products stores will be able to offer consumers. “It forces you into a central kitchen,” said Jennifer Hatcher, a senior vice president for the Food Marketing Institute, which represents 26,000 retail food stores. *** For those watching their waistline, various online calculators and smartphone apps provide the needed information. Regulators seem more interested in bullying business than achieving a tangible result.

And this is just one example of the nanny state (federal, state and local) spreading its tentacles in this area.  Here are several others:

•New York Mayor Michael Bloomberg’s proposed ban on large soft drinks, which some members of the Board of Health would like to see extended to other products.  Bloomberg soda ban, Michelle Castillo, CBS News, 6/13/12.  (http://cbsn.ws/LKnyUn)

Requirements implemented pursuant to the “Healthy, Hunger-Free Kids Act of 2010,” which uses federal funding to coerce schools into providing meals with fewer calories, have sparked discontent around the country.  The problem is federally subsidized school lunches, Daniel Mitchell, Townhall.com, 10/8/12. http://bit.ly/VQO3wo

Few school districts have been as extreme in their efforts as Los Angeles, which introduced a menu of quinoa salads, lentil cutlets, vegetable curry, pad Thai and other vegetarian fare last fall. When students began rejecting the lunches en masse, the district replaced some of the more exotic dishes with more child-friendly foods, like pizza with whole-wheat crust, low-fat cheese and low-sodium sauce. But this year, even the whole-wheat pizza is gone, replaced by calzones, fajitas and other, smaller entrees with side dishes of fruits and vegetables. Nicole Anthony, the cafeteria manager at one Los Angeles school, Nimitz Middle School in Huntington Park, estimated that out of the 1,800 students, almost all of whom qualify for a free or reduced-price lunch, only 1,200, “on a good day,” now eat the cafeteria’s offerings.

•Attempted regulation of food brought to school by students.  Chicago school bans some lunches brought from home, Monica Eng & Joel Hood, Chicago Tribune, 4/11/11.


We are aware of no efforts, however, to terminate the agricultural subsidies that have encouraged the widespread use of corn-based fructose and thereby contributed to the growing incidence of diabetes.  Such action would not only promote health, but cut bureaucracy and spending as well.

Looking down the road, we can envision a full court press against obesity that would rival the war on smoking.  Government-supported communications to shape public attitudes, support or toleration of litigation against fast food restaurants, punitive taxes on junk foods (Obama’s 2009 stimulus chief [Larry Summers] says taxes and rules on junk food are coming, Joel Gehrke, Washington Examiner, 11/28/12, http://bit.ly/VvBLnD), strict regulation of advertisements, the whole nine yards.

Would the American public tolerate their liberty being infringed in this manner? It is certainly possible.  Note that there is growing support for legalizing marijuana on grounds that it is not harmful (a better argument would be that the current ban has not been effective), yet people don’t tend to get excited about government proposals to regulate vending machine snacks and big gulp sodas. The truth about marijuana, conservativevideos.com, 11/27/12. http://bit.ly/YmP40f (8:50)

Speaking for ourselves, we think the government should have better things to do than starting a war on obesity that isn’t necessary and probably couldn’t be won anyway.  What do you readers think?

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Well-researched essay on healthcare. The ONLY objective governments have here is control.. – SAFE director

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12/3/12 – The GovCare muddle

The Republican mantra since 2010 has been that GovCare  (aka Obamacare) must be repealed and replaced, while Democrats have been pushing to get the legislation implemented. Was this matter settled by the president’s reelection?

Yes, in the sense that it is now clear that the legislation won’t be repealed and replaced with something else.  [House Speaker John] Boehner capitulates: “Obamacare is the law of the land,” Matt Cover, cnsnews.com, 11/9/12.  http://bit.ly/YYRDnS

But this not does mean GovCare is home free.  Indeed, the battle is just getting started.

#Outlays for this program will not be exempt from assaults on federal spending, which in the aggregate is resulting in huge and unsustainable deficits. Boehner comments show tough road ahead for “fiscal cliff” talks, Roberta Rampton, TownHall.com, 11/22/12. http://bit.ly/QAGzwz

#Republican support for GovCare is sparse, and Democratic support is weakening.  Majority says federal government shouldn't be responsible for healthcare, Guy Benson, Townhall.com, 11/28/1 http://bit.ly/UsTP5l

For the first time in Gallup trends since 2000, a majority of Americans [54%] say it is not the federal government's responsibility to make sure all Americans have healthcare coverage. *** In 2007, 38% of Republicans [and Republican-leaning independents] thought the government should do so; now, 12% do. Among Democrats and Democratic leaners there has been a much smaller drop, from 81% saying the government should make sure all Americans are covered in 2007 to 71% now.

#Even its supporters do not see GovCare as an ideal solution, but rather what Senator Tom Harkin (D-IA) called a “starter home.”  What the left really wants and will keep pursuing is universal healthcare coverage (single payer system).  After victory, liberals want income redistribution, Byron York, Washington Examiner, 11/26/12. http://bit.ly/SwRRPl

#GovCare will have distinctly mixed results – no relief on healthcare and healthcare insurance (HCI) costs, many Americans still without HCI, growing federal (vs. employer or state government) control, and de facto healthcare rationing (especially for the elderly).  Don’t say we didn’t warn you. Details follow.

A.  Healthcare costs will keep rising rapidly – It was initially claimed that the GovCare proposal would help to bring the rising cost of healthcare under control (or bend the cost curve downward), but the basis for such claims was unclear. Competition would not be enhanced, the number of doctors and nurses would not be increased, and there wasn’t even a plan to curb medical malpractice claims. 

Skeptical observers tended to conclude that healthcare cost pressures would not abate, but might actually intensify – and why not since demand would be fueled without any increase in supply. Also, new taxes on healthcare providers would predictably be passed on to consumers via higher prices.

Claims that healthcare costs will be better controlled under GovCare are seemingly based on a vision of systemic changes – referred to in the statute and to be supported by government administrators - that could simultaneously reduce costs and improve results.  Imagine more money spent on preventive care vs. waiting until people get seriously sick, patients quickly and efficiently treated by coordinated teams of medical professionals, and healthcare providers compensated based on results achieved instead of tests and procedures provided. Healthcare system wastes $750 billion a year, Richard Alonso-Zaldivar, Christian Science Monitor, 9/6/12.  http://bit.ly/P6D0v7

How much is $750 billion? The one-year estimate of healthcare waste is equal to more than ten years of Medicare cuts in Obama's healthcare law. It's more than the Pentagon budget. It's more than enough to care for the uninsured.

In a somewhat similar vein, a Harvard Business school style analysis concluded that the entire healthcare industry is ripe for restructuring. The Innovator’s Prescription: A disruptive solution for healthcare, Christensen, Grossman and Hwang, McGraw Hill (2008). http://bit.ly/9ijYGR

Thus, hospitals must be redirected to focus on diagnostic services and cede provision of standardized care and wellness coordination to specialized clinics and other agencies. Primary care physicians (the traditional "family doctor") should concentrate on diagnostic services at a lower level rather than acting as "gatekeepers" for referrals to specialists. *** When the dust settles, there will be fewer hospitals (with the survivors focused on enhanced diagnosis, like the Mayo Clinic), fewer medical specialists (who currently operate in narrow niches, often without a full grasp of a patient's situation), more primary care physicians and nurses with augmented responsibilities, a new model for pharmaceutical companies that focuses on targeted medications for precisely defined conditions versus the development and marketing of "blockbuster" drugs that only help a fraction of the users and require enormously expensive mass clinical trials, and a lot of medical work performed by less highly trained personnel with better diagnostic tools.

Christenson et al. also concluded (we are not convinced of this) that doctors, hospitals, and other healthcare providers could not make the needed changes without guidance from someone who was not part of the system.  Their suggested change agents were employers championing innovative healthcare programs, however, rather than the government.

Despite Americans’ faith to the contrary, democracy as a tool for eliciting cooperation around a course of action only works when little significant change is needed.  The reason is that regardless of how badly broken things might be, there are always powerful entities that benefit from the status quo.  Regulations always benefit someone, and democracy provides myriad levers that these entities with a lot at stake can pull in order to block change.

We agree that more government regulation is unlikely to improve the healthcare system, but not for the reason stated.  Many examples come to mind in which governments brought about big social or economic changes.  The problem is that when governments get seriously exercised about a problem they impose brute force solutions, which cause a lot of collateral damage.  Also, the practice of resorting to government action is addictive.

As a case in point, tune in next week for discussion of why health-related concerns about overweight Americans should not be thought to justify a federal war on obesity.

In the meantime, suffice it to say GovCare proponents do not claim the cost savings from the top-down overhaul they envision will be quickly achieved.  Thus, Dr. Ezekiel Emmanuel, a former White House staffer who now chairs the University of Pennsylvania’s department of medical ethics and health[care] policy, says the $2.8T healthcare system will not “be transformed overnight and no transition is without some bumps and challenges.”  (Wilmington, DE) News Journal, 11/18/12. http://bit.ly/IS7Ktq

So if big reductions in healthcare costs are to be achieved any time soon, they will come from rationing healthcare in some fashion rather than effectiveness/efficiency gains.  See Section F.

B. Healthcare insurance premiums will rise rapidly – Assuming the healthcare cost curve will not be bent downwards in the foreseeable future, for the reasons just discussed, it stands to reason that HCI premiums will continue to rise rapidly. 

Reinforcing this conclusion, mandated new insurance requirements, such as no denial of coverage for preexisting conditions and permitting children to remain on their parents’ policies until age 26, will cost money.  Insurance companies will quite properly seek to recover this cost in the premiums they charge.

True, GovCare will require younger workers to sign up for insurance coverage or pay a fine, generating a substantial increase in business volume for insurance companies.  And younger worker premiums must be at least 1/3 of older worker premiums, which sets up the possibility that younger (and relatively healthy) workers could subsidize insurance coverage for their older colleagues. 

Younger workers may choose to pay the fine and forego insurance, however, particularly since HCI cannot be refused if they develop serious health problems later. 

All things considered, it appears that HCI premiums will continue rising at about the same rate or in some cases faster, i.e., GovCare will not alleviate this problem. Bad medicine: A guide to the real costs and consequences of the new healthcare law, Michael Tanner, Cato Institute (updated 2011). http://bit.ly/AoUaNJ (download PDF).

Most American workers and businesses will see little or no change in their skyrocketing insurance costs, while millions of others, including younger and healthier workers and those who buy insurance on their own through the nongroup market will actually see their premiums go up faster as a result of this legislation.

C.  Many Americans will remain without healthcare insurance  – One of the key selling points for GovCare was that some 50M Americans lacked HCI; the legislation was supposed to address this issue.  It is now estimated, however, that 30M Americans will still be uninsured after the law is implemented. Letter to Speaker Boehner re HR 6079, the Repeal of Obamacare Act, Congressional Budget Office, 7/24/12. http://1.usa.gov/MFGBAM

Here are some estimates extracted from Table 3 in the CBO’s 7/24/12 letter:


Millions of uninsured nonelderly people






With GovCare





Without GovCare





The uninsured estimates with GovCare include (A) citizens who are eligible for one of the several forms of HCI but don’t choose to participate, and (B) illegal aliens who are not legally eligible for Medicaid or government-run HCI exchanges.  Re the first category, here are some illustrative reasons why a person might not acquire HCI: (i) Eligible for Medicaid or CHIP, but has not bothered to sign up; (ii) Young and healthy, elected to pay the fine vs. enrolling in employer’s HCI plan and paying a relatively high premium; (iii) Incarcerated, homeless, etc.  

As a case in point, rising HCI premiums for Walmart are partially passed on to employees, some of whom may not accept the increases.  Walmart employees to pay more for healthcare plans, Reuters, 11/12/12. http://reut.rs/UjgQ6C

“Wal-Mart Stores Inc's U.S. employees will pay between 8 and 36 percent more in premiums for its medical coverage in 2013, prompting some of the 1.4 million workers at the nation's largest private employer to say they will forego coverage altogether.”

Colby Harris works in Walmart’s produce department in Lancaster, Texas, for $8.90 per hour and takes home less than $20,000 per year. On learning that his HCI cost per paycheck would rise to $29.60 from $25.40, he reportedly decided not to sign up for coverage. Given his low income, any major medical bills could potentially be covered by Medicaid.

D.  Many employers will drop their HCI plans – According to government estimates, GovCare will not greatly affect the number of working Americans covered by employer HCI plans.  Thus, Table 3 in the CBO’s 7/24/12 letter shows: (1) this number will be 157M in 2022 (after GovCare implementation) vs. 158M currently; and (2) the 2022 number would be only 4M higher (or 161) without GovCare.  Here are the overall HCI profiles for these years under current law (with GovCare):


Millions of nonelderly people with HCI




2022 alt.

Employer plans




Medicaid & CHIP




Individual coverage & Medicare












The 2022 estimates seem dubious, and the 2022 alt. numbers (even though shown only for illustrative purposes) may be closer to reality.  Our reasoning follows.

Faced with sharply rising HCI premiums under GovCare (see Section B) plus increasingly burdensome regulatory and reporting requirements, many employers will decide to pay the $2K per employee annual fine and drop their HCI plans.

In New York, the average employer contribution for employer-provided insurance plans, runs from $4,567 for an individual to $ 12,748 for a family. Many companies will likely choose to pay the penalty instead, which is still expensive — $2,000 per worker multiplied by the entire workforce, after subtracting the statutory exemption for the first 30 workers.

Alternatively, many workers may avoid or minimize the no-HCI fine by (a) not hiring enough workers to hit the 50 full-time (defined as 30 hours per week or more) worker threshold and/or (b) cutting the hours of existing workers. Big fast food chains that have traditionally provided their employees with bare bones HCI coverage (not acceptable under GovCare) are considering such strategies; many other firms are considering hiring freezes or layoffs. “Overall, according to the Congressional Budget Office, ObamaCare could end up costing as many as 800,000 jobs.” The 49ers, Michael Tanner, New York Post, 11/18/12. http://bit.ly/UP5dFg

Eliminating HCI coverage would not necessarily betray employees, as they could then enroll in Medicaid and/or subsidized government HCI exchanges.

E. Many HCI exchanges will be run by the federal government – If an employer does not offer HCI, the default option is that workers can participate in a government-run and subsidized HCI exchange.  Such exchanges can be set up and operated by the several states, so long as federal requirements are met, or failing that by the federal government. 

When these provisions were enacted, it was presumed that the exchanges would be run by the states.

. . . it never occurred to ObamaCare supporters that states would refuse to comply. The New York Times reports (8/4/12), “Mr. Obama and lawmakers assumed that every state would set up its own exchange.”

At this point, however, a number of Republican-controlled states have decided not to set up exchanges and more states may follow their lead.  This threatens the implementation of GovCare for holdout states, because tax credits for joining an exchange (and the associated fines for not joining) are only clearly available for state exchanges. 

The IRS has announced that it will recognize the statutory tax credits for federal exchanges, but their position will surely be challenged in court. Why “Obamacare’s critics refuse to give up,”  Michael Cannon, Townhall.com, 11/25/12. http://bit.ly/V7Zlwl

And assuming the government wins in court (after the outcome of the initial Supreme Court case we’re not about to predict otherwise), the logistical challenges of setting up federal exchanges (which must be individually designed to dovetail with the state HCI systems) for 15-20 states will reportedly be considerable.  Obama faces huge challenges in setting up health[care] insurance exchanges, Elise Viebeck, The Hill, 11/25/12.

Some observers doubt the federal government will be able to set up all of the exchanges for use starting in 2014, and in any case there is likely to be some sticker shock about premium costs.  Obamacare’s stumbles pose political risks for Dems, Washington Examiner, 11/28/12.  http://bit.ly/TtdaQu

In California, one of the few states that has made any significant progress establishing a health[care] insurance exchange that is compliant with Obamacare regulations, state regulators have warned existing policyholders that their insurance premiums will rise by as much as 25 percent once the exchange comes online. The reason is that Obamacare forces all insurers to sell policies at regulated rates to anyone who applies, regardless of medical history. As individuals with greater medical needs enter the insurance market, thus driving up health care spending, insurers will simply have to raise premiums on everyone to make up the difference.

F. Budgetary pressures will result in de facto healthcare rationing – As readers of this blog are well aware, the government’s overall fiscal situation is dire – and there is not much enthusiasm for raising taxes (with the possible exception of taxes paid only by someone else, i.e., high earners).  The obvious answer is to cut spending, and sooner or later there will be serious spending cuts – including to healthcare and other entitlement programs – or the government will experience a fiscal meltdown that could dwarf our current problems.

Given that healthcare outlays (Medicare, Medicaid, CHIP, and now subsidized HCI exchanges) are the biggest component of the budget, there will be powerful pressure to cut them.

Even if GovCare offers huge effectiveness/efficiency gains in the long run, of which we remain to be convinced, such savings would not be deliverable on demand.  See Section A.  So the near inevitable reaction to a demand for spending cuts is bureaucratic restrictions on healthcare expenditures, most likely targeting medical procedures (hip replacements, etc.) and end of life treatment (other than “comfort care”) for the elderly.

Decisions to forego care at some point may seem natural if patients (or family members in some cases) and their doctors are calling the shots, but become repellent if they are determined by “one size fits all” government regulations.

When Sarah Palin famously assailed government “death panels,” her statement was heatedly denied, but she was not far from the mark. Obama adviser [Steven Rattner, who supervised the auto bailout and currently serves on the board of the New America Foundation, a George Soros-funded think tank] admits: “We need death panels,” Aaron Klein. http://bit.ly/P7irAq

“We need death panels,” began Rattner [in an op-ed for the New York Times]. “Well, maybe not death panels, exactly, but unless we start allocating health-care resources more prudently – rationing, by its proper name – the exploding cost of Medicare will swamp the federal budget.  [It’s time to acknowledge that] elderly Americans are not entitled to every conceivable medical procedure or pharmaceutical.”

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11/26/12 – RX for the fiscal cliff             Read a Reply

Last week’s entry provided an overview of the fiscal cliff – what are the elements, what are people saying about it, and where do the negotiations to avert it stand.  We ended with a White House meeting on November 16, which indicated a tentative understanding that high earners will be forced to pay more income taxes by limiting their tax deductions versus raising their tax rates.

Congress subsequently dispersed for Thanksgiving week and the president made an international trip, so no further negotiations have taken place.  It appears, however, that Democrats will keep pushing to raise the tax rates for high earners (hoping to emerge as the clear winners on this issue vs. merely achieving their substantive objective).

Thus, in his weekly address on November 17, the president urged for the umpteenth time that the Bush tax cuts be extended for “middle class” taxpayers without delay.  If such legislation was enacted, of course, Republicans would be hard pressed to continue resisting expiration of the Bush tax cuts for high earners.

We shouldn’t hold the middle class hostage while Congress debates tax cuts for the wealthy. Let’s begin our work by actually doing what we all agree on. Let’s keep taxes low for the middle class. And let’s get it done soon – so we can give families and businesses some good news going into the holiday season.


And the next day, on a Sunday talk show, House Minority Leader Nancy Pelosi flatly rejected “a possible compromise that would leave rates the same, but cap deductions for high earners.” No Deal On “Fiscal Cliff” Without Tax Rates Increase, Tim Brown, FreedomOutpost.com, 11/18/12.  http://bit.ly/UAWhTp

Hmm, seems like the period of post-election cooperation may be short lived. No doubt there will be more posturing and maneuvering in coming weeks as the two sides work the issues and seek to achieve their conflicting objectives.

Many observers are concentrating on the political dynamics, e.g., would Republicans be smart to delay decisions in hopes that the president’s post-election aura will fade next year and they can negotiate a better deal.  House & Senate in fiscal cliff apathy, Tim Brown, FreedomOutpost.com, 11/17/12. http://bit.ly/RKs7yP

But we would like to do something different, namely review the issues based on facts and logic.  Which of the pending tax increases, if any, should be allowed to take effect? Is there a better way to cut spending than an across the board sequester?  How much should the debt limit be raised, and on what terms?  Our analysis follows.

Tax increases - A slew of tax cuts and preferences will expire on December 31, and some new GovCare taxes will become effective. The changes would theoretically boost tax revenues by half a trillion dollars a year, although much of this gain would evaporate if (as economists predict) the tax increases threw the economy back into recession.

With all due respect to Grover Norquist, we would suggest allowing about 40% of the tax increases to take effect.  Our recommendations are recapped below and explained in the ensuing discussion.

Tax changes as of 1/1/13 (2013 over 2012)



Expiration of 2001-03 tax cuts (not including estate)



Expiration of payroll tax holiday



Failure to patch Alternative Minimum Tax



Expiration of business expensing



Expiration of other “tax extenders”



New PPACA (Obamacare) taxes



Expiration of the 2009 stimulus



Estate tax increase



Total, Tax Increases



http://taxfoundation.org/article/fiscal-cliff-primer, 11/13/12.

Extend 2001-03 tax cuts (avert $156B tax increase) – The president would allow about half of this increase (portion applicable to high earners) to take place, while extending the Bush tax cuts for “middle class” taxpayers.  His rationale: high earners are not paying their “fair share” and could readily afford to pay more.

But as we have been saying for what seems like forever, the time has come to stop tinkering with the tax system and overhaul it from stem to stern. See, e.g., Happy 2012, and why it’s time to focus on taxes, http://bit.ly/KZ46Dg (1/2/12).

Our suggestion is simple.  There is no way to tell whether the rich are paying “their fair share” without considering the tax system as a whole. The Republicans should start the comprehensive tax reform ball rolling promptly rather than waiting until there is no time available for the task.

SAFE’s tax overhaul ideas are spelled out in our SimpleTax proposal. http://bit.ly/etlOxX No doubt there are other proposals worth considering.  So here is our message to the House Ways and Means Committee: roll up your sleeves, folks, and get to work!

Allow payroll tax holiday to expire ($125B tax increase) – The payroll tax rate for employees was cut by two percentage points for 2011 and this cut was extended for 2012.  This “holiday” never was an equitable idea, as many workers subject to payroll taxes (to partially pay for healthcare and Social Security benefits they have been promised) don’t pay any income taxes (and therefore make no financial contribution to the general cost of government).  The holiday needs to be ended before expectations develop that it will continue indefinitely.  See, e.g., Bin the payroll tax cut, http://bit.ly/Oul5tf (12/5/11).

Neither side has proposed extending the payroll tax holiday again, to our knowledge, but this could change as negotiations progress.  If so, ending the holiday may prove to be a tough sell. Fixing the fiscal cliff will hasten the entitlement crisis, Kevin Glass, Townhall.com, 11/21/12.  http://bit.ly/UYM6y0

Fix the Alternative Minimum Tax (avert $88B tax increase) – For those who believe the tax system should be simple, efficient and fair, it would be hard to dream up a worse idea than requiring millions of taxpayers to calculate their tax liabilities two different ways and pay the higher amount.  But that’s exactly what the AMT does, and ever more taxpayers are potentially affected because Congress enacted the AMT without indexing its provisions for inflation.

The best solution would be to repeal the AMT, as is provided in our SimpleTax proposal (and hopefully any other tax overhaul proposals that might be considered).  Meanwhile, the annual patch should be continued to limit the number of taxpayers affected.  To our knowledge, neither side disagrees.

Extend business expensing ($48B tax increase) – Although fixed asset, etc. expenditures are typically capitalized and depreciated (or amortized) for financial reporting purposes, a good case could be made that they should be tax deductible on a cash basis.   Such treatment is permissible for many small businesses under current tax law, and partial relief (in the form of bonus depreciation) is available for bigger businesses.  Pending an overhaul of the business tax system (covered in our SimpleTax proposal), including a corporate tax rate cut, we recommend that bonus depreciation, etc. (the provisions under this heading) be continued to avoid an onerous escalation of business tax payments. 

Allow GovCare (aka Obamacare) taxes to take effect ($36B tax increase) – While most (if not all) of the levies in this category are undesirable, repealing them now could be a strategic blunder.  We see GovCare as an ill-conceived, hugely expensive program that will have to be repealed or overhauled at some point; the taxes included in the legislation could best be reconsidered at that time.

Allow other “tax extenders” to expire ($40B tax increase) – Most of the provisions under this heading are intended to subsidize or encourage designated industries or types of activity, e.g., tax benefits for alternative fuels, energy efficiency, or giving preference to veterans in hiring decisions.  Such provisions inappropriately interfere with business decisions, and they would all be eliminated by the SimpleTax. http://bit.ly/etlOxX

The clearest way to improve matters without substantially reducing tax revenue would be to cut the corporate tax rate sharply, say to a top rate of 20%, while eliminating a host of special exemptions, deductions and tax credits (other than the foreign tax credit) that are currently in effect. Don’t make the R&D tax credit permanent, eliminate it – a tax deduction for the expense should be good enough. Say goodbye to energy tax credits, percentage depletion for oil and gas, low-income housing tax credits, and the special domestic production deduction to subsidize US-based manufacturing. Also repeal corporate AMT, which forces many companies to calculate their taxes in two ways without raising much additional tax revenue.

In harmony with the foregoing, SAFE and Climate Common Sense (a Delaware ally) recently joined 86 like-minded organizations (many of them far bigger than us) in opposing renewal of the wind production tax credit. Letter to Congress, 11/14/12, http://bit.ly/RPdqHs.

Expiration of the 2009 stimulus ($11B tax increase) – The 2009 stimulus bill was a huge mistake, in our opinion, and if there is an ongoing tax preference associated with the legislation – as is apparently the case – why not let it expire?

*Cancel estate tax rate hike (avert $10B tax increase) –The amount of federal estate & gift taxes collected is relatively small on a gross basis, and the net amount after subtracting collection costs is surely far less.  These levies would be repealed under our SimpleTax proposal (http://bit.ly/etlOxX), with taxing jurisdiction being ceded to the states.  Pending a decision on whether there should be a federal estate tax at all, there is no good reason to raise the applicable tax rate.

Spending cuts – Under the much maligned sequester, essentially arbitrary cuts of $1.2T are scheduled to be imposed on discretionary spending over a 10-year period (beginning 1/1/13).  The applicable cut for 2013 is $109B, of which half would apply to domestic spending and half to the defense budget.  Mandatory programs (Social Security, Medicare, Medicaid, etc.) would not be affected.  See last week’s entry for the history of this arrangement.

Current and projected deficits are primarily due to excessive spending (current and promised), yet the fiscal cliff negotiators have focused primarily on raising taxes.  Even when the desirability of spending cuts is acknowledged in principle, the adjustments that would be made are rarely specified. 

It is time to get serious about spending cuts, in our opinion, and some highly qualified observers agree with us.  See, e.g., Misreading the fiscal cliff, Michael Tanner, National Review, 11/21/12. http://bit.ly/SQAfMl

President Obama claims that his plan includes spending cuts — in fact, $3 in spending cuts for every $1 in tax hikes. But he hasn’t actually offered any details beyond smoke and mirrors. The president’s plan, for example, includes $1 trillion in spending cuts that were already agreed to as part of the 2011 debt-ceiling deal, a neat exercise in double-counting. He also includes savings from not fighting a war in Iraq or Afghanistan after 2014, money that was never going to be spent in the first place. And, finally, he includes $634 billion in savings from not having to pay interest on the phantom spending he’s cut. More realistic estimates suggest that the president is actually proposing almost $3 in tax hikes for every $1 in spending cuts.

Still, an across-the-board sequester is a bad way to cut spending.  It evades responsibility, treats all spending programs as of equal value (clearly untrue), and breaks down quickly because defenders of the status quo can cite cuts in desirable programs as an argument for not making any cuts whatsoever. 

A far better way to cut spending, as we have often pointed out, is to target programs or activities that are not worth their cost and restructure or eliminate them.  See, e.g., an analysis we produced last year and sent to members of the Joint Committee for Deficit Reduction. A list of targeted spending cuts, http://bit.ly/LvUNaD (8/22/11).

So what can be done to generate spending cuts given time constraints for the fiscal cliff negotiations?  We would suggest a three-step approach. 

FIRST, decide what to do about the sequester.  Our suggestion would be to cancel it for the defense budget – subject to finding some other way to honor this spending cut obligation – but leave the other half for domestic spending programs in place.  Maybe some members of Congress will get the message that the tax and spend ballgame is changing.

Some fiscal conservatives would not exempt defense from the sequester.  See, e.g., Simpson and Bowles: Obamacare, Defense Spending Must Be Cut, Forrest Jones, MoneyNews.com, 11/19/12. http://bit.ly/TcDiiS

"I think we've been disproportionately responsible for world peace and I don't think America can afford to be the world's policeman," said Erskine Bowles, former chief of staff to President Bill Clinton.

The defense budget has been reviewed and cut already, however, unlike other sectors of the government.  There probably is some fat left, but with national security at stake (and a darkening international situation) we don’t see across-the-board cuts as a good way to look for it.  See, e.g., Cut defense spending with care, http://bit.ly/KZ46Dg (1/23/12).

SECOND, agree that Congress will start following its own rules and approving a budget every year – even if tough, time-consuming negotiations are involved. 

The problem resides in the Senate, which has failed to approve a budget for three years in a row (blocking budgets proposed by the House in 2011 and 2012).  Perhaps Senator Kent Conrad, the retiring chairman of the Budget Committee, could have done more than he did.  However, his likely replacement, Senator Patty Murray, has not promised to correct the situation. Murray: Can't guarantee [fiscal year] 2014 budget, Erik Wasson, The Hill, 11/15/12. http://bit.ly/TNlCvg

It is easy to imagine a promise to approve a budget collapsing because the parties could not agree on the details, as the Deficit Reduction Committee negotiations stalemated in 2011, but there is a way to prevent this.  Douglas Holtz-Eakin suggested it.  (Tom Smith, who ran against Senator Robert Casey in Pennsylvania this year, had a similar idea.) Enact a law that the pay of members of Congress and the White House will be suspended if a fiscal year begins (on October 1 of the calendar year) without a congressionally approved budget in place, and the problem will predictably evaporate. Former CBO head: No budget, no payday, Kellie Lunney, govexec.com, 10/23/12. http://bit.ly/TyBULV

THIRD, create a Joint Entitlements Committee (with an equal number of House and Senate members, like the Deficit Reduction Committee) to explore and report on options for systematically reducing projected outlays for Social Security and healthcare programs.  The committee would be instructed not to propose any tax increases, and its reporting deadline would be June 1, 2014. 

What might such a Entitlements Committee come up with?  By way of illustration, we suggested several ideas to the Fiscal Commission that still look promising.  Getting down to brass tacks on spending, http://bit.ly/padFl8 (10/25/10).

•Social Security – The only way to stabilize this program is to convert it from a “pay as you go” (or unfunded pension plan) to a funded (individual accounts) retirement savings plan.  An individual accounts proposal was rejected in 2005, in part because the proposal was poorly designed and presented, but it may make sense to try again at some point.


In the meantime, here are two suggestions for shaving Social Security costs: (A) Raise the early retirement age from 62 to 65 and the normal retirement age from its current level (being raised from 65 to 67 by 2027) to 70, in recognition that Americans are living longer on average.  These changes would be phased in over the next decade.  (B) Tighten the eligibility requirements for disability benefit payments, which account for a significant and growing share of total Social Security outlays.


• Medicare outlays could be controlled by arbitrarily slashing reimbursement rates or rationing care, but the effect 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 further discussion, see In Search of Real Healthcare Reform, proposal 6. http://www.s-a-f-e.org/healthcare_reform.htm


• Medicaid is in worse shape than Medicare, both fiscally and operationally, and one important reason is joint federal/state management. It is hard to envision much improvement unless one level of government or the other takes charge.


We think the states should assume full responsibility.  The federal government would provide block grant funding for Medicaid 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.

•GovCare - We and other critics were hoping this legislation might be held unconstitutional by the US Supreme Court or repealed after the 2012 elections, but it now appears GovCare will be implemented starting in 2014 – with major fiscal effects.

Speaker John Boehner has stated that GovCare must be on the table in budget talks, while the other side has indicated that this is a nonstarter.  Boehner comments show tough road ahead for “fiscal cliff” talks, Roberta Rampton, TownHall.com, 11/22/12. http://bit.ly/QAGzwz

At this point, we have no suggestions on how GovCare could be improved without being repealed and replaced – but perhaps the Entitlements Committee could come up with something. 

Debt limit increase - The government is currently expected to hit the $16.4T debt ceiling around yearend, although the Treasury Department should be able to continue operating within the current limit for several months through the use of “extraordinary measures” (financial gymnastics). For discussion purposes, let’s say the increase will be $1T.  What, if anything, should be required in return?

It has been said that a debt ceiling serves no useful purpose.  See, e.g., [Former Federal Reserve Chairman Alan] Greenspan: Repeal the debt ceiling, Dan Well, MoneyNews.com, 11/20/12, http://bit.ly/QZHMxc).

There’s no need for it, given that government appropriations legislation already is passed by Congress and signed by the president. “That tells us the difference between receipts and expenditures, or what the change in debt will be,” Greenspan notes.

The debt limit does give fiscal conservatives some leverage to demand policy changes, however, and Speaker John Boehner has said the next debt limit increase must be accompanied by an equal or greater amount of spending cuts and/or tax “reforms” just as wound up happening (counting the sequester, which is still being opposed) in 2011.  Prepared remarks to the Peterson Foundation, 5/15/12. http://bit.ly/JrLvtk


We agree with Boehner’s idea, and would suggest that the agreed amount be recovered through the congressional budget process (to be restarted as proposed above).  That is, the fiscal year 2014 budget should provide (over the 10-year projection period) for recovery of the remainder of the $1.2T sequester from 2011 plus $1T to cover the debt limit increase in 2013.

A note for the members of Congress – The foregoing recommendations may seem difficult from a political standpoint, but the fiscal problem is deadly serious and it cannot be fixed without major changes in existing policies. 

We would hope that you will at least consider these ideas, and perhaps implement some of them.  If SAFE can help in any way, e.g., by answering questions or testifying, please let us know.

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If only Congress would read and heed the recommendations.  It looks like another backroom effort is underway to craft a bill the president will sign - and the GOP will approve. – SAFE director

Removing the debt ceiling, as former Federal Reserve Chairman Alan Greenspan and Treasury Secretary Tim Geithner have urged, would give the government license to spend without limit, making this country more like the European Union. – SAFE director

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11/19/12 – Stepping back from the fiscal cliff            Read Replies

Six months ago we previewed the fiscal showdown that could be expected after the elections. Coming attractions: lame duck session, 5/21/12.

The basic issues were sobering.  Another trillion dollar plus deficit was in the making.  No budget had been approved for the third year running.  Wasteful spending abounded, and the tax system was hideously complicated. 

One might have expected the nation’s leaders to sit down and discuss whether there was any common ground on these issues, any way to start making up for years of tinkering and neglect. What did they have to do, after all, that was more important? 

And failing such a meeting, at least the House Ways and Means Committee should have been working on a tax overhaul proposal that could be considered after the elections.  Goodness knows, SAFE had been persistent in suggesting this idea. See, e.g., our letter to all members of Congress, 2/1/12. http://bit.ly/wcMHT8

There was no political will to act at the time, however, so nothing of the sort happened.  And while deficits and taxes are hot topics now, the focus is on averting the so-called “fiscal cliff” at yearend rather than establishing budgets, cutting spending, and fundamentally overhauling the tax system.

Unless fiscal visionaries speak up forcefully, and do so ASAP, it looks like the nation’s leaders will kick the deficits and debt can down the road again.  Discussion follows.

Background – A post-election video based on excerpts from a supposedly random series of interviews suggests that the general public has a rather fuzzy understanding of the fiscal cliff.   Interviewees variously suggested that it was about some tax cuts that are coming up for renewal, the need for rich people to pay more taxes, steep cuts to government programs, or something that was not going to happen. What is the “Fiscal Cliff”?  Conservativevideos.com, 11/13/12, http://bit.ly/TH48jE (2:46)

(Several interviewees seemed open to suggestions that the fiscal cliff might be located in Aruba or out west.  If the fiscal cliff were a landmark, however, it would presumably be located in Washington, DC, where the laws now causing such concern were enacted.)

To get more specific, the fiscal cliff has three major components: (1) tax increases, (2) spending cuts, and (3) the debt limit. 

1. A number of tax cuts and preferences are set to expire on December 31 under existing law, and some new GovCare taxes will become effective. In combination, these changes would theoretically add half a trillion dollars a year to tax revenues.  Many observers are concerned that such a huge tax increase would throw the economy back into recession. Furthermore, neither side would be willing to take the political heat for all of these tax increases, so the battle boils down to which increases would be permitted and which would be blocked.

Table 1: Tax Changes Taking Effect January 1, 2013

Tax Change

Tax Increase
(2013 over 2012)

Expiration of the 2001-03 tax cuts (not including estate)

$156 billion*

Expiration of the payroll tax holiday

$125 billion

Failure to patch the Alternative Minimum Tax

$88 billion

Expiration of business expensing

$48 billion

Expiration of other “tax extenders”

$40 billion

New PPACA (Obamacare) taxes

$36 billion

Expiration of the 2009 stimulus

$11 billion

Estate tax increase

$10 billion

Total, Tax Increases

  $514 billion

Source: Tax Foundation; Congressional Budget Office; Joint Committee on Taxation; Office of Management & Budget.

*Comment: This assumes expiration of Bush tax cuts for all income levels; the portion for high earners would be about half of this figure.

http://taxfoundation.org/article/fiscal-cliff-primer, 11/13/12.

2. On the spending side, across the board cuts of $1.2T are scheduled to be imposed on discretionary spending over a 10-year period (beginning 1/1/13).  The applicable cut for 2013 is $109B. 

Half of the cuts would apply to the defense budget; the other half would apply to domestic spending.  Mandatory programs (Social Security, Medicare, Medicaid, etc.) would not be affected.

It was initially thought the members of Congress would find this “sequester” so unpalatable that they would agree on a tailored deficit reduction plan.  Bipartisan debt deal: A win for the economy and budget discipline, WhiteHouse.gov, circa August 2011.

If the fiscal committee [Joint Select Committee on Deficit Reduction] took no action, the deal would automatically add nearly $500 billion in defense cuts on top of cuts already made, and, at the same time, it would cut critical programs like infrastructure or education.  That outcome would be unacceptable to many Republicans and Democrats alike – creating pressure for a bipartisan agreement without requiring the threat of a default with unthinkable consequences for our economy. 


The Deficit Reduction Committee was split between Democrats who insisted on tax increases, however, and Republicans who insisted the deficit reduction goal could be met by spending cuts and an overhaul of the tax system.

After nearly three months of dickering, the committee co-chairs (Rep. Jeb Hensarling and Senator Patty Murray) announced that it had been impossible to resolve this difference and reach an agreement. Tax cuts for rank and file now; tax increases for the wealthy in 2013, http://bit.ly/Oul5tf (11/28/11).

3. The government is currently expected to hit the $16.4T debt ceiling in late February, which would force drastic spending cuts or another debt limit increase (presumably at least $1T). 

During the marathon debt limit negotiations in 2011, the Treasury Department used “extraordinary measures” (fiscal gymnastics) to stave off a default.  They could presumably repeat this drill if necessary, thereby providing more time for negotiations.

Discussions on a deficit reduction deal to “pay for” the debt limit increase broke down last year – reportedly because the president kept upping his tax increase demands. Bob Woodward book: Debt deal collapse led to “pure fury” from President Obama, Rick Klein, ABC News, 9/5/12.

He [the president] wasn't going to get a damn dime more out of me [House Speaker John Boehner decided]. He knew how far out on a limb I was. But he was hot. It was clear to me that coming to an agreement with him was not going to happen, and that I had to go to Plan B.


Speaker Boehner has said the next debt limit increase must be accompanied by an equal or greater amount of spending cuts and/or tax “reforms,” just as wound up happening in 2011, although this was said before the elections and he is now in a weaker bargaining position.  Prepared remarks to the Peterson Foundation, 5/15/12. http://bit.ly/JrLvtk

Talking points – Here is a sampling of the current conversation about the fiscal cliff and related issues in point/ counterpoint (italics) style.

#Dana Milbank column, News Journal, http://bit.ly/IS7Ktq (11/9/12) - A budget deal will necessarily include tax increases on high earners because exit polls show that’s what Americans voted for.  Speaker “Boehner’s talk of common ground is likely to enrage the no-compromise wing of his House Republicans, however, who live in fear of the tea party, Grover Norquist, the Club for Growth and other enforcers of conservative orthodoxy.” 

This may be an accurate read on the political situation, but consideration should also be given to whether such tax increases make sense from an economic standpoint.

#Smallish rally organized by Americans for Democratic Action – Upper-income earners should pay higher taxes, because – in effect - that’s where the money is.  Ralliers seek tax hikes, Wade Malcolm, News Journal, http://bit.ly/IS7Ktq (11/13/12).     

The need for spending reduction was apparently not mentioned at the demonstration, nor is it stressed on the ADA’s website.  Senators Tom Carper and Chris Coons of Delaware reportedly favor a combination of spending cuts and tax increases, but no specifics are cited as to what spending cuts they would support.

#News Journal (Wilmington, DE) editorial, http://bit.ly/IS7Ktq (11/13/12) - Cites the government’s “spending habits” as the primary source of the fiscal problem; suggests that the solution is to agree on “a combination of revenue increases and spending cuts.” 

OK, we give up, how will revenue increases contribute to reining in spending habits, versus helping to perpetuate them?

#News Journal editorial, http://bit.ly/IS7Ktq (11/13/12) – Deficit reductions need not be made right away, just so long as “some workable system [is] put in place now so that businesses and voters understand a solution is in place.”  Delaware’s senators “believe the opportunity for the right kind of compromise is near,” and “we hope they are right.”

This government must address its fiscal problem before the financial markets lose confidence that the problem will be solved.  Economist [Peter] Schiff: Obama’s reelection means debt & currency crisis, Dan Well, Moneynews.com, 11/9/12.


Moreover, commitments to cut spending in the future are inherently less dependable than spending cuts right now. “Tax increases are immediate. Spending reductions get phased in in future years — but only if future representatives can withstand the political pressure.” Beware the “grand bargain,” John Goodman, Townhall.com, 10/27/12. http://bit.ly/U4bnAV

#Panel discussion on Fox News - “Democratic and Republican leaders appeared Sunday to draw closer to reaching a compromise on keeping the country from going off the fast-approaching ‘fiscal cliff’ -- with closing tax loopholes [versus raising tax rates] for America’s highest earners emerging as the potential middle ground.” Democrats, Republicans seem more ready to compromise on deficit deal, Fox News, 11/12/12. http://fxn.ws/W2ceDx

#President’s press conference on 11/14 – Seemingly taking a hard line, the president stated that it was time to “pass a law right now that would prevent any tax hike whatsoever on the first $250,000 of everybody’s income.  And by the way, that means every American, including the wealthiest Americans, get a tax cut. It means that 98 percent of all Americans and 97 percent of all small businesses won’t see their taxes go up a single dime.” http://wapo.st/ZuGPxZ (transcript)

The idea that the middle class would be immune from the proposed tax increases is not realistic. Thus, “an analysis of Obama's tax proposals by the respected accounting firm Ernst & Young said that raising the top tax rates will destroy 700,000 American jobs.” Obama RX: bleeding an anemic economy with tax increases, Donald Lambro, Townhall.com, 11/16/12. http://bit.ly/WdN1pB 

Also, tax increases on high earners would not make a serious dent in projected deficits so the middle class should expect to get hit too.  One idea would be a value added tax, which would impact everyone – and be conveniently hidden in the prices of goods and services.  Another leftist admits the real goal is taxing the middle class, Daniel Mitchell, Townhall.com, 11/17/12.  http://bit.ly/Weysa2


The president reportedly plans to begin the negotiations by offering his most recent budget proposal, which sought to raise taxes on corporations and the wealthy by $1.6T over the next decade. “That’s double the sum that House Speaker John A. Boehner (R-Ohio) offered Obama during secret debt negotiations in 2011.” Obama Proposes $1.6 Trillion in New Taxes, visiontoamerica.com, 11/14/12. http://bit.ly/TG1if6

And the president has been far more specific about the tax increases he wants than the spending cuts he is supposedly willing to accept. Thus, in his press conference, “the president mentioned the word taxes 30 times and revenue three times. He only referred to spending once and entitlements twice.”  Obama’s massive spending spree, Emily Miller, Washington Times, 11/15/12.  http://bit.ly/WevAtZ

Current status – Congressional leaders met with the president last Friday, at his invitation, to talk things over.   From the statements by participants after the session, it sounded as if an agreement to avert going over the fiscal cliff was all but wrapped up – basically on the president’s terms.  Hill leaders buoyed by White House talks on fiscal cliff, Dave Boyer, Washington Times, 11/16/12.

Finance and House Ways and Means Committees staff will spend the next week working on the framework with the goal of presenting it to congressional leaders when they return to Washington after the Thanksgiving holiday. They will then work on negotiating the finer points of a deal over the next few weeks and pass the framework the weekend before Christmas.


The “framework” concept that is mentioned sounds rather like the deficit reduction deal in 2011, which came unglued when the Debt Reduction Committee (aka the Super Committee) deadlocked over spending cuts versus tax increases. This time, however, an exploding can may be put in place that cannot be safely kicked down the road. Senate economist calls for “Super Duper Committee,” Tim Devaney, Washington Examiner, 11/17/12.  http://bit.ly/S1G4JX

Whatever, it seems doubtful that the framework would result in systematic congressional budgets, targeted (versus arbitrarily mandated) spending cuts, or a fundamental overhaul of the tax system.  But judgment should be suspended until the specifics become available, and we would be delighted to be proven wrong.

Coming up – Switching from a reporting to an analytical mode, next week’s entry will offer our ideas about the path forward.  If you have suggestions in that regard, dear readers, please let us know.  

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The majority of Americans want to tax the rich for ‘fairness” reasons, and they do not understand the consequences.  So taxes will be increased, and if that hurts the economy the left will push for more tax increases - again in the name of “fairness.”  I can’t see any way out of this downward spiral. – SAFE director

I've talked to people who voted for the president and they seem to see him as sharing their background and/or supporting things they want. He was raised by a single mom – he won’t cut funding for Planned Parenthood - he cares about helping people – my boyfriend get healthcare insurance despite a preexisting condition – the rich aren’t hurting, so taxing them “a bit more” is OK. They don’t seem to understand that the potential revenue increase would be a drop in the bucket, nor the negative consequences of punishing success. - Teacher

top      wwhipple3@verizon.net

11/12/12 – If all else fails, appeal to self-interest

SAFE has been advocating smaller, more focused, less costly government since 1996.  Meanwhile, the government has been growing apace, organizing new programs, and spending like crazy.

More money is being spent, typically, than is taken in. Thus, the deficit exceeded $1 trillion for the past four years, and the National Debt now stands at $16.2 trillion (about 105% of Gross Domestic Product).  http://www.usdebtclock.org/

SAFE believes that big deficits and soaring debt are not only a bad habit but unsustainable too, meaning they will necessarily stop at some point.  The longer the government waits to put its fiscal house in order, the more pain will be involved in making the necessary adjustments. 

Other observers agree that the fiscal problem is grave and must be dealt with soon.  Consider, for example, a Congressional Budget Office report issued two days after (what a coincidence) the elections.  Choices for Debt Reduction, Nov. 2012.

Prolonged increases in debt relative to GDP can cause significant long-term damage to both the government’s finances and the broader economy, [including] an increase in the likelihood of a fiscal crisis, in which investors would lose confidence in the government’s ability to manage its budget, and the government would thus lose the ability to borrow at affordable interest rates.


If the outcome of the 2012 elections is any indication, however, the general public will ignore troubles down the road so long as they do not have to give up anything right now.  Maybe we need to consider a different pitch. 

Warnings ignored – A full-blown fiscal meltdown would be pretty scary.  Why haven’t people been paying more attention to warnings that one is coming?

First, we can’t say when a meltdown will take place, any more than scientists can determine when an earthquake will strike.  (Regardless of what the courts may decide, there is no reliable way of doing this at present. Italian court convicts 7 scientists for failing to predict earthquake, Fox News, 10/22/12. http://fxn.ws/TsK74n)

Second, there are many doomsday visions in play, e.g., manmade global warming, accelerating sea level rise, peak oil, and the Mayan calendar.   And the supporting evidence is often a bit hazy, as was illustrated by a recent letter to the editor that claimed, among other things, that “our climate is broken” and “the annual cost of climate change could easily reach $300 billion by 2030.” http://bit.ly/IS7Ktq (10/31/12).  No wonder people are inclined to discount the claims, particularly when the “drop dead” date keeps getting pushed out in time.

Third, convincing people of an impending crisis will not, in itself, sell SAFE’s agenda. Others foresee financial disaster ahead, just as we do, yet have different solutions in mind, e.g., a “balanced” deficit reduction plan that packages current tax increases with future spending cuts.   Beware the “grand bargain,” John Goodman, Townhall.com, 10/27/12.

You see the problem? Tax increases get legislated now. Spending cuts take place at a time when some future Congress will have the opportunity to rescind them.


Maybe it is not enough to trash big government, and we should explain the benefits of smaller, more focused, less costly government in positive terms.  Some thoughts along this line follow, focusing in turn on each aspect of the SMFLCG vision.

Smaller government – As the leading nation of the world, with global interests, the United States could not very well make do with a “small government.”  Cut the current federal government in half and it would still be huge.  But there are areas in which the federal government could be slimmed down, so “smaller government” would be doable – and in our opinion is desirable.

Experience (in both the public and private sectors) shows that large organizations have inherent weaknesses.  Here is a partial list: more organizational layers, specialized groups (aka “stovepipes”) that do not communicate effectively with each other, managers who are often out of touch with the real situation, and resistance to change.

It also seems that organizations grow over time so long as the resources necessary to support growth are available, even if the level of work is not expanding. C. Northcote Parkinson, The Economist, 7/10/09.

Parkinson's barbs were directed first and foremost at government institutions—he cited the example of the British navy where the number of admiralty officials increased by 78% between 1914 and 1928, a time when the number of ships fell by 67% and the number of officers and men by 31%. But they applied almost equally well to private industry, which was at the time bloated after decades spent adding layers and layers of managerial bureaucracy.


Can a large organization be run in a way to overcome some of these problems, e.g., by rewarding creativity?  Yes, but changes in processes and procedures will be required and many employees may not appreciate the changes.  Large organizations are typically structured differently, Kelly Kidder.

If the organization is serious about fostering creativity and innovation, decisive steps must be made to break down the barriers created within a organization.  This most likely will mean sacrificing other prized features such as but not limited to hierarchy, structure, job security, benefits, seniority, work environment, and privacy.  One cannot have all the amenities of the present day organization and foster optimal creativity at the same time, why, because the current structure of an organization is not fostering of creativity, thus something has got to go. 

http://glori.kenan flagler.unc.edu/airspace/NUSarchive/Organizations/Midterm03/Mid03Q8.html

Various techniques have been developed to make organizations work better: management by objectives, zero-based budgeting, organization effectiveness, six sigma, just-in-time logistics, etc.  They may have good results in some instances, but their effectiveness tends to erode as managers and employees gain experience with the techniques and learn how to get around them.

The foregoing should not be controversial, it seems to us, because most people have had enough experience with bureaucratic institutions to have a healthy suspicion of them.  See, e.g., A bureaucratic nightmare, Erica Olsen.

The numerous different departments, divisions, commissions and boards in the State of Nevada are enough to make a citizen’s head spin. The Commission on Ethics. The Division of Assessment Standards. The Nevada Equal Rights Commission. The Department of Justice. The Board of Equalization. They all sound the same, don’t they? Well think again. Depending on the situation, each office has a different jurisdiction. It’s up to each citizen to figure out how to negotiate his/her way through the halls and offices of Carson City bureaucrats.


More focused government – Consider the old saw about being a “jack of all trades and master of none.”  It reflects the fact that concentrating on a particular type of activity may yield better results than trying to do a little bit of everything, which is certainly true for people and by extension should hold true for organizations led by people.

Would you rather have (1) a government that tries to solve every conceivable problem with generally mediocre results, or (2) a government that tackles a limited number of issues and performs with distinction?  The answer seems obvious, and there is ample evidence that the government is indeed producing mediocre results in many areas.

About 18 months ago, for example, the Government Accountability Office issued a report documenting numerous overlapping, poorly managed government programs, e.g., over $62 billion spent on 18 domestic food assistance programs run by multiple federal agencies.  For DC insiders, the report simply confirmed what they already knew – the government has grown like a weed as politicians sought to gratify their supporters.  A “staggering level of duplication” in federal spending, Washington Examiner, 3/18/11.

Duplication is inevitable when professional politicians in both major parties go for decades using tax dollars to buy votes among favored constituencies, and reward friends, former staffers, family members and campaign contributors with heaping helpings from the pork barrel. With the inevitable program duplication also comes an endless supply of official duplicity as presidents, senators and representatives rationalize spending billions of tax dollars on programs they know either don't work as promised, or that perform the same or similar functions as existing efforts and are therefore redundant.

http://bit.ly/Qws0 cT

One might think Congress would have welcomed the GAO’s menu for seemingly painless budget cuts.  Guess again!  A few months later, an attempt was made to cut the GAO’s budget.  Moreover, this was not a one-time or a one-party initiative.  Congress wants to turn GAO watchdog into a lapdog, Washington Examiner, 11/16/12.

As [Senator Tom] Coburn points out in his report, the Republican-controlled House Appropriations Committee has proposed a 6.4 percent reduction, only a little less than the 7.6 percent sought by the Senate panel. And the effort to cut GAO has been going on for two decades: GAO's work force has been reduced by 40 percent -- or more than 2,000 positions -- since 1992, and during the same period, the agency's budget has been reduced 13 percent (in inflation-adjusted dollars). So Democrats and Republicans in Congress have been colluding for decades in this obvious effort to reduce Washington's best watchdog to a congressional lapdog.


Approaching the ever-expanding scope of government from another angle, is it really necessary to regulate the type of light bulbs produced for use in American homes?  Mandate that subsidized ethanol be blended into the gasoline used to power American automobiles?  Require that Americans obtain healthcare insurance and also specify what type of HCI will be deemed acceptable?

We don’t happen to agree with any of these requirements, but let’s stick to a broader point. Once the government starts delving into the mundane details of our lives there is no logical stopping point.  Subsidize school lunches, for example, and before long the government will think it should regulate what students eat. The problem is federally subsidized school lunches, not Michelle Obama’s healthy food initiative, Daniel Mitchell, Townhall.com, 10/8/12.


I’m actually on Michelle Obama’s side on the general issue of wanting kids to eat better and exercise more. Where we part company is that I think bureaucrats and politicians in Washington are ill-suited to do anything right, and they’re especially unlikely to succeed in a task that has more to do with parents than government.


Here is how Ronald Reagan explained why Americans should tell the government what to do rather than the other way around.  “As government expands, liberty contracts.” Video (1:38), farewell address in 1989. http://bit.ly/lCyYEN

Finally, let’s be clear that some areas of the federal government are worth supporting – the military, courts, diplomatic service, responsible environmental regulation (not ideological overkill), national parks (maintain the ones we have, but don’t create any more), support for basic research (but no picking of winners and losers), trying to make good on promised social benefits (though changes will be necessary over time), and maybe even a space program (do we really want China to put the first humans on Mars?). 

These are not minor undertakings.  The country cannot afford to have these programs deprived of financial support or effective oversight because resources are being frittered away on a host of matters that would be better handled by state/local governments or left to the private sector.  So, yes, we definitely want the federal government to focus on the jobs that deserve to be done and let go of the rest.

Less costly government – It seems obvious that smaller, more focused government would save money overall, and it’s not hard to see that this could work to someone’s benefit.

Why?  As the saying goes, “there is no such thing as a free lunch.”  If the government runs expensive programs, the money must be coming from somewhere.  So far, almost anyone will agree, but they might still see themselves coming out ahead, e.g., fine let the wealthy “pay a little bit more” in taxes just so long as it isn’t me.

Buncombe alert!  Wealthy Americans are not anxious to pay more taxes, not even Warren Buffet, and they will resist efforts to compel them to do so by taking advantage of loopholes, changing their behavior (e.g., deferring the recognition of capital gains), or investing their money somewhere other than in the United States.

Moreover, tax hikes for high earners and business firms would discourage savings and investment, thereby fostering a stagnant economy that hurts everyone.  Obama’s bizarre tax attack, Larry Kudlow, Townhall.com, 9/20/11.

In his speech on Monday, Obama laid out $1.5 trillion in tax hikes over ten years, aimed almost entirely at America’s well-to-do. This includes $800 billion from rolling back the top rates in the Bush tax-cut plan, $470 some-odd billion to reduce itemized deductions for upper-bracket payers, and -- oh yes -- a millionaire’s tax called the “Buffett Rule.”

•Tax investment more, and you’ll get less of it. If these kinds of tax hikes are ever passed, the economy will be doomed to stagnation over the long run. Penalizing incentives will do that. And lower growth means higher deficits.


Finally, the wealthy do not have enough money to cover the government’s projected deficits anyway, so ordinary folks would wind up paying as well – in one or more of several ways. 

•Higher taxes for all, despite promises to the contrary, as has happened before.  A little appreciated fact about the New Deal is that a big share of the tax revenue came from excise taxes versus the extraordinarily high income tax rates then in vogue.  New deal or raw deal?  Burton Folsom, Jr., Threshold Editions (2009). http://bit.ly/PMedgW

•Higher taxes on business would be passed on via higher prices. More Obama means higher taxes, Donald Lambro, Washington Times, 11/1/12. http://bit.ly/RP4VPx

•Continued massive deficits, funded by borrowing, with double-digit inflation or worse to follow – to the detriment of everyone except those who have nothing or hold tangible assets.  This time is different: Eight centuries of financial folly, Carmen Reinhart & Kenneth Rogoff, Princeton University Press (2009). http://bit.ly/SX7AJs

So the vision of a free lunch for the middle class is illusory, and by the same token less costly government should work to everyone’s benefit.  We need to hammer that point home, because a lot of people don’t seem to have grasped it yet.

top      wwhipple3@verizon.net

11/5/12 (E minus 1) – Decision 2012 is just the beginning            Read Replies

This blog has focused on the upcoming elections for months.  Indeed, our coverage began over a year ago.  Thus, “A tempting offer: spend now, pay later,” http://bit.ly/LvUNaD (9/12/11) reported, among other things, on an early GOP presidential candidate debate (eight candidates squared off in this event, which took place in the Reagan library).

We kept tabs on the “Great Recession,” unemployment, soaring spending, anemic tax revenue, trillion dollar deficits, Federal Reserve’s quantitative easing, war on coal, partisan gridlock, Executive Branch overreach, and more.  Issues index (2011-2012). 

We reported on the developing political slugfest, including campaign messaging, commentary, GOP and Democratic conventions, and the presidential/VP debates.  Political debate index (2011-2012).

Last week’s entry summed up the competing proposals for addressing the fiscal problem.  The choice is basically between (A) tax increases and continuing expansion of government (e.g., create a “Secretary of Business” as though having a “Secretary of Commerce” wasn’t bad enough), and (B) tax rate cuts (largely offset by trimming tax preferences), spending cuts, and regulatory changes, which would hopefully promote an economic rebound and start closing the fiscal gap. 

Plan B is far from perfect, e.g., few specifics have been provided re proposed spending cuts, but we think it would be more likely to produce positive results than Plan A. Many fiscal conversations have reached similar conclusions.  See, e.g. "Romney - an independent choice for president. "David Walker. Washington Times, 10/28/12. http://bit.ly/SnKdZe.

Whatever the outcome of the elections, the problems that have been accumulating will still be around – and there are many of them:

•Numerous expiring tax provisions (Bush tax cuts, payroll tax cuts, AMT patch, expansions of earned income & child tax credits, termination of the death tax) that would produce a ruinous tax increase in 2013.

•Mandatory across-the-board spending cuts that could very well gut the defense budget.

•Decision time on GovCare, which will be either repealed (and replaced in some fashion) or fully implemented starting in 2014.

•The Iranian nuclear faceoff and a host of other international problems.

Don’t expect an outbreak of cooperation in the Nation’s Capital, either, because it will not happen any time soon.  Election winner get’s a mess, Susan Davis & Richard Wolf, USAToday.com.  http://usat.ly/Pp2jtd

Oh, and here is one more item for the worry list: US to hit [$16.4T] borrowing ceiling at year-end: Treasury, France24.com, 10/31/12. http://f24.my/YpaNBZ

Next week, after Americans have voted, we plan to offer some thoughts on how to promote the SAFE agenda. The basic idea is to downplay our traditional warnings about a looming financial catastrophe (the threat is very real, but with all the doomsday scenarios in play no one seems to be paying attention) and stress the positive benefits of smaller, more focused, less costly government.

In the meantime, here is a final thought about the elections: whatever your choices, don’t forget to vote!

*        *        *        This Blogs Replies        *        *        *

Update: Offered a choice between Plan A and Plan B, US voters punted.  The president was reelected (albeit by a narrower margin than in 2008) and his party kept control of the Senate.  On the other hand, Republicans kept control of the House. Look for continued gridlock in DC.     

Thanks for all you did trying to get Americans to stop their odd experiment with socialism. Unfortunately, we have this news (Chinese Communist Party congratulates the president) this morning: http://bit.ly/WAGPhb - Businessman, Houston, Texas.

top      wwhipple3@verizon.net

10/29/12 (E minus 8) – Foreign policy debate comes down to domestic issues       

The third presidential debate (PD3) did not reveal foreign policy differences between the president and his opponent such as might logically determine who should win the election.  Consider this recap. http://fxn.ws/Tua4jY (PD3 transcript)


•Claimed US position in the world has been strengthened by ending the war in Iraq, taking out Osama Bin Laden, and preparing to withdraw from Afghanistan in 2014.

•Characterized the terrorist attack in Benghazi on Sept. 11 as a setback, which he had addressed by ordering beefed-up security in the region, a full investigation, and in due course reprisals against the individuals or groups found to be responsible.

•Cited ongoing efforts in concert with other countries to oust the Assad regime in Syria.

•Expressed confidence that “crippling sanctions” on Iran will induce the regime to drop its nuclear program; denied a deal for bilateral negotiations after the election.


•Commended Bin Laden raid; expressed agreement re ending the war in Iraq and the planned withdrawal from Afghanistan; deflected suggestions that he might keep US troops in Afghanistan beyond 2014 or get the US involved in new military conflicts, e.g., by setting up “no fly zones” over Syria.

•Refrained from criticizing earlier statements by administration officials (including the president) re the Benghazi attack, which many considered less than forthright.

•Characterized Iranian nuclear threat as the gravest international security threat; said sanctions should be tightened and Iranian president should be indicted under the Genocide Convention; declined to say how he would react to a call from the Israelis that “our bombers are on their way . . . to bomb Iran.”

The challenger could have pushed harder on some issues, but he was probably smart to hold back.  Sanctions and diplomatic pressure may not stop Iran’s drive for nuclear weapons, for example, but most people would agree they should be tried before military action is considered.  

As for Benghazi, so much information has surfaced to discredit earlier administration statements about a “spontaneous demonstration” triggered by an incendiary video that many people are already convinced some kind of cover-up was attempted.  See, e.g., White House knew Libya was a terrorist attack within two hours, Katie Pavlich, Townhall.com, 10/24/12, http://bit.ly/P23sa3).

Domestic policy issues were not on the PD3 agenda, but the candidates worked them into the conversation anyway on grounds that the US cannot continue to be the leading power in the world unless it remains economically strong.  How true, and solving the fiscal problem should be high on the “to do” list.  As co-chair Erskine Bowles of the Fiscal Commission put it in 2010, the fiscal problem is “like a cancer that’s growing and it’s going to destroy us from within.”  

So the question is, or at least should be, which of the candidates would do a better job of solving the fiscal problem?  The candidates have spoken; and now it’s time for Americans to reflect on what they said.  This entry will present our assessment. 

The president’s plan – Since 2009, the government has run trillion dollar deficits every year, and the national debt now exceeds 100% of Gross Domestic Product.  Something must change, obviously, or this country is headed for serious trouble.

The president claims to be offering a $4 trillion (over 10 years) deficit reduction plan. This may be a reference to “Living Within Our Means and Investing in the Future: The President’s Plan for Economic Growth and Deficit Reduction,” a plan he announced and sent to Congress on September 19, 2011.

Based on our review at the time, this plan was a nonstarter. Only about $600B in new spending cuts were proposed over 10 years vs. $1.6T in tax increases.  And even assuming implementation, deficits were still projected of about $0.5T per year. “Happytalk” revisited and what to do about it, http://bit.ly/LvUNaD (9/26/11).

The “Living Within Our Means” plan died in Congress, but the president incorporated it in his next budget proposal.  The FY 2013 budget (submitted in February) provided for $4T in deficit reduction, which we summarized as follows:

The president takes credit for $4 trillion in deficit reduction, including “tight discretionary spending caps that I signed into law in the Budget Control Act of 2011 [that] will generate approximately $1 trillion in deficit reduction over the next decade.” Proposed initiatives would reduce this figure to about $3 trillion on a net basis – all from tax increases on the upper crust & businesses plus defense cuts.

With these adjustments, the FY 2013 budget indicated modest improvement over the trillion dollar plus deficits of the past four years (see below) – but only if some optimistic economic assumptions (economic rebound, continued low inflation and interest rates on Treasury debt) panned out. Budget lands with a thud, http://bitly.com/KZ46Dg (2/20/12)  

Fiscal years, $B

2012 act.*














Surplus (Deficit)





(Deficit) as % of GDP

Circa (7)%




*CNN Money, 10/5/12, http://cnnmon.ie/SCeaEl.

When the president’s FY 2013 budget was voted on, versus other budget proposals, it did not receive a “yes” vote from any member of Congress. 

Unfazed by bipartisan rejection, the president has continued to tout his plan to bring down the deficit by “cutting spending that we don’t need” and “asking the wealthy to do a little bit more so that we can invest in things like research and technology that are the key to a 21st century economy.” Transcript, PD3.

On the day after PD3, a set of proposals for the president’s second term was released.  It took the form of a 20-page booklet (about half pictures) entitled “The New Economic Patriotism: A plan for Jobs & Middle-class Security.” New Obama book has 2nd term plan, Mike Allen, Politico, 10/23/12. http://politi.co/TvBoOX

This booklet says “the president has put forward a specific, balanced plan of spending cuts and revenue increases,” which would cut the deficit by more than $4T over the next decade “without wrecking the middle class” and thereby “grow our economy without burdening our children and grandchildren with debt.” 

Here are the elements of the plan: (A) Eliminate “special loopholes and tax breaks that benefit big business and the wealthiest;” (B) Cut “spending we can’t afford;” and (C) Avoid “ ending guaranteed benefits in Medicare or slashing Social Security.”

http://bit.ly/PQrKVQ (download PDF)

With these actions, the outlook would presumably resemble the one projected in the FY 2013 budget, i.e., major deficits as far as the eye can see. There is no reference to balancing the budget – ever – let alone starting to repay the national debt.

Critics dismiss this latest iteration of the president’s plan as propaganda. Obama’s repackaged rehash, Donald Lambro, Washington Times, 10/25/12, http://bit.ly/UMsWe8; Even leftists won’t defend Obama’s make-believe $4 trillion “grand bargain” budget plan, Daniel Mitchell, Townhall.com, 10/26/12, http://bit.ly/SdILZj.

We are inclined to agree with the critics.

The challenger’s plan – The challenger and his running mate have ticked off the elements of a 5-point plan to get the economy moving and create 12 million jobs over the next four years so many times that Americans should know them by heart.  (1) Expand domestic oil and gas production, (2) negotiate new trade agreements and enforce existing ones (particularly with China), (3) revamp the income tax system, (4) get on a path to balancing the budget, and (5) be a champion for small business.

Few details have been provided re point 4.  While the challenger would presumably support many provisions of the House Budget proposal for FY 2013 (aka the Ryan Plan), he has not talked much about the House budget, let alone endorsing it.  Accordingly, let’s focus on what has been said about the challenger’s plan.

#We welcome the reference to balancing the budget, not simply reducing the deficit, but how long would this take?  In PD3, the challenger spoke of getting “to a balanced budget within eight to 10 years.”

The House budget projected declining deficits over the next 10 years, but not a balanced budget, so it might be inferred that the challenger envisions an even sharper fiscal correction.

However, the House budget was developed using the static scoring approach (e.g., no credit for economic benefits of cutting taxes instead of raising them) that is prescribed by the Congressional Budget Office. We would imagine that the challenger’s plan assumes tax revenues would grow as the result of implementing its various provisions to boost the economy.

#The challenger opposes raising taxes, either by allowing some or all of the Bush tax cuts to expire or otherwise.  (Query; would the temporary payroll tax cuts in 2011-12 be extended?)  Income tax rates would be cut 20%, but the revenue loss would be offset by reducing tax preferences (exemptions, deductions, and/or tax credits).

The challenger and his running mate have declined to comment on the status of any given tax preference, characterizing this discussion as one that should take place in Congress on a bipartisan basis.  It has been repeatedly denied, however, that there is any intent to reduce the relative tax burden on upper tier taxpayers.

For his part, the president says the real thrust of the challenger’s plan is to give the wealthy a tax break and stick the middle class with the bill.  This claim was expressed and denied repeatedly in PD1, as previously reported, and the president repeated it in PD3.  Transcript.

Look, Governor Romney's called for $5 trillion of tax cuts that he says he's going to pay for by closing deductions. Now, the math doesn't work, but he continues to claim that he's going to do it. He then wants to spend another $2 trillion on military spending that our military is not asking for.

Consider also the vice president’s claim that it is “not mathematically possible” to implement the challenger’s tax plan in a revenue neutral manner. VPD.

Instead of contradicting the attack on his math, as he had in PD1, the challenger responded that the president’s fiscal approach had led to huge deficits over the past four years, no turnaround was in sight, and it was time for a different plan.

And there are two very different paths the country can take. One is a path represented by the president, which at the end of four years would mean we'd have $20 trillion in debt heading towards Greece. I'll get us on track to a balanced budget.

Perhaps, but the approach for curbing tax preferences that the challenger has offered does not seem very appealing.  PD2.

 . . . in terms of bringing down deductions, one way of doing that would be say everybody gets -- I'll pick a number -- $25,000 of deductions and credits, and you can decide which ones to use. Your home mortgage interest deduction, charity, child tax credit, and so forth, you can use those as part of filling that bucket, if you will, of deductions.


. . . every middle-income taxpayer no longer will pay any tax on interest, dividends or capital gains.

Far from simplifying the tax law, caps on deductions and alternative rules for the taxation of investment income depending on the recipient’s tax bracket would make it more complicated.  So while agreeing with the challenger that tax rates should be lowered, we would submit that a sweeping overhaul of the tax system would beat the time-honored practice of tinkering with the details.

The tax burden on various segments of the population should be considered in the tax overhaul discussion, but the claim that high earners don’t currently pay their “fair share” is dubious.  If anything, it is unfair that so many Americans are paying little or no income tax.  Consider these IRS data (from 138 million tax returns) for 2009.

Adjusted Gross Income


Income tax (net)

Avg. tax rate

Top 5% ($155K+)




6-10% ($112K+)




11-25% ($66K+)




26-50% ($32K+)




51-100% (≤ $32K)










SAFE’s SimpleTax proposal would cut rates by about 5 percentage rates at all income levels, as shown in the table below, to be offset by eliminating most existing tax preferences. 


2009 actual

Income bracket

Tax rate

Avg. rate*

Avg. rate*





















                        *Calculated for income at bracket top.


#The acid test of the challenger’s claim of putting the government on the path to a balanced budget is how much spending would be cut and in what manner.  Here again, the details are fuzzy.

In his acceptance speech at the Republican National Convention, Representative Paul Ryan stated that the challenger’s plan would cut spending to no more than 20% of Gross Domestic Product.  (SAFE has proposed the same limit; some fiscal conservatives support even lower limits.)

In a clean break from the Obama years, and frankly from the years before this president, we will keep federal spending at 20 percent of GDP, or less. That is enough. The choice is whether to put hard limits on economic growth, or hard limits on the size of government, and we choose to limit government.


Fine, but how would the envisioned spending cuts be achieved?

The challenger favors more defense spending than the president, say $1T over the next 10 years. (The actual difference is probably less than that, however, as the president says defense cuts through sequestration were proposed by Congress rather than himself and “will not happen.”)  PD3.

Our military is second to none in the world. We're blessed with terrific soldiers, and extraordinary technology and intelligence. But the idea of a trillion dollar in cuts through sequestration and budget cuts to the military would change that.

He would seek modest across-the-board cuts in nondefense discretionary spending.  (In our opinion, across-the-board cuts never work very well.) PD3

First of all, I'm going through from the very beginning -- we're going to cut about 5 percent of the discretionary budget, excluding military. That's number one.

He has proposed to eliminate government programs that are not worth borrowing money from China to fund, citing subsidies for PBS and GovCare as examples. PD1.

The PBS subsidies are a minor item by Washington standards, and the challenger would wipe out most of the potential fiscal savings from repealing GovCare (aka Obamacare) by restoring $0.7B in cuts to the Medicare budget.  PD1.

I want to take that $716 billion you've cut and put it back into Medicare. By the way, we can include a prescription program if we need to improve it. But the idea of cutting $716 billion from Medicare to be able to balance the additional cost of Obamacare is, in my opinion, a mistake.

He would send some programs back to the states, e.g., Medicaid.  However, federal support for Medicaid would continue, limiting the potential savings.  PD1.

I would like to take the Medicaid dollars that go to states and say to a state, you're going to get what you got last year plus inflation, plus 1 percent. And then, you're going to manage your care for your poor in the way you think best. *** And, by the way, if a state gets in trouble, well, we could step in and see if we could find a way to help them.

The challenger pledges to “make government more efficient and cut back the number of employees, combine some agencies and departments.”  Any savings would take time to show up, however, as headcount reductions would be “done through attrition.”  PD1.

He promises changes to make Social Security and Medicare sustainable over the longer term.  PD2.

I'll make sure we can reform Medicare and Social Security to preserve them for coming -- coming generations. The president said he would. He didn't.

However, no changes to Social Security have been suggested – even though the challenger’s running mate is on record that this program is “going bankrupt.”  VPD

As for Medicare, the challenger has endorsed the approach reflected in the House budget.  Workers currently under 55 would be offered a choice between subsidized private insurance or traditional Medicare coverage.  Although the benefits could be substantial in the long run, they would not start for another 10 years.

In sum, it seems likely that the challenger would slow the growth of spending – but we see no reason to expect he would get it down to 20% of GDP. 

That being said, there is little downside in the challenger’s proposals.  They might well be preferred to more of the same. 

top      wwhipple3@verizon.net

10/22/12 (E minus 15) – Lawyers do not necessarily make great leaders        Red Replies

What is the probability that a Harvard Law School graduate will be sworn as president next January?  Answer, practically 100% - but that does not mean the current president (’91) will necessarily be reelected.

Although most people think of Mitt Romney as a Harvard Business School grad, he was in the joint-degree program and also received a law degree (’75). 

Delighted that two HLS grads are vying for the honor of being president, the dean has offered some thoughts about law school graduates gravitating to leadership roles.  She cites self-selection (people who aspire to serve as leaders are drawn to law school), and also features of the law school experience that teach students to analyze a problem, take it apart, and see it from all sides.  Why do law school graduates become leaders, Martha Minow, Harvard Law School Bulletin, Fall 2012. http://hvrd.me/atP0Tz  (See also the profiles of Obama and Romney as students, which are quite interesting.)

The writer (‘63) agrees that law schools impart critical thinking skills, but he sees lawyers as more focused on representing positions than achieving the best answers.  If one has been trained to argue either side of any issue, after all, who is to say any particular answer is superior? 

But some answers do work much better than others, as has been shown time and again.  So with all due respect for the legal profession, we might do well to place more business people, engineers, accountants, military officers, etc. in leadership roles. 

Moreover, as this entry will suggest, lawyers may well have contributed to some of this country’s political problems.  

Legislative hubris - What could be more natural for attorney-legislators to believe than that it is possible to resolve any issue by enacting legislation?  The number of bald eagles is declining – endangered species legislation.  Air and water pollution is intolerable – clean air and water acts.  Political contributors are perceived to have undue influence – McCain-Feingold.  Financial fraud occurs – Sarbanes-Oxley.  The housing and mortgage debt bubble bursts – Dodd-Frank. And so forth.

As ever more sophisticated problems are tackled, “reform” bills get increasingly complex, not to mention the regulations to flesh them out and the litigation that ensues.  Yet experience shows the bills often fail to solve the problems they are aimed at and/or create new problems that are just as bad. 

#The list of endangered species is expanded to species and sub-species that the general public does not much care about, potentially blocking economic development. Small lizard sparks big debate in NM, Texas, Susan Montoya Bryan, Business Week, 4/28/11. http://buswk.co/mtscSO

#Environmental standards are progressively tightened, despite diminishing returns, to a point where the economic cost far exceed the realistically calculated benefits. Flood of new EPA rules could drown economic growth, Conn Carrol, Washington Examiner, 8/29/11.  http://bit.ly/QGTI13

#Campaign finance reforms lead to the invention of super PACS , which operate independently of the political candidates and cannot readily be held accountable. [Senator] John Cornyn open to campaign finance reform, Meredith Shiner, Roll Call, 9/24/12.  http://bit.ly/Rar6Ac

#Financial fraud in one form or another is inevitable; it cannot be legislated out of existence and keeps occurring. Bernie Madoff’s $50 billion Ponzi scheme, Robert Lenzner, Forbes, 12/12/08.  http://onforb.es/aoOj5N

#Passage of Dodd-Frank never figured to foreclose the possibility (nay likelihood) of future financial turbulence. The proposed new financial regulation could backfire, Daniel Fisher, Forbes, 4/26/10. http://onforb.es/ajo9zr

Partisan gridlock – Complaints about the inability of Washington politicians to compromise are much in vogue; this is said to be one of the reasons (perhaps the main reason) for the low approval ratings Congress receives in public opinion polls.  And one of the causes of gridlock may be the negotiation skills of Congress, which according to Professor Robert Bordone (director of the Harvard Negotiation and Mediation Program) are dismal.  Bordone Interview, Nancy Cook, National Journal, 12/19/11.

This probably won’t surprise you or anybody, but I would give them [Congress} a really bad grade. Basically, it seems to me that both sides are engaged in a classic game of chicken where they head on a collision course and look for who’s going to swerve first.  It’s stunningly childlike. While these are tough issues where the parties have genuine differences, the truth of the matter is there’s probably a lot more shared ground than there seems to be and relatively little effort to find [it].

Professor Bordone adds that negotiations inside the Beltway compare unfavorably with those conducted in the world of business.

. . . businesspeople want to reach a deal, and they often are thinking creatively. One really critical difference is that there is more of a zero-sum mentality in Washington, at least right now. It seems like instead of thinking what would be good for the American people or the nation, people are thinking what will be good for my election. There is always self-interest in every negotiation, but it seems like it trumps it at such a high level.


This indictment may be overstated in that American voters, who the various members of Congress were elected to represent, are also divided in their opinions.  When politicians “bicker,” they’re really negotiating, Michael Barone, Washington Examiner, 4/12/11.

The Constitution establishes not a single united government but an arena for conflict. The Founders expected the House, the Senate, the president and the courts to disagree, and they hoped the net result of those conflicts would be good governance.


Still, we agree that “hard ball” political negotiations are the new normal, with more stress on “winning” than on finding the best answers.  Let’s consider an issue that has been much debated of late. 

Side A doggedly insists that any deficit reduction agreement must be “balanced” (i.e., include tax increases), for example, while labeling Side B leaders as “extremists” for disagreeing.  Yet the federal budget is awash with wasteful spending, tax increases would be a drag on the economy, and budget deals rarely work for long. Accordingly, compromise is not the right answer in this case.  Congress should bow to reality and start cutting spending. A contradiction in Keynesian fiscal policy, Chris Edwards, Cato Institute, 5/6/12.  http://bit.ly/JGcbGm

Would the nation’s political leaders do a better job as negotiators if there were more law school graduates in the mix?  That would be a hard case to make, we think, given that 1/3 of House members (http://bit.ly/owhFlf), 60% of senators (http://on.wsj.com/14JBgC), and the president are currently law school graduates. 

Personal behavior – Political leaders can play an invaluable role by speaking about the issues of the day.  Ideally, the thrust and parry of their discourse (congressional speeches, press conferences, campaign debates, etc.) will help Americans decide what they believe. 

Attorney-leaders might seem ideally equipped to play the debater role. But remember that the rhetorical skills acquired in law school and/or legal practice can be used to obfuscate as well as to elucidate.

The first presidential debate (PD1) demonstrated the benefits such events can have.  See our 10/8/12 entry. The VP debate (VPD) and second presidential debate (PD2), on the other hand, degenerated into sterile battles to score points and get the last word.

Several problems were caused by the moderators (Martha Raddatz for VPD, Candy Crowley for PD2).  In addition to selecting the questions (better choices could have been made in some cases), they attempted to guide the discussion more firmly than Jim Lehrer had done in the first debate with results that proved generally ineffectual and/or fueled perceptions of partiality.

That being said, the principals were primarily responsible for what happened. Here are a few examples (we could go on and on) that suggest the quality of debates will not necessarily be higher if the debaters have legal training (as all of the debaters except Paul Ryan did in this case).

ONE: The debaters often strayed from the question asked to whatever they wanted to talk about.  Consider the first VPD question.

. . .  on the anniversary of 9/11, Ambassador Chris Stevens and three other brave Americans were killed in a terrorist attack in Benghazi. *** Wasn’t this a massive intelligence failure, Vice President Biden?

The vice president called the attack a tragedy and committed to (a) “bring the men who did this to justice,” and (b) “get to the bottom” of what happened and ensure that whatever mistakes were made will not be made again.” Then he shifted to how the president had ended the war in Iraq and was in the process of pulling US troops out of Afghanistan.  The question of whether there had or had not been an intelligence failure in Libya was left unanswered.

http://wapo.st/R1Wike (VPD transcript).

TWO: The debaters sometimes failed to raise points that were logically related to what they had been asked about. Here is an example from PD2, when the president and the challenger were speaking to the following question. 

Mr. President, I voted for you in 2008. What have you done or accomplished to earn my vote in 2012? I'm not that optimistic as I was in 2012. Most things I need for everyday living are very expensive.


The challenger’s response (in general, one of his best all night) was along the lines that the past four years have been bleak and there isn’t much reason to expect improvement if the president is reelected.  Re higher prices, however, there was no mention of the Federal Reserve’s “quantitative easing” program, which could easily overshoot and result in sharply higher inflation.  (As PD3 is supposed to be about foreign policy, it appears that the policies of the Federal Reserve will not come up in any of the debates.)


http://fxn.ws/RRh2KW (PD2 transcript)


THREE: The challenger’s plans for the next four years were presented in such general terms that one might characterize them as vague. Rightly or wrongly, VPD moderator Martha Raddatz hounded Paul Ryan (a fiscal policy expert) about the lack of specifics in the Romney tax plan.  Here is a portion of the dialog.


RADDATZ: Do you know exactly what you’re doing?


RYAN: Look — look at what Mitt Romney — look at what Ronald Reagan and Tip O’Neill did. They worked together out of a framework to lower tax rates and broaden the base, and they worked together to fix that.


What we’re saying is, here’s our framework. Lower tax rates 20 percent. We raised about $1.2 trillion through income taxes. We forego about $1.1 trillion in loopholes and deductions. And so what we’re saying is, deny those loopholes and deductions to higher-income taxpayers so that more of their income is taxed, which has a broader base of taxation… [Biden interruption] … so we can lower tax rates across the board.


Now, here’s why I’m saying this. What we’re saying is, here’s the framework… [Biden interruption] . . . We want to work with Congress — we want to work with the Congress on how best to achieve this. That means successful. Look… [Raddatz interruption] Mitt — what we’re saying is, lower tax rates 20 percent, start with the wealthy, work with Congress to do it…

RADDATZ: And you guarantee this math will add up?


RYAN: Absolutely. Six studies have guaranteed — six studies have verified that this math adds up. But here’s…


At this point, Raddatz took Biden up on his offer to “translate” Ryan’s remarks, which enabled the latter to cite a study that said the Romney Plan would require tax increases for the middle class, and then asked Ryan whether Biden was “wrong about that.”


Yes, said Ryan.  The vice president interjected that the planned result of the Romney tax plan was “not mathematically possible” and Ryan said it was not only mathematically possible but had been done before several times.  Style points aside, the ensuing back and forth established nothing.


FOUR: Conflicting assertions about the facts were not satisfactorily resolved.  Here is an example from PD2, which began with a question about gasoline prices.


Your energy secretary, Steven Chu, has now been on record three times stating it's not policy of his department to help lower gas prices. Do you agree with Secretary Chu that this is not the job of the Energy Department?


The president took credit for higher domestic oil and gas production in his response.  The challenger subsequently said the production increase had not been due to the president’s policies. 


And the president's right in terms of the additional oil production, but none of it came on federal land. As a matter of fact, oil production is down 14 percent this year on federal land, and gas production was down 9 percent. Why? Because the president cut in half the number of licenses and permits for drilling on federal lands, and in federal waters.


The president disagreed, in effect calling his opponent a liar.

And very little of what Governor Romney just said is true.  We've opened up public lands. We're actually drilling more on public lands than in the previous administration and my -- the previous president was an oilman.  And natural gas isn't just appearing magically. We're encouraging it and working with the industry.

The ensuing discussion – with both debaters pacing the floor and heatedly interrupting each other – left viewers to guess which candidate was closer to the truth.  For the record, the challenger’s statements about permits on government land, etc. were basically correct. What is ethical energy and why aren’t the candidates talking about it? Ron Arnold, Washington Examiner, 10/18/12.  http://bit.ly/Vomrzu


*        *        *        This Blogs Replies        *        *        *

I agree generally with the blog about lawyers as political leaders, although one can't stereotype, e.g., Lincoln was a very successful lawyer. In recent times, it seems to me the most effective presidents were pragmatic men who possessed people and/or leadership skills, such as Truman, Eisenhower, Kennedy, LBJ, Reagan, & Clinton.  Only one of them (Clinton) had legal training. – Retired finance executive  [Our list of “effective presidents” would be a couple of names shorter.]

Some great leaders happen to be lawyers, and, nevertheless are great leaders in spite of it – Retired attorney

Excellent! You are certainly leading a charge for our principles. – Retired finance executive

top      wwhipple3@verizon.net

10/15/12 (E minus 22) – SAFE’s jobs manifesto

Ah, ah, ah, don’t touch that dial – listen to Blon-die.  The purpose of this well-known admonition during the golden age of radio was to lull listeners into enduring the commercials lest they miss a minute of the Bumsteads’ trials and tribulations.

In one episode, as the writer recalls, a family member spilled a bit of stain remover.  Somehow (suspension of disbelief required), the spill stained the rug.  Another family member espied the stain, fetched the stain remover, and succeeded in making the stain larger.  He or she tried to hide it with a chair.  Someone else found the stain and attempted to remove it with like results. And so forth, until the stain was bigger than the dining room table and the stain remover container was empty.

Moral: If a given approach to solving a problem isn’t working, try something else.  Perhaps some political leaders should heed this point instead of making the same mistakes over and over again.  The current debate about how to create jobs provides an instructive case in point.

Jobs needed: There is general agreement about the need to reduce the unemployment rate, which stands at 7.8% (September 2012 jobs report) and is arguably understated by several percentage points.  Indeed, judging from the political rhetoric, “job creation” is the most pressing issue on the country’s economic agenda.

The resonance of this issue is understandable. Being unable to find a job, or barely getting by in a part-time or low-skills position, can impact the persons concerned – and their family and friends – in a direct and very personal way.  See, e.g., The Dinner Table, GOP campaign video (30 seconds). http://bit.ly/RMmVeq

True, economic growth is a prerequisite for expanded job opportunities, and faster growth may require changes in various government policies. but such goals are abstract and lack emotional intensity. How many of us lie awake at night, after all, worrying about the rate of US economic growth, government regulation of business, or the National Debt?  Maybe we should, but we don’t.

Plan A: The president contends that he inherited an enormous economic problem, has tackled it squarely, and just needs a bit more time to finish fixing things.  Consider his remarks in the first presidential debate. Debate transcript, 10/3/12.

Four years ago, we went through the worst financial crisis since the Great Depression. Millions of jobs were lost. The auto industry was on the brink of collapse. The financial system had frozen up. And because of the resilience and the determination of the American people, we’ve begun to fight our way back. Over the last 30 months, we’ve seen 5 million jobs in the private sector created. The auto industry has come roaring back and housing has begun to rise.  But we all know that we’ve still got a lot of work to do.


At first blush, 5 million more jobs in 30 months may seem like solid progress.  But remember this: with a growing population, jobs must be added every month just to stay even.

Also, much of the nearly two percentage point reduction in the unemployment rate since 2009 resulted from people dropping out of the labor force:  seniors retiring – people qualifying for disability at record rates – discouraged job seekers giving up on finding a job (or joining the underground economy).  The smallest workforce since Carter, Bob Beauprez, Townhall.com, 2/6/12. http://bit.ly/zhrOGd

Through August 2012, there was a slight decline in the percentage of the overall population employed.  Even after jumping sharply in Sept. 2012, this ratio is still only 0.2 percentage points above the level in Jan. 2010.  Summary data from reports of the Bureau of Labor Statistics (Table A, data seasonally adjusted): January 2011, 2/4/11; September 2012, 10/5/12. http://1.usa.gov/4zoS3A

In millions

Jan. 2010

Jan. 2011

Sept. 2011

Aug. 2012

Sept. 2012







Labor force**












Unemployed %






% Employed***






          *16 and over, excluding people serving in the military or incarcerated.

          **Members of the population seeking employment.

          ***Percentage of the population employed – calculated.

Given that the September jobs report was published about one month before the elections, there was a rash of speculation that the numbers had been fudged – and counterclaims that critics like Jack Welch (former CEO of GE) were “conspiracy theorists.” 


We can understand the critics’ suspicions.  Note that “total nonfarm payroll employment rose by 114,000 in September,” according to the BLS report, yet the number of employed workers increased by 873,000.  What accounted for the 759,000 difference between these two numbers?  Noel Sheppard, NewsBusters.org, 10/5/12. http://bit.ly/QOpM3u

The BLS report does not provide a ready answer.  However, a jump of 604,000 government workers (federal, state & local) between July and September 2012 suggests a significant statistical adjustment in this sector.  Table A-8, seasonally adjusted data.


Table A-8 also indicates that nearly 20% of the 143.0 million people employed in September were working part-time (defined as 1 to 34 hours during the reference week), from which one might infer that the real unemployment rate is higher than the 7.8% rate being reported.


As for what lies ahead, there are indications that optimism in the business community - which can fuel decisions to expand operations and hire more employees - is drying up. See, e.g., Small Business Outlook Survey, October 2012, US Chamber of Commerce. 

•84% say they are pessimistic about their future operations in light of recent unemployment numbers and low workforce participation.

•Only 17% of small businesses surveyed expect to add staff in 2013, reflecting a steady downward trend over the course of the year. http://bit.ly/RBiHpO

In line with the stain remover story, it may be time to consider new approaches, but the president seems intent on continuing the policies of the past four years. 

He would implement the GovCare legislation without major modifications, continue pushing reduced use of fossil fuels to power the US economy, and “invest” at least part of contemplated military spending cuts in new government initiatives.  Concern about closing the budget gap does not appear to be high on his list. Obama’s second term, Bruce Bialosky, Townhall.com, 7/30/12.

He speaks in platitudes about debt reduction, but boasts excitedly about new federal spending on his personal priorities. There appears to be no material difference between what he is doing now and what he would push for in his next term. Certainly, there’s no defined process to balance the budget.


Plan B: The GOP challenger has outlined a plan designed to create 12 million jobs in the next four years.  Here are the points as he ticked them off in the first presidential debate. Debate transcript, 10/3/12.

My plan has five basic parts: One, get us energy independent -- North America energy independent. That creates about 4 million jobs. Number two, open up more trade, particularly in Latin America; crack down on China if and when they cheat. Number three, make sure our people have the skills they need to succeed and the best schools in the world -- we are far away from that now. Number four, get us to a balanced budget. Number five, champion small business.


Well, this plan does sound different than the president’s approach – but is it better?  Let’s take it point by point.

#Goal: Adding 12 million jobs over the next four years would reduce the US employment rate to a healthier level, e.g., 6% (see our “back of the envelope” estimate below).  This sounds like an appropriate goal to us. (The president has not announced a numerical jobs goal to which it can be compared.)

In millions

Jan. 2010

Jan. 2011

Sept. 2012

Sept. 2016






Labor force










Unemployed %





            *Based on growth rate between Jan. 2010 and Sept. 2012.

            **Assumes labor force participation rate of 65.0% vs. 63.6% currently.

#Point one: Robust support for North American energy production, especially oil and natural gas, would lower energy costs, put people to work, and generate government tax revenues – a true win, win solution, which SAFE has consistently endorsed.  See, e.g., Energy policy: time for some common sense, http://bit.ly/UVW3XH (9/28/09).

#Point two: The challenger’s ideas for expanding international trade do not sound all that different from what the president has been proposing.  We are inclined to doubt that new trade treaties, etc. would make a major difference in the level of US jobs.

#Point three: Everyone favors better education, but how can it be achieved? It is far from clear that the challenger shares our vision (http://bit.ly/Q9xCUO) of getting the federal government out of this area in favor of state, local and private efforts.

#Point four: As noted last week, the challenger’s ideas for “getting us to a balanced budget” seem rather sketchy. Still, he does acknowledge the need for action in the fiscal area, which is a start, and he has taken a firm stand against raising taxes during a depression. This leaves faster economic growth and spending cuts as the indicated path forward, which harmonizes with SAFE’s traditional support for eliminating wasteful government spending – starting immediately vs. after the economy recovers or whatever.  See, e.g., Never mind a 10-year plan; cut spending now, http://bit.ly/OumIqG (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 . . .

Questions can be expected as to whether balancing the budget – or at least cutting the deficit - would accelerate or impede job creation.  According to the tenets of Keynesian economics, government deficits may be helpful when times are tough and private investors are not disposed to plow their profits back into new investments.

But we believe the evidence suggests otherwise.  A recent study explains how Keynes’s theory has led to destructive deficit spending and economic stagnation. The Keynesian path to fiscal irresponsibility, Dwight Lee, Cato Journal, Fall 2012.

•Until the 1930s, US economic corrections were relatively short-lived; recovery did not require increased government spending and/or budget deficits. Page 475.

•Keynes’s theory gave politicians an excuse to “take more money from the general public and transfer it to favored groups (or voting blocs).”  Page 478.

•The corollary of running surpluses in boom times to offset deficits during slack times was typically ignored.  Page 480.

•As deficit spending became chronic, the Keynesian view was that even bigger deficits were required to provide stimulus for the economy during downturns.  Page 482

•In theory, the US economy should have rebounded sharply as a result of the huge deficits run in 2009 et seq.  However, this did not happen. Page 487.

• . . . at current levels, federal spending is hampering the economy’s productive capacity [by withdrawing funds from the private sector], which is undermining the ability of that spending to stimulate economic growth by increasing demand. Page 488.

*“Even politicians can learn from experience and, more critically, the prevailing political philosophy can shift back toward the healthy skepticism toward government activism that existed for the first 140-plus years of U.S. history.” Page 490.

http://www.cato.org/pubs/journal/ (download PDF).

#Point five: Fine, be a champion for small business (as the president also claims to be) by trimming needless regulations and reporting requirements, but why not encourage big business as well when it is reasonable to do so?  Business tycoons and wealthy investors have feelings like everyone else; they must get tired of being continually set up as the targets of envy, suspicion and nonstop litigation.  And imposing unnecessary regulatory burdens makes no sense regardless of the size of the business unit.

So long as the government refrains from trying to pick the winners and losers or paying off supporters with special favors, we see nothing wrong with giving the business community a bit of honest appreciation now and then.

We were pleased to note the (Wilmington, DE) News Journal’s apparent agreement in a recent editorial entitled “Jobs are at the heart of state recovery.”  Delaware Chatter, http://bit.ly/IS7Ktq, 10/7/12 (A31).

“The reality is that presidents [and other politicians] don’t really create jobs. Most of the bragging they do usually involves stretching the truth on the number of jobs and even the definition of what a job is.” So what “the president, governor and mayor” should be working on is to “set the table” by “[getting] the taxes right, [making] the roads work, [balancing] the regulations, and [helping] train the work force. *** It is up to businesses, enterprises and investors to serve the meal.

SAFE’s plan - The challenger’s economic plan seems more promising to us than the president’s stay the course approach. However, we think it could be substantially improved by: (1) Eliminating points two and three, which are basically of secondary importance in fueling an economic recovery that will create more jobs;  (2) Making the commitment to brining down the deficit more explicit and immediate; and (3) Simplifying the language.

Here is the plan that we came up with:

MORE JOBS will be available when the federal government changes its behavior.  Without delay, the government must stop piling more and more requirements on business.

To lighten the burden, simplify the tax system and eliminate unnecessary regulations & red tape.  The result will be faster economic growth, MORE JOBS, and more revenue to the federal government without raising taxes.

In addition, significant changes are needed to cut spending, eliminate deficits, and start paying off debt.  That will reduce the present risk of financial disaster and provide fairness to coming generations.

And about those coming generations, here is a powerful reminder that they are not an abstraction and we – who are currently in charge – need to “FIX IT.”  Voices without a vote, video (3:44), http://bit.ly/RfCtFR

If you agree, dear readers, please forward this plan – or a link to this entry – to whoever you think might be interested.  We need to get our ideas out before the election, while US politicians are potentially in a listening mode.

top      wwhipple3@verizon.net

10/8/12 (E minus 29) – The first presidential debate was instructive        Read Replies

Much has been written about the first presidential debate of this year’s campaign, which took place in Denver, Colorado on October 3, with some 60 million Americans tuning in. Body language, demeanor, tone of voice.  Fluidity and appeal of answers.  Truth or falsity of factual claims. And, of course, “who won?” (Romney, by most accounts).

Rather than delving into these areas, which have been covered to a fair the well already, let’s focus on two questions.  First, was it a good debate – and if so why?  Second, what proposals did the candidates offer to address the fiscal problem?

A good debate  – The three presidential debates in 2008 left much to be desired, as we observed at the time.  The questions rarely homed in on substantive issues.  Even when they did, only limited time was available for responses and there was no effective antidote for unresponsive, incomplete, or misleading answers.

Consider the second 2008 debate, in Nashville, TN, where moderator Tom Brokaw posed a dozen questions from the public (which he had selected from thousands submitted) plus eight (by our count) follow-up questions of his own. Each candidate had about 2 minutes per question to respond, which was hardly enough time for serious answers. 

Some logical questions did not get asked, such as “do you agree the US tax system needs to be simplified, and how would you go about it?” Indeed, there were no questions about taxes at all, although the candidates managed to bring up their respective “tax cut” proposals. Famous last words: “my plan will cut taxes,”  http://bit.ly/Nx65fp (10/10/08)

Although the candidates were asked about restructuring entitlements and cutting spending, the questions were phrased in a curiously round about way.  For example:

Brokaw - Since World War II, we have never been asked to sacrifice anything to help our country, except the blood of our heroic men and women. As president, what sacrifices -- sacrifices will you ask every American to make to help restore the American dream and to get out of the economic morass that we're now in?

Neither candidate demonstrated much conviction about cutting spending, not even to the extent needed to “pay for” his tax cut proposals.  For example:

McCain – So we're going to have to tell the American people that spending is going to have to be cut in America.  And I recommend a spending freeze that -- except for defense, Veterans Affairs, and some other vital programs, we'll just have to have an across-the-board freeze.

Obama – I'm going to spend some money on the key issues [goes on to talk about healthcare, a different energy plan, and college affordability] that we've got to work on.  *** but actually I'm cutting more than I'm spending so that it will be a net spending cut.

The Commission on Presidential Debates (http://www.debates.org/) revised the debate format this year.  The first (domestic issues) and third (international issues) presidential debates would be divided into six 15-minute segments, with a starter question and moderator follow-up during the segment.  The second presidential debate will be in the traditional town hall format, and the VP debate will feature nine 10-minute segments.  Presidential debate: what you need to know about Jim Lehrer's rules, Amanda Paulson, CSMonitor.com, 10/3/12. http://bit.ly/WkXEZG

Thanks in large part to the revised format, the first debate was far crisper than the 2008 debates.  The candidates had more influence over what was discussed and for how long, while the moderator (Jim Lehrer) played a supporting role. Debate transcript, 10/3/12, http://yhoo.it/RDcdqt

If one candidate said something the other could logically dispute, the retribution was generally swift.  Consider how the president repeatedly claimed (transcript 3, 4, 6) that the challenger is proposing a $5 trillion tax cut, which, by inference, will be paid for by the “middle class.”  This picture had been painted before, e.g., in former President Bill Clinton’s endorsement speech at the Democratic National Convention.  But now the challenger had an opportunity to fire back (and did so every time) that the $5 trillion tax cut claim is not factual.  For example (transcript 7):

. . . let me repeat what I said.  I’m not in favor of a $5 trillion tax cut.  That’s not my plan.  My plan is not to put in place any tax cut that will add to the deficit.  That’s point one.  So you may keep referring to it as a $5 trillion tax cut, but that’s not my plan.

The challenger was correct as his proposed reduction in tax rates is not offered in isolation.  He also proposes to eliminate enough tax preferences and stimulate enough economic growth that the overall result would be revenue neutral.  Does Romney have a $5 trillion tax cut, or not?  Peter Grier, CSMonitor.com, 10/4/12.  http://bit.ly/RE2vUX

Moreover, it is not fanciful to expect a substantial portion of the apparent revenue loss from tax cuts to be offset by faster economic growth.  One well-respected source pegs the offset factor at about 60%. Simulating the economic effects of Romney’s tax plan, Stephen McBride, Tax Foundation, 10/3/12.  http://bit.ly/RcUbZX

The president was on sounder ground, however, in asking what tax preferences would be eliminated under the challenger’s tax plan.  For example (transcript 4):

. . . he is saying that he is going to pay for it by closing loopholes and deductions.  The problem is that he’s been asked over 100 times how you would close those deductions and loopholes, and he hasn’t been able to identify them. 

Here the closest the challenger came to getting specific – he is presumably reluctant to galvanize opposition by targeting specific tax preferences - was that he would work with Congress on the matter. Transcript (p. 26)

I’m going to work together with Congress to say, okay, what are the various ways we can bring down deductions, for instance. One way, for instance, would be to have a single number -- make up a number -- $25,000, $50,000 -- anybody could have deductions up to that amount. And then that number disappears for high-income people. That’s one way one could do it. One could follow Bowles-Simpson as a model, and tax deduction by deduction and make differences that way.

In similar fashion, the candidates’ views on a number of important issues were developed during the 90-minute debate.  What commitments are they willing to make?  What points are they fudging on?  Whose promises seem the most credible?  And what is the truth about the negative claims that have been made about both of the candidates?

That’s our idea of a good debate, and it was certainly a huge improvement over the pessimistic predictions of one analyst.  The debatable benefits of campaign debates, Joseph Epstein, Wall Street Journal, 10/2/12 (no link available).

While watching forthcoming presidential debates, try to remember that glibness, quick out of the starting gate responses, a taste for one’s opponent’s jugular – all the things one doesn’t need or want in a president – are likely to carry the day.

Fiscal problem – Deficits and debt were the focus of the second segment (which began behind schedule and lasted about 10 minutes).  Transcript (p. 7).

Lehrer - What are the differences between the two of you as to how you would go about tackling the deficit problem in this country?

The challenger - This is not simply an economic issue, it is also a moral issue because the burden of current borrowing will be “passed on to the next generation and they’re going to be paying the interest and the principal all their lives.” 

Arithmetically, there are three ways to reduce the deficit: raise taxes, cut spending, or grow the economy. Tax increases would slow down the rate of growth, so “I want to lower spending and encourage economic growth at the same time.”

Re spending cuts, an appropriate test might be “is the program so critical it’s worth borrowing money from China to pay for it?”  Illustrative targets: “Obamacare” (a term the president said he likes), and, with apologies to the moderator, funding for PBS (Public Broadcast Service).

The president - “I’ve put forward a specific $4 trillion deficit plan.”  Taking a balanced approach, the plan provides $2.50 in spending cuts for every $1 of revenues asked for. 

Surely it would be reasonable to ask “those of us who have done very well in this country to contribute a little bit more to reduce the deficit,” yet in a primary debate the challenger had said he would not support even $1 more revenue for every $10 of spending cuts. 

The challenger - “You said you’d cut the deficit in half.  It’s now four years later [and] we still have trillion-dollar deficits.”  As for tax increases, as the president said in 2010, raising taxes on anyone during a recession is a bad idea.  “That’s why the National Federation of Independent Businesses said your plan will kill 700,000 jobs.” The goal should be “more people working, getting higher pay, paying more taxes.”

The president - “If we’re serious, we’ve got to take a balanced, responsible approach.”  That includes corporate tax adjustments, such as eliminating $4 billion a year of corporate welfare for the oil industry, ending tax breaks for corporate jets, and not giving tax breaks to companies that are shipping jobs overseas. 

“And the magnitude of the tax cuts [a veiled reference to the previous $5 trillion claim] that you’re talking about, Governor, would end up resulting in severe hardship for people” because of the drastic spending cuts that would be needed.  For instance, “when you talk about shifting Medicaid to states,” that could result in “a 30 percent cut in Medicaid over time.”  For a family “who’s got an autistic kid and is depending on Medicaid, that’s a big problem.”

The challenger - Tax breaks for oil companies are minor in comparison to the $90 billion that has been put into “green” energy companies like Solyndra and Fisker. Re a tax deduction for taking a plant overseas, “I have no idea what you’re talking about.”

As for Medicaid, “I would like to take the Medicaid dollars that go to states and say to a state, you’re going to get what you got last year, plus inflation, plus 1 percent, and then you’re going to manage your care for your poor in the way you think best.”  Believe me, they would jump at it. 

In the first segment, the challenger had rattled off a five-point plan for rebooting the economy – of which point 4 was “get us to a balanced budget” – without offering meaningful details. Transcript, p. 2. 

My plan has five basic parts: One, get us energy independent -- North America energy independent. That creates about 4 million jobs. Number two, open up more trade, particularly in Latin America; crack down on China if and when they cheat. Number three, make sure our people have the skills they need to succeed and the best schools in the world -- we are far away from that now. Number four, get us to a balanced budget. Number five, champion small business.

Assuming the challenger’s economic plan would indeed promote faster economic growth and more jobs, this would help to bring down the deficit.  However, the potential benefits would be very difficult to quantify, even with a lot more details.

Nothing more was said about balancing the budget (per se), by either candidate, during the remainder of the debate.    

Re entitlement plans (segments 3 & 4), neither candidate advocated major changes in Social Security even though this huge plan is now operating in the red and, as should be clear to everyone by now, there is nothing in the Social Security trust fund except IOUs.

Major differences of opinion were noted re healthcare, which is the biggest single driver of projected deficits, but the president proposed no changes and it wasn’t clear that the challenger’s proposals would achieve major cost savings any time soon. 

Medicare would not be turned into a “voucher plan” for younger (under 55) workers as they would have a choice between private plan coverage or traditional Medicare.  If Obamacare was “repealed,” the $716 billion cut in Medicare outlays that had been assumed would be cancelled instead of used to reduce the deficit.  The challenger said some Medicare benefits might be lowered for “higher income people,” but the “means testing” parameters (income levels, magnitude of reductions) were not discussed.

The challenger seems to envision replacing Obamacare with equivalent arrangements (mandated coverage, no denial of coverage for preexisting conditions, etc.) at the state level.  Perhaps the state-run operations would be more cost efficient, but this would be difficult to demonstrate without far more information.

In sum, neither candidate offered a credible plan to balance the budget.  And some critics faulted them for not being more forthcoming about the sacrifices that will be required.  The president’s big idea was to raise taxes, “but only on the top 2%.”  The challenger promised to cut spending, but devoted more time “to listing what he wouldn’t cut,” e.g., no cuts in education, defense, or Medicaid.   Candidates avoid promises on deficit, David Wessel, Wall Street Journal, 10/5/12 (no link available).

As Erskine Bowles (co-chair of the Fiscal Commission in 2010) put it: “I didn’t hear hardly any discussion of the fact that the problems we face are real, the solutions are painful and all of us are going to have to join hands and make some real cuts.”

However, let’s be realistic.  Given the nature of the political process, candidates for office shy away from saying things their potential supporters do not want to hear – that’s not the way to get elected - but some leaders rise to the occasion afterwards. 

The real question is whether the president or the challenger would, if elected, have the best chance to solve the fiscal problem or at least get the ball rolling.  And in this regard, the articulation of their respective views about presidential leadership was instructive.

The president described himself as willing to “take ideas from anybody, Democrat or Republican,” but there seemed to be some preconditions. Transcript, p. 23.

So we've seen progress even under Republican control of the House of Representatives. But, ultimately, part of being principled, part of being a leader is, A, being able to describe exactly what it is that you intend to do -- not just saying I'll sit down, you have to have a plan. Number two, what's important is occasionally you've got to say no to folks both in your own party and in the other party. And, yes, we had some fights between me and the Republicans when they fought back against us  *** And so part of leadership and governing is both saying what it is that you are for, but also being willing to say no to some things.

The challenger cited his experience as the governor of Massachusetts where “my legislature was 87 percent Democrat” and “I had to work across the aisle to get anything done.”  He promised to follow a similar pattern if elected president, meeting regularly with Democrat leaders as well as Republican leaders.  Transcript, p. 23.

We face -- this deficit could crush the future generations. What's happening in the Middle East -- there are developments around the world that are of real concern. And Republicans and Democrats both love America, but we need to have leadership -- leadership in Washington that will actually bring people together and get the job done, and could not care less if it's a Republican or a Democrat. I've done it before. I'll do it again.

In summary, this country seems to have a choice between preconceived solutions and a cooperative problem-solving approach.  There are no guarantees of success either way, but it might be refreshing to see some cooperation in DC for a change. 

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Is our government too big or too small, or as with the Goldilocks analogy you used - just right? Without doubt, the government is too darned big. There are literally dozens of counter-productive government programs in HHS for Welfare, Food Programs for the poor, Medicine, Jobs, Job Training, etc. With a $1.1 Trillion dollar DEFICIT, the question is not what is the optimum size of government; BUT, WHAT GOVERNMENTAL FUNCTIONS CAN WE AFFORD TO PAY FOR GIVEN OUR REDUCED ECONOMIC STANDING. A complete [top to bottom] re-evaluation of our entire budget is long over-due. – Military historian

All the regulatory agencies, what Lew Rockwell labels, "The list from Hell," should be abolished, along with most of the cabinet positions that guide them. When I was mistakenly a "liberal," being young and impressionable, an "old" conservative asked me, in a matter-of-fact voice: "What did the Department of Commerce do yesterday?" Of course, I didn't know, and answered, "Why, I don't know." To which he responded, "I don't know either, and that's just the problem." – SAFE member, Georgia

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10/1/12 (E minus 36) – Opportunities close to home            Read a Reply

“All politics is local,” as the saying goes (geekbooks.com, http://bit.ly/ORVdOD), and somewhat similar considerations apply for policy advocacy, i.e., one cannot expect to make a lot of sales without personal engagement. 

So how is SAFE doing?  We would like to think our scrappy little group is making a good case for smaller, more focused, less costly government, thereby complementing the efforts of national think tanks like Cato and Heritage. But it would be hard to prove we are holding our own, let alone winning the battle.

One source of information is comments on this blog, which are received (and posted) from time to time.  We always appreciate feedback, whether pro or con. If someone expresses doubts or disagreement, they at least read and thought about what we wrote – and perhaps they are suggesting useful upgrades.

Networking with allies can be invaluable, both to pool resources and to gain the benefit of other perspectives.

And we need to monitor and engage with people with different viewpoints.  What are they thinking and saying?  Is the general public buying their arguments versus ours? Do some of their arguments have merit (we’re not necessarily right about everything), and if not how can they be most effectively refuted?

Outreach efforts are difficult without mutual understanding of where the other party is “coming from,” a condition most likely to exist close to home. So although SAFE is primarily interested in national (versus state or local) policies, we spend much of our time and effort trying to track and influence what is going on here in the First State (with a mere 0.3% of the US population).

Now, let’s get down to some specific cases, involving an ally, a newspaper, and the Delaware members of Congress.

Partnering – Caesar Rodney Institute (CRI) is a Dover-based “think tank” that focuses on state government policies, e.g., budgeting, taxes, energy policy, healthcare, and education. http://caesarrodney.org/

SAFE has collaborated with CRI on several projects, notably opposition to the Bloom Energy fuel cell venture.  We have also sponsored CRI speakers at meetings of the Retired Men’s Luncheon Club, e.g., Dr. John Stapleford re Delaware’s fiscal picture.  Another busy week for SAFE, 7/23/12.

CRI recently shared with us their Delaware policy platform, which is being sent to candidates for state office in the November elections.  The aim is “to support government policies and practices that will improve Delaware’s economy, education, energy cost, and healthcare for the benefit of our people and businesses.”

The platform combines suggested questions for voters with CRI’s proposed solutions. The result is a solid pro-business agenda, with which we heartily agree. Here’s an example (condensed) from the Energy Policy section.

Do you believe providing subsidies for Fisker Automotive & Bloom Energy were good investments?  Do you believe Delaware’s economy and energy policies are best served by subsidizing alternative or renewable energy in general?  Do you agree Delaware should encourage the development and use of natural gas?

We believe the free-market system can and will find a way to produce cleaner, less polluting energy without government subsidies and mandates.  We believe natural gas is the next logical step for clean energy.  End requirements to use less reliable technologies if they are not efficient or cost-effective; end regional cap and trade requirements; end ethanol mandates and subsidies.

As for selling the message, CRI advocates a low-key approach (we’ll still be here after November) designed to disarm and eventually convert skeptics versus futilely attempting to overpower them.  See the example below.  Educate a voter, CRI blog, 9/18/12. http://bit.ly/QiSWed

Explain to your undecided friends that things like hybrid cars and solar panel installments are often out of the price range and economic need of the average Delawarean. Often the very people who advocate for subsidizing “renewable energy” are merely paying their campaign donors back or are just trying to score some political points (or both). Point out that California, with its heavy environmentally concerned crowd, has frequent brownouts where power simply goes out because there is not enough of it.  Ask that person if that is the future they want for America and Delaware: wealthy campaign donors getting wealthier at taxpayer expense while we the people have to suffer long power outages and be forced to use technologies we can’t afford.

SAFE follows CRI on Twitter, and vice versa. As some readers may recall, the CRI “tweet” was almost instantly “retweeted” in our Twitter feed.

Engaging the media – The (Wilmington, DE) News Journal recently ran a long-winded series on sea level rise (SLR) along the Delaware coast, citing source after source that attributed this development to manmade global warming and predicted the trend would accelerate dramatically.  We panned the coverage as one-sided and alarmist.  Don’t panic about sea level rise, 8/27/12.

The situation was mitigated somewhat by the News Journal’s publication of a column by Dr. David Legates responding to previously reported comments of NASA climate scientist Victor Hansen.  Distortions fuel climate change advocacy, 8/24/12.

Whenever an extreme weather event occurs, Hansen and others say we must act immediately to prevent such events.  However, there is no clear scientific evidence that humans are responsible, future climate changes will be calamitous, or slashing energy use will avert anything.


The Legates column appeared in the editorial section, however, which has been fairly even handed over time.  Our real concern was biased news coverage. Accordingly, we reached out to a News Journal executive (with copies to the reporters and the editorial page editor) about this apparent attempt to make the news instead of reporting it.

SAFE’s one-page letter was designed to answer a series of threshold questions, hopefully leading to consideration of our underlying analysis.

Likely questions

Our answers

Who are you?

Secure America's Future Economy has been promoting smaller, more focused, less costly government since 1996.  It is a grassroots, all volunteer, nonpartisan group, which does its homework and is not afraid to take positions on controversial issues.

What’s your point?

We are confirmed skeptics of the theory that carbon emissions resulting from the burning of fossil fuels have somehow become the prime driver for an accelerating global warming trend.  Accordingly, we were not high on the News Journal's sea level rise series (which attributed SLR solely to this theory).

Do you have any proof?

. . . meticulous SLR study for the Chesapeake Bay (showing that sinking of the land has been a prime factor in relative SLR), joint letter of three eminent scientists (who do not support alarmist reactions to a warming trend), and other authoritative sources.  Link to 8/27/12 blog entry.

Aren’t you just obstructionists?

SAFE is not opposed to changes in energy infrastructure. To the contrary, we foresee a gradual transition from coal power plants to the most economical and reliable alternatives (probably natural gas and/or nuclear power). The replacement power sources should not be dictated by government mandates and subsidies, however, and the timing should be determined primarily by market forces. Link to a cleaner power series (blog entries 5/28, 6/4, and 6/1l).

What do you want?

Climate alarmists and crony capitalists do not seem interested in reasonable approaches.  The "solutions" publicized in the SLR series certainly failed to meet this mark, as do the renewable energy proposals that are currently in vogue.  Perhaps a REAL DEBATE about energy policy could prove useful.

Will our letter lead to more balanced news coverage in the future?  Time will tell, but it has not been acknowledged to date.

Lobbying Congress – Members of Congress typically keep a running tally of messages from their constituents, but only take them seriously if there is a dramatic surge of sentiment on a particular issue.  Letters from outside their electoral districts or states have even less influence, so SAFE’s legislative outreach efforts are generally (but not always) focused on the three Delaware members. http://bit.ly/b4quXY

If there is a response, it will typically recite some general talking points about the subject matter without addressing SAFE’s specific arguments.  Thus, for example, one member responded to SAFE’s 8/27/12 letter re SLR and global warming by saying, in essence, that if the Supreme Court and the EPA say CO2 emissions should be cut, that’s good enough for me. http://bit.ly/QXKmRF

Subsequently, we decided to write to the Delaware members again on a different topic – maintaining this country’s system of constitutional government. 

The impetus was a series of essays, published by the News Journal in honor of Constitution Day (September 17), which responded to this question: Is the Constitution broken? The question was attributed to perceptions that partisan gridlock is gumming up the wheels of progress in this country and thereby preventing urgent national issues such as balancing the budget (e.g., raising taxes) from being addressed.

Our objective was to write a letter that would motivate the addressees (or more likely members of their respective staffs) to click the link provided, read SAFE’s analysis (9/24/12 blog entry), and consider SAFE’s conclusions – which were quite different from what any of the contributors to the series had written.

There was a prior failure to learn from, namely our blunt July 17 letter to the editor of Harvard Magazine re a somewhat analogous series of articles.

As should be well known, this nation's government was designed to be a republic (rule of law) rather than a democracy (rule of the people).  It's rather off point to write about "America's Damaged Democracy" (July-August issue), therefore, as opposed to the undermining of the republic that has taken place. And the four political system articles in the issue seem to contemplate doing away with the American republic entirely, not repairing the damage that has been done.  James Madison et al. would be shocked!


HM did not respond to our letter, nor include it among the numerous comments on the series that were published the following month.  Perhaps the notion that all these learned academics had missed the central problem of the US political system was deemed too absurd to entertain.

Our viewpoint was out of synch with the News Journal essays as well. Writer after writer (including four Delaware members or former members of Congress) seemed to buy into the premise that partisan gridlock is the biggest problem in Washington.  Some said, oh well, the gridlock will be broken in time.  Others advocated campaign finance “reforms” and such to foster a supposedly more harmonious atmosphere. None of them characterized the perceived gridlock as a natural consequence of growing (and about time) resistance to the big government express that threatens to destroy any vestige of this country’s experiment with limited government.

The challenge was to make our case forthrightly, yet ensure that it would have some credence at the receiving end.  Maintaining that partisan gridlock is a good thing did not seem like a promising approach, but maybe there was another way to skin the cat.

After considerable thought, here is the short and sweet letter to the Delaware members that we sent.  Our strategy was to recast the issue in terms of maintaining the integrity of Congress as an institution.

The recent News Journal series of essays on the Constitution (including yours - in the case of Senator Carper and Senator Coons) missed the 800-pound gorilla in the living room, namely growing ascendancy of the Executive Branch.

Washington's current problems are not due to partisan gridlock, in our opinion, but rather to a collective tendency to duck important issues – such as cutting wasteful government spending before it sinks the country.  And inaction by Congress should not be used as a pretext for aggressive (if not illegal) administrative actions.

You may find the discussion in our current blog entry of interest.  Here is a summary and the link.


Will any of the foregoing efforts bear fruit?  We certainly hope so, but if not we will keep trying. That’s the SAFE way.

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From the archives: consider how SAFE attempted to influence the recommendations of the Fiscal Commission in 2010. In addition to developing our ideas in the blog and firing off letter after letter to Washington (http://bit.ly/SlRlRy), we published a story in the SAFE newsletter (http://bit.ly/PzivVw), got a column published in the News Journal (http://bit.ly/PMGMZb), and urged readers to chime in.

Our proposals did not carry the day, but they made more sense than what the Fiscal Commission actually did and still read well today 

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Here is a link to the Caesar Rodney platform for Delaware; it was posted on their website after our entry went to press. http://bit.ly/PZ94zS

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9/24/12 (E minus 43) – Reflections on the Constitution at the 225-year mark        Read a Reply

SAFE has traditionally concerned itself with government policies versus politics, but our smaller, more focused, less costly government agenda has hardly been a “best seller.”  To the contrary, the big government express is gaining speed. 

Three years ago, we undertook an extensive analysis (medical model) of why the government isn’t working better and how its results could potentially be improved. Government Run Amok Disease, Nov.-Dec. 2009. http://bit.ly/5oRbcq

• Symptoms: crucial issues ignored - bad ideas entertained - proposals presented deceptively - dissent dismissed.

• Diagnosis: Government Run Amok disease, which has often been attributed to partisan gridlock, but is more likely due to groupthink and the public’s limited attention span.

• RX: Term limits and balanced budget/ supermajority for tax increases requirements could help, but a concerted push for such Constitutional amendments fell short in the 1990s and seems well nigh impossible now.

A subsequent analysis concluded that all three branches have contributed to undermining the checks and balances built into the structure of the US system of government; some suggestions were offered on what Americans can do to prevent further damage.  Long live the Constitution, http://bit.ly/QESK6y (9/13/10)

This year, in honor of Charles Ponzi’s birthday, we revisited the state of play again and found further slippage.  Can this country be saved? http://bit.ly/KZ46Dg (3/5/12) 

Recent developments have kept the Constitution foremost in our thinking – as evidenced by five blog entries (June 25, July 2, July 9, July 28, and August 13) on various aspects of the topic. We’ll have more to say about these entries shortly.

Last week, the (Wilmington, DE) News Journal published a series of Constitution Day essays in response to a starter question: Is the Constitution broken? (The underlying premise was that partisan gridlock is blocking action on pressing national problems.)  Here is a recap of the essays (http://bit.ly/T0eQpy); our analysis follows.

Faulty question – Is it logical to equate partisan gridlock on national problems, such as balancing the budget, with a “broken Constitution?”  We hardly think so.

As the News Journal notes, the Constitution does not so much as mention political parties. Imagine the Constitution in the future, editorial, 9/17/12. 

And more fundamentally, it is debatable whether the government initiatives that have been getting sidetracked would take this country in the right or the wrong direction.  Perhaps the Constitution is working as intended rather than being broken.  Government Run Amok Disease series, 11/23/09. 

. . . partisan rivalry has existed from the start of this nation *** bipartisan cooperation can morph into the blind acceptance of ideas that deserve to be vigorously debated.  Notice how quick the advocates of an ever-expanding role for government are to class dissenting views as of no consequence.  *** while there is much to be said for decorum and civility, we see no reason why the parties should be of the same mind on everything – or pretend to agree if they don’t. *** What causes groupthink?  Watch out for illusions of invulnerability, the presumed morality or superiority of certain segments of society, and the devaluation of dissenting opinions.

http://bit.ly/5oRbcq (11/23/09)

A Harvard Magazine series on “America’s Damaged Democracy” raised a similar question. We concluded that the elite writers were off base (Professors facilitate national decline, 7/2/12), and explained why in a blunt letter to the HM editor (which was not published or acknowledged).

As should be well known, this nation's government was designed to be a republic (rule of law) rather than a democracy (rule of the people).  It's rather off point to write about "America's Damaged Democracy" (July-August issue), therefore, as opposed to the undermining of the republic that has taken place. And the four political system articles in the issue seem to contemplate doing away with the American republic entirely, not repairing the damage that has been done.  James Madison et al. would be shocked!


Finally, compromise does not necessarily achieve optimal solutions.  When the political parties find common ground in Washington, as does happen now and then, they may be acting at the expense of the general public.  Thus, Side A covets bigger spending programs while Side B wants to avoid tax increases.  They compromise by running unsustainable deficits and running up the national debt so future generations will get stuck with the bill. Can this country be saved? http://bit.ly/KZ46Dg (3/5/12) 

Errant essays – Several participants in the News Journal exercise were Republicans, but overall the writers were well left of center.  Had some solid conservatives been included in the mix –e.g., Robert Levy, the chairman of Cato Institute – we would have expected more diverse viewpoints. Notes from Cato University 2012. http://www.s-a-f-e.org/events.htm (slide 14, declining role of US courts)

320 alphabet agencies in DC, some 200 volumes of federal regulations.  Delegation is accepted if there is an “intelligible principle” (fig leaf) to support it. Less protection for political speech than pornography or flag burning.  If we have a campaign cash problem, it’s due to big government.

The points made by in the News Journal essays bear little similarity to Levy’s, and in our opinion suffer by comparison.

#The only explicit discussion of the powers of the Executive Branch reprises Alexander Hamilton’s role in the 18th Century.  Thus, “the American presidency as we know it today, characterized by its central place in our political system, owes much of its uniqueness to the tenacity and vision of Alexander Hamilton.”   His “energetic executive” vision, Professor Samuel Hoff, Delaware State University, 9/18/12.

OK, but is the current state of affairs satisfactory?  Since the GOP recaptured the House of Representatives in 2010, there has been an upswing in aggressive Executive Branch actions to circumvent Congress, many of which have been led or backed by the president. 

Comparing current examples of presidential overreach (assertion of “executive privilege” re Fast & Furious investigation, improper recess appointments, “Dream Act” via administrative mandate vs. legislation, etc.) to acknowledged abuses of power during the Nixon Administration, we found disturbing parallels. The imperial presidency returns, http://bit.ly/P3EA08 (6/25/12).

Another administrative initiative, which was apparently designed to water down the work requirements added to the welfare laws during the Clinton era, prompted a further question.  Who needs Congress if the Executive Branch can make the laws? 7/28/12.

#The News Journal essays laid destructive partisan gridlock at Congress’s doorstep, while ignoring the possibility that the president has contributed to this phenomenon.  And one essay characterized “ideologically extreme” Republicans as the prime culprits. The Constitution wasn’t designed for parliamentary parties, Thomas Mann (Brookings Institution) & Norman Ornstein (American Enterprise Institute), 9/19/12.

Actually, the president has been combative – and somewhat inept – in his dealings with Congressional leaders.  Here’s a sample of the action during last year’s debt limit increase brawl.  Inside story of Obama’s struggle to keep Congress from controlling outcome of debt ceiling crisis, Bob Woodward, Washington Post, 9/8/12.

“Mr. President,” Boehner challenged, “as I read the Constitution, the Congress writes the laws. You get to decide if you want to sign them.”


Reid, the most powerful Democrat on Capitol Hill, spoke up. The congressional leaders want to speak privately, he said. Give us some time.


This was it. Congress was taking over. The leaders were asking the president to leave the meeting he had called in the White House.


#One essay complains of judicial activism, which has supposedly severed the link between law and morality. Judicial branch sabotages democracy’s framework, Jeffrey Nelson, ISI, 9/17/12. The writer may have a point re social issues such as “abortion, euthanasia, and homosexual rights,” but his complaint is clearly inapplicable in other policy areas. 

Thus, as was recently held by US Supreme Court, the government can set the terms and conditions for mandated healthcare insurance coverage and levy a tax on those who choose not to acquire it – even though the Constitution does not make the federal government responsible for such matters.  Truly, very little remains of the “Enumerated Powers Doctrine” and 9th & 10th Amendments. Assessing the GovCare decision, 7/9/12.  

From now on, anyone (except possibly a state government) who wants to challenge a federal statute had better be able to cite an affirmative prohibition in the Bill of Rights or elsewhere in the Constitution if they expect to get very far.

# Several essays complained that corporations (thanks to the much maligned Citizens United decision) and wealthy individuals can influence elections via contributions to independent entities (e.g., SuperPacs) formed to speak out on public issues. Citizens United is a blot on Constitution, fair elections, Senator Chris Coons, 9/17/12; The scandal of Citizens United bedevils our nation, former Senator Russ Feingold (D-WI), 9/18/12.

As Levy notes, however, the desire of such donors to curry favor with politicians is a natural (nay inevitable) consequence of the government’s increasingly dominant economic role.  The most effective way to staunch the flow of campaign cash would be to rein in the size and scope of government, whereas laws to neutralize the effects of money in politics are unlikely to work.

Previous campaign finance “reform” laws have made things worse, not better, by diverting campaign contributions from political candidates (who take responsibility for the ads they run) to the independent entities now being complained of.  Given that Senator Feingold is credited with being a co-sponsor (with Senator John McCain) of the last major campaign finance reform law, it is almost comical that he now advocates replacement of the “worthless” Federal Election Commission.

Cryptic answers – Generally speaking, participants in the News Journal series come to one of two conclusions.  Either current problems will be worked out, so let’s leave well enough alone, or reforms are essential to mitigate the partisan divide in Congress.

#A member of the first school of thought, Senator Tom Carper, says it should be possible to “find a way through the minefield we find ourselves in today” by rededicating ourselves to the values set forth in the Constitution (quoting only from the preamble). A renewed commitment to our founding values, 9/15/12.

Former Senator Ted Kaufman counsels against abolishing the Senate filibuster (but change it if necessary) in the interest of protecting expression of minority viewpoints.  During his 24-year career in the Senate (22 years on Senator Biden’s staff), he does not recall “one major bill that passed that did not include ideas presented by the minority party.” (What about GovCare?) Constitution doesn’t need major overhaul, 9/16/12.

Former Representative Mike Castle discusses various possible changes - the Disclose Act he co-sponsored to mitigate effects of the Citizens United decision, a constitutional amendment to have House representatives serve 4-year terms, etc. - but his basic conclusion seems to be that American voters will provide guidance as to where they want the country to go.  We can fix these problems if we only have the will, 9/18/12.

Former Representative Mickey Edwards (R-OK) is still smarting about how the Democrat-controlled state legislature redrew the lines of his electoral district. He also worries about how party members short-circuit the checks and balances between the three branches of government.  Nevertheless, his essay ends with an upbeat exhortation to "cherish the Constitution every day, and not just on September 17.”  Political parties are undermining the Constitution, 9/19/12.

#Convinced that changes are needed, Senators Chris Coon and Russ Feingold advocate reversal of the Citizen United decision or, failing that, decisive action to counteract its effects.  See their previously cited essays.

Current conditions are awful, say Thomas Mann & Norman Ornstein, and “with the huge problems facing the country, we cannot long sustain this dynamic.”  They do not advocate switching to a parliamentary system, yet see divided control of the government as a huge problem.  So should Congress be reduced to a ceremonial body, with the Executive Branch taking full control?  The writers’ conclusion about this is not stated, but they predict “America will come out of it, as we did in previous eras of crisis.”  The Constitution wasn’t designed for parliamentary parties, 9/19/12.

The Mann/Ornstein essay is reminiscent of a suggestion that government powers are often expanded during crises. Notes from Cato University 2012. http://www.s-a-f-e.org/events.htm (slide 16, Mark Calabria, averting a financial crisis).

•What’s so bad about a financial crisis?  Lost economic opportunity, and can be used to justify expansion of government (New Deal, GovCare).  Not to mention potential for civil unrest, armed conflict.

•Is there such a thing as a useful crisis, e.g., school of thought that things must get worse before they get better?  It’s possible, depends on who is in charge when the crisis hits, but things have usually gone the other way.

Our take – Some conservatives understandably decry the erosion of principles set forth in the Constitution, e.g., the Enumerated Powers Doctrine, but this country has changed a lot since the 18th Century and the clock cannot be turned back.

Even if some of SAFE’s ideas were heeded, the federal government would remain a huge, unwieldy organization facing many challenges.  And like it or not, Congress is ill equipped to lead the parade – only the president et al. can play that role. Government Run Amok Disease series, 12/7/09. http://bit.ly/5oRbcq

If the U.S. system of government was likened to a motor vehicle, Congress might be seen as the brakes. *** With 500+ principals and an unwieldy structure, it has great difficulty making and implementing decisions. ***  The executive branch can act as the motor of government because its members all report to the president.  [Thus, as has been pointed out by former US Comptroller General David Walker, leadership to deal with the government’s fiscal problem can only come from the president.]

We remain firmly convinced, however, that the members of Congress (on both sides of the aisle) should resist subversion of that branch’s powers.  And there has been a disturbing trend towards presidential ascendancy, particularly in the past four years, which brings to mind other historical events of an unhappy nature. Cicero Ancient Classics for English Readers, Collins, Rev. W. Lucas 1817-1887.

There are some parallels in the political situation in late republican/early imperial Rome and the increasingly bitter tone in our political system today. Will there come a time when the US political system breaks down too, as voters lose faith in the results and the factions turn from debate to violence? Time will tell, but one gets an eerie sense from this book of how things could go wrong for America.


The advent of a unitary national government was seemingly applauded in the Harvard Magazine articles on “America’s Damaged Democracy,” and participants in the News Journal series on the Constitution didn’t have much to say about it. 

Members of Congress have struck out in challenging presidential overreach, and will probably do so long as all of the members of the president’s own party continue to back him. 

Likewise, the mainline media has not sounded any alarms and the general public does not seem to be paying attention.

To borrow a line from commentator Glenn Beck, “Wake up America!”

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The timeliness of this week's entry was underscored by the president's latest (9/22/12) weekly address, in which he blamed a host of current problems on Congress.  Here's an excerpt: "See, when they skipped town, members of Congress left a whole bunch of proposals sitting on the table – actions that would create jobs, boost our economy, and strengthen middle-class security. These ideas have been around for months. The American people want to see them passed. But apparently, some members of Congress are more worried about their jobs and their paychecks this campaign season than they are about yours." http://1.usa.gov/PSQZl3

Former budget director David Stockman nailed it...if the Securities & Exchange Commission had jurisdiction over the Executive & Legislative branches, many of us would be in jail. – SAFE Member, Arizona

Many thanks for the plug ... Lots of material in your blog ... Will read with interest.  Robert Levy, Cato Institute

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9/17/12 (E minus 50) – Federal Reserve launches another monetary policy experiment         Read a Reply 

Reactions to current problems can have bad results down the line, as many of us have discovered in our personal lives.  You’re a little short this month so you only pay the minimum on the credit card statement, and before you know it . . .

Government decisions made without regard to longer-term consequences can have similar effects.  Hence, governments should not spend or promise to spend money they do not have.  Taxes should not be hiked to levels that will increase revenue next year but tank the economy later, nor should regulations be imposed that are not justifiable on a cost vs. benefits basis.  And then there is the little matter of following sensible monetary policies, thereby keeping the financial system on an even keel.

Given mounting evidence that the Federal Reserve’s easy money policies may lead to trouble – “The dangers include asset bubbles, artificial stimulation of consumption vs. investment, and double-digit inflation (last seen in the US under President Carter).” - we recently recommended that (1) Congress eliminate the Fed’s dual mandate, which has prompted risky policy moves in the name of fostering full employment; and (2) a new chairman be appointed when Chairman Ben Bernanke’s second 4-year term expires in 2014. Time to reset the central bank, http://bit.ly/P3EA08 (4/16/12)

Last week, seemingly heedless of its critics, the Fed doubled down on its support for job creation and economic recovery by (A) starting to buy $40B in mortgage-backed securities a month, (B) extending Operation Twist (a program to sell short-term Treasury notes while buying longer-term obligations), and (C) committing that historically low interest rates will remain in place until at least mid-2015.  Fed launches new bond-buying program, Dunstan Prial, FoxBusiness.com, 9/13/12.

“These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative,” the Fed statement said.


In light of these developments, we would like to comment further about the Fed. 

“Keep it simple, stupid” – Let’s begin with a general principle that has widespread application in life.  Relatively simple rules work better than complex rules because everyone can understand them and misinterpretation or mistakes are less likely.

The point was well made in a talk about “the dog and the Frisbee” (dogs can learn to catch Frisbees without the need for mathematical models) by a Bank of England official at a recent conclave of monetary policy heavyweights.  Banking rules keep getting longer and more involved, observed Andy Haldane, creating growing uncertainty as to whether they will solve perceived problems or make things worse.   The Jackson Hole speech people should long remember, Jason Zweig, Wall Street Journal, 8/31/12.

[Thus,] the Basel rules on capital requirements for international banking went from 30 pages in 1996 to 347 pages in 2004 to 616 pages in 2010. Banks complying with the rules a generation ago had to calculate a handful of ratios; now they must calculate several million. What once were based on hard numbers now, often, must rely on thousands of guesstimates and dizzyingly complex mathematical models contingent on questionable assumptions.


It might seem to follow that the Federal Reserve should focus primarily on maintaining overall price stability – leaving prices for specific goods and services to be determined by supply and demand – without feeling obliged to worry about whether Congress and the president are doing enough to stimulate the economy.  Aren’t trillion dollar plus deficits bad enough, without adding more fuel for inflation?

The basic tools in the Fed’s arsenal are simple, at least in concept. Buy or sell assets (typically short-term Treasury obligations) to expand or contract the money supply.  Set bank reserve requirements and the Federal Funds Rate on interbank loans to regulate the velocity with which money circulates.  Monitor overall price levels, e.g., the Consumer Price Index, and make monetary policy adjustments if and when they appear necessary to avert either inflation or deflation.  Other Federal Reserve tools and how they work, Kimberly Amadeo, about.com, updated 1/3/11. http://bit.ly/RRu4Gg

The Fed’s approach has grown increasingly sophisticated, however, since Congress decreed (Humphrey-Hawkins Act, 1978) that the central bank should promote full employment as well as price stability.  The Fed’s bipolar mandate, Wall Street Journal, 11/20/10.  http://1.usa.gov/Pq54X1

It is now deemed appropriate to tolerate some degree of inflation so as to promote full employment, and there has been much sophisticated thinking about how to measure the tolerable rate of inflation – e.g., strip food and energy prices out of the “core” inflation rate because they go up and down so much.  FAQ: What is inflation and how does the Federal Reserve evaluate changes in the rate of inflation?

For those items, a large price change in one period does not necessarily tend to be followed by another large change in the same direction in the following period. Although food and energy make up an important part of the budget for most households--and policymakers ultimately seek to stabilize overall consumer prices--core inflation measures that leave out items with volatile prices can be useful in assessing inflation trends.


Formerly a professor at Princeton who spent years studying monetary policy moves during the 1930s, Ben Bernanke has shown a willingness (nay eagerness) to employ nontraditional approaches at the Fed.  During his talk at the Jackson Hole meeting, Chairman Bernanke expressed conviction that further steps were needed to shore up the economy while minimizing possible risks.  Ben Bernanke makes case for Fed to take more action, Paul Davidson, USA Today, 8/31/12.

One by one, Bernanke discussed possible risks of further Fed asset purchases *** [e.g.] the Fed could stoke inflation or become too dominant a player in the Treasury market, damping private trading *** [and] said the Fed has plans and tools in place to deal with those risks as necessary.


Meanwhile, in a CNBC interview conducted in Tampa, Florida (during the RNC), Peter Schiff of Euro Pacific Capital offered a stark assessment of Bernanke’s intentions.  The Fed will recommend Quantitative Easing (QE) again and again, said Schiff, until there is a currency crisis and they can’t do it any more, instead of allowing financial markets to work so the economy can recover.  He also offered some general investment advice (gold, silver, natural resources, dividend paying stocks in developing countries).   US is high on “monetary heroin,” video (4:36). http://bit.ly/SDMCAE

Schiff’s comments ring true, in our opinion, and now let’s put some meat on the bones re the adverse effects of artificially low interest rates on deficit spending, investment returns, and the housing bust.

Perpetuate deficit spending – Moody’s and Fitch have warned of downgrades for US debt obligations if DC politicians fail to avert the “fiscal cliff” (mandated spending cuts and expiring tax cuts) looming under existing law.  For now, however, the Treasury Department continues to sell debt securities at “very low rates.”  Moody’s to cut US debt rating if budget talks fail, USA Today, 9/11/12.  http://usat.ly/OnQ9RL

The Moody’s/Fitch view seems misguided, as a “grand bargain” before yearend, e.g., in the lame duck session after the elections, would be more likely to perpetuate the fiscal problem than start solving it.  Better to take up the problem early next year, when the election winners are in place.  Meanwhile, arrangements are being made to keep the government operating until late March.  GOP, Dems trade blame on spending, then pass six-month resolution, Pete Kasperowicz, The Hill, 9/13/12. http://bit.ly/OtkUoH

We were more impressed by the action of another rating firm, which downgraded US debt in the wake of the Fed’s QE3 announcement.  Eagan-Jones cuts US debt rating to AA- from AA, ABC News, 9/14/12. http://abcn.ws/QrnVSL

Current low rates for US debt are commonly attributed to turmoil in the European financial markets, but another important factor is at work. By buying large quantities of US debt securities, the Fed is propping up market prices (and depressing yields). Stockman’s dose of honesty, Robert Romano, NetRightDaily, 9/11/2.

“All the way out to five years, you can fund this debt at 65 basis points,” an indignant  [David] Stockman [Reagan’s first budget director] charged appearing on CNBC, noting that five-year treasuries yield about a paltry 0.65 percent interest rate. He’s got a point. If the entire $16 trillion national debt were financed at that rate, annual gross interest payments would only total $104 billion compared to today’s $454 billion.


Moreover, the Fed’s interest income is rebated to the Treasury, which reduces the government’s borrowing cost to essentially zero.  Hmm, sounds almost “too good to be true.” The wrong doctor, Richard Rahn, Washington Times, 9/11/12.


And as Stockman observes (“Stockman’s dose of honesty”), the Fed’s low interest rates undermine any resolve of the Washington elite to deal with the fiscal problem.


I know what it takes to have [Congress] fall on the sword, to really reform entitlements, or finally face up to the military industrial complex, or maybe begin to reform the tax code. But they’ll never do it if you can keep borrowing free money forever because the Fed and these lunatics who are running it, and I use that word advisedly, are basically telling the whole world untruths about the cost of money, about the cost of risk, about how you allocate capital.

As a major borrower, the federal government will benefit in the short term.  If and when the economy rebounds and the demand for credit soars, however, the cheap debt game will be over – just as Peter Schiff said in his 8/30/12 CNBC interview. 

Perhaps the Fed will slam on the monetary brakes, causing federal interest expense to soar, or perhaps inflation will spiral out of control. Either way, things will get very, very ugly – as is suggested by recent events in Europe.  Greece, Ireland, Spain . . . the US.

Depress investment returns – While low interest rates benefit the US government and other borrowers in the short term, investors are being pummeled.  For example, consider retirees who were counting on some investment income to help cover expenses.  The government’s interest rate extortion, Bill Tatro, Townhall.com, 10/1/11.

Then along came Chairman Ben and his echoes of Alan Greenspan with interest rates lower than imaginable:  CDs at 0.59%, money market accounts at 0.25%, 2-year treasury notes at 0.26%, and savings account at 0.28%.  Savers were completely stunned when they experienced essentially no return on their money.  It was no longer a red-hot statistic; it was a cold-hard fact that retirees could no longer make ends meet. 

One answer was to accept the loss of income and get by somehow.  Another was to shift funds into riskier investments and hope for the best. 

Ask Bernanke and his Wall Street cronies, and they will say it’s simple: Take more risk.  Just withdraw your life savings, and reposition it into junk bonds, or maybe a good international stock fund.  Or, how about some Netflix stock?  *** When the financial markets collapse and the saver turned investor loses it all, the response from Ben and his cohorts will probably be “Well, that’s the market.” 


Reduced yields and pressure to migrate into riskier investments have beset institutional investors too.  That’s one of the reasons, no doubt, why so many pension funds today are seriously underfunded – creating financial threats to the plan participants and/or the shareholders or taxpayers responsible for covering the shortfall. 

To pick a blue chip company at random, DuPont pension benefits were underfunded by $9.3B (34%) as of 12/31/11.  Form 10-K report.

Or consider the Nevada public employer plan, which averaged about a 4% return over the past four years vs. the 8% return assumed for actuarial purposes. State public employee pension plan sees 2.9 percent return [in the top quintile for its peers] in Fiscal Year 2012, Nevada News Bureau, 7/11/12.  http://bit.ly/RMXFGq

New accounting rules may force more conservative return assumptions for governmental pension plans, thereby increasing underfunding estimates.  The pension bubble: new standards highlight government retirement shortfalls, Washington Times, 6/29/12.

Governments with larger shortfalls in their pension funds will be required to factor in the probability that they will have to borrow to meet their obligations to retirees. Plans currently are using an 8 percent discount rate when calculating the value of future obligations. Already underfunded programs will have to cut that to 3 or 4 percent under the new rules, which means their books will reflect even more red ink.


Perhaps the investment outlook will brighten as the economy strengthens, and some may be encouraged by the stock price gains after QE3 was announced.  Absent demonstrable reasons for improved economic results, however the bounce will probably be brief.  More Fed bond buying won’t let “animal spirits” out of the cage, Gerald O’Driscoll, Cato Institute, 8/30/12.

What would stir the spirits of investors and employers would be some policy certainty, reining-in of out-of-control government spending, stopping ill-advised regulations, and clearing the air of antibusiness rhetoric. No repeat of a one-off round of bond buying by the Fed substitutes for the fundamental and permanent changes needed.


Prolong housing bust – Housing prices are no longer falling in most areas, but owners have sustained major losses and many have negative equity in their homes.  Does the situation create an opportunity for government action to stimulate a recovery, e.g., the Fed’s just-announced plan to buy mortgage-backed securities?

Continued weakness of the housing market is not a function of high interest rates, however, as mortgage loan rates are currently very low, e.g., under 2% for 30-year mortgages on a real (after inflation) basis.

As for loan availability, lenders are properly concerned about interest rate risk (higher rates likely, which would reduce the value of fixed rate mortgages).  This leaves them disinclined to take on yet more risk by lending to marginal borrowers, so a rebound in housing prices if rates are driven a little lower seems unlikely.   Cheaper credit will not fix the housing market, Mark Calabria, US News and World Report, 7/20/12.

The problem facing the mortgage market is the unwillingness to lend to anyone but sterling borrowers. Today's mortgage rates do not cover the interest rate risk, much less the credit risk. Higher rates would actually improve the housing market by increasing the willingness to lend.


In closing – We have no doubt the latest Fed initiatives are well intentioned, but they seem likely to do more harm than good.  Supplementing the foregoing discussion, consider the comments of some other critics.

It is hard to see how another round of QE would help the economy. Long-term interest rates are already at historic lows. For example, the 10-year Treasury bond rate has wandered between 1.4 percent and 1.8 percent over the past three months, and the conventional 30-year mortgage rate remains below 3.5 percent. For comparison, the average rate on the 10-year Treasury bond during the 2000s was 4.3 percent, and the average mortgage rate was 6.1 percent. - JD Foster, Heritage Foundation, 9/13/12. http://herit.ag/PxeR0V

Currently, according to the Federal Reserve, there is $1.13 trillion in US currency in circulation. In 2008, there was just $824 billion in US currency in circulation. Wait for billions upon billions more to enter the money supply. Prices will jump. Savers will pay. Spenders will revel. - Ben Shapiro, Breitbart.com, 9/13/12. http://bit.ly/NrdUXJ

The Fed statement paid lip service to pursuing its “dual mandate” of controlling inflation and reducing unemployment, but no one should be fooled.  The Fed has declared that it is going all-in to cut the jobless rate, not matter what it takes. *** The deeper into exotic monetary easing the Fed goes, the harder it will be to unwind in a timely fashion.  Mr. Bernanke says not to worry, he has the tools and the will to pull the trigger before inflation builds.  That’s what central bankers always say. – Wall Street Journal, 9/24/12 (link not available).

I think the country should have panicked over what the Fed is saying that we have lost control and the only thing we have left is massively creating new money out of thin air, which has not worked before, and is not going to work this time. – Representative Ron Paul (R-TX), 9/14/12. http://bit.ly/PCh638

I’m disappointed in the Federal Reserve’s actions today and truly believe Chairman Bernanke is beginning to do serious damage to the Fed as an institution.  Open-ended purchases of mortgage-backed securities will politicize the Fed and add substantially to its balance sheet risks, but it will not help our economy’s long-term growth prospects. – Senator Bob Corker (R-TN), 9/13/12. http://bit.ly/QRS8ys

Granted, merit is often in eye of the beholder and other observers have praised the Fed’s plans.  Still, there is something deeply troubling about the Federal Reserve chairman coming to be seen as our economic godfather, who stands ready to “save the day” if the president and Congress cannot come to terms.

The result is to remove accountability from the political process, making it ever more difficult to take the steps (e.g., the SAFE agenda) needed to rejuvenate the US economy over the longer term. 

Mindful that today is Constitution Day, we think the founders of this nation would have been shocked by Chairman Bernanke’s presumption.

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On the off chance that I might repeat myself, the DC politicians will NOT stop spending because this might mean giving up their jobs, perks and pensions. – SAFE director

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9/10/12 (E minus 57) – Convention slogans express what will be at stake in November        Read a Reply

The national political conventions no longer select presidential candidates; they simply ratify the state primary results.  Viewership has reportedly been declining, and news organizations are bemoaning their coverage costs.

Some pundits predict future conventions will be shortened to two days (Jeff Carter, http://bit.ly/Nb40te) or even one day (Rich Galen, http://bit.ly/Shs9BF).  Maybe this will happen, but we hope not.   

Condensed conventions would be less fun for the delegates than three-day events (which became the de facto standard this year) – and people need incentives to volunteer their time and energy for political party activities.

The conventions are a time-honored way of reminding Americans that the elections are coming up and it is time to start paying attention.  Conventions are needed rituals, Jeff Birnbaum, Washington Times, 9/5/12.  http://bit.ly/NeKOLk


Finally, there is much more action at the conventions than the TV networks carry (tip: watch the streaming video feed).  Scores of speakers appear at the podium during the course of a convention, and one can learn a great deal by tracking the points that are made (often repeatedly) and the points that don’t come up.  Notice how the delegates react as well.  They are the soul of the party assembled in the hall. Dimness of the Democrats, Emmett Tyrrell, Washington Times, 9/5/12. http://bit.ly/TsiAxv

Based on our observations this year, we believe the challenger asked the wrong question in Tampa and the president et al. provided dubious answers in Charlotte. For a meaningful debate, it would be helpful to reframe the discussion.

The question – During the 1980 campaign, challenger Ronald Reagan famously asked Americans to consider whether they were better off than they had been four years earlier.  He was referring primarily to an economy beset with “stagflation,” but international respect and national security were also mentioned. Video (1:05), http://bit.ly/CgJ7O

Challenger Mitt Romney posed a similar question in his acceptance speech on August 30.  Transcript, http://n.pr/R3qYi1

Many of you felt that [something really special was happening in America] on Election Day four years ago. Hope and Change had a powerful appeal. But tonight I'd ask a simple question: If you felt that excitement when you voted for Barack Obama, shouldn't you feel that way now that he's President Obama? You know there's something wrong with the kind of job he's done as president when the best feeling you had was the day you voted for him.

The “are you better off now than four years ago” question implicitly assumes presidents are responsible for running the economy.  Is this true?  And having been used several times since 1980, this question has lost some of its punch.  The question nobody wants to answer, Jonah Goldberg, Townhall.com, 9/5/12.  http://bit.ly/PIjQIW

Furthermore, the question as posed was too general. Many things have arguably improved over the past four years, or stayed about the same. So Democrats could readily answer in the affirmative, and Republicans may be hard pressed to “prove” them wrong.

The response – Speaker after speaker in Charlotte claimed things have indeed improved since 2009.  Three basic techniques were used to justify this conclusion.

• Change the subject – Many speakers focused on social issues that, whatever their merit, are tangential to (A) the economic slump most Americans are worried about, and (B) some international issues that should also be on their radar screens (but are not getting much attention right now).

In effect, the “American dream” was equated with gender pay equity (passage of the Lilly Ledbetter act was mentioned repeatedly, as well as a claim that women are being paid only 77¢ for work men receive $1 to perform); women’s reproductive rights (no limits on abortions, free birth control); women’s healthcare costs (now insurance companies will be unable to “charge 50% more for the same healthcare coverage”); educational subsidies (maintaining low interest rates on student loans and doubling Pell Grants); no more “don’t ask, don’t tell” policy (members of the military should not need to “hide who they love in order to serve the country they love”); promotion of gay marriage as a fully acceptable alternative to traditional marriage; social and economic gains for young illegal immigrants (“the dreamers”).

Rightly or wrongly, it was suggested that Republicans might seek to reverse or slow the “progress” being made.

Efforts were made to reconcile burgeoning social programs with traditional “middle class” values.  Thus, people on the dole believe in “hard work” – but they may need food stamps to feed their families during an emergency.  Some companies succeed and others fail, that’s free enterprise, but business executives who send jobs overseas and “give workers the shaft” should not be rewarded.  The president understands; the challenger (aka “outsourcer in chief,” a reference to his Bain Capital experience) “doesn’t get it.”

Internationally, the president was credited with bringing the troops home from Iraq, giving the “gutsy” order to kill Osama Bin Laden, and charting a path that would soon end the war in Afghanistan. Much was said about returning troops not only being honored (in contrast to the experience of Vietnam veterans) but also supported in material ways (healthcare services, educational benefits, tax incentives for businesses that hire veterans).  And, of course, the US military would always be second to none.

There were even a few outbreaks of the USA – USA – USA chant that occurs more often at conservative gatherings.

There was very little said about new international challenges, such as uncertain intentions of the Islamist regime in Egypt, a deadly civil war in Syria, instability in Iraq after a hasty US exit, deteriorating conditions in Afghanistan, or Iran’s nuclear ambitions.  Also very little was said about defense cuts that may be coming. Panetta warns against sweeping budget cuts, David Alexander & Jim Wolf, Reuters, 8/3/11. http://reut.rs/nIMBhp

Unlike his opponent who was promising money for military hardware “our Joint Chiefs don’t even want,” said the president, he would use “money we're no longer spending on war to pay down our debt and put more people back to work rebuilding roads and bridges and schools and runways.” Transcript. http://fxn.ws/QghKou

Senator John Kerry did reference stringent economic sanctions, which will supposedly deter Iran from developing nuclear weapons, but few experts think the sanctions will do the trick. An Israeli strike before the elections is a real possibility (say 40% chance), despite intense US pressure to “let the sanctions work.” Congressman confirms high-level US-Israel spat over Iran, Newsmax, 9/6/12.  http://bit.ly/Ofqgno

All things considered, the purported international improvement since 2009 seems illusory. If anything, things have gotten worse.

• Ignore or spin facts – Before the Democratic convention, one observer predicted five things would not be talked about - $16T national debt, “real” unemployment rate of roundly 15%, doubling of gas prices since the president took office, 1/3 of Americans receiving means-tested government benefits, and creation of 150,000 federal government jobs.  Thomas Basile, Fox News, 9/4/12.  http://fxn.ws/TSkwNh

Not quite!  Although we cannot recall the last three points being mentioned in Charlotte, the first two were covered after a fashion.

Re joblessness, the official unemployment rate (8.1% per the jobs report that came out on the day after the convention) was not mentioned, let alone the “real” unemployment rate.  But the speakers waxed eloquent about the dire situation when the president took office, with an economy in “free fall” and hundreds of thousands of jobs being lost every month.

Undaunted, the story went on, the president rolled up his sleeves and averted a collapse of the American automobile industry, which would have destroyed 1 million manufacturing jobs.  This was after the challenger said “let Detroit go bankrupt,” by the way.  Once the stimulus bill and other initiatives kicked in, jobs were created every month for 29 straight months – a total of some 4.5M private sector jobs.  True, much work remained to be done, but things were moving in the right direction.  Americans might not feel the results quite yet, said former President Bill Clinton, but they soon would if they gave the president four more years.

Hmm, 4.5M jobs does not sound too shabby.  Measuring job growth from a January 2010 starting point was not necessarily appropriate, however, and the need to create more jobs just to keep up with population growth was ignored.  Also, millions of Americans have qualified for unemployment or disability benefits and stopped looking for work, thereby holding down the official unemployment rate without contributing to economic output.   Have 4.5 million new jobs been created under Obama?  Lachlan Markey, Heritage, 9/6/12.  http://herit.ag/Qg3XbM

Republicans had their nerve harping on the rising national debt as it was all their fault.  Bush 43 inherited surpluses from the Clinton Administration, and what did he do?  He gave tax cuts primarily to the wealthy, started two wars, and created a drug benefit for Medicare without making any plans to pay for it.  No surprise, the budget went back into the red and the national debt soared.  Ergo, the Republicans should have pointed to the debt clock displayed at their convention and said “we built that.”

To some extent, this line of attack is valid.  We certainly hold no brief for the fiscal record of the Bush Administration.  Still, the pace of spending and borrowing has accelerated under the current president, and there was no excuse for ignoring his contribution.

Blame the other side – The president had so offered a plan for cutting deficits by $4 trillion over the next 10 years, it was said, which was available for inspection on his website.  One speaker (Representative Chris Van Hollen, D-MD, the ranking minority member of the House Budget Committee) held up a copy of it.

The plan in question, entitled “Living Within Our Means and Investing in the Future: The President’s Plan for Economic Growth and Deficit Reduction,” was  announced by the president in a Rose Garden speech on September 19, 2011, and sent to Congress the same day.

Based on our review at the time, the plan was never meant to be taken seriously. Only about $600B in new spending cuts were proposed over 10 years, vs. $1.6T in tax increases.  And assuming implementation, deficits were still projected at $0.5T per year. “Happytalk” revisited and what to do about it, http://bit.ly/LvUNaD (9/26/11).

The story at Charlotte was that congressional Republicans had blocked the president’s deficit reduction plan because they would not accept any tax increases on the well to do.

But if the president had been serious about his plan, he could and presumably would have reflected its provisions in his budget proposal for fiscal year 2013.  This did not happen.  He submitted a bloated, obviously irresponsible budget proposal instead, just as he had done for FY 2012.  Budget lands with a thud, http://bit.ly/Qnpnnk (2/20/12).

The House subsequently approved a budget that would have cut the deficit substantially, aka the Ryan Plan.  Senate Democrats blocked it without offering a plan of their own – presumably with the president’s approval – and that’s where things currently stand.  Coming attractions: lame duck session, http://bit.ly/P3EA08 (5/21/12)

Based on this record, one would be hard pressed to blame the Republicans for the failure to cut deficits.   

The real question – We think a forward-looking question should be asked: What will happen if the US government keeps doing what it has been doing for four more years?

Here are three reasons for asking this question instead of the one that is currently on the table:

First, the “what if Americans let things slide” question is reinforced by a documentary now showing in theaters around the country.  Without necessarily endorsing other aspects of 2016, we would applaud this film for driving home how current economic and fiscal policies are endangering the nation’s economic base.  See last week’s entry.

Second, there is no reason to believe that the president et al. will moderate their goals, strategies, or policies.  Certainly, no one made a case for such adjustments in Charlotte, not even former President Bill Clinton (supposedly a political centrist). 

The convention’s overarching theme, proclaimed by speaker after speaker and answered with tumultuous applause and a sea of waving signs, was “move America forward, not back” (or words to that effect – the precise wording varied).

And for all the lofty rhetoric in his acceptance speech, the president offered no new ideas.  For example, the prime feature of his plan for tackling the fiscal problem has been and remains hiking taxes on high earners by excluding them from an extension of the Bush tax cuts. Transcript. http://fxn.ws/QghKou

Now, I'm still eager to reach an agreement based on the principles of my bipartisan debt commission.  *** But when Governor Romney and his friends in Congress tell us we can somehow lower our deficits by spending trillions [?] more for the wealthy *** I refuse to go along with that.  And as long as I'm President, I never will.

Third, most experts agree that decisive action would be needed to avert a fiscal meltdown, albeit differing as to how much time is left before the roof caves in and precisely what should be done.  Whatever one’s policy preferences (our thoughts have been well documented), one thing seems crystal clear: the political leaders of this country – from both parties - must get serious about the fiscal problem.  Plumbing the depth of the fiscal hole, http://bit.ly/KZ46Dg (2/13/12).

Some conclusions – In addition to convincing voters this country is on a dangerous path, the challenger needs to educate them about his proposed solutions – and he seemingly missed an opportunity to begin doing so in Tampa. Campaign 2012 in a nutshell: Wrong ideas vs. no ideas, Jonah Goldberg, Townhall.com, 9/7/12.  http://bit.ly/POhEQr

Stuart Stevens, Romney's top strategist, has dismayed many on the right by operating according to the theory that Romney mustn't do anything to offend the delicate sensibilities of some statistical abstraction of a female voter in the Ohio suburbs. Listening to the Romney speech, you'd have no idea he picked a principled, fearless and brilliant conservative lightning rod [Paul Ryan] as a running mate.


If Stevens' theory of the election is right, then the GOP convention was brilliantly executed. But that is a huge gamble -- as huge as Obama's bet that Americans have moved left. Right now, however, it looks too much like a contest between people with the wrong ideas against people without any.

On the other hand, the president seems to be doubling down on a set of failed policies.  Whatever the outcome of the presidential election, this cannot be good for the country.

We call on both candidates to do better, starting right now, and let the best man win!

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My husband and I went to see the Movie 2016 today.  Came home and found myself so angry.  Most people of course have their own justifications for their feelings, but this was narrated from the book [“Dreams From My Father”] Obama wrote himself.  I now know the answers to all the many questions as to why these crazy things are happening.  If he becomes President again, it's going to be devastating for all of us, our children and grandchildren. They will not know what our country was like and how we all looked forward to our futures. Please, please, please get yourself out of your life for just two hours and go watch it.  -  Arizona friend

I'm going to look for "2016" at a local cinema.  Meantime, I wish someone would remember the Eisenhower years: Ike made a point of getting business people into government.  His feeling was they are more pragmatic than lawyers, who tend to think problems can be solved just by passing laws.  Sarbanes-Oxley would be an example, or Dodd-Frank for another.  Romney seems to be missing opportunities, and I cannot understand why.  Is he saving ammunition for the debates? – Retired IBMer

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9/3/12 (E minus 64) – The presidential race will be intense        Read a Reply

However this year’s battle for the White House turns out, it will have a markedly different feel than the last presidential campaign  – and we think the changes will be for the better.  There may even be a debate about where this country is headed, which would represent a welcome change from the muddled dialog of four years ago that was overshadowed by fears unleashed by “Black September” (sudden onset of a financial crisis/recession).

In 2008, Bush 43 had reached the end of his second term and it was time for someone new.  Two candidates with no connection to the Bush Administration faced off, the first matchup between two outsiders since 1968 (Nixon v. Humphrey) and before that 1952 (Eisenhower v. Stevenson). 

We hoped for (and did what we could to promote) a serious discussion of the fiscal problem, triggered perhaps by the Fiscal Wake-Up Tour organized by David Walker et al. and a documentary film (I.O.U.S.A.) backed by the Peterson Foundation.  It never developed, either on the campaign trail or in the presidential debates (which featured time-limited responses by the candidates to scattershot, often superficial questions).

Despite the contrasting backgrounds and styles of Senators Obama and McCain, neither candidate proposed the type of smaller, more focused, less costly government that SAFE favors.  As for the fiscal problem, they had little to offer except empty rhetoric about eliminating wasteful spending and such.  (McCain did say he would appoint a bipartisan commission to study Medicare in the second debate, but no one pursued the idea.)  What would you like, central planning or an eclectic mix? http://bit.ly/Nx65fp (10/27/08)

The winner pursued a central planning approach as president – thereby fueling accelerated growth in the size and reach of government while deficits and debt exploded.  Arguably this course was necessary to cope with the recession, but a robust economic recovery did not follow and the jobless rate remains stuck at over 8%.

Some Americans pushed back, witness the rise of the tea party movement and major Republican gains in the 2010 mid-term elections.  But with the president holding the White House and his party continuing to control the Senate, there has been no change in course – only partisan gridlock. At the end of this month, the federal government will close the books on a fourth straight trillion-dollar (and then some) deficit. 

Bad as the fiscal situation seemed in 2008, it is far worse now.  So will the politicians finally acknowledge the magnitude of this problem and start proposing real solutions?  Maybe not, never underestimate the tendency of politicians to duck tough issues, but we take some comfort from recent developments. 

A movie - Based on a book (“The Roots of Obama’s Rage”) by Indian-born Dinesh D’Sousa, the documentary film “2016” attributes the president’s mindset and actions as president to anti-colonial attitudes of his Kenyan father that are inconsistent with traditional American values. See the trailer (1:30).  http://2016themovie.com/

Several SAFE members have seen 2016, including your faithful scribe.  Whether or not one buys its thesis, the film is gripping and reflects conscientious research.  A powerful movie, Thomas Sowell, Townhall.com, 8/22/12. http://bit.ly/NGpriH

. . .  D'Souza presented the story of Barack Obama's life and view of the world, in a very conversational sort of way, illustrating it with visits to people and places around the world that played a role in the way Obama's ideas and beliefs evolved.  It was refreshing to see how addressing adults as adults could be effective, in an age when so many parts of the media address the public as if they were children who need a constant whirlwind of sounds and movements to keep them interested.

So what does all this have to do with the issues SAFE normally concerns itself about?  Near the end of the movie, D’Sousa talks with David Walker (former Comptroller General of the United States, now CEO of Comeback America Initiative) concerning the current and projected fiscal situation. 

Without attacking the president, Walker makes clear that the fiscal problem is huge, inescapable, and a threat to this country.  I.O.U.S.A. conveyed a similar message in 2008, including not so subtle criticism of the then sitting president, as is shown in this pared-down (32 minutes) version. http://bit.ly/QJzsjI 

For all its merits, I.O.U.S.A. came across as a lecture; as such, it was unlikely to interest people not already convinced that deficits and debt are a serious problem.  2016 carries more emotional punch, and it may therefore reach a wider audience.  Consider this pitch on the 2016 website (About page): “Love him or hate him, you don’t know him.”

After a nationwide opening (325 theaters) for I.O.U.S.A. (http://bit.ly/R2I7bH, 8/25/08), there were sustained showings in relatively few locations.  The 2016 rollout is reportedly up to some 1,600 theater screens.  Obama’s movie killing it despite negative press, PoliticalOutcast.com, 8/30/12. http://bit.ly/Q4DvVQ

If the public came to associate reckless deficits and sky-high debt with how things could look in 2016, that would be a good thing – and David Walker’s spot-on testimony is hard to dismiss.  So we would urge our readers to not only see the movie themselves, but also encourage their friends and families to do so. 

Campaign dynamics may force a real discussion of where the country is headed, and indeed there are signs that such a discussion is getting started.

Earlier, it did not seem either side wanted to talk concretely about this country’s longer-term direction – basically because they thought it would be safer and more effective to lay low and trash the opposition’s ideas.

The Romney team saw the campaign as a referendum on the president’s record, in which  the challenger would only need to establish that he is an honorable person with a record of success in other pursuits.  Ohio looms large as Super Tuesday arrives with Mitt Romney, Rick Santorum in dead heat, Alex Leary, Tampa Bay Times, 3/6/12.

"This is a failed presidency," Romney said. "He's a nice guy, but he's in over his head. We need to have a president who understands the economy if we're going to fix the economy."


For his part, the president seemed more interested in playing the blame game than  running on his record – which has been marred by a continuing economic slump. Weak economy points to Obama’s constraints, Jackie Calmes & Nicholas Kulish, New York Times, 6/2/12.

While Mr. Obama seeks to make Republicans the villains when it comes to the economy, he is also, more diplomatically, blaming Europe. In Minneapolis and Chicago on Friday, he cited the impact of the continent’s travails on the American economy.  Citing the jobs report, Mr. Obama said, “A lot of that is attributable to Europe and the cloud that’s coming over from the Atlantic, and the whole world economy has been weakened by it.”


And there was a relentless barrage of attack ads from both sides, which no doubt will continue in “battleground states” until the election.  Democrats savage Romney over job at Bain, Susan Ferrechio, Washington Examiner, 7/12/12.

Democrats on Thursday accused Republican presidential contender Mitt Romney of lying about his tenure at Bain Capital, misleading federal securities regulators and being overly secretive about his personal finances.  The Romney campaign hit back hard, charging that President Obama "doesn't tell the truth" and tolerates a staff whose wild claims demean the presidency itself.


For whatever reason (conviction or a trial balloon to see how the idea polled?), however, the president’s campaign took a notably different tack in one instance.  “The Choice” ad did some violence to the facts, we thought, but it seemingly invited a debate about “two very different plans for our country.”

Wouldn’t it be great, we mused, if Romney et al. surprised their political opponents by accepting the challenge. A recent political ad deserves a real response, 8/6/12.

Romney subsequently chose Paul Ryan as his running mate, and there have been signs that the challenger et al. will go beyond slamming the president’s record (that’s Politics 101) to offer their own vision of the path forward.

Consider these statements, excerpted from three key speeches at the Republican National Convention.

Paul Ryan, 8/29/12, http://fxn.ws/PwpEts

•In this election, on this issue [Medicare changes], the usual posturing on the Left isn't going to work.  Mitt Romney and I know the difference between protecting a program and raiding it.  Ladies and gentlemen, our nation needs this debate, we want this debate, we will win in this debate.

•Before the math and the momentum [of deficits and debt]overwhelm us all, we are going to solve this nation's economic problems.  And I'm going to level with you: We don't have that much time.

•. . . in a clean break from the Obama years, and frankly from the years before this president, we will keep federal spending at 20 percent of GDP, or less.  Because that is enough.  The choice -- the choice is whether to put hard limits on economic growth, or hard limits on the size of government, and we choose to limit government.

Marco Rubio, 8/30/12, http://bit.ly/QGEmOo

•No matter how you feel about President Obama, this election is about your future, not his. And it's not simply a choice between a Democrat and a Republican.  It's a choice about what kind of country we want America to be.

•The story of our time will be written by Americans who haven't yet been born. Let's make sure they write that we did our part. That in the early years of this new century, we lived in an uncertain time. But we did not allow fear to cause us to abandon what made us special.

Mitt Romney, 8/30/12, http://n.pr/R3qYi1

What America needs is jobs.  Lots of jobs. *** And unlike the President, I have a plan to create 12 million new jobs. It has 5 steps. [The ensuing enumeration of the five points was sketchy, and the Wall Street Journal opines (9/1/12 editorial, link not available) that neither Romney “nor the entire GOP convention made a case for his economic policy agenda.” Nevertheless, the challenger’s acceptance speech did advocate “energy independence for North America by 2020,” expanded school choice, negotiation of new trade agreements to boost US exports, cutting the deficit without raising taxes (ergo cutting spending), stream-lining business regulations, and repealing/replacing Obamacare.]

Now what? – Reactions of the president’s campaign to the GOP convention were harsh, especially when it came to VP candidate Paul Ryan.

Even before Ryan addressed the convention, a campaign ad painted him as “out of step” with American voters.  Obama team in pre-emptive strike before Ryan speech, Newsmax.com, 8/29/12.  http://bit.ly/Ro6OQb

The video released after Ryan’s speech was not only vicious, but also inaccurate.  Obama camp melts down over Ryan’s speech, Guy Benson, Townhall.com, 8/30/12.

[An example:] What Ryan said [about the president ignoring the recommendations of his own Fiscal Responsibility Commission] is absolutely correct.  The Obama ad quotes Chris Wallace, who notes that Ryan was on that commission and voted against it.  True.  He refused to abide the section maintaining Obamacare, and voted no on its final findings.  Still, he was intimately involved in the group's deliberations and proposed solutions.  Not fully happy with the final outcome, he went on to craft two budgets of his own, with numerous elements based on the Simpson-Bowles framework. 


Here is the reason for the attacks on Ryan, says one observer.  5 things we learned from the 2012 Republican National Convention, Steve Deace, Townhall.com, 9/1/12.

[Ryan’s] budget plan is a substantive threat to the welfare state because it at least starts a long-overdue conversation about the country’s insolvency. Even Ryan dipping a toe in the waters of fiscal sanity is enough to give the statists hissy fits.


As for presidential candidate Mitt Romney, look for renewed attempts to cast aspersions on his business career and experience as governor of Massachusetts.  However, the Democrats will also present their own vision of the future at their national convention (Charlotte, NC, starting tomorrow).  Dems plot attack for Charlotte, Russell Berman, The Hill, 8/31/12.

Obama’s deputy campaign manager, Stephanie Cutter said Democrats would criticize Romney plenty in Charlotte, but also trumpet Obama’s record: “What he’s done for the past three and a half years to strengthen the middle class, to save this country from economic collapse and start putting the building blocks in place for an economy built to last.”  So, “it’s going to be a week of laying out the choice and describing who the president is and where he comes from. He’s grounded in the middle class because he’s lived that experience.”


The vision rolled out at the Democratic National Convention won’t resemble the picture painted by Dinesh D’Souza in 2016, that’s for sure, but we don’t know what it will look like.  Stay tuned, this should be interesting!

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The matter of the debt should be discussed but will probably not be. Cutting spending is one way to get a Leave Washington ticket forever.   Nothing will be done about it until we have our next fiscal crisis. Soon! – SAFE director

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8/27/12 – Don’t panic about sea level rise        Read Replies

Without meaning to pick on the News Journal, we would like to comment on an in-depth series on sea level rise (SLR) that the First State’s largest newspaper ran last week.

“Delaware coast in the crosshairs” was the overall theme, and the series featured about four pages of stories and pictures on SLR per day for three days running.  Day 1: Seas are rising fast in the Mid-Atlantic, forcing discussion about where to retreat, where to make a stand.  Day 2: Farmers, homeowners and business worry about the loss of property as brine water pushes further inland.  Day 3: The price, protection and value of artificially maintaining beaches in commercially vibrant areas – contrasted by the dwindling dunes at beaches left natural. 

The News Journal also co-sponsored (with PNC Bank) a public forum on SLR, the second in its “Imagine Delaware” series.  This event was held on the evening of day 3, and a report was provided on day 4.  Indications are the forum did not work out quite as planned; we’ll explain this later.

For a recap of the SLR series, see http://www.s-a-f-e.org/delaware_chatter.htm (8/19, 8/20, 8/21, 8/22).  Full disclosure: we did not read every word of every story, but we did attempt to capture the essence of the information and opinions reported.

In addition to critiquing what was reported, this entry will focus on some process questions that may be even more important.  Here goes.

A. Did the News Journal report the news or attempt to make the news?

Back in the day, newspapers used to cover notable events for the purpose of observing and reporting what went on.  This pattern has eroded, however, as newspapers cut their staffing levels.

Too bad, says John Daniello, state chair of the Democratic Party, who regrets the replacement of real “reporters” with journalists who write stories based on ideas suggested by their editors and pad them with quotes from selected sources.  SAFE newsletter, Spring 2012, http://bit.ly/P6m1JP

One reason for the change in approach, no doubt, is that print newspapers have been forced to cut their staffing levels.  Given the abundance of “free” information on the Internet, it is easy to understand the budgetary pressures at work.

Earlier this year, the News Journal announced a revamped strategy featuring (1) a new full-access subscription model (with limited access to its on-line materials by nonsubscribers), and (2) renewed emphasis on the News Journal’s tradition of “watchdog reporting that holds people in power accountable.”  We’re investing in journalists, equipment and technology, Howard Griffin (president & publisher) & David Ledford (executive editor), News Journal, http://bit.ly/IS7Ktq (1/15/12).

Several major investigative stories (marked by unusual length and detail) have appeared since January, including a three-day series on education capped by an Imagine Delaware forum.  The coverage of that event (moderated by Mr. Ledford) was predictably upbeat – perhaps excessively so. Panel: Education a team endeavor, Nichole Dobo, News Journal.  http://bit.ly/IS7Ktq (4/6/12)

Some of the points mentioned seem positive, such as the importance of parental involvement, and a question about legislation to encourage parental involvement drew an appropriately negative (“fraught with difficulty”) response.  However, there seems to be a fixation on federal grants as the answer to improving education.  “As the recipient of two major federal grants, Delaware has an extra $119 million meant to improve public K-12 schools and $50 million to boost the state’s early childhood education efforts.  Those efforts have been supported by elected officials, the union and business leaders.”  Dr. Lillian Lowery, Delaware Secretary of Education, is quoted to the effect that “charter schools and school choice are options for Delaware parents,” but no specific changes are discussed in the article.

A similar pattern was followed for SLR, with the public forum announced weeks in advance and again presided over by the News Journal’s executive editor. http://bit.ly/IS7Ktq (8/4/12).

Under these circumstances, the reporters had every incentive to start with the desired conclusions and work backwards instead of conducting a “let the chips fall where they may” investigation.  So, yes, we believe the News Journal attempted to make the news instead of reporting it.

B. Was the phenomenon of SLR covered in a balanced way?

The series presents extensive evidence, both statistical and anecdotal, of coastal zone damage due to encroaching seawater. Atlantic ocean beaches have been preserved by bringing in sand, which may wash away in the next severe storm.  Meanwhile, Delaware Bay beaches are not being protected effectively, and property owners fear they may be forced out.  Some farms and marsh areas are threatened by saltwater intrusion.

So far, so good, but the commentary about causation and future trends had some serious flaws:

#Incomplete - Seawater can encroach on land because the sea is rising or because the land is sinking. The latter possibility was not discussed, although coastal areas in this region are known to be sinking.  See, e.g., Chesapeake Bay land subsidence and sea level change, Boon, Brubaker & Forrest, Virginia Institute of Marine Sciences, November 2010.  http://bit.ly/PhdCzG (download PDF).

Here are some high spot results from the Chesapeake Bay study (based on data from 10 water level measurement stations in the Chesapeake Bay plus global positioning system data to measure absolute SLR).  The rate of relative SLR does not seem alarming, let alone the rate of absolute SLR, and the study did not establish that sea level rise is accelerating although this possibility was not ruled out.

Average SLR, 1975 – 2007, millimeters per year

Relative SLR

Land subsidence

Absoute SLR

3.1 to 5.8 (12-23 inches per century)

1.3 to 4.0

1.8 (7 inches per century)

The foregoing rates are not necessarily representative of conditions along the Delaware coast, but the Chesapeake Bay report does identify the relative SLR results as “some of the highest rates found along the US Atlantic coast.” 

#Exaggerated - It would be hard to get excited about 1-2 feet of relative SLR per century (of which half or less could potentially be prevented), but the News Journal cites claims from various sources that the rate of rise will inexorably speed up – and that there will be more violent storms causing severe flooding – due to a rising rate of global warming triggered by human burning of fossil fuels, which causes CO2 to accumulate in the atmosphere (it’s up to about .04% at this point).

Such claims are hardly new (they have been reported frequently in the News Journal and elsewhere), but there is plenty of evidence to the contrary and the supposed “scientific consensus” about the claims is a myth.  See, e.g., “Climate consensus” data need a more careful look, William Cohen (American Physical Society), William Happer (Princeton), Richard Linszen (MIT), Wall Street Journal, 8/13/12. http://on.wsj.com/PatfM2

•Despite shrill claims of new record highs, when we look at record highs for temperature measurement stations that have existed long enough to have a meaningful history, there is no trend in the number of extreme high temperatures, neither regionally nor continentally.

•Lurid media reporting and advocates' claims aside, even the last comprehensive Intergovernmental Panel on Climate Change report noted that "archived data sets are not yet sufficient for determining long-term trends in [weather] extremes." Yet this has not stopped global warming advocates from using hot summer weather as a tool to dramatize a supposedly impending climate Armageddon.

•It is increasingly clear that doubling CO2 is unlikely to increase global temperature more than about one degree Celsius, not the much larger values touted by the global warming establishment. In fact, CO2 levels are below the optimum levels for most plants, and there are persuasive arguments that the mild warming and increased agricultural yields from doubling CO2 will be an overall benefit for humanity.

C. Are proposed responses sound?

The general thrust of the News Journal series is something must be done about rising sea levels, but what?

Three potential responses are suggested: abandonment (some beaches are simply not worth saving), adaptation (raising buildings near the water or building barriers), or mitigation (“reducing our use of carbon-based fuel,” which supposedly caused the problem in the first place).  Editorial, Day 2.

Discussion of the first two points is certainly appropriate.  With land in the coastal zone slowly sinking and an apparent warming trend (albeit marked by periodic pauses and reversals), there may well be further water encroachment in low-lying coastal areas.  And whether or not there will be more and bigger storms in the future, major storms will certainly occur that inflict widespread property damage and threaten the personal safety of coastal residents.

As predicted in the series, there will be continuing controversy as to what should be done to protect vulnerable coastal areas and where/when it is best to retreat and let nature take its course.  Potential solutions should be evaluated on the basis of cost vs. benefits, with due recognition that government funding will be constrained by fiscal problems at both the national and state level.

Beyond this, the commentary about abandonment vs. adaptation is vague.  Consider these comments by DNREC Secretary, Colin O’Mara, in “We must move from vulnerability to preparedness.”  Opinion column, Day 1. 

“We know that the cost of inaction will inevitably dwarf the costs of taking proactive steps today.”  True, Delaware cannot singlehandedly solve “the global challenge,” but “we can take steps to make our communities more resilient for both current and future generations.” What steps?  Strategic investments in at risk infrastructure, including dams, dikes, impoundments, and drainage and storm water systems – drainage and storm water standards, hazard mitigation, and regional sediment management plans – protect and enhance natural systems, like tidal and freshwater wetland that provide storage for millions of gallons of water during storm events.

But don’t worry, “more details are expected to emerge in coming weeks, after the state’s Sea Level Advisory Committee releases its report . . . based on work and meetings that began in late 2010.”  Series, Day 2.

What to expect, we think, is a plan for shifting power and influence from local and county governments to DNREC on grounds that SLR will profoundly affect much of the state and not simply coastal areas.  Restrictions on development will be proposed in large areas, especially Sussex County, with administration of the new rules to be firmly under state control.

The planning process (already under way) will seek “stakeholder” buy-in from various groups (municipal governments, highway planners, landowners, emergency managers, wildlife advocates, agricultural professionals, insurance agents, and tourism officials), whose interests are represented by “teams of experts.”  The role of the general public in the discussion, if any, is unclear.  Sea level rise adaptation, http://1.usa.gov/s4DIMc.

As for mitigation, Michael Mann of Penn State says global emissions from fossil fuel power plants must be reduced more than 80% between 2017 and 2050.  Otherwise, he claims, an average 2 meters of SLR is possible in this century, with coastlines along the Mid-Atlantic taking an even bigger hit.  Series, Day 1. 

Would such measures stop SLR? No, as “even if every possible solution . . . were instituted today, the sea would continue to rise.”  Editorial, Day 2.

What would such a program cost, and what would be the results for the US economy?  There is no discussion of such issues, although the economic results would predictably be very negative.  The False Promise of Green Energy, Morriss et al., Cato Institute (2011). http://bit.ly/SEtcZG

Would China, India, et al. agree to restrain their industrial development so as to support the proposed reduction of carbon emissions.  Again, the point is ignored, although we think the answer is obvious – no way.  See US, China deadlock in Copenhagen, Edward Felker, Washington Times, 12/17/09. http://bit.ly/5TvbuQ

In sum, it’s hard to give much credit to the SLR responses that are outlined.  Indeed, there seems to be far more energy for overcoming public resistance than for proposing practical solutions. Consider these comments:

•Heidi Cullen, chief climatologist for Climate Central in Princeton, NJ: “People need to understand four things: global warming is real, humans cause it, it’s a threat and we can fix it.”  Series, Day 1.

•Delaware’s government should “[start] making hard decisions right away” as this will make things easier “in the long run.”  Editorial, Day 3.

•Howard Marlowe, lobbyist and government affairs consultant: “You have to deal with it now and have to know that it’s going to take time to figure out how to adapt.” Forum, Day 4.

•Colette Croze, Bayview Improvement group: “Regardless of whether the water is rising or the state is sinking, part of what this is about is the citizens’ obligation for stewardship.” Forum, Day 4.

•Wayne Gilchrest, Sassafras Environmental Education Center: “The state of ignorance about the ramifications of climate change is probably nothing less than appalling, even at this late stage.” Forum, Day 4.

D. Is there a hidden agenda? 

Some thinkers prefer mandated solutions to problems, as has been true throughout human history.  And the tide has been running towards collectivism for some time in this country, no matter what our Constitution says.  Realizing freedom: Libertarian theory, history, and practice, Tom Palmer, Cato Institute (2009), page 20. http://amzn.to/QCyH6j

The opponents of mere freedom modify their alternative as [true, higher, real, or substantive] freedom.  They tell us that the exercise of a choice is free only if it is justified, or part of the attainment of a life that “we have reason to value.”  Such intellectuals presuppose that the rest of us must justify ourselves to them.  They propose a fundamental shift in the burden of proof.  In place of the authentically liberal adage that “all that is not clearly forbidden is permitted,” we are told that real freedom consists in following the adage that “what is not clearly justified may be forbidden.”

Consider this website, for example, which espouses an all-encompassing vision of “sustainability” that would govern all aspects of human existence.  Someone would presumably have to run the show, but that part does not seem to be spelled out.  Scary!  http://www.sustainability.org/

The current program to “do something” about global warming, SLR, etc. may reflect similar collectivist impulses. Some present day “liberals” are secretly delighted with the current economic recession because it has resulted in reduced consumption of fossil fuels and lower CO2 emissions in this country.  And they “remain enthralled with green technologies like wind and solar,” which are “really throwbacks to pre-industrial times.”  Destroy the economy, save the planet, Washington Times, 5/9/12. http://bit.ly/JWn2fe

Although we do not present this view as necessarily correct, it would help to explain the stress on overcoming resistance vs. offering practical solutions, the insistence that a “scientific consensus” about global warming/ SLR exists, and the apparent intention to refer concerns about global warming and SLR to “the experts” instead of allowing ordinary people to set the agenda.

E. What about skeptics?

The News Journal series acknowledges that some people harbor doubts about the severity of the global warming/ SLR threat.  The skeptics are characterized as grasping at straws, however, such as “measurement errors, misinterpretation, solar activity or very long-term climate cycles [that] could account for what most scientists now see as human-triggered climate change.”   Series, Day 1.

Similarly, opposition to proposed actions is dismissed as being motivated by politics.  “We can’t hide from threat of rising sea [but] our partisan political divide keeps us from acting in our self interest.”  Editorial, Day 1.

The presence of skeptics at the public forum was acknowledged, but little was said about them.  Thus, only one skeptical comment was reported – by Richard Rogers, a Prime Hook Beach resident, who “laid the blame for flooding in his community on federal inaction on Prime Hook National Wildlife Refuge and not climate change based sea-level rise.”  Whoa, who let him in!  Forum, Day 4.

Left unsaid was that SAFE member John Nichols passed out copies of a column by Dr. David Legates as people arrived, which may have influenced their thinking.  In any case, moderator David Ledford “fielded a handful of questions submitted on cards from the crowd and then asked the panelists if climate change is a real concern,” possibly because the tenor of the questions was not perceived as constructive.  Forum, Day 4.

Dr. Legate’s fine column, which informed some of our thoughts in the foregoing discussion, is posted on SAFE’s website. http://bit.ly/MSvNP8 To its credit, the News Journal published the column (slightly different version) on August 25.

Whether by coincidence or design, there was another meeting on the evening of August 21, this one to discuss regional planning in the Cape Region.  The apparent game plan was for breakout groups to discuss various scenarios of growth of the Five Points community under the guidance of facilitators who would use the “Delphi Technique” to steer participants towards endorsing limited and centralized development.

As we understand it, the Delphi Technique involves laying out two conflicting ideas (thesis & antithesis), getting agreement on a compromise (synthesis), and using the compromise as the thesis for the next round. (http://bit.ly/4DMNgW 

(This reminds us of the haggling over budgetary issues in recent years.  First, government leaders approve excessive spending, which causes huge deficits.  Second, concerns about the resulting debt are raised, and everyone agrees deficits must be reduced – but the big spenders demand a “balanced solution,” i.e., tax increases as well as spending cuts.  If the big spenders get their way, spending is soon pumped up again, and the cycle is repeated – with spending and taxes rising ever higher.  Only if fiscal visionaries say “no way, we won’t play that game” is there any chance of a different outcome.)

People outside the community received the flyer and some 9/12 Patriots attended to make their views known.  One of them asked, for example, whether the group had received permission from Sussex County Council to rezone the region.  After 90 minutes of contentious discussion, the organizers gave up and the breakout sessions were scrubbed.  9/12 Patriots slam regional planning effort; opponents dominate community meeting in Lewes, Kara Nuzback, CapeGazette.com, 8/24/12. http://bit.ly/OfOjNu

Confrontations are not comfortable, nor necessarily popular, but they are necessary if the proponents of ever-bigger government are going to be stopped.  We salute the 9/12 Patriots and the other “skeptics” noted in this discussion for having the courage of their convictions. 

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It is one thing to be a skeptic (natural uncertainty) about global warning being caused only by man (because it is not). It is another thing to spend so much time passionately trying to totally refute that man has anything to do with the problem.  Retired finance executive. 

[SAFE response: We agree that carbon emissions from burning fossil fuels may have some warming effect, but dispute claims (e.g., in the News Journal SLR series) that carbon emissions have somehow become the primary driver of global climate change.  Such claims underlie the renewable energy proposals now in vogue – which are inherently uneconomic and could only be implemented with massive government support.  Objective scientific research of the factors driving climate change should by all means continue, but there is no reason to panic and collapse the US economy.] 

I agree.  Political candidate

top      wwhipple3@verizon.net

8/20/12 – Dueling claims re Medicare        Read Replies

It was conventional wisdom inside the Beltway that Mitt Romney should avoid picking Paul Ryan as a running mate.  Representative Ryan (R-WI) was on record as proposing that the government cut projected spending growth (as distinguished from actual spending) by – gasp – $5 trillion over the next 10 years. And his proposals for reforming Medicare were viewed as downright toxic.  

Romney didn’t listen, and his opponents pounced.  Dems move quickly to define Ryan, Bernie Becker, The Hill, 8/12/12.

. . . once the choice became official, President Obama’s campaign team and senior lawmakers in the party moved to not only emphasize the spending restraint and Medicare overhaul in Ryan’s budgets – but also to play up the GOP ticket’s ties to a Republican House that is both unpopular and a favorite presidential punching bag.

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Criticism of the Romney/Ryan Medicare plan has been blunted by a Republican response that caught some political analysts off guard.  Time will tell, but the debate that is shaping up may prove instructive.    

So let’s take a look at the attack, the counterattack, and our views about “right policy.”  Neither side has been totally candid about the Medicare problem, in our view, nor offered a true solution.

The attack – In May 2011, a political ad was aired by the Agenda Project.  It showed a man evidently intended to represent Paul Ryan pushing Granny in a wheelchair over the cliff as a mock demonstration of the Republican proposal to “privatize Medicare.” http://bit.ly/jxHlXd (video, 1:22)

There is also a sequel to the ad, released right after the Ryan pick was announced, that shows Granny going over the cliff again.  “Mitt Romney has made his choice,” is the punch line.  “Now you have to make yours.” Fox News, 8/12/12.  http://bit.ly/PHYPERLINK "http://bit.ly/P3Xl0R"3HYPERLINK "http://bit.ly/P3Xl0R"Xl0R

The Agenda Project is supposedly nonpartisan. http://www.agendaproject.org/  We do not recall any disavowals of these ads from Democratic Party leaders, however,  and some Democrats have indulged in comparable rhetoric.

Thus, the Democratic Congressional Campaign Committee called Paul Ryan “the architect of the Republican plan to kill Medicare” in a fundraising message from DCCC executive director Robby Mook.  Democrats repeat “lie of the year” on Medicare, Guy Benson, Townhall.com, 8/11/12. http://bit.ly/NhnqgY

And in a stump speech during a bus tour in Iowa, the president accused Republicans of wanting “to turn Medicare into a voucher program.”  Obama says GOP plan would “end Medicare as we know it,” Christi Parsons, LA Times, 8/15/12.  http://lat.mHYPERLINK "http://lat.ms/Nqeqq3"sHYPERLINK "http://lat.ms/Nqeqq3"/Nqeqq3

Are such attacks factually supportable?  Let’s start with some numbers, which are drawn from the House budget for fiscal 2013  (http://bit.ly/hyNfCw) that was prepared under House Budget Committee Chair Paul Ryan’s supervision.

Net Medicare outlays ($B)







10-year total

President’s budget*








House budget








House budget cuts








*Back calculated from reported differences in the House budget between that budget and the president’s budget (http://bit.ly/qyhvQ). These numbers can be approximated by adjusting Medicare outlays shown in Table S-5 of the president’s budget for the Budget Control Act sequestration adjustments shown in the Congressional Budget Office (CBO) Medicare baseline, March 2012, page 2, http://1.usa.gov/N64e62).

It is hard to imagine that a roundly 3% reduction in projected Medicare outlays over the next ten years could have a drastic effect on the program, i.e., “end Medicare as we know it.”  Indeed, the House budget does not even explain how the initial $205B in Medicare savings would be achieved, although we would infer – by process of elimination, since most of the proposed policy changes would not go into effect until 2023 – that the claimed savings are at least partially attributable to “common-sense curbs on abusive and frivolous lawsuits.”  House budget, pages 52-55.

Proposed changes after 2022 would be more significant, but they would not truly turn Medicare into a voucher system. And there would be ample time for Americans to get familiar with the new rules and adjust their retirement planning.

Future seniors (workers who are currently 55 or younger and will become eligible for Medicare in 2023 or thereafter) would be offered an opportunity to purchase private healthcare insurance from among a range of options, but they could also stick with traditional fee for service coverage.  Giving retirees new options is hardly the same as requiring them to make a switch (as was recommended in the House budget plan approved in 2011), and the new arrangement sounds reasonable. For example:

The Medicare Exchange would provide seniors with a competitive marketplace where they could choose a plan the same way members of Congress do.  All plans, including the traditional fee-for-service option, would participate in an annual competitive bidding process to determine the dollar amount of the federal contribution seniors would use to purchase the coverage that best serves their medical needs.  Healthcare plans would compete for the right to serve Medicare beneficiaries.

Whether this proposal makes sense or not, we’ll return to that point later, one would be hard pressed to conclude that Republicans want to push Granny over the cliff.  Shame on critics for making that kind of argument!

Counterattack – The Romney-Ryan campaign says it is actually the Democrats who have jeopardized Medicare by cutting some $700B from projected outlays over the next ten years and redirecting the funds to GovCare.  In contrast, “the Romney-Ryan plan protects Medicare benefits for today’s seniors and strengthens the plan for the next generation.” http://nyti.ms/OHYPERLINK "http://nyti.ms/OgLWvI"gHYPERLINK "http://nyti.ms/OgLWvI"LHYPERLINK "http://nyti.ms/OgLWvI"WHYPERLINK "http://nyti.ms/OgLWvI"vI (video, 0:31).

The claimed diversion of funding from Medicare to new healthcare entitlements is real, as shown by a recent CBO analysis of the fiscal effects of a GovCare repeal.  Letter to House Speaker John Boehner, 7/24/12.  http://1.usa.gov/MFGBAM

GovCare was designed to be fiscally neutral, at least on paper, in that cost savings and tax increases provided for in the legislation would cover the estimated cost of new entitlements.  Now GovCare is law, the CBO analysis says repealing it would increase deficits over the next decade by $109B.  Here is a summary:

Decrease (increase) in deficits, fiscal years, $B




Avoid new spending on healthcare exchanges,  expanded Medicaid & CHIP coverage, etc.




Forego savings on Medicare, etc.




Forego tax & fee increases








And here is a summary of the Medicare, etc. savings prescribed by GovCare:

Estimated savings, fiscal years, $B




Fee for service rates




Medicare Advantage rates




Disproportionate hospital payments




All other








One could argue that the Medicare savings strengthened the program by reducing wasteful payments to healthcare providers and insurance companies.  See, e.g., a recent letter from Senator Tom Carper in the [Wilmington, DE] News Journal, claiming that GovCare “does not cut Medicare benefits” and “extends the financial solvency of Medicare by nearly a decade.” http://www.s-a-f-e.org/delaware_chatter.htm (8/16/12)

But making arguments does not prove they are true.  Although the Medicare cuts enacted in GovCare would not be directly borne by Medicare participants, they would predictably impair service levels for Medicare patients (most of the seniors in this country).  Obama murdered Medicare, Thomas Saving and John Goodman, Washington Times, 10/15/10.

According to estimates from the Office of the Medicare Actuary, Medicare will be paying just two-thirds of what private payers spend by the end of the decade and just one-half as much by midcentury. Moreover, as Medicare rates fall increasingly below Medicaid rates, the elderly and the disabled will be the last patients doctors will want to see - if they have time for them at all.

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So the Romney-Ryan counterattack appears well founded, save for one point – what would the challengers do differently?

In this regard, the House budget plan took credit for $1,572B in savings over the next ten years from repealing GovCare without reversing the $700B or so in Medicare cuts that are being complained about.  House budget, table S-4.  The rationale for not restoring the Medicare cuts boiled down to an assertion that these funds “would go to shore up Medicare, not to pay for new entitlements.”  House budget, p. 54.

It is now being said the Romney-Ryan plan would restore the Medicare cuts now and fix the program later, which is consistent with saying the Democrats were the ones to cut Medicare but seems inconsistent with simultaneously claiming superiority in the fiscal responsibility department.

Another Democrat ad has been released, which has been widely noted but does not seem to be posted anywhere (at least we couldn’t find it). Obama defends Medicare policies in ad, Yahoo News, 8/17/12.  http://yhoo.it/PtJPWHYPERLINK "http://yhoo.it/PtJPWO"O

In this 30-second video, the AARP is quoted to the effect that the House budget (referred to as the Ryan plan) “would undermine ... Medicare and could lead to higher costs for seniors." It is also stated that "experts [the Center on Budget and Policy Priorities] say [Ryan’s] voucher plan could raise future retirees' costs more than $6,000.” 

Whatever the merits of the “more than $6,000” claim, it is apparently based on anticipated conditions in 2023 et seq. – which would leave plenty of time to discuss the details.  How Romney-Ryan could weaken traditional Medicare, Tami Luhby, CNNMoney, 8/18/12.  http://cnnmon.ie/SAjiW8

Meanwhile, the president et al. do not seem to have offered their most logical response: “yes, we did cut Medicare, and now our opponents would irresponsibly restore the cuts.”  Unless and until they are willing to say this, we think they deserve to lose the argument.

Our take – Far from being “extreme,” the House budget plan for Medicare seems painfully slow.  Touting the advantages of “patient control” over “bureaucratic control” (on page 55) is all very well, but this country cannot afford to wait another ten years before tackling the problem.  Ryan and the real enemy of Medicare, Steve Chapman, Townhall.com, 8/16 /12.

At the rate we're going, Medicare, Medicaid, Social Security and interest payments will consume the entire federal budget by 2025 -- leaving nothing for defense, law enforcement, national parks, highways, food stamps and all the other responsibilities the government is supposed to handle. Either drastic spending cuts or staggering tax increases would be needed.


SAFE’s proposal for Medicare would kick in quickly for all future retirees. In search of real healthcare reform, point 6 of overall plan, May 2009.

#Traditional Medicare coverage for Part A (Hospital insurance) and Part B (Medical Insurance) would not be offered for Medicare participants retiring after a given date, e.g., January 1, [2015].

#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.  As explained in The Innovator’s Prescription, the results should be beneficial for all concerned.


Does this mean SAFE “would change Medicare as we know it” or convert Medicare “into a voucher plan”?  Affirmative, but we have some pretty good reasons.

The fiscal problem is far too big to tax our way out of.  Barring prompt and decisive action to cut government spending, as we have said repeatedly, this country is headed for a catastrophic fiscal meltdown.  And entitlement programs like Social Security, Medicare, et al., which have been growing exponentially without effective budget control, should certainly be on the table along with discretionary spending programs.

OK, politics is “the art of the possible,” but surely the time has come for our political leaders to show more leadership about this problem than they have thus far.

As David Walker (CEO of Comeback America, Inc.) has put it, “Americans can handle the truth,” but they “don’t know the truth, because they have not been provided the truth.”

Dave Walker [other guests: Mort Zuckerman & Ezra Klein] on Morning Joe (MSNBC), 8/13/12 (video, 11:41).  http://bit.ly/NNeZXo

Well, we’re doing our best to get the word out.  If you agree, please pass it on!

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Some liberals claim big deficits are OK because interest rates will stay low while GDP grows rapidly.  See, e.g., this August 2011 blog post by Paul Krugman. http://nyti.ms/nGASZG  However, rapid GDP growth is far from assured – particularly with current government policies – and interest rates won’t stay in the basement forever.  To win the argument, we must discredit these rosy assumptions.  - SAFE director 

You guys are doing yeoman's work there, please keep the emails coming. – Military historian, Colorado

top      wwhipple3@verizon.net

8/13/12 – Success is not a lock, but it is worth striving for

In February 2005, to begin on a historical note, SAFE directors Jerry Martin and Bill Whipple attended a Cato forum on Social Security reform. Cato/SS/2005  SAFE members and many others did their best in ensuing months, but the hoped-for reforms died on the vine and the outlook for Social Security has deteriorated even faster than was then anticipated. http://www.s-a-f-e.org/social_security.htm  

Week before last, your faithful scribe represented SAFE at a Cato event in DC (“Cato University” 2012).  This five-day workshop was a fruitful experience, both personally and professionally, and this entry will recap some of the takeaways.

To set the stage, here is a summary of the sessions (PowerPoint slideshow). http://www.s-a-f-e.org/events.htm (July 29-Aug 3, 2012).  The presenters are listed on Slide 2. 

Reasons for optimism about SAFE’s smaller, more focused, less costly government agenda (which is generally shared by Cato and the 140+ attendees) were ably explained at the workshop.  This agenda is consistent with American history, the intent of the founders as set forth in the Constitution, and the weight of economic experience and logic.

And yet, defenders of liberty and a free market are on the ropes. We need to understand how and why our position is being undermined and find ways to turn things around – before it is too late! 

History – The rise and fall of states has been a feature of human history for thousands of years, and the typical pattern is quite familiar. 

Economic advances (e.g., from hunting/gathering to agriculture) create a surplus above bare subsistence for the population, and a state arises to use the surplus to provide security and benefit the ruling elite.  Invaders attempt to acquire the surplus for themselves.  Whether the invaders succeed or are repelled, life continues to be pretty miserable for the majority of the population.  Slide 3, Palmer.

An alternative model for government has arisen from time to time in areas where people successfully demanded that the powers of government be limited by what were perceived as higher principles.  One of the most successful examples is the American colonies, which won their independence from Great Britain, drafted a Constitution based on enumerated powers for three branches of government, and has since achieved unparalleled prosperity and success.  Slide 4, Palmer; Slides 6-8, McDonald.

The Industrial Revolution introduced a new element in human history, namely economic growth so rapid and predictable that it lifted broad segments of the population (not just the ruling elite) above the subsistence level.  And while economic growth is not necessarily associated with any particular form of political organization, it has demonstrably flourished in free market vs. planned economies.  This historical record refutes claims that “trickle down” economics don’t work.  Slide 9, Landsburg.

A powerful case can be made for encouraging all countries to adopt limited governments and create free markets.  The resulting benefits for mankind would be tremendous.  However, as history has shown again and again: freedom is never guaranteed, people see their particular interests as trumping the general welfare, and autocratic rulers will take over if they get the chance.  Perhaps there is something in the human psyche that cannot stand to leave well enough alone.

Thus, the checks and balances of the Roman Republic were subverted; a series of emperors followed before the Roman Empire fell. Slide 4, Palmer. Cicero Ancient Classics for English Readers, http://www.s-a-f-e.org/Book%20Reviews/Cicero.htm.

In our own country, classic liberalism has been on the wane since the 18th Century – with growing pressure to interpret the Constitution so as to facilitate unchecked growth of the government (Slide 13, Pilon; Slide 14, Levy).

Economics – Critics of an untrammeled free market (aka capitalism) have a point.  Unless required to refrain from (or pay for) activity that harms others, some people will act irresponsibly.  The question is not whether there should be government oversight, but what form (goals, process, and limits) it should take. Slide 10, Landsburg.

Letting prices decide what goods and services will be produced is simple; decreeing what should be produced, e.g., locally grown produce so as to limit interstate transportation, will inevitably result in suboptimal solutions.  Remember the many shortages in the USSR, which eventually collapsed of its own weight.

Efforts to achieve social goals via regulation may not only penalize output but have unintended consequences to boot.  Who would have expected mandatory helmet laws to drive up motorcycle insurance rates, or the mandated use of recycled paper to result in smaller forests?  Slide 11, Landsburg.

Some say the public should decide economic issues (aka public choice theory), but there is an obvious pitfall.  Politicians tend to serve special interests (which seek concentrated benefits) vs. the general public (which bear diffused costs).  Consider the general failure to appreciate the benefits of free trade.  Slide 12, Griswold

Current state – Our constitutional protections have been interpreted away; Congress is increasingly ineffective; the Executive Branch is ascendant (with essentially unchecked delegation to 320 alphabet agencies). Slide 13, Pilon; Slide 14, Levy.

Both political parties tend to be selective when it comes to big government versus individual rights.  Thus, “liberals” support big government in the social policy sphere while limiting prerogatives of the military and law enforcement.  And “conservatives” don’t concern themselves with the lack of constitutional authority for the war on drugs or medical malpractice reform.  Slide 14, Levy.

Social welfare spending has expanded to unsustainable levels, and GovCare – assuming it is implemented – will make things far worse.  Slide 15, Cannon.

The financial crisis & recession of 2008 was primarily caused by government policies; little has been done to prevent a recurrence.  Fed monetary policy is looser than ever, Fannie & Freddie remain in operation, tax policies continue to encourage high leverage, and major banks are still viewed as “too big to fail.”  Slide 16, Calabria.

The military establishment is very expensive and it is arguably committed to unwise missions. Military interventions (wars) should be based on national interests, not humanitarian considerations, and our leaders need to get over the idea that this country can readily create democracies in occupied nations.  Slide 17, Preble.

Path forward – Accepting that the US is headed down a dangerous path, can the friends of liberty straighten things out? 

#Several ideas for coping with the situation were offered during the course of the seminar, none of which seem wholly satisfying.

Have faith – Americans have faced big challenges in the past, and when push came to shove they chose liberty.  We can do it again.  Slides 6-8, McDonald.

Be clever – It would be nice if the Supreme Court had thrown out GovCare, for example, but they did not and it will be tough to get 60 votes in the Senate for repeal no matter how the November elections turn out.  As a Plan B, the states (38 of which supported the court challenge) should block implementation of GovCare by declining to voluntarily expand their Medicaid coverage or establish healthcare insurance exchanges. [We plan to discuss this game plan in a future entry.]  Slide 15, Cannon.

Be patient – The intellectual pendulum swings one way and then it swings back.  If we change the climate of ideas, which has been altered by the liberals’ control of the school system and mainstream media, people will eventually realize that we are right.  Slide 5, Palmer; Slide 13, Pilon. 

#It was also pointed out, quite correctly we think, that there are no guarantees of success. 

Moving through history is like walking down a hall backwards; you can see where you have been but not where you are going.  Slide 3, Palmer.

Crises typically serve as an excuse for the expansion of government power, e.g., during wars, the Great Depression of the 1930s, and the “great recession” of 2008 et seq. that paved the way for GovCare.  The next crisis may do further damage.  Slide 16, Calabria.

In response to a question, Calabria agreed there could be a constructive reaction to a crisis.  After all, Harding combated a recession after World War I by slashing spending and taxes. http://www.s-a-f-e.org/nwsltr/nwsltr53.htm#THE However, such a happy outcome would depend on the right people being in charge when the crisis hit.

#And if freedom is suppressed in the US, perhaps it will bloom elsewhere as the result of Cato’s very impressive international outreach efforts.  In any case, we will have the satisfaction of having fought the good fight.  Isn’t striving what life is all about?

Tom Palmer closed the workshop by reminding attendees of a notice that is inscribed in St. Paul’s Cathedral (http://bit.ly/Q5HoGo) to honor the architect, Sir Christopher Wren.  As translated from the Latin text, it reads:

Here in its foundations lies the architect of this church and city, Christopher Wren, who lived beyond ninety years, not for his own profit but for the public good.  Reader, if you seek his monument - look around you. Died 25 Feb. 1723, age 91.

One more thing - SAFE does not deal in politics as such, but that does not mean we don’t appreciate the importance of political contests - such as the elections coming up in November – in framing the issues and determining who will be elected to address them.

Based on the president’s first term record, we see very little hope that he would support smaller, more focused, less costly government if reelected.  We do have some hope for the challenger, but would like to see more specific commitments concerning his proposed policies than have been offered thus far.

In last week’s entry (8/6/12), we envisioned the challenger responding to a recent ad of the president’s by saying: “(A) Darned right there are two very different plans for America, and (B) Smaller, more focused, less costly government is the best answer!”

Other observers seem to be coming to the same conclusion that we did, which boils down to this: Republicans need to stop acting coy and offer a clear vision of where they want to take the country and why Americans should care.  Otherwise, the best they can hope for is to eke out a win – and they might very well lose. Here is a sampling of the other commentary:

• The case against reelection, Charles Krauthammer, Washington Post, 8/9/12. http://wapo.st/REfwyZ

• Hosanna!  Krauthammer gets it!  Ideology!  Rush Limbaugh, 8/10/12. http://bit.ly/S8nJqT

• A nation that believes nothing, Peggy Noonan, Wall Street Journal, 8/10/12. http://on.wsj.com/3ksWVd

• What will it take to make some Americans wake up, Charlie Daniels, CNSnews.com, 8/10/12. http://bit.ly/OY7OO4

Another encouraging development was Romney’s pick for vice-president, namely Paul Ryan.  Of all the political leaders said to be under consideration for this honor, none has weighed in more clearly – not just with rhetoric but with specific ideas - on the fiscal problem that has been gnawing away at the foundation of this country like termites in the basement. 

For example, watch Representative Ryan schooling the president (who doesn’t look very appreciative) on the GovCare bill shortly before that ill-fated legislation was rammed through Congress with zero Republican support. http://bit.ly/cPGw2R (video, 6:12).

And, if you can spare the time, consider Ryan’s homespun, highly credible speech at the Reagan Library on May 22.  http://bit.ly/PLiBXI (video, 1 hour including 25 instructive minutes of Q&A).

And let it be remembered that Ryan sent SAFE by far the classiest letter that we have received from any member of Congress in recent years. http://bit.ly/NVEPGh

We believe there is still hope!  What do you readers think? 

top      wwhipple3@verizon.net

8/6/12 – A recent political ad deserves a real response 

A 1969 report of a presidential candidate (Richard Nixon) being “sold” like a brand of soap or cigarettes was viewed as somewhat startling.  No longer! Indeed, a reviewer of Joe McGinnis’s classic book, “The Selling of the Presidency,” wrote in 2000 that “today, the practices described actually seem backward.”  http://amzn.to/Mk9yMW

Campaign techniques continue to evolve.  Americans (notably those who live in or near “battleground states”) will be exposed to more TV ads than ever this year – not to mention e-mail and social media appeals - with an increasingly sharp distinction between candidate messages (primarily positive) and support group messages (primarily negative, giving candidates a degree of deniability).   

Is this how our national political leader should be selected?  Arguably not, but we are skeptical of proposals for campaign finance reform.  There is no way to keep money out of politics, campaigners invariably use state of the art communication techniques, and first amendment rights of speech and association should be protected for all. 

Perhaps better results could be achieved through voluntary action.  As a case in point, this entry will dissect one of the president’s recent ads, which could be interpreted as inviting a debate about the main issue in this presidential campaign – the size and scope of government.  But is such a debate likely to take place? 

“The Choice” ad shows the president talking in a calm, eminently reasonable tone.  His opponent (Governor Romney) is referred to once; the Republicans are not mentioned. At the end, the slogan FORWARD is displayed with a statement that the ad was “approved by Barack Obama” and “paid for by Obama for America.”  At the bottom of the panel are the final words of the president’s pitch: “it couldn’t be bigger.”  Video (1:02).

Over the next four months, you have a choice to make.  Not just between two political parties, or even two people.  It’s a choice between two very different plans for our country.  Governor Romney’s plan would cut taxes for the folks at the very top, roll back regulations on big banks, and he says that if we do our economy will grow and everyone will benefit.  But you know what?  We tried that top-down approach. It’s what caused the mess in the first place.  I believe the only way to create an economy built to last is to strengthen the middle class.  Asking the wealthy to pay a little more so we can pay down our debt in a balanced way.  So that we can afford to invest in education, manufacturing and homegrown American energy for good middle class jobs.  Sometimes politics can seem very small.  But the choice you face, it couldn’t be bigger. [FORWARD panel.]  I’m Barrack Obama, and I approve this message.


The FORWARD slogan, which the Obama campaign has been using since April, originated as an expression of “the conviction of European Marxists and radicals that their movements reflected the march of history, which would move forward past capitalism . . . ”. New Obama slogan has long ties to Marxism, socialism, Victor Morton, Washington Times, 4/30/12. http://bit.ly/Jmb2DN

A linked page recaps the competing plans in side-by-side fashion, including some additional claims such as “Mitt Romney’s plan would add $5 trillion in tax cuts skewed to the rich, either increasing the deficit or requiring tax increases on the middle-class,” and admonishes visitors to go “forward, not backwards.” There is also a donation opportunity. http://bit.ly/NsUMTT]

Our take – We agree that Americans face a big choice in November.  Will they vote for (A) continued movement towards a European style welfare state, which the president clearly favors, or (B) an effort to reinvigorate the private sector, which seems consistent with Romney’s track record and what he has said and done in recent months. 

It would be great if the two candidates clearly articulated their respective positions, thereby alerting Americans to what is at stake.  But instead of laying the groundwork for such a debate, the president’s ad (and the linked recap, although we will not dissect it in a similar manner) mischaracterizes both Romney’s and his own positions.

•Governor Romney’s plan would cut taxes for the folks at the very top - Romney is opposing tax increases for high earners.  He has also talked about tax rate cuts (for all individual taxpayers), which would be largely offset by curtailing “deductions, credits and exemptions for the wealthiest.” Obama and Romney: Where they stand on the issues, Associated Press report, Fox News, 8/3/12. http://fxn.ws/QKZZvg

• [Romney would] roll back regulations on big banks – Romney has talked about repealing the Dodd-Frank financial “reform” bill (which mandates many new regulations), but he has also advocated repeal of GovCare (with many more regulations), dialing back energy regulations, etc.  Politics aside, there is little reason to single out Romney’s stance on banking regulations. AP report, http://fxn.ws/QKZZvg

•That top-down approach is what caused the mess in the first place. – Blaming the 2008 financial crash & recession on the Bush tax cuts of 2001/2003, banking law changes under President Clinton, and “Wall Street greed” is simplistic at best.  We would place more weight on government policies that encouraged bankers to make unsound loans, unwise expansion of Fannie Mae & Freddie Mac activities, and Federal Reserve monetary policies (abnormally low interest rates after 9/11) that fueled a housing and subprime loan bubble. http://bit.ly/Qrw9fP (5/3/10 & 5/10/10) 

Also, the president fails to mention his own responsibility for the ongoing economic slump.  Obama’s schizophrenic reality, Craig Steiner, Townhall.com, 9/7/11.

Instead of trying to prevent housing prices from falling, we need to let them fall and find their bottom. Instead of stopping foreclosures, we need to foreclose on homes as quickly as possible and get it over with. Instead of pumping up the stock market with QE1 and QE2, we need to let the market find its true value. Instead of trying to convince consumers to spend more money to spark economic activity, we need to encourage them to complete the process of deleveraging and fixing their balance sheets. Instead of getting in the way of corporate bankruptcies, we need to let those companies fail. *** Recovery doesn't need to be impossible. But it is impossible given the policies of President Obama.


[We should ask] the wealthy to pay a little more so we can pay down our debt in a balanced way. – Whatever additional revenue might result from higher taxes on high earners, it would hardly be enough to “pay down our debt.” Raising taxes on high earners, 7/16/12.

The president’s claim that $1 trillion in deficit reduction [a small fraction of the debt increase that is projected over the next 10 years] would result is patently unrealistic, as the added taxes would retard economic growth. *** Like it or not, the only effective way to cure budget deficits is to reduce spending in both the discretional and mandatory segments of the budget.


So that we can afford to invest in education, manufacturing and homegrown American energy for good middle class jobs. – Just to make sure tax increases would not reduce the deficit very much, some of the loot would be reinvested in surface transportation, “short-term measures for jobs growth,” etc.  Budget lands with a thud, http://bit.ly/KZ46Dg (2/20/12).

One might infer from the foregoing that the president feels it necessary to gloss over his actual views, which would not appeal to most Americans. The Amateur: Barack Obama in the White House, Edward Klein, Regnery Publishing (2012), pages 245-6.

. . . the reason [the president] lost his personal connection with the American people had little to do with his communication skills.  It was not how he communicated, but what he communicated that lost him the affection of the country.  The American people didn’t care a fig about the style of Obama’s message; they didn’t like the substance of his message.  He was just too liberal for America.


What an opportunity for Romney et al. to agree that there are “two very different plans for our country” – and explain why Americans should prefer theirs.  But will they do it?  

GOP response – The Romney campaign’s initial comments on “the Choice” ad were superficial. The basic thrust was to interpret it as a comparison between the candidates and fire back at the president.  Obama and Romney: choice or referendum?  David Jackson, USA Today, 7/24/12.

Responding to the ad, Romney spokeswoman [Amanda] Henneberg said of Obama: "Instead of meeting with his Jobs Council, he is busy holding fundraisers, playing golf and trying to tear down Mitt Romney -- Mitt Romney will never be too busy to focus on jobs and the economy and it will be his top priority as president."


Recent polls suggest that Americans have basically made up their minds about the president, but would like to know more about Romney’s background.  To move polls, Romney needs to go positive, Sean Trende, realclearpolitics.com, 7/25/12.

So voters are at Step 2 of the referendum model. They are evaluating Romney. In this situation, the Republicans are doing the exact wrong thing by making 90 percent of their ads attacks on Obama. Although voters always say this but rarely mean it, they really do want Romney to go positive. They are interested in learning about his accomplishments (or lack thereof), especially during his term as governor.


Seemingly right on cue, a new ad relates how Romney started his “own business” (not identified as Bain Capital), turned around the Winter Olympics in Salt Lake City, and balanced the Massachusetts state budget. “Freedom and free enterprise are what creates jobs, not government,” a voice says at one point, but it is unclear whether Romney is saying the words or someone else.  The closing slogan – “Believe in the America you built; Believe we can build it again” – lacks punch. Mitt Romney warms up in new ad, Rachel Weiner, washingtonpost.com, 7/30/12, video (1:02). http://wapo.st/M11hC0

Perhaps Romney et al. will draw a contrast between the political philosophies of the two candidates in coming days, but they have not done so thus far – and we think this is regrettable. 

Imagine the potential traction of a Romney ad that made these points: (A) Darned right there are two very different plans for America, and (B) Smaller, more focused, less costly government is the best answer!

Then drive the message home in Romney’s speeches, and push for some much needed changes in the way presidential debates are conducted.

Modern political debates rely heavily on scripted questions and short buzz clips designed to upset an opponent’s demeanor. Language and prose are no longer important tools. It’s simply a matter of who can generate the most meaningful attack for the evening news. That’s why people switch the TV channel so often during presidential debates or don’t watch them at all.

Some changes are already contemplated, with time blocks of up to 15 minutes reserved for designated questions, but the candidates could agree to go further.  Obama and Romney should debate Lincoln-Douglas style; less restricted format could sharpen the contrast, Michael Taube, Washington Times, 8/3/12 


The time remaining is limited (about three months), and, as the president aptly stated, the choice “couldn’t be bigger.” 

Game on! 

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7/28/12 – Who needs Congress if the Executive Branch can make the laws?        Read Replies

It has been said there are two approaches to constitutional interpretation.  One is to attempt to divine the intent of its provisions (giving due weight to prior decisions) and apply them to current controversies as best this can be done.  The other is to decide on the desired result (based on policy or political reasons) and work backwards.  How to read the Constitution, Supreme Court Justice Clarence Thomas, Wall Street Journal, 10/20/08.

Let me put it this way; there are really only two ways to interpret the Constitution -- try to discern as best we can what the framers intended or make it up. No matter how ingenious, imaginative or artfully put, unless interpretive methodologies are tied to the original intent of the framers, they have no more basis in the Constitution than the latest football scores. To be sure, even the most conscientious effort to adhere to the original intent of the framers of our Constitution is flawed, as all methodologies and human institutions are; but at least originalism has the advantage of being legitimate and, I might add, impartial.


A similar choice applies for federal statutes, and the first approach (attempt to divine and carry out the intent of Congress) is clearly the way to go.  Why even consider the second approach when Congress can readily rescind or amend a statute if the members agree on the desirability of doing so?

And yet, there have been recent cases in which the president et al. manipulated the laws on the books to achieve preconceived results.  The underlying premise seemed to be that Congress, immobilized by partisan gridlock, would not change the law in the manner desired.  It was therefore deemed necessary for the president et al. to fill the void by declining to apply the statute, granting waivers, or promulgating administrative amendments.

Such actions undermine the checks and balances provided in the Constitution, which the president and the rest of our political leaders have sworn to uphold.  In other words, the assertion of presidential supremacy is lawless – and Americans should not tolerate it  – any more than they did during the Nixon presidency. The imperial presidency returns, http://www.s-a-f-e.org/blog_archives.htm#June_-_April_2012_ (6/25/12).

This entry will provide some background, recap several examples of statutory manipulation, and review the latest case – watering down the work requirements for welfare that were enacted during the Clinton Administration.

The story line – In November 2010, Republicans captured control of the House of Representatives and scored gains in the Senate.  No longer would the president’s party be able to dominate the legislative agenda.  A burst of negotiations ensued during the lame duck session; it produced a two-year extension of the Bush tax cuts, as desired by Republicans, coupled with a one-year payroll tax cut (later extended for another year) and other measures desired by the president.

Politically, the president was thought to have come out ahead on the deal.  Some observers suggested that he should follow through by pivoting to the center and working with the new Congress (as President Clinton did after Republican gains in 1994).  Lame duck wins boost Obama achievements, Kara Rowland, Washington Times, 12/21/10. 

“It would be foolish to go into the legislative graveyard and try to resurrect issues like zombies, such as cap-and-trade, immigration and the Dream Act,” [Republican strategist Ron] Bonjean said. “The American people rejected those wholesale.”  Instead, Mr. Bonjean said, Mr. Obama would be better served by focusing on spending cuts and deficit reduction - an area where the incoming GOP House majority has likewise pledged to make sweeping changes.


The president was not truly interested in tackling the fiscal problem, however, as his budget proposal in February 2011 and subsequent reaction to the budget passed by the Republican-controlled House would demonstrate. Stay alert: this will be a long tough ride, http://bit.ly/OumIqG (4/18/11).

As for regulatory goals, a prediction that the administration would resort to aggressive administrative action instead of declaring a truce on its push for green energy, etc. proved closer to the mark.  Washington’s “alphabet soup” poisonous to economy, Adam Hasner, Townhall.com, 12/6/10.

President Obama’s top appointments have demonstrated an aggressive interventionist approach from federal regulatory agencies. Now it appears that is all the White House has remaining. Since losing a Democratic majority in the House and clinging to a diminished majority in the Senate (with nearly half its caucus members up for re-election in 2012), the Obama administration is turning its sights to the only lever of power remaining under their control -- yes, those very same federal regulatory agencies.   


Reporting on regulatory excesses in May 2011, we suggested that “Administrative Action” was hardly a new phenomenon, but was now being pushed to extremes. http://bit.ly/OumIqG (5/2/11-5/9/11).

Congressional leaders worked out a debt limit increase in the summer of 2011 after the president and House Speaker John Boehner had given up on their efforts to negotiate a “grand bargain” for deficit reduction.  All the deal accomplished was to raise the debt ceiling by $2.1T and once again kick the job of agreeing on specific spending cuts down the road. http://bit.ly/LvUNaD (8/8/11)

After the debt limit deal, the Administrative Action campaign was stepped up a notch.  The president claimed that Congress had failed to address unemployment and an ongoing economic slump so he had to act.  The one common element in the various initiatives was that they involved doing favors for segments of the electorate that might be inclined to support him in the 2012 elections. 

Our take at the time was that the campaign was generally inappropriate, but not truly disturbing.  “We can’t wait campaign” is a farce, (11/14/11).

•On the whole, it would be hard to characterize the components of the “We can’t wait” blitz as an administrative power grab, but they hardly represent an impressive effort to address the country’s problems either.

•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.


Legislative manipulation - Over time, the instances in which the president has trespassed on Congress’s turf by overriding the judgment of the legislative branch have begun to add up.  Here are some examples.  

#Defense of Marriage Act – Signed into law in 2000 by President Clinton, DOMA defines “marriage” under federal law as a relationship between a man and woman.  The several states are relieved from being compelled to honor same-sex marriages under the Equal Protection Clause of the Constitution if entered into in a state where such marriages are recognized.  Kathy Gill, about.com, updated 3/20/07. http://bit.ly/QhyKLi

Early in 2011, it was announced that the Justice Department would no longer apply or support DOMA because the president, based on advice of the attorney general, had determined that the provisions of the statute violated the Equal Protection Clause and were therefore invalid.  National Center for Public Policy Research, Amy Ridenour, press release, 2/24/11. http://bit.ly/grTaLA

Without getting into the policy merits of DOMA, thank you very much, Congress and a previous president chose to enact it.  By pulling the plug on the statute, the current president would seem to be usurping the functions of Congress and/or the courts.  Besides, as Ridenour’s statement argues, the legal theory relied on was hardly airtight.

  . . . Obama and Holder are relying on an unprovable and unsound assumption, that is, that there is a class of people who are inherently separate and distinct from others based exclusively on their announcement of a preference for sexual relations with a person of their own gender.

#No Child Left Behind – This NCLB program was enacted early in the Bush presidency.  The intent was good, but the benefits have been limited and the costs high.  Not only should NCLB be terminated, in our opinion, but the federal government should exit the education business and let the states handle it. http://www.s-a-f-e.org/education.htm

That being said, the law is on the books – unless and until Congress chooses to make a change – so it was a bit surprising when the president announced his administration’s intention to start adjusting its provisions unilaterally.  President’s remarks on NCLB “flexibility,” 9/23/11. http://1.usa.gov/sGv8AV (scroll up & click transcript).

I’ve urged Congress for a while now, let’s get a bipartisan effort, let’s fix this.  Congress hasn’t been able to do it.  So I will.  Our kids only get one shot at a decent education.  They cannot afford to wait any longer.  So, given that Congress cannot act, I am acting.  So starting today, we’ll be giving states more flexibility to meet high standards.  Keep in mind, the change we’re making is not lowering standards; we’re saying we’re going to give you more flexibility to meet high standards. 

#Recess appointments – Many eyebrows were raised when the president made four high level appointments without Senate approval, at a time (during the Christmas break) when Congress, according to its own rules, was not in recess.  Lawsuits have been filed, but courts move slowly; the lawsuits will not be resolved before the elections.  Given the delay factor, we believe it would have been more appropriate to initiate a constitutional amendment to eliminate the recess appointment power. http://bit.ly/KZ46Dg (1/9/12)

#Immigration laws – In June 2012, the Department of Homeland Security effectively exempted youthful illegal immigrants meeting certain requirements from deportation.  The DHS program somewhat resembled the Dream Act that had previously died in Congress, and no convincing legal justification was cited.  Prosecutorial discretion may quite properly affect the handling of specific cases, but it should not determine the treatment of a large class of individuals over an extensive period of time.

There may be some merit in the proposed policy change, and Congress (not to mention a series of presidents) had surely been remiss in its follow-up on illegal immigration. Still, the DHS action – which the president supported - infringed on the responsibility of Congress to make the laws of the United States.  Obama’s amnesty-by-fiat: Naked lawlessness, Charles Krauthammer, Washington Post, 6/21/12. http://wapo.st/NeOyaq

Welfare – It is now apparently intended to modify the welfare law by watering down the work requirements (have a job, or at least be seriously seeking employment) that were added during the Clinton Administration.  We will take a bit more time with this case as it is recent, has not been mentioned in prior entries, and seems particularly blatant.

The Department of Health and Human Service (HHS) issued an “information memorandum” on July 12 re the agency’s willingness to entertain state requests for waivers from certain requirements of the Temporary Assistance for Needy Families (aka welfare) program.  http://1.usa.gov/NCGjYR

Cutting through the legalese and administrative gobbledygook, which is rather dense even by Washington standards, the memorandum says the statute provides no authority to waive the work requirements – but does permit HHS to authorize experimental programs.  Therefore, if HHS is satisfied that a worthy purpose will be served, it will authorize states “to test approaches and methods other than those set forth in section 407, including definitions of work activities and engagement, specified limitations, verification procedures, and the calculation of participation rates.”

Conservatives perceived a plan to gut the work requirements for welfare payments, and it was swiftly attributed to the president (who reportedly has been a long-time critic of these requirements) versus the HHS official who signed it.  Romney hits Obama move gutting welfare reform, Byron York, Washington Examiner, 7/13/12.

“President Obama now wants to strip the established work requirements from welfare,” Romney said.  “The success of bipartisan welfare reform, passed under President Clinton, has rested on the obligation of work. The president’s action is completely misdirected. Work is a dignified endeavor, and the linkage of work and welfare is essential to prevent welfare from becoming a way of life.”


Others commented in a similar vein, including House Speaker John Boehner, Rep. Jim Jordan of Ohio (who heads the Republican Study Committee), and Robert Rector of the Heritage Foundation.  Note the picture of President Clinton signing the bill in 1996.  Obama admin quietly rewrites welfare reform law, theblaze.com, 7/13/12. http://bit.ly/NzkA4k

White House press secretary Jay Carney fired back that the new initiative had been misinterpreted, Republicans were forgetting their traditional support for state flexibility in the administration of federal programs, etc.  Republicans back Clinton welfare rules; Obama eases on work, Dave Boyer, Washington Times, 7/18/12. 

This administration in no way supports any effort to undermine the work requirements that were fundamental to the welfare reform act signed into law by President Bill Clinton. Those requirements are fundamental to the gains made in the past 15 years in moving people from welfare to work. *** I have been surprised by … the hypocrisy of our critics, since many of them have, in the past, supported and even proposed such waivers. *** [Thus,] in a 2005 letter to the Senate, Republican governors, including then-Gov. Romney, requested such waivers.


Judging from a Rasmussen poll, The American public was not likely to approve of relaxing the work requirement.  83% favor work requirement for welfare recipients, 7/18/12.  http://bit.ly/MIyTQa

One observer distinguished this move from decisions to ignore or adjust other statutes.  The prior moves had been legally dubious but politically logical, she said, but this one was an unmitigated blunder.  Fatal misstep? Mona Charen, Townhall.com, 7/17/12.

Obama is trying to persuade Americans that while he has expanded food stamps to unprecedented levels, extended unemployment insurance to 99 weeks, vastly increased the already overwhelmed Medicaid program, created a new trillion dollar entitlement with Obamacare and expanded the size of the federal government to a percentage of gross domestic product not seen since World War II, that he is not the dependency president. By stepping back into history to embrace the Democrats' nemesis -- unrestricted welfare -- he has clinched the argument for the opposition.


One of the players in the 1996 welfare reform expressed deep disappointment with the “illegal” effort to weaken this successful legislation now.  Obama turns back on welfare reform; president breaks law by gutting work requirements, Rep. Dave Camp (R-MI), Washington Times, 7/25/12. 

After 16 years of success, Mr. Obama is turning back the clock on bipartisan reforms and returning welfare to a system of check-writing and dependency instead of one focused on helping Americans find and maintain jobs.  Not only is this bad policy, the president is breaking the law in his attempt to undermine welfare reform. He is trying to exercise authority he doesn’t have. When Mr. Clinton signed the welfare reform bill into law, it contained specific language prohibiting any administration from granting states waivers from the work requirement.


Acting more organized than usual, House and Senate Republicans have proposed legislation to block the HHS initiative from being implemented.  Press release, 7/18/12.


HHS is not backing down either – so the president presumably approves of their position.  Obama administration rebuffs congressional inquiry, Robert Rector, Heritage Foundation, 7/19/12. 

Not only did Secretary Kathleen Sebelius completely ignore the legal questions surrounding the Administration’s unilateral rewriting of the law, but she also fabricated charges against Mitt Romney and 28 other Republican governors.


Will this latest attempt to change a statute without Congressional approval finally provoke an effective reaction?  We certainly hope so, because continued acceptance of these constitutional transgressions could lead to even more serious abuses in the future.

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This could be a foretaste of a second term if the president is reelected.  We are already seeing negative consequences of the president’s easing of immigration rules ("Dream Act").  Illegals are learning how to "game" the system.  This could be a replay of the reforms in the 80's when we had a huge jump in illegal immigration.  Also, there's much confusion in ICE and the Border Patrol organizations. – SAFE director 

Sweden is an interesting example of a country that was going bankrupt and managed to turn it around and now has a balanced budget.  They still have most of the public support programs but with limitations that make for long-term viability.  Any lessons here for the US? – Retired finance executive    [We’ll follow up on this tip.]

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7/23/12 – Another busy week for SAFE

From time to time, this blog offers tips for SAFE members and other fiscal visionaries.  See the “SAFE strategies” page, http://www.s-a-f-e.org/safe_strategies.htm, which lists blog entries (with links) in this vein going back to 2007.

It may sound obvious that one should keep proposals simple, accentuate the positive, look at issues creatively, be persistent, etc.  Such principles are easy to neglect in practice, however, and we should be able to improve our batting average by applying them systematically.

As a test, this entry will recap a week’s worth of SAFE activity.  What was done, what were the results, and what further steps should be considered?

Political systemSAFE is concerned with public policy – not politics as such – but it is hard to envision our smaller, more focused, less costly government agenda being implemented without major changes in the political climate.  Indeed, over the past half century, the country has been moving the other way most of the time.  So what can be done, if anything, to turn the tide? http://www.s-a-f-e.org/political_system.htm

#Jim Venema laid it on the line in a July 19 letter to the [Wilmington, Del.] News Journal.  The accretion of power in Washington has accelerated under the current president, he argued, and that’s not good.  But the core problem is not the president, “it is the ignorance, which is growing like a cancer in our society, thanks largely to the leftist media and a monumentally failed educational system.” http://bit.ly/MNaUQR

#Your faithful scribe advised Harvard Magazine that SAFE has posted a detailed critique of four articles re “America’s Damaged Democracy” in their July/August issue. http://bit.ly/Of1fnz Our letter will hopefully serve as a reminder that the United States was meant to be a republic (rule of law) vs. a democracy (rule of the people).

Globalization – Several proposed treaties (e.g., the much discussed Law of the Sea Treaty) would grant sweeping powers to UN-sponsored organizations.  Far from moving the US et al. towards smaller, more focused, less costly government, the result would be to add a new layer of government on top.  Count us as skeptical about this idea!

#Jerry Martin wrote to Delaware’s two senators, alerting them to a UN arms trade treaty (ATT) that is being finalized. The president is apparently prepared to sign the ATT, and the secretary of state will push hard for Senate ratification.  However, we would hope that all senators will review this proposal very carefully before supporting it.

Given the selection of Iran for a leadership role in the ATT planning conference, one has to be skeptical of the purported benefits, e.g., deterring international terrorism.  Also, critics claim – with some justification – that the ATT could “pose significant threats to our national security, foreign policy, and economic interests as well as our constitutional rights.” Are our 2nd Amendment rights part of the deal?  Larry Bell, Forbes, 7/10/12. http://onforb.es/PMJjpz  

Economic outlook – There are basically two theories of how to achieve robust economic growth.  Theory A is that the government should play a limited role – maintain security, set and enforce some basic ground rules, provide roads, bridges, etc. – while leaving specific economic choices to be determined by supply and demand.  Theory B is that the government should do all of the above plus (a) supporting (via grants, loans, tax incentives, & mandates) investments in new technologies, and (b) jumpstarting the economy (via deficit spending & easy money) whenever private sector consumption or investment falters.  Theory A has proven far more effective than Theory B over the years, but Theory B offers political advantages and continues to be advocated.  

#Ryck Stout has been closely following economic developments, not just in this country but globally, which may portend another financial crisis – perhaps on the scale of what happened in 2008, perhaps worse.  “Think about that,” he commented laconically, re a gloomy story in the UK Telegraph: World economy heads for another perfect storm, Jeremy Warner, 7/16/12.     

To the all too familiar economic threats posed by the eurozone must now be added the approaching “fiscal cliff” in the US, whose own nascent recovery is in any case fast losing momentum, and the evident slowdown in emerging markets. All three cornerstones of the world economy seem now to be heading into the sand.


Many political leaders acknowledge such dangers, yet continue to espouse Theory B reactions, which if followed will make thing worse by postponing the day of reckoning. The real fiscal cliff, Peter Schiff, Euro Pacific Capital, Inc., 7/13/12.

In reality, the economy will encounter extremely dangerous terrain whether or not Congress figures out a way to wriggle out of the 2013 budgetary straightjacket. The debt burden that the United Stated will face when interest rates rise presents a much larger "fiscal cliff." Unfortunately, no one is talking about that one.


#SAFE doesn’t have much influence over the global economy, but we advocate Theory A thinking every chance we get.  Thus, in a letter to the News Journal, Jim Thomen took exception to a recent column by former Senator Ted Kaufman that blamed the 2008 economic crisis on Wall Street while ignoring the notable contribution of bad government policies.  http://www.s-a-f-e.org/letters_2012.htm#July_19,_2012

Healthcare – Instead of giving more power over healthcare to government bureaucrats, it is time to empower patients and doctors.  SAFE has offered seven specific proposals for healthcare reform, none of which were reflected in GovCare.  As the Supreme Court largely upheld GovCare from a constitutional standpoint, we see repeal as the only way to avoid a “big step in the wrong direction.”  http://www.s-a-f-e.org/healthcare.htm

#As a practical matter, the Senate will surely block the House repeal of GovCare.  We believe there should be a Senate vote, however, to make the position of individual senators a matter of record versus brushing the issue under the rug.  To this end, a number of SAFE members signed a grassroots petition urging that a Senate vote take place.  Some 250,000 signatures are expected, and the petition is scheduled for delivery to Senator Majority Leader Harry Reid’s office today. http://bit.ly/NRYdsz

# In the wake of the Supreme Court decision, Senator Chris Coons posted a “health policy briefing” that cast the decision in a simplistic light and enumerated various purported benefits of GovCare without mentioning the cost involved, let alone who would pay for them.  SAFE submitted a critique of the briefing for his consideration with copies to the other two members of Congress from Delaware. http://bit.ly/MyJlw0

The response was a generic letter from Senator Coons thanking us for “taking the time to share your thoughts with me on an issue that is important to you,” i.e., he doesn’t really care what we think.  Still, the letter is on the record, and it  can potentially be cited or taken into account by candidates from the other party.   

#Governor Jack Markell has said Delaware will expand its Medicaid coverage as contemplated by the GovCare legislation, the operative premise being that the federal government will pay most of the added cost.  SAFE founder Bill Morris suggested in a letter to the News Journal that instead of “using money from the bankrupt federal government,” the states should be assuming “the cost, responsibility, and authority” associated with Medicaid themselves. http://bit.ly/MyJlw0

#The News Journal published a column by UD professors Stacie Beck & Eleanor Craig to the effect that the GovCare “tax” has contributed to the current economic slump.  Beck & Craig went on to critique the GovCare legislation and offer some alternative ideas.  A vitriolic response was published the next day, as has happened before.  (There are very few conservative economists at the University of Delaware, and Beck & Craig may be viewed as “traitors.”)  SAFE slammed the response in Delaware Chatter (7/17/12).

One day after the News Journal published a column by UD Professors Stacie Beck & Eleanor Craig, here is the response – and it is, as we predicted, “vitriolic.”  Consider the first sentence: “Surely Stacie Beck and Eleanor Craig are a comedy team and not University of Delaware economics professors.”  The writer is correct that the GovCare legislation is not the sole cause for current economic difficulties, although Beck & Craig didn’t say it was, but his commentary amounts to a litany of whining (“the worst global financial collapse in history,” and “when President Obama took office, the US economy was losing 1.5 million jobs every two months”) and excuses (Japanese nuclear disaster, Arab Spring, “the debt ceiling crisis in Congress,” fear and uncertainty of falling off a “fiscal cliff,” Euro-Zone crisis). What ever happened to “the buck stops here?”     

Fiscal problem – The only effective way to get the fiscal problem under control is to slash wasteful government programs and restructure “entitlements.”  Most politicians claim to advocate spending discipline, but they know every government program has a support base that will fiercely fight cuts while the sentiment for spending discipline is diffuse and disorganized. Guess what the politicians tend to do in practice.

#We have addressed the need to cut spending in every way we could think of, witness all the blog links on the spending (budget discipline) page. http://bit.ly/NoIFNs SAFE’s current efforts re GovCare repeal should also be mentioned in this context, as there is no greater opportunity for spending reduction than real healthcare reform.

#Bill Morris and a daughter with artistic talent are working on a SAFE cartoon that is aimed at driving home the urgency of finding a solution to the fiscal problem.  The initial mockup looks promising, and we can’t wait to bring you the finished product.

#On July 20, SAFE introduced a speaker at the Retired Men’s Luncheon Club – John Stapleford, the director of the Center for Economic Policy and Analysis at the Caesar Rodney Institute.  As Dr. Stapleford’s informative talk made clear, the fiscal situation of Delaware is analogous to the federal situation only on a smaller scale. 

For example, the requirement that the state budget be balanced every year is not descriptive of reality.  What gets balanced is the General Fund, which amounts to about 40% of the amounts that are actually disbursed.  And by CRI’s reckoning, Delaware currently has racked up a debt of $14.5 billion ($9,000 per person)!

Raising taxes is not much of an answer, because taxpayers will respond in unhelpful ways.  Thus, since the top rate for the Delaware individual income tax was raised to 7%, there has been a notable exodus of people in higher tax brackets.

As for taking greater responsibility for Medicaid, this program already represents 17-18% of the state budget, and it is growing at a rate that threatens support for education and other high priority programs.  Some major adjustments will need to be made after the election, e.g., within two years, said Stapleford.  Hmm, doesn’t exactly sound like the time to expand the Medicaid program as the governor has proposed.

Energy policyGovernment regulations can burden the economy by shifting costs to (or creating costs for) the private sector.  Proponents of the regulations seldom have much to say about such costs, so it behooves the rest of us to keep the potential downside in mind. This is not to say the Government should not regulate anything. The point is that regulations should be based on facts (vs. emotion), with full recognition of the implications.  And there is probably no area in which misguided regulation has had a bigger impact than in the energy sector.   http://www.s-a-f-e.org/energy.htm

#Since retiring as a financial consultant, John Nichols has done yeoman work to combat state policies that would make electric power more expensive and less reliable.  Among other projects, he is currently involved in two legal challenges to the Bloom Energy fuel cell venture – which promises power at three times the price of a combined cycle natural gas facility with little if any net environmental benefit. http://www.s-a-f-e.org/delaware_chatter.htm (7/11/12 and 6/22/12).

On July 13, a full month after the hearing at which Nichols’s appeal of an order granting a coastal zone permit to a Bloom Energy affiliate to construct a fuel cell facility for power production was dismissed, purportedly for lack of standing, the Coastal Zone Industrial Control Board issued a 10-page justification of its action.

Meanwhile, the Board’s action has been appealed to Delaware Superior Court on grounds that the Coastal Zone Act authorizes “any person aggrieved” by the grant of a coastal zone permit to appeal – with no mention of the particularized interest requirement that was applied.  We will follow this proceeding with interest!     

In closing – Well, that’s what happened last week from SAFE’s standpoint.  There certainly weren’t any homeruns, and the concrete results are not easy to measure.  We had some fun, however, and it seemed like a productive week. 

What do you readers think?  As always, your feedback and support would be appreciated.

top      wwhipple3@verizon.net.net

7/16/12 – Raising taxes on high earners            Read  Replies

We’ll set the stage for this week’s discussion by recapping two Wall Street Journal essays (sorry, links not available).

No sign of voter polarization waning, Gerald Seib, 7/10/12. Small wonder there is gridlock inside the Beltway; the electorate is polarized as well.  75% of Democrats say the government should do more, according to a Wall Street Journal/NBC News poll, while 76% of Republicans say it should do less.  The overall result is essentially a dead heat.  A decisive victory in this year’s presidential race could change things, but both camps foresee a close contest in which the key to victory will be motivating loyal supporters to turn out on Election Day versus wooing undecided independents.  


The entitlement state, Brett Stephens, 7/10/12Eurozone economic problems stem from excessive government spending, taxes, and regulations. Instead of “slashing corporate and marginal tax rates and red tape,” European leaders have “pursued every possible fix, from serial bailouts to a banking union.”  Necessary measures are not being taken because European voters are addicted to social welfare payments. “Any time an entitlement is even slightly at risk – whether it’s raising the retirement age to 62 from 60 in France or tinkering with the legal architecture that guarantees jobs for life in Italy – Europeans go right to the barricades.” Things are a bit better here, but implementation of GovCare can be expected to speed this country’s transformation into an entitlement state.  

If these views are valid, it is not hard to understand why politicians stick to generalized talking points when issues concerning the size and scope of government come up.

Would the public prefer more candor?  Maybe, but consider the courtroom confrontation in A Few Good Men.  A Navy prosecutor (Tom Cruise) demands “the truth,” and a Marine officer (Jack Nicholson) fires back that “you can’t handle the truth” – meaning there are things you don’t want to hear about. http://bit.ly/W0kYb (video, 1:51)

Can Americans handle the truth about government economic policies?  Hopefully so, for otherwise the hole being dug in Washington will keep getting deeper.  And here’s a current example to make the point.

President’s tax proposal – Shortly after noon on July 9, the president floated a proposal in the East Room of the White House.  Let’s allow the Bush tax cuts for high earners to expire at yearend, but extend them another year for “the middle class.”

This idea was hardly new; it had come up repeatedly since the president took office. White House rejects tax-hike suggestions, Jon Ward, Washington Times, 8/14/09.

The White House on Monday knocked down the prospect of tax hikes on the middle class to help close the growing federal deficit, walking back comments made by two of President Obama’s top economic adviser [on the Sunday talk shows]. “The president’s clear commitment is not to raise taxes on those making less than $250,000 a year,” said White House press secretary Robert Gibbs. “He is not raising taxes on those making less than $250,000 a year.”


It was not claimed last week that raising taxes on high earners would create jobs, but the president did gush about “rebuilding an economy [where] work pays off -- an economy in which everybody can have the confidence that if you work hard, you can get ahead.” 

He also suggested that the Bush tax cuts (the preponderance of which he was proposing to extend) were responsible for the economic difficulties of recent years.

The wealthy got wealthier, but most Americans struggled.  Instead of creating more jobs, we had the slowest job growth in half a century.  Instead of widespread prosperity, the typical family saw its income fall.  And in just a few years, we went from record surpluses under Bill Clinton to record deficits that we are now still struggling to pay off today.

And looking forward, “the money we’re spending on these tax cuts for the wealthy is a major driver of our deficit, a major contributor to our deficit, costing us a trillion dollars over the next decade.”

As for why some of the Bush tax cuts should be extended, economic conditions were unfavorable so tax cuts for the middle class (taxpayers earning less than $250,000 per annum) should remain in effect for another year.

At the same time, most people agree that we should not raise taxes on middle-class families or small businesses -- not when so many folks are just trying to get by.  Not when so many folks are still digging themselves out of the hole that was created by this Great Recession that we had, and at a time when the recovery is still fragile. [At some point, we imagine this pitch will be made for extending the payroll tax cut as well.] 

Unfortunately, the Republicans might resist this eminently sensible proposal.

Many members of the other party believe that prosperity comes from the top down, so that if we spend trillions [versus “a trillion”] more on tax cuts for the wealthiest Americans, [that] will somehow unleash jobs and economic growth.

OK, that’s what Republicans believed, but they should at least have the decency to agree to the middle class tax cuts the president was proposing (and planned to take credit for), after which tax cuts for high earners could be debated until the cows came home.

The president felt sure that most Americans were with him.  First, “poll after poll shows that’s the case.”  Second, “there are plenty of patriotic and very successful, very wealthy Americans who . . . know that by making that kind of contribution, they’re making the country as a whole stronger.”


In a subsequent TV interview, the president said he would not sign a bill extending all of the Bush tax cuts because “we can’t afford it.”  Obama threatens veto of bill combining tax cuts for middle class, top earners, Fox News, 7/10/12. http://fxn.ws/P3ozay

Republican response – On the road in Colorado, Mitt Romney slammed the president’s proposal as a massive tax increase on “American job creators and small businesses.”

The GOP’s presumptive presidential candidate added that “this old-style liberalism of bigger and bigger government and bigger and bigger taxes has got to end, and we will end it in November." Romney calls tax plan “kick in the gut,” Susan Ferrechio, Washington Examiner, 7/10/12.


Other Republicans, e.g., Senator Jon Kyl of Arizona, said high earners were paying enough already and should not be singled out for a tax increase.  Republicans dispute Obama’s “fair share” claims, Jim Angle, Fox News, 7/12/12. http://fxn.ws/P3ozay

And some observers saw the president’s proposal as a ploy to divert opinion from another unfavorable monthly jobs report, which showed the official unemployment rate still stuck at 8.2%.  Pushing us off the fiscal cliff, Donald Lambro, Townhall.com, 7/11/12.


Let’s “give the president what he asked for,” said Senate Minority Leader Mitch Connell.  He proposed quick votes on the president’s tax proposal and the alternative of extending all of the Bush tax cuts.  Senate Democrats demurred, apparently not anxious to vote in favor of raising anyone’s taxes before the elections, so the president’s proposal seems to be stalled for now.  Senate Dems shoot down Obama tax plan, freedomoutpost.com, 7/12/12. http://bit.ly/ScXVfj

Meanwhile, the Republican-controlled House was preparing to vote for a one-year extension of all the Bush tax cuts.  House sets pre-August recess vote on Bush tax rate extension, Pete Kasperowicz, The Hill, 7/13/12.  http://bit.ly/MpRJxK

The House bill will predictably be blocked in the Senate, meaning nothing will be done about the Bush tax cuts – and some other crucial fiscal issues including the next debt limit increase – until after the elections.  There will not be enough time to deal with all of the issues in a coherent manner in December, whatever the election results, so look for an agreement to once again kick the can down the road.  Coming attractions: lame duck session, http://bit.ly/P3EA08 (5/21/12).

OK, so what?  At least the president’s tax proposal won’t be implemented for now, and it may be possible to negotiate a better deal later.  There are drawbacks in gainsaying the proposal, however, without suggesting an alternative.

Politically speaking, the Republicans’ blocking strategy will enable the president to keep claiming that (1) he is the tax champion of the middle class, and (2) his opponents support tax cuts for well-heeled supporters who are not paying their “fair share.” 

It is hard to tell how such claims will resonate as the campaign progresses, particularly when coupled with attempts to paint Mitt Romney as a wealthy businessman who is out of touch with the middle class.

For example, consider the effect of this campaign ad, which was aired late last week.  Romney: no role in Bain management after 1999, Jim Kuhnhenn & Philip Elliott, Washington Times, 7/13/12.

Obama responded on Friday with an ad that accused the Republican of favoring a 25 percent tax cut for millionaires, tax breaks for oil companies and corporations that move jobs overseas and a tax increase for working families. By contrast, it says, the president wants “the wealthy to pay a little more so the middle class pays less.”


From a policy standpoint, the quandary about the expiring Bush tax cuts threatens to divert attention from a more important issue – the need for comprehensive tax reform – which has been ducked for years while the tax system was being degraded by Congress’s incessant tinkering.

Romney et al would have been smart, in our opinion, to include the points noted under the next heading in their response to the president’s tax proposal.  And perhaps there is still time for them to do so.

Other points – Whatever one may think of the president’s tax proposal, several points he has invoked are clearly valid. 

•All of the Bush tax cuts are set to expire at the end of the year, even though no one in DC expects this will be allowed to happen, which arguably supports his claim of proposing a “tax cut” for middle class taxpayers.   

•Uncertainty about the “fiscal cliff” may be contributing to low consumer and business confidence.  All other things being equal, it would be a good thing to alleviate concerns about the Bush tax cuts instead of waiting until the very last minute to make a decision.

•Something must be done about current and projected deficits, and a $1 trillion pickup over the next 10 years would be a worthwhile start.

These points cannot be negated simply by insisting that all of the Bush tax cuts should be extended; a broader vision is needed.

First, the question of whether high earners pay their “fair share” of taxes is a loaded one.  So long as Republicans allow the question to be posed this way, they will keep losing the argument.  Happy 2012, and why it’s time to focus on taxes, http://bit.ly/KZ46Dg (1/2/12).

The alternative is to ask whether all segments of the population are paying their fair share, including lower income Americans who are currently paying zero or even (thanks to refundable tax credits) negative income taxes.  That’s not to say high earners should not be subject to higher tax rates, ability to pay is a legitimate consideration in tax policy, but we believe everyone should bear some portion of the tax burden.

Second, there is no need to raise income tax rates for anyone, as the president proposes to do for high earners.  The essence of comprehensive tax overhaul would be to eliminate most of the tax preferences (tax exemptions, deductions and credits) that have been created over the years, while cutting tax rates, thereby raising at least the current amount of tax revenue in a much simpler, more efficient, and fairer way.

SAFE’s SimpleTax proposal proposes tax rate cuts of 5+ percentage points at every income level.  Note our advice to be ruthless in eliminating tax preferences so as to avoid an endless debate about which ones should survive.

For U.S. taxpayers subject to foreign income taxes, e.g., workers on international assignments, foreign tax credit is appropriate to avoid double taxation of their income. 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. While some of these tax preferences have arguable merit, a case-by-case review would trigger endless debate.


Earlier this year, there was a window of opportunity to begin work on a tax overhaul.  House Ways and Means should get moving, http://bit.ly/KZ46Dg (2/27/12). 

Here would be the basic steps: (1) review the various tax plans that have been proposed (we would be glad to testify about the SimpleTax); (2) agree on a plan (by majority vote); (3) secure House approval (by majority vote); and (4) transmit the Comprehensive Tax Simplification and Reform Bill of 2012 to the Senate for action by September 1.

The opportunity was not taken, and it is probably too late to start now.  But at least the presidential candidates should be asked to spell out – in some detail – their visions of what the tax system should look like instead of pontificating about the Bush tax cuts. 

To be fair, both candidates have mentioned a future tax overhaul. Thus, the president had this to say in his July 9 statement.

And then next year, once the election is over, things have calmed down a little bit, based on what the American people have said and how they’ve spoken during that election, we’ll be in a good position to decide how to reform our entire tax code in a simple way that lowers rates and helps our economy grow, and brings down our deficit -- because that’s something that we’re going to have to do for the long term.


It is hard to take this comment seriously.  First, the wording is hopelessly vague.  Second, specific tax “reform” ideas the president has offered to date would degrade, not improve the system.  See, e.g., our analysis of the recently announced corporate tax plan. House Ways and Means should get moving, http://bit.ly/KZ46Dg (2/27/12). 

For his part, the challenger is on record as being in favor of a tax system that is “flatter, simpler, and fairer,” and some of the parameters are spelled out on his website.  We do not agree with all of “Mitt’s plan,” however, notably including the failure to explain how proposed tax cuts could be made without sharply reducing tax revenues.

Individual taxes: (a) Make permanent, across-the-board 20 percent cut in marginal rates; (b) Maintain current tax rates on interest, dividends, and capital gains [for high earners only, see next item]; (c) Eliminate taxes for taxpayers with AGI below $200,000 on interest, dividends, and capital gains; (d) Eliminate the Death Tax; (e) Repeal the Alternative Minimum Tax.

Corporate taxes: (a) Cut the corporate rate to 25 percent; (b) Strengthen and make permanent the R&D tax credit [this and numerous other corporate tax preferences should be eliminated]; (c) Switch to a territorial tax system; (d) Repeal the corporate Alternative Minimum Tax.


So when the president proposed to raise tax rates for high earners, why didn’t Romney respond that his plan would allow tax rates for everyone to be cut?  If he were truly committed to the plan, that would seem like a natural reaction.

Third, the federal budget does need to be balanced – and this must be done within a few years, not endlessly delayed, or we all pay the consequences – but cancelling the Bush tax cuts on high earners is not the way to do it.

The president’s claim that $1 trillion in deficit reduction would result is patently unrealistic, as the added taxes would retard economic growth.  IRS data shows that businesses will bear brunt of Obama’s tax hike, Scott Hodge, Tax Foundation, 7/9/12.

No matter how you cut the data, the fact is that hiking the top individual income tax rates would amount to one of the largest single tax increases on individually owned businesses in modern history and a threat to the long-term economic health of the nation.


Also, the willingness of well to do taxpayers to shoulder higher tax burdens has been greatly exaggerated.  Experience suggests that many high earners would modify their behavior, e.g., defer selling appreciated assets or relocate to Hong Kong, to avoid paying more.  Obama pursues higher tax rates, growth be damned, Michael Barone, Washington Examiner, 5/19/12.

Since World War II, federal revenues have never risen much over 20 percent of GDP, whether the top rate was 28 percent or 91 percent.  The reason is that when rates get high enough, investors' animal spirits (John Maynard Keynes' term) are directed less at increasing productivity and creating wealth and more at avoiding taxes.


Like it or not, the only effective way to cure budget deficits is to reduce spending in both the discretional and mandatory segments of the budget.  Talking will not get the job done, and “conservatives” are not immune from the spending disease. Budget insanity, John Stossel, Townhall.com, 7/11/12.

Even the new "fiscally responsible" Republicans vote against cutting Energy Department handouts to companies like Solyndra and subsidies to sugar producers. Many claim that any cut in military spending will weaken America and increase unemployment. It's another demonstration of the politicians' addiction to spending -- and how we are complicit. "One more infrastructure bill" or "this jobs plan" will jumpstart the economy, and then we'll kick our spending addiction once and for all. But we don't stop.


So why shouldn’t the urgent need to cut spending have been pointed out when the president proposed for the umpteenth time to raise taxes on high earners – with some concrete examples of where to start? 

It all boils down to the question we started with: can Americans "Handle the truth"?

*            *            *            This Blogs Replies            *            *            *

UPDATE: the president reprised this tax proposal in his weekly address on July 14, if anything sharpening the attack.  Sample: “The folks in Congress and on the campaign trail who oppose this plan warn that it would somehow hurt small businesses and job creators.  Well, they’re completely ignoring the facts. “  http://1.usa.gov/NVZiw2

The economic situation is not much better here than in Europe.  Neither party is really interested in cutting spending, so they will vote to raise the debt ceiling again.  Moody's and S&P will cut the US credit ratings.  Interest rates will eventually rise, and Inflation will roar. A bond bubble is on the way.............big time. – SAFE director 

Excellent post. I consider myself a moderate (democrat or republican, which is very rare nowadays), and agree with most of what you say in this blog. – UD professor

Like us borrowing a line from “A Few Good Men,” another observer has questioned the seeming lack of interest in evidence presented by Sheriff Joe Arpaio’s task force that the copy of the president’s birth certificate posted on the White House website is a forgery.  The media can’t handle the truth, Tim Brown, FreedomOutpost.com, 7/18/12. http://bit.ly/OZZo5b

top      wwhipple3@verizon.net

7/9/12 – Assessing the GovCare decision

The US Supreme Court upheld GovCare on June 28, confounding our recent prediction that they would find the individual mandate unconstitutional and possibly strike the entire act.  Truly, “pride goeth before a fall.”  Oops, did we really say that? SAFE newsletter, summer 2012. http://www.s-a-f-e.org/nwsltr/nwsltr66.htm

The outcome turned on the decision of Chief Justice Roberts, who agreed with the four dissenters (Justices Scalia, Kennedy, Thomas, & Alito) that the individual mandate was invalid under the Commerce Clause, but – reportedly changing his initial vote – voted to uphold it as a tax. Supreme Court healthcare ruling leaks have D.C. buzzing, Sam Baker, The Hill, 7/4/12.  http://bit.ly/Lx0ZiG

Comments about the chief justice’s actions and presumed intentions run the gamut.  Did he cave to political pressure?  Was his legal opinion brilliant or intellectually incoherent?  Did he betray the “conservative” cause or present “liberals” with a Trojan horse?  Will the outcome preserve or tarnish the standing of the Supreme Court?

Fascinating questions, no doubt, but we were struck by a comment of former Senator Fred Thompson (who has the benefit of some practical legal experience).

There may be some truth to all or part of this speculation. The problem is that none of these considerations are an appropriate basis for deciding a lawsuit. Cases are still supposed to be decided upon the law and the facts before the court. This may seem a mundane point in a discussion involving institutional and national salvation, but it’s true nevertheless.


This entry will therefore focus on the practical consequences of the GovCare decision, which, in the end, is what matters. http://huff.to/N76t1Q (download PDF)

The vanishing 10th Amendment – The four dissenters saw GovCare as, in effect, an ultimate test.  If this legislation stood, they reasoned, so would almost any claim of federal power in the economic sphere.

What is absolutely clear, affirmed by the text of the 1789 Constitution, by the Tenth Amendment ratified in 1791, and by innumerable cases of ours in the 220 years since, is that there are structural limits upon federal power—upon what it can prescribe with respect to private conduct, and upon what it can impose upon the sovereign States. Whatever may be the conceptual limits upon the Commerce Clause and upon the power to tax and spend, they cannot be such as will enable the Federal Government to regulate all private conduct and to compel the States to function as administrators of federal programs.

Chief Justice Roberts said all the right words in his opinion about the limits of federal government power, e.g., “the National Government possesses only limited powers; the States and the people retain the remainder.”  And “if no enumerated power authorizes Congress to pass a certain law, that law may not be enacted, even if it would not violate any of the express prohibitions in the Bill of Rights or elsewhere in the Constitution.”

In the ordinary course of affairs, the Framers envisioned that powers concerning the lives, liberties, and properties of the people would be exercised by “governments more local and more accountable than a distant federal bureaucracy,” i.e., the states.

Congress’s power under the Commerce Clause extends to regulating activities having “a substantial effect on interstate commerce,” but not to requiring activity. 

As for the argument that everyone will need healthcare sooner or later, “the Commerce Clause is not a general license to regulate an individual from cradle to grave, simply because he will predictably engage in particular transactions.  Any police power to regulate individuals as such, as opposed to their activities, remains vested in the States.”

But then Roberts turned to the taxing power.  He began by observing that the fine to encourage the purchase of healthcare insurance “looks like a tax in many respects,” e.g., would be paid by taxpayers when they filed their tax returns and is expected to raise about $4 billion per year in revenue. 

The next job was to distinguish numerous precedents as to the dividing line between fines and taxes, and here Roberts made some arguable – but not overwhelming – points.

•The statute does not impose criminal penalties for failing to obtain healthcare insurance – it only imposes a tax (identified as a fine in the statute and legislative history, but that doesn’t negate the Court’s obligation to consider its true nature). 

•The purpose of the tax is to expand healthcare insurance coverage, but Congress’s use of the taxing power to encourage buying something is not new. “Tax incentives already promote, for example, purchasing homes and professional educations.”

•At some point, an exaction might become “so punitive that the taxing power does not authorize it,” but this tax did not rise to such a level.

As for whether the federal government could pressure reluctant states to expand their Medicaid rolls by not only denying additional federal funding but also withholding the funding for their existing Medicaid programs, Roberts (plus Justices Breyer & Kagan, who had voted with Justices Ginsberg & Sotomayor on the Commerce Clause) agreed with the dissenters that the GovCare legislation went too far.  Truly, denial of all Medicaid funding would constitute “a gun to the head” of the states concerned. Therefore, only the additional federal funding could be denied.

Given the Medicaid funding decision, a number of states may decline to expand their Medicaid programs.  (Florida’s governor has already announced such an intention.)  The result may be to (a) shift GovCare costs from the states to the federal government, which is headed for a fiscal meltdown as it is, or (b) reduce anticipated gains in the number of Americans with healthcare insurance coverage.  ObamaCare’s now a bigger mess, Michael Tanner, Townhall.com, 7/8/12.  http://bit.ly/MSISrc

Reflecting on the several opinions in this fractured decision, it seems to us that the dissenters got it right.  By upholding the individual mandate, albeit as a tax rather than a regulation, the Supreme Court has effectively drained the enumerated powers doctrine and the 10th Amendment of whatever vitality they had left.     

From now on, anyone (except possibly a state government) who wants to challenge a federal statute had better be able to cite an affirmative prohibition in the Bill of Rights or elsewhere in the Constitution if they expect to get very far.

Granted, the Supreme Court has zealously protected certain classes of activities under the Bill of Rights et al., such as abortions, flag burning, picketing funerals, and most recently lying about military service & honors.  The Court has been seemingly less concerned, however, about protecting economic freedom.  In challenges to government regulations and/or taxes, the premise seems to be that “it’s only money.”

Repeal fever – There is a potential silver lining in the GovCare decision, in that the political process may still determine the fate of this legislation.  And Chief Justice Roberts mentioned the point in his opinion, if only as a sop to conservatives.

Members of this Court are vested with the authority to interpret the law; we possess neither the expertise nor the prerogative to make policy judgments.  Those decisions are entrusted to our Nation’s elected leaders, who can be thrown out of office if the people disagree with them.  It is not our job to protect the people from the consequences of their political choices.

Within hours after the Supreme Court decision was published, presidential candidate Mitt Romney sent out a “repeal and replace” donation request.

On Day One, I will work to repeal Obamacare to stop the government's takeover of our health care and intrusion in our lives. I will push for real reform to our health care system that focuses on helping patients and protecting taxpayers.


Congressional Republicans have likewise said they intend to push for GovCare repeal.  A symbolic repeal vote is being organized now, and if they capture the Senate (while holding the House) in November the subject will be revisited in earnest.  Boehner, Republicans vow all-out effort to repeal Obamacare, Newsmax.com, 7/1/12.

•"This has to be ripped out by its roots," House of Representatives Speaker John Boehner, the top Republican in Congress, said of the 2010 law on the CBS program "Face the Nation." Boehner added: "We will not flinch from our resolve to make sure this law is repealed in its entirety."

"If I'm the leader of the majority next year, I commit to the American people that the repeal of 'Obamacare' will be job one," [Senate Minority Leader Mitch McConnell] said on "Fox News Sunday. "McConnell said he would use a process called "reconciliation" in the 100-member Senate to permit a simple majority to pass a repeal of the law rather than the customary 60 votes.


Looking closer, however, the Republican “repeal and replace” position appears quite fuzzy.

Mitt Romney, the party’s presumed standard-bearer, pushed for a state healthcare plan that is quite similar to GovCare while he was governor of Massachusetts.  His refusal to disavow Romneycare now may impair his credibility in calling for the repeal of GovCare.

Thus, a recent comment of a Romney adviser sent a distinctly mixed message and triggered widespread conservative criticism.   Romney camp: Obama health[care] mandate “not a tax,” Brian Hughes, Washington Examiner, 7/2/12.

Mitt Romney's campaign veered off the Republican Party's message Monday, saying the Supreme Court was mistaken when it ruled last week ruled last week that the individual mandate that funds President Obama's health care law is a tax.


The candidate has since clarified the comment, sort of, by saying the GovCare penalty is a “tax” since the Supreme Court said it was.  He still refused to concede, however, “that the healthcare law he signed into law while serving as Massachusetts governor was a tax.” Romney changes tune: healthcare law is “a tax,” Susan Crabtree, Washington Times, 7/4/12.  http://bit.ly/MUIJmk

Representative Paul Ryan, a potential Romney running mate, says the Republican leaders are on the same page, and his explanation carries some weight.

Ryan, speaking exclusively with Breitbart News, added that there was no disagreement about repealing Obamacare among the various Republican leaders, or with the Romney campaign. “Not in any of the meetings I have been having,” he said. 

As for alternatives, the House budget chairman predicted the GOP reform proposals would be presented in chunks instead of being combined in one huge, “take it or leave it” proposal.  Ryan: We win, we repeal, Joel Pollak, Breitbart.com, 7/5/12.

“We’re not the Borg,” he quipped, referring to aliens in Star Trek who forcibly assimilate their victims. Asked how Republicans intended to respond to the charge by Democrats and the mainstream media that the party had no clear alternative to Obamacare, Ryan defended the GOP’s pluralistic approach. 


“I will be talking about my own ideas, and everybody is signed up for things like interstate shopping for insurance policies, tort reform, and ending the discriminatory tax treatment between employers and employees. There is nothing wrong with that. That is not the same as doing nothing,” he said. 


Also, the Congressional Health Care Caucus has endorsed a healthcare reform plan authored by John Goodman of the National Center of Policy Analysis.  Most of the ideas look OK, but we would take exception to the two points discussed below. Health[care] contract with America, John Goodman, Townhall.com, 7/7/12.


First, SAFE did not favor tax credits for individually purchased healthcare insurance when John McCain backed a version of this idea in 2008 - http://bit.ly/Nx65fp (10/20/08) - and we don’t favor them now. Handing out ever more tax credits undermines the integrity of the US tax system, and there is no good reason for the government to subsidize healthcare insurance versus the other needs of life.  Here is a better way (item 2 of SAFE’S seven-point healthcare reform plan) to level the playing field. 

End the tax exemption for employer-provided healthcare benefits with the idea that private sector and government employees should make their own arrangements for healthcare services and insurance.  In any case, those whose employers provide healthcare plans should not continue to receive this unjustifiable tax preference.


Second, nothing is said about the “elephant in the living room,” namely the necessity of restructuring healthcare entitlement programs so they will not bankrupt the government.

Time will tell, but we are concerned that the Republican alternative for GovCare – assuming they get a chance to offer one – may not represent a big step forward.  Fiscal visionaries should review whatever is proposed very carefully.

Muddling through – Senate Minority Leader Mitch McConnell’s suggestion that Democrats might want to join in repealing GovCare seems improbable.  Was he indulging in wishful thinking, or perhaps doing some political posturing?  Senate donkeys must join elephants to get rid of law, Washington Times, 7/5/12.

It’s time for Democrats to stop defending the indefensible and to join us in repealing this colossal mistake. The court’s decision gives us the clearest proof yet that this law has to go, so we can clear the way for common-sense, step-by-step reforms that protect Americans’ access to the care they need, from the doctor they choose, at a lower cost. And that’s precisely what Republicans intend to do.


Even if the Republicans win big in November, we think Democrats will fight repeal with every weapon at their disposal because they have managed to convince themselves that no one could rationally be opposed to this legislation on any grounds except that it doesn’t go far enough. Live free – and uninsured, Jonah Goldberg, Townhall.com, 7/4/12.

So, Obamacare creates no losers except where it fails to tax people sufficiently and where GOP governors fail to accept the wisdom of the law. In short, the only thing wrong with Obamacare is that it isn't even more punitive, more mandatory and more intrusive.


Granted, some liberals have expressed interest in bipartisan efforts to improve GovCare, but the premise seems to be no change in direction.  Time to make imperfect healthcare law better, former Senator Ted Kaufman, [Wilmington, DE] News Journal, 7/1/12.

While the Affordable Care Act (GovCare) is not “a perfect law,” neither were the original Social Security and Medicare acts.  “Perhaps, after November, when we are not so totally concerned with politics, legislators who agree with the majority of Americans about keeping its major provisions will begin to amend and perfect the ACA.”

http://www.s-a-f-e.org/delaware_chatter.htm (7/1/12)

Given that Social Security, Medicare, et al. cannot survive in their present form over the long term, these programs hardly demonstrate how initially imperfect legislation can be improved through bipartisan cooperation. Plumbing the depth of the fiscal hole, http://bit.ly/KZ46Dg (2/13/12).

Ergo, if GovCare survives to be implemented, this legislation will prove colossally expensive and work quite badly.  The only chance for a better outcome is to repeal this legislation and have another go at healthcare reform.

Synthesis – The Supreme Court had a sound legal basis for striking down the GovCare legislation, as the opinion of the four dissenters demonstrates, but it failed to do so.  Given the Court’s decision, the enumerated powers doctrine and 10th Amendment – already much diminished by prior decisions - have been reduced to historical relics.  We consider this result unfortunate.

Granted, it was not up to the Court to assess the merits of the GovCare legislation, and the possibility remains of undoing the result through the political process.  But there is a good chance GovCare will not be repealed, and even if it is the replacement legislation may not be a vast improvement. 

Unless Americans demand better answers in this area, the politicians will most assuredly not deliver them. Prepare to speak up or get run over!

top      wwhipple3@verizon.net

7/2/12 – Professors facilitate national decline        Read Replies

Does the academic elite in this country have a liberal (aka progressive) mindset?  One might certainly so infer from the current (July-August) issue of Harvard Magazine, as this entry will explain.

The theme is “America’s Damaged Democracy,” as portrayed by images of a cracked and crudely patched US Capitol building and defaced American flag on the front cover.  In support of the theme, there are articles on economic inequality, partisan politics, voter suppression, and campaign cash. http://bit.ly/Pl1L4y

The real problem with the US political system is not damage to the American democracy (rule of the people), in our opinion, but rather undermining of the American republic (rule of law) that is mentioned in the Pledge of Allegiance.  As for the four articles, they seem designed to support finishing the job (doing away with the republic) rather than repairing “damage” already done.

To begin: Here is a recap of the four articles with our comments.  Notice the tendency to focus on one side of issues while minimizing or ignoring conflicting evidence.

ECONOMIC INEQUALITY: Based on “Why Nations Fail” by Professors James Robinson (Harvard) & Daron Acemoglu (MIT) - If its political and social system is inclusive, a country will thrive.  If the government “violates property rights and concentrates wealth and power in a class of elites,” on the other hand, long-term economic stagnation will result as most of the population will have no incentive to work.  Consider the relative prosperity of the United States and Canada (colonized by the English, who could not “enforce extractive policies on their own colonists” and therefore offered land grants and political inclusion) with the slow progress of the rest of the hemisphere, which was subjugated by European conquerors and run to “enrich only the colonial elite and the Spanish [Portuguese in Brazil] crown.”

1. We are reminded of the president’s assertions that more equal income distribution is “the defining issue of our our time,” and “countries with less inequality tend to have stronger and steadier economic growth over the long run.”  Fiscal Year 2013 budget, pp. 1-2, http://www.whitehouse.gov/omb/budget/Overview (download PDF).

2. Won’t measures to equalize income – notably tax increases and more welfare spending – undermine individual incentives?  Many economists think so, and there is plenty of empirical evidence to support their view.  New study from UK think tank shows how big government undermines prosperity, Daniel Mitchell Townhall.com, 5/26/12.  http://bit.ly/Kqgg4T

3.  A more persuasive explanation of relative national prosperity is that economies sludge up if special interest groups (e.g., privileged classes, producer cartels, or labor unions) succeed in rigging prices or controlling output so as to advance their own interests at the expense of the country as a whole.  This result is typically achieved “with the approval or support of the government.” The Rise and Decline of Nations, Mancur Olson, Yale University Press (1982). http://bit.ly/o4pNYL

PARTISAN POLITICS: Excerpted from introduction to “The Spirit of Compromise” by President Amy Gutman (Univ. of PA) & Professor Dennis Thompson (Harvard Kennedy School) - Political campaigning has become a fiercely partisan, basically nonstop process, making it tough for political leaders to govern after being elected.  Effective governance requires that political leaders compromise their differences so as to tap the best thinking available and achieve durable outcomes. Consider these examples: (A) the Tax Reform Act of 1986 achieved solid gains through bipartisan cooperation. (B) The Affordable Care Act (GovCare) similarly illustrated the principle of compromise, albeit only between Democrats as Republicans were united in opposition. (C) Fiscal Commission Co-Chairs Erskine Bowles and Alan Simpson “managed to gather a majority on their politically diverse commission,” which demonstrates the value of “shared sacrifice” that comes from “bold and big” compromises. (D) A sharply divided Congress confronted the need to raise the sovereign debt limit of the United States” in 2011, and “compromise appeared to be the only way to avoid further inflaming the financial crisis and risking an unprecedented governmental default on the debt.”  The issue was resolved at the last minute, when “President Barack Obama [was] able to announce that leaders in both the House and the Senate had reached an agreement.” The episode stands as a dramatic reminder that “compromise is the hardest way to govern, except all the others.”

1. Many observers has lamented the disappearance of bipartisan harmony in DC, but we suspect memories of a golden age of cooperation are somewhat exaggerated.

2.  As the authors note, legislative compromises have often been facilitated by bipartisan enthusiasm for boosting government spending.  Such “log rolling” will become increasingly difficult, however, as fiscal pressures mount.  Consider how the Joint Select Committee on Deficit Reduction floundered last year in its efforts to recommend ways to cut federal deficits over the next 10 years by a mere 15% or so.  JC update: hunting for a painless solution, 10/3/11.

The task should have been relatively easy, as Chuck Woolery explains. It’s hard to argue with his logic, and the video (3:37) is fun to watch. http://bit.ly/uTvOEB

3. Enactment of the GovCare legislation was not an achievement achieved through the spirit of cooperation; it was a blunder achieved by capitalizing on a temporary electoral advantage to crush the opposition.  GovCare saga, 6/18/12.

Rightly or wrongly - legal scholars will debate the Court’s decision (and several opinions) for years - the US Supreme Court did not strike down GovCare on constitutional grounds.  Therefore, any change in the outcome will necessarily be pursued through political channels.  We plan to say more about this in next week’s blog entry.

4. The Fiscal Commission did not approve the Bowles/Simpson plan by the prescribed super majority (5/6 of the president’s appointees voted for the plan, but only 6/12 of the congressional members).  The plan did not seem bold and tough either, nor did it (to use Co-Chair Simpson’s metaphor) “[harpoon] all the whales.”  Fiscal Commission: Co-Chairs’ proposal, 11/15/10.

5. The authors focus primarily on compromise by the member of Congress, viewing the president as “above the battle.”  In the debt limit battle that is described, however, the president was the lead negotiator for his side and he arguably refused to come to terms with House Speaker John Boehner instead of the other way around.  Boehner ready for debt-limit deal, Sean Lengell, Washington Times, 5/15/12.  http://bit.ly/N5ISmj

6.  Congressional Republicans are singled out for censure.  “Many observers blame Republicans for the uncompromising spirit that pervades current American politics, pointing out that they have become more extreme and intransigent in recent years.”  The continuation that “it would be a mistake to dwell on who is most to blame at the moment” falls well short of countering this impression.

VOTER SUPPRESSION: Professor Alexander Keyssar (Harvard Kennedy School) - The 2012 elections will be “bitterly fought, even nasty” and also “close.”  Accordingly, “a great deal of attention is being paid to an array of recently passed, and pending, state laws that could prevent hundreds of thousands, perhaps millions, of eligible voters from casting ballots.”  The new state ID laws have almost invariably been pushed by Republicans, who “have insisted that the threat of election fraud is compelling and widespread.” The only type of fraud the voter ID law would actually prevent is “voter impersonation fraud (I go to the polls pretending to be you),” which is “exceedingly rare.”  On the other hand, “the burdens placed on prospective voters by these ID requirements are not trivial” and would fall disproportionately on the poor and disadvantaged. “Whatever the numbers turn out to be,” therefore, the ID laws “are unworthy of a modern, sophisticated nation that identifies itself as democratic” and “chip away at the core democratic value of inclusiveness.”

1. In our view, Professor Keyssar greatly understates the potential for voter fraud, which could very well affect the outcome in some states.  Bear in mind that there are millions of illegal aliens in this country, none of whom can legally vote.  In addition, a recent study shows that state voting rolls include “about 1.8 million dead people” and “some 2.8 million people have active registrations in more than one state.”  Pew Center on the States, 2/14/12. http://bit.ly/LTF06r

2. Americans are routinely asked to show photo IDs for many purposes, e.g., gaining access to office building, attending events, or flying on airplanes.  In the state of Illinois, photo ID is even required to buy common household items like drain cleaner.  Illinois politicians meet the challenge . . . , Daniel Mitchell, Townhall.com, 1/8/12. http://bit.ly/xEmJeA  What is so extreme about asking for ID when people vote?

3. Historical precedents notwithstanding, we doubt the current crop of voter ID laws is motivated by a desire to deter legitimate voters.  Ditto efforts to eliminate deceased persons from the voter rolls, which the Justice Department is attempting to block in Florida.  US Department of Justice is wrong . . ., National Center for Public Policy Research, 6/27/12. http://bit.ly/MYwgK3

4. Inclusiveness is a valid concern, but it does not deserve to be elevated over the objective of ensuring that the votes counted in the election will be validly cast.

CAMPAIGN CASH:  Professor Lawrence Lessig (Harvard Law School), “Republic Lost” and other writings and statements - The US political system is corrupted by the methods used to raise campaign cash.  Not that politicians necessarily sell their votes, but they spend a lot of time and effort trolling for contributions and are inevitably inclined to favor the people and/or interests who provide it – or who might be able to offer them a high-paying lobbying job after they leave office. Time and again, much needed reforms are blocked.  Where, oh where, are the lobbyists for “the public domain”? Professor Lessig thinks the best chance to fix the problem would be a constitutional convention focused on his ideas of campaign finance reform.  However, he reportedly feels this approach has only a “slight” chance of success.

1. Liberal causes are being capably represented by public interest law firms and advocacy groups, not to mention – in many cases – the mainstream media and even public schools.  In the debate about manmade global warming and what to do about it, for example, the playing field has been heavily tilted against Exxon et al.  See our review of Professor Lessig’s book. http://bit.ly/Lx310q

2. Political campaigns cost a lot of money, the money must come from somewhere, and the sources will inevitably acquire influence by providing it.  Artificial limits on direct contributions ($2,500 per election per candidate) have spawned artifices like high-priced fundraising events (e.g., $40,000) and supposedly independent PACs.  We suspect Professor Lessig’s proposals might have “unintended consequences” as well.

3.  Representatives of the “special interests” are guaranteed freedom of speech and the right to petition their legislators under the First Amendment.  If other Americans don’t like the results, they should speak their own minds (as SAFE does) instead of demanding that investors & business managers be muzzled. 

4.  If there was going to be a constitutional convention, it should probably be about some more fundamental problem, such as restoring meaning to the 10th Amendment.  For a fictional account of such an effort, see “For Love & Liberty,” Stephen M. Grimble, Wasteland Press (2011). http://bit.ly/LSJV5S

Synthesis: Why should economic inequality, partisan politics, voter suppression, and campaign cash be viewed as the leading problems of the US political system?  The only answer that occurs to us is a desire to complete the conversion of the United States into a European style welfare state. 

•In practice, proposed cures for economic inequality boil down to taking from the rich to elevate the poor – not promoting equality of economic opportunity. Just look at the priorities of the president’s FY 2013 budget proposal.  Budget lands with a thud, 2/20/12.

•Compromise is code for surrender by Republican members of Congress who have resisted expansion of the already bulging portfolio of welfare programs and government regulatory agencies.

•Voter ID laws and updates of state voter rolls are opposed because the illegal votes that might otherwise result would primarily benefit liberal candidates.

•Campaign cash is viewed with alarm because it enhances the influence of business interests. 

As already mentioned, the caption selected by Harvard Magazine – “America’s Damaged Democracy” – is something of a giveaway.  The United States was meant to be a republic (rule of law), as Professor Lessig (to his credit) recognizes.  That’s why the functions of government were divided between three co-equal branches, why representation in the Senate was made equal for all states (whether large or small), why presidents are not chosen by direct national vote, etc. 

Provision was made for constitutional amendments, and there have been some over the years, but the basic structure remains in place.  The checks and balances that are provided tend to prevent a majority of the voters from dominating the political process by sheer weight of numbers.

For those who want to grow the government and distribute ever more welfare benefits to buy the allegiance of the plebes, these restraints must seem irksome (or worse).  They would probably be delighted to sweep the restrictions away in the interest of building a “brave new world” in which the government could meet (or at least pretend to meet) every need of the population. 

Tax (or borrow) – spend – get reelected!

Just one little problem, which is that the money will run out pretty soon (within a few more years), the system will crash, and an oligarchy of some political hue will take over.  The country is definitely on the road to national ruin, and a future that few of us would want for ourselves or posterity. 

Here’s a video that explains the process.  It’s a bit long, but well worth watching.   Republic v. Democracy, video (10:36). http://bit.ly/KN4m88

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I really liked the Republic vs. Democracy video.  Too many folks think we live in a democracy! And a good entry, overall. – SAFE director 

In stagnating economies (e.g., the former USSR, much of Latin America and Africa), government elites often seize wealth in the name of fairness and convert it to their own use. This does not improve economic performance, it simply changes who controls the wealth.  – SAFE director   

top      ww3@atlanticbb.net

6/25/12 – The imperial presidency returns

SAFE’s primary role is to evaluate public policy issues and suggest constructive solutions.  But good answers don’t truly matter unless they get implemented, so we also try to stay abreast of developments in the US political system.  See, e.g., Government Run Amok Disease, Nov.-Dec. 2009. http://bit.ly/5oRbcq

Since the Republican Party recaptured the House in the 2010 elections, there has been a trend toward aggressive Executive Branch action to, in effect, bypass Congress.  We analyzed eight examples (an illustrative sample) of administrative overreach about a year ago (5/2/11 & 5/9/11), which emanated from the White House (2), EPA (2), HHS, Interior, Justice, and NLRB.

More signs of a disturbance in the force have surfaced in recent months, including the president’s claim of executive privilege to bolster Attorney General Eric Holder’s failure to supply the House Oversight Committee with numerous requested documents re the “Fast and Furious” gun walking operation.  Rumors are swirling that White House officials (not just DOJ managers) may have been involved in strategizing re how to deflect inquiries about F&F.  The Fast and Furious scandal is turning into President Obama’s Watergate, Tim Stanley, UK Telegraph, 6/21/12. http://bit.ly/MBpeKK

Rightly or wrongly, others are suggesting the same analogy.  Could this be a return of The Imperial Presidency, which Arthur M. Schlesinger Jr. decried in his 1973 book and later claimed had staged a comeback after 9/11? http://bit.ly/KZ7Cdn We decided to consider this question systematically, using Schlesinger’s analysis as a template.

Background – According to Schlesinger, the prime innovation in the United States Constitution was dividing the powers of government between three branches instead of vesting them in a single ruler (monarchy) or body (parliamentary government).

Before the eighteenth century, everyone assumed that government required the unification of authority.  But the Founding Fathers, who saw conflict as the guarantee of freedom, grandly defied the inherited wisdom.  Instead of concentrating authority in a single institution, they chose to disperse authority among three independent branches . . .

Schlesinger favored a strong presidency, so long as it would function within the bounds of the Constitution.  After all, the president can act quickly and decisively while the two houses of Congress constitute a deliberative body better equipped to consider the president’s recommendations than to take action on its own.

Situations can be expected to arise in which the president must act first and seek approval afterwards, particularly in the military and international spheres, as Lincoln did during the Civil War and FDR did before Pearl Harbor.  That’s fine if the president goes to Congress and the public after the fact, explains what was done, and seeks support.  If claims of exceptional circumstances are exaggerated while the president’s attempts to work with Congress grow perfunctory, however, then the separation of powers may be undermined.  

Like so many aspects of the relationship between Congress and the Presidency, the question of overseas deployments had been resolved through most of American history by comity.  But by the 1960s and 1970s, presidents began to claim the power to send troops at will around the world as a sacred and exclusive presidential right.

Over time, enlargement of presidential power in the military and international spheres has tended to be expressed in domestic matters as well.  This happened to an unprecedented degree during the Nixon era, forcing Congress and the public to push back.

Analysis – There were many problems in the Nixon White House, and Schlesinger (writing in 1973, while the story was still unfolding) seemed to view the attempted cover-up of the Watergate break-in as the proverbial “last straw” versus the main problem.

A recap of Schlesinger’s analysis follows (in blue), with analogous examples from the current presidency juxtaposed (in black). 

#Large personal staff, including many people with substantive responsibilities. – The size of the White House staff had been expanding since World War II, but Nixon had more personal advisers than any of his predecessors (approximate numbers): FDR (11), Truman (13), Eisenhower (37), Kennedy (23), LBJ (20), Nixon (48). 

“. . . the total of those on the White House payroll had grown from 266 in 1954 to 600 in 1971.  An undisclosed number, in addition, served at the White House while remaining on department payrolls.  The Executive Office staff had grown from 1,175 in 1954 to 1,664 in Kennedy’s last year to a stupefying 5,395 under Nixon in 1971.”

And some White House staffers enjoyed great influence, including “Kissinger more powerful than the Secretary of State or Defense, Haldeman and Ehrlichman more powerful than the forgotten men who headed the domestic departments.”

Although critics have made much of the numerous “czars” at the White house, estimated by one source as “about 42,” this seems roughly comparable to 48 “personal advisers” in the Nixon era.

The 2010 White House staff (469 employees and “detailees” with an average salary of $82,700 per annum) was a bit smaller than the 600-person White House payroll in 1971.  Report to Congress for 2010, http://1.usa.gov/crvskE

There are about 1,800 “full-time equivalents” in the Executive Office of the President, which is far less (if the data are on the same wavelength) than the “stupefying 5,395 under Nixon in 1971.”  Congressional Budget Submission for FY 2013, p. 9. http://1.usa.gov/NJmc (download PDF).

#Closed White House, in which the president was habitually shielded from conflicting views and information.  “The White House became a world of its own, cut off from Washington and the nation.”

Nixon held the same number (28) of press conferences in his first four years that FDR had held in his first three months.  And when appearing in public he preferred  “controlled circumstances,” e.g., television addresses where “no one could talk back.”

Nixon’s aversion to the press was apparently reciprocated; a National Press Club report characterized his Administration as “the most ‘closed’ administration in recent decades.”

It would hard to characterize the current president as a recluse.  Consider this recap of his media events through late May 2010:  4 prime time news conferences, 19 joint news conferences (typically with a visiting head of state), 13 solo news conferences, 56 Q&A’s, and 188 one-on-one interviews. 

Critics maintain, however, that the president prefers events at which he can control the conversation.  Obama to appear in rare press conference, FoxNews.com, 5/27/10.

•On Thursday, for the first time in 308 days, President Obama will confront the White House press corps in a full-blown news conference, taking the best shots that reporters have to offer on the topics of their choosing.  Obama's lengthy absence from reporters' crosshairs has exceeded President George W. Bush's longest gap of 204 days.

•Where George W. Bush held 186 brief Q&A's – the daily bread and butter for the White House press corps, particularly wire service reporters – and gave only 56 personal interviews, Obama has done almost exactly the opposite. He has held only 56 Q-and-As, and granted 188 personal interviews.


#Nixon was obsessed by leaks of embarrassing information, such as a New York Times story about “secret” B-52 raids over Cambodia, which raids were, of course, well known to the foreign powers concerned.

In the case of the Pentagon Papers, Nixon attempted to impose “prior restraint on the publication of news.”  He ordered the phones of at least 13 members of the National Security Council staff and four newspapermen to be wiretapped without court clearance. (The wiretapping without court clearance was disapproved by the US Supreme Court absent a showing of foreign intelligence leaks.) Vice President Spiro Agnew engaged in a public “jihad against disloyal newspapers and newspapermen.” The Department of Justice tried for a while to subpoena reporters’ notebooks and tapes.  A White House assistant warned networks to employ more “conservatives and people with a viewpoint of Middle America,” lest they might be subject to antitrust prosecution.

The current president has gone after leakers.  Obama’s war on leaks (publicity for upcoming event), National Press Club, 5/1/12.

The administration, which took office vowing to protect whistle-blowers, has repeatedly cracked down on leakers, invoking the Espionage Act in six cases. Several journalists have been threatened with prosecution for publishing what whistle-blowers have told them, and James Risen of The New York Times has been repeatedly subpoenaed to testify against an accused leaker.


Likewise, the president and surrogates have repeatedly attacked opponents and critics for their supposedly misguided views or motives.  W.H. makes “enemies” of Bush allies, Jon Ward, Washington Times, 10/22/09.

“If the president and his top aides treat people with different views as enemies instead of listening to what they have to say, they’re likely to end up with a narrow view and a feeling that the whole world is out to get them,” said Sen. Lamar Alexander, Tennessee Republican.


In comments on the Senate Floor, Mr. Alexander said he has “an uneasy feeling, only 10 months into this new administration, that we’re beginning to see symptoms of this same kind of animus developing in the Obama administration” as those that animated the Nixon White House - where Mr. Alexander himself served as a young aide.


Reprisals have gone beyond rhetoric at times, as in the case of an investigation of tea party groups around the nation following a letter from six Democratic senators.  IRS intimidates tea parties, Godfather Politics, 2/28/12.

Consider these requests: “Please identify your volunteers” and “are there board members or officers who have run or will run for office (including relatives)”? It’s none of the IRS’s business. To ask these questions, coming from the IRS, can make someone think twice of continuing as a Tea Party member. Everybody fears an audit.


There have also been reported attempts to intimidate Romney campaign donors by “digging for dirt” on them and posting scurrilous attacks on line.  Regime intimidates Romney contributors, Rush Limbaugh (based on a Wall Street Journal column by Kimberly Strassel), 5/11/12. http://bit.ly/JHk2YP

#A special investigations unit was established within the White House, which got caught breaking into the Watergate offices of the Democratic National Committee.  The crime was compounded by an attempted cover-up, which in due course would lead to Nixon’s resignation, etc.

The Fast and Furious gun walking operation was clearly illegal, and it led to the death of at least two US border patrol agents as well as hundreds of Mexicans. In both scope and results, we would view this activity as more serious than the activities of the White House “plumbers” unit that got caught in the Watergate break-in.

There are also indications that high level officials may be attempting a cover-up.  In this vein, several key statements by the Department of Justice have been retracted after it became clear that they were factually untenable.  See, e.g., Holder retracts statement blaming Mukasey [for] Fast and Furious, Breitbart.com, 6/21/12.  http://bit.ly/KXrqhk

Time will tell whether the White House was involved in F&F; at this point we just don’t know.  The inquiry will probably not be completed before the elections.

#Nixon aspired “to make Congress as impotent in domestic affairs as it had come to be in foreign affairs.”  To this end, his strategy was “to make as many interests as possible dependent on government favor; then to use this favor to reward politically sympathetic sectors of the economy and to punish the unregenerate.” 

He is said to have “favored defense, manufacturing, and business” over “fields like ecology, teaching, social services, and public employment generally.” 

The foregoing charges seem applicable for the current president as well, except that he is seeking to shower benefits on a different political constituency – broadly the takers versus the workers in our society. 

The president’s accomplishments do not demonstrate an interest in finding common ground with political opponents; he seems more inclined to ignore or overpower them. The broken promise that can beat Obama, Michael Medved, Townhall.com, 4/4/12. 

Instead of the fresh era of “unity of purpose,” President Obama must acknowledge that his signature legislative achievement, healthcare reform, passed both houses of Congress without a single Republican vote, and led elected officials in the majority of states to challenge its constitutionality before the Supreme Court.


The president’s reelection campaign is unfolding along similar lines.  What Obama won’t say as he campaigns, Donald Lamboro, Washington Times, 4/24/12.

President Obama officially has begun his 2012 campaign, telling special-interest groups what the government will do for them if he is elected to a second term.  But the question[s] many people are asking are: What else is he running on besides government handouts? What is his second-term agenda? What is he planning to do if he wins?


#To prevent Congress from interfering with his priorities, Nixon asserted the right “to refuse to spend the funds Congress had solemnly voted” (aka impoundment).  There were some precedents for this claim, but impoundment had never before been practiced on such a large scale.  “By 1973, Nixon’s impoundments had affected more than a hundred programs and reached the level of about $15 billion, which meant about 17 to 20 percent of controllable funds.”

Nixon did not consult with congressional leaders on impoundment questions; he reportedly believed that voters “shared his determination to hold down nondefense spending” and “Congress was incapable of keeping public spending under control.”

In effect, Nixon was exercising a power the Constitution did not grant to him, namely an item veto, which placed him “in the anomalous situation of selective enforcement of laws passed by Congress” vs. his “constitutional responsibility to veto laws which he thought were bad for the country.”

The current parallel to Nixon’s impoundment efforts, albeit in reverse, has been bloated budget proposals, disrespect for proposals to spend less (such as the recommendations of the bipartisan Fiscal Commission in 2010), and periodic demands for more economic stimulus coupled with tax increases on “the rich.”

The president’s approach was exemplified by his blunt, overbearing, at times angry speech to Congress about his American Jobs Act proposal.   A tempting offer: spend now, pay later, 9/12/11.

So far as we know, however, the president et al. have not attempted to spend money for discretionary purposes without Congressional authorization.

#Selective enforcement of the law did not end with impoundment.  In 1969 the Attorney General and Secretary of Health, Education and Welfare jointly announced that Title VI of the Civil Rights Act of 1964 would not be enforced.  This title generally provided for the government to cut off federal funds to school districts or other recipients who continued to practice discrimination. The provision was characterized as permissive, but the courts held it was mandatory and the Administration had to back down.

The president did something quite similar by supporting a Department of Homeland Security announcement that young illegal immigrants meeting certain requirements will no longer be deported even though such a policy contravenes laws that are on the books.

There is something to be said for the proposed policy change, and Congress has been remiss in its follow-up in this area.  Still, the effect is to infringe on the responsibility of Congress to make the laws of the United States.  Obama’s amnesty-by-fiat: Naked lawlessness, Charles Krauthammer, Washington Post, 6/21/12. http://wapo.st/NeOyaq

#The Nixon Administration attempted to eliminate the Office of Economic Opportunity by (a) defunding it in the budget submitted by the president, and (b) having the newly appointed Acting Director “set to work dismantling the agency.”

These actions were successfully challenged in the courts.  Held that the budget submitted by the president was simply “a proposal,” which Congress could choose to ignore.

The president’s support for abandoning the Yucca Mountain radioactive waste repository – probably as a favor to Senate Majority Leader Harry Reid and without identifying an alternative strategy for handling nuclear wastes – seems somewhat analogous. If coal power is too “dirty,” how about nuclear? 3/8/10.

Update: when the plug on Yucca Mountain was pulled, a Blue Ribbon Commission on America’s Nuclear Future was appointed.  Its January 2012 report acknowledged the importance of solving the nuclear waste disposal problem, but we doubt the report’s recommendations will lead to a solution any time soon.

The strategy outlined in the Commission report contains three crucial elements. First, the Commission recommends a consentbased approach to siting future nuclear waste storage and disposal facilities, noting that trying to force such facilities on unwilling states, tribes and communities has not worked.  Etc.


#Efforts were also made to expand the utility of the “pocket veto,” which previously had been used rather sparingly.  Thus, in December 1970, Congress sent President Nixon the Family Practice of Medicine Act, authorizing grants of $225 million to hospitals and medical schools, which had been passed by overwhelming majorities (House 345-2; Senate 64-1).  Nixon announced a pocket veto during the Christmas recess and declined to return the bill to Congress, where his veto would no doubt have been overridden.  It was, Schlesinger observed, “a gross violation of the traditional comity” between the president and Congress.

The current president acted more outrageously, in our opinion, by making four recess appointments at a time when Congress – based on its own rules – was in session.  About those recess appointments, 1/9/12.

In essence, the president has presented the Republicans with a fait accompli and dared them to do something about it.  If they do nothing, he may win by claiming to be a stalwart champion of the “middle class.”  If they respond ineffectually, he could win even more by painting his opponents as losers.

#The Nixon Administration “made unprecedented claims of executive privilege,” according to Schlesinger, and employed this shield from inquiry with some frequency.  Thus, Nixon personally invoked executive privilege four times during his first term, and members of the Administration or White House staffers rejected formal congressional requests for testimony or documents in 23 additional instances. There were also said to be “innumerable instances” in which tactics of delay and evasion achieved the same result.  In sum, according to Senator William Fulbright (D-AK), Nixon’s position that executive privilege must be claimed by himself had become a meaningless technicality: “just about any of his subordinates can exercise it – they simply do not employ the forbidden words.”   

The claim of executive privilege in the Fast and Furious controversy is the first of this presidency.  That seems to compare favorably with the record of many other presidents, certainly including Nixon, but the numerical comparison may be misleading.

Note that (a) the Republicans did not recapture the House until January 2011, (b) Fast and Furious has been the main focus of the House Oversight Committee since then, and (c) the Department of Justice has been far from cooperative in the F&F investigation.  The real Darrell Issa, Bruce Bialosky, Townhall.com, 9/12/11.  http://bit.ly/piHLJ3

#Nixon was moving towards “not a parliamentary regime, but a plebiscitary Presidency.  His model lay not in Britain but in France – in the France of Louis Napoleon and Charles de Gaulle” with no need for a new Constitution as “presidential acts, confirmed by a Supreme Court of his own appointment, could put a new gloss on the old one.” 

The president has said he wants to “fundamentally transform” the United States, and some observers think the goal is to turn the US into a European style welfare state.  Diary of Governor Bobby Jindal (R-LA), Redstate.com, 6/14/11.

This Administration lurches America every day toward a model of government that is patterned after European style socialist policies. Here’s the real problem – I suspect that many in the Obama Administration don’t really believe in private enterprise. At best, they see business as something to be endured so that it can provide tax money for government programs.


As was true in Nixon’s case, there would be no need to change the Constitution as that document could be interpreted out of existence. Obama’s power grabs create an imperial presidency, Ken Blackwell, Townhall.com, 6/19/12.

If Congress doesn’t make the laws he wants, he just declares them under the name of “regulations.” If he doesn’t like a law on the books, he acts like the judiciary by proclaiming the law unconstitutional, and refuses to enforce it. He effectively makes or abolishes laws at will.


In sum – The political views of the current president are quite different from those of President Nixon, but in terms of strategy and tactics they may not be far apart.  Many observers began suggesting a resemblance after the president claimed executive privilege in the Fast and Furious inquiry.

Having reviewed this suggestion in a systematic fashion, we are inclined to agree.  At a minimum, the situation bears watching.  Dear readers, please let us know what you think.

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(Please direct feedback to ww3@atlanticbb.net)  

6/18/12 – GovCare saga

The US Supreme Court will soon (by June 30) announce whether the 2010 healthcare legislation (GovCare) is or is not constitutional.  There has been a flood of commentary and speculation recently, and we would like to add our “five cents worth.”

This entry will relate how our thoughts about GovCare developed, as this massive healthcare “reform” bill was first promoted in concept and then fleshed out in all its mind-numbing detail.  (Background)  For in depth discussion, see the prior entries that are cited.  Said entries can readily be accessed by clicking the links posted on the Healthcare page. http://www.s-a-f-e.org/healthcare.htm

We will then address two forward-looking questions: #What is the Supreme Court likely to decide? (Prediction); and #What should happen after the Court rules? (Path forward

Background: The US healthcare system does need reform, and we believe the main problem is soaring costs.  Healthcare by the numbers, 8/14/07.

“A natural reaction to the foregoing [US healthcare costs are the highest in the world, but not US life expectancies] might be that the US is not getting its money’s worth, which thought is reinforced by the explosive growth of US healthcare expenditures.  As of 1960, healthcare expenditures were running 5% of GNP vs. 16% today.” 

Reducing the number of Americans without healthcare insurance (HCI) would be a plus, but should not be considered Job One.  With liberty, justice, and healthcare insurance for all, 3/10/08.

Lack of HCI is arguably exaggerated – right of people to make their own decisions should be respected - having HCI does not guarantee effective access to medical services (witness long wait times in the UK and Canada, which countries have universal healthcare), and vice versa (most US residents without HCI get treated).

It stands to reason that HCI (and the enhanced healthcare access associated with it) could not be extended to millions of additional Americans without increasing overall spending on healthcare.  However, just such a “no pain, all gain” picture was painted by GovCare proponents.  Healthcare plan will not pay for itself, 3/23/09.

“To sum up: (a) the alleged savings from the president’s healthcare plan have not been explained (let alone quantified), and (b) the costs of his plan would be covered primarily by tax increases.  It is far from clear the tax increases would be borne only by ‘the rich.’  Claiming that this plan would ‘pay for itself’ seems absurd, and we decline to buy into the deception.”

As the saying goes, “there is no such thing as a free lunch.”  SAFE comment 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. 



Update: forget about no provisions to expand healthcare supply in GovCare; there is evidence that supply might contract as the result of this legislation.  Thanks Obamacare: 83% of doctors surveyed say they may quit, Kate Hicks, Townhall.com, 6/14/12.


Claims that GovCare represented the most effective way to reduce government deficits were bogus.  The most effective way to reduce government deficits would clearly be to cut spending.  A tangled web: we must enact GovCare to reduce the deficit, 3/22/10.

“Without meaning to sound like sore losers (if GovCare is enacted), we think one thing is clear.  If the nation’s political leaders were serious about curbing the deficits, they would give the job high priority and get it done instead of spending most of their time and energy fighting for new spending programs.”

After GovCare had been enacted, it was claimed – again illogically - that the legislation could not be repealed without increasing deficits.  GovCare: Round 2, 1/24/11.

Enacted cuts to existing healthcare programs, notably Medicare, which Congress probably would not allow to take effect – counted tax increases in the bill as offsets to spending increases versus earmarking the proceeds for deficit reduction – provided no incentives for healthcare providers or patients to curb healthcare spending, leaving de facto rationing as the only way to cut healthcare spending (and resulting government outlays under Medicare, Medicaid, etc.)

The design of the GovCare legislation was and remains fatally flawed.  A glum anniversary for GovCare, 4/4/11.

Discrete benefits of the new legislation, e.g., insurance companies prohibited from denying coverage for preexisting conditions, would necessarily inflate insurance premiums – over 20 million Americans would remain uninsured (illegal immigrants, younger workers choosing to pay fines rather than sign up for high priced insurance they don’t want) – many of the newly insured would be on the Medicare or CHIP rolls versus private insurance plans – requirements for private HCI plans would block progress toward more consumer-directed healthcare, e.g., health savings accounts.

Prediction:  From a legal standpoint, the foregoing discussion is not clearly relevant.  It is not up to the courts to assess the economic merits of legislation. The issue that has made its way to the Supreme Court is whether GovCare is permissible under the US Constitution.  More specifically, does the federal government have the power to require American citizens to either purchase HCI meeting government-determined criteria or pay a fine for noncompliance?

Ironically, a complete takeover of the healthcare sector (aka universal coverage or a single payer system) could have readily passed Constitutional muster as an exercise of the powers to impose taxes and spend the proceeds for the general welfare. This was the Supreme Court’s rationale for upholding Social Security 75 years ago.  Helvering v. Davis, 1937, http://1.usa.gov/dOpZHj It seems inconceivable that the precedent would not be followed for healthcare.

GovCare was based on the HCI mandate approach, however, and the legislation will stand or fall on that basis.  Nor is the distinction merely legalistic, because requiring individual citizens to do things whether they want to do them or not is arguably more intrusive (and certainly sneakier) than imposing taxes everyone must pay.

A recent poll suggests that many Americans have grasped what is at stake: if the federal government is allowed to impose the HCI mandate under the “commerce clause,” then there is little if anything it could not do.  Reason-Rupe public opinion survey, March 2012, Reason Magazine, July 2012.




Don’t know

Do you think it would be constitutional or unconstitutional for Congress to require Americans to buy healthy foods, such as broccoli?




Do you think it is constitutional or unconstitutional for Congress to require Americans to have health insurance?




Two years ago, given the applicable legal precedents, it was anyone’s guess how the constitutional challenge to GovCare might turn out. Legal challenges to GovCare, Daniel Kerrick, Esq., SAFE newsletter, Spring 2010. http://bit.ly/j5ul9C

Subsequent developments have clarified things somewhat, and we now consider it quite likely (say a 75% chance) that the HCI mandate will be held unconstitutional. 

#The government took a beating in the oral arguments.  Court watchers on both sides speculate about healthcare mandate, Washington Post, 3/28/12.

By the end of Tuesday’s long-awaited oral arguments, the individual mandate — a crucial piece of President Obama’s health-care law — seemed to be in trouble. The solicitor general, charged with guarding the measure, had a rough outing under sharp questioning from the justices.


#The Court’s inner workings are supposed to be shrouded in secrecy. (As Justice Ginsburg recently quipped, “those who know don’t talk” and “those who talk don’t know.” http://politi.co/McZUfQ) Still, the president et al. may have some inkling as to the outcome, and they seem to be quietly preparing for the possibility of a defeat.  Obama tells donors healthcare fight may loom after Court rules, Hans Nichols, Bloomberg.com, 5/31/12. 

President Barack Obama is confiding to Democratic donors that he may have to revisit the health-care issue in a second term, a position at odds with his publicly expressed confidence that the U.S. Supreme Court will uphold the Affordable Care Act, according to three Democratic activists.


#Clumsy attempts have been made to influence justices of the Court, which may backfire.  Obamacare’s supreme affront; suggestion justices mustn’t overturn law is out of bounds, George Terwilger, Washington Times, 6/11/12. 

A curious chorus of Obamacare devotees is being heard today to claim that only an audaciously overactivist Supreme Court could rule unconstitutional Congress’ latest attempt to manage the private enterprise of health care. *** Ironically, the questioning of the court’s role stands in contrast to the more typical political activist tactic of trying to use the courts to effect a result or a change that lacks sufficient legislative or political support.


#Public opinion is adverse to GovCare, as indicated for example by the aforesaid Reason-Rupe poll, and Administration efforts to stem the tide seem unimpressive. Here’s a link (http://www.healthcare.gov/) to some of the propaganda, you decide.

In principle, public opinion should not matter to the Supreme Court.  The justices are human beings, however, who desire approbation like the rest of us – and they can hardly be unaware that some Americans do not hold them in high esteem.  Supreme Court’s perception gap, Scott Pruitt (attorney general of Oklahoma), Washington Times, 6/15/12. 

The popularity of the US Supreme Court is at an all-time low, leaving justices fighting their way out of an unfamiliar and undeserved chasm between reality and public perception. *** Just 52 percent of Americans reported having a favorable opinion of the Supreme Court in a recent poll by the Pew Research Center. 


#The Administration has been wearing out its judicial welcome by taking extreme positions that alienate the judges they are seeking to persuade.  Accordingly, the Court may not be inclined to take a restrictive view of its powers and prerogatives.   Why Obama strikes out in Court, Ilya Shapiro, Wall Street Journal, 6/6/12.

This term alone, the high court has ruled unanimously against the government on religious liberty, criminal procedure and property rights. When the administration can't get even a single one of the liberal justices to agree with it in these unrelated areas of the law, that's a sign there's something wrong with its constitutional vision. *** If the government loses in the healthcare or immigration cases, it won't be because its lawyers had a bad day in court or because the justices ruled based on their political preferences. It will be because the Obama Administration continues to make legal arguments that don't pass the smell test.


If the individual HCI mandate is stricken, what will happen to the rest of GovCare (2,000+ pages of legislative language in total)?  The Court could (A) point to the absence of a severability clause and throw out the legislation in its entirety, or (B) strike only the mandate and provisions deemed integrally related to it.     

The nine justices seemed to agree that carving out the mandate would dramatically alter much of the law but disagreed on which route to take, with Republican-appointed judges appearing to lean toward scrapping the whole thing while Democrat-appointed judges said that’s a decision for Congress to make.

Scrapping the whole thing would avoid endless debates about which sections of the legislation are integrally related to the HCI mandate and which can stand on their own.  Justices Scalia and Kennedy reportedly advocated this approach.

Justice Scalia said that if the court strikes the mandate, it will end up distorting Congress’ original intent, concluding that the court should just wipe the slate clean so lawmakers can start over. Justice Anthony M. Kennedy seemed to agree, suggesting that striking the mandate but leaving the rest of the law would result in a situation Congress never intended with insurers unduly burdened.

On the other hand, many provisions could potentially be left in place, thereby defusing claims that the Court had failed to act with proper judicial restraint. Here is how Justice Ginsberg put it; Justice Sotomayor drew a similar conclusion. Supreme Court split over scrapping entire healthcare law, Paige Cunningham, Washington Times, 3/28/11.

“It’s a choice between a wrecking operation, which is what you are requesting, or a salvage job,” Justice Ruth Bader Ginsberg told Paul Clement, an attorney for the states seeking to have the Affordable Care Act tossed out in its entirety. The more conservative approach, Justice Ginsburg said, would be to salvage,“rather than throwing out everything.”


The arguments for Approach A seem persuasive in principle.  However, the Supreme Court justices are striving for consensus and Approach B might be easier to sell as a “middle ground” result. On balance, we would assess the odds as 40% A, 60% B.  This prediction combined with our first prediction (75% chance that GovCare won’t be fully upheld) produces the result shown below. Stay tuned to see what actually happens.

Stricken entirely

Mandate stricken

Fully upheld




Path forward: Definitive conclusions about what comes next must necessarily await the Supreme Court’s decision, but here are some general thoughts: 

1.  Whatever the Court decides, healthcare expenditures (and associated government outlays) are soaring out of control. Critics of the system will need to offer affirmative ideas, not simply condemn the ideas embodied in GovCare. New study confirms Obamacare won’t contain health[care] costs, Washington Examiner, 6/14/12.

Actuaries at the [CMS] issued a new report this week on the growth of healthcare costs. Not surprisingly, the Obama Administration was quick to spin the release as vindication of the national healthcare law. "This report provides more evidence that the healthcare law will help control costs and save money for families while extending coverage to millions of Americans," Health and Human Services Secretary Kathleen Sebelius claimed in a statement. In reality, the new CMS data actually confirms what Obamacare's critics have been saying all along -- that the law will fail to contain healthcare costs, which was the primary justification for its existence.


2. It would be recklessly irresponsible to double down on GovCare by enacting universal healthcare coverage, yet just such a proposal has been introduced in the First State. HB 392, the “Delaware Health[care] Security Act,” could theoretically be rammed through with little opportunity for debate or public input.  Delaware State Republican Committee news release, 6/15/12. http://bit.ly/MdOINS

3. Proposals some Republican lawmakers have floated to keep the “popular” stuff in GovCare are little better.  If GovCare is stricken, the country’s political leaders should thank their lucky stars and start over on healthcare reform.  (If GovCare is upheld, the fight to repeal it should continue.) Republican surrenderists for Obamacare, Michelle Malkin, Townhall.com, 6/13/12. 

In case you hadn't heard, even if the Supreme Court overturns the progressives' federal health care juggernaut, prominent GOP leaders vow to preserve its most "popular" provisions. These big-government Republicans show appalling indifference to the dire market disruptions and culture of dependency that Obamacare schemes have wrought.


4. Fiscal visionaries should push the candidates on both sides to spell out their ideas for healthcare reform before the election rather than expecting them to do “the right thing” afterwards.  Romney Etch-a-Sketches his opposition to ObamaCare, Michael Cannon, Townhall.com, 6/5/12. http://bit.ly/Lmn3eL

5.  SAFE’s proposals for healthcare reform were published in May 2009, and they still look good to us.  The basic concept is to (a) put doctors and patients (rather than government bureaucrats) in charge, and (b) rely primarily on market forces (supply and demand) to determine the consumption of healthcare services.  Please take a look and consider supporting our plan. http://bit.ly/cRkruZ

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6/11/12 – Kill coal, lights out?

To recap what has been said so far in this three-part series on coal power and the logical alternatives:  It makes sense to phase out coal as an energy source for generating electricity, and the federal government (with support from some state and local governments) is making every effort to push this result.  Government policies are also likely to impede the use of natural gas and/or nuclear power to replace coal, and renewable energy (wind and solar) cannot do the job. 

So what will happen if more and more coal power plants are shut down, natural gas prices soar due to tough regulation of extraction of shale gas via fracking, and there are so many regulatory restrictions on nuclear power that new plants would take years to build and be prohibitively costly?  Simply put, this country’s electric power grids will be overwhelmed, causing power prices to soar while reliability plummets.

Some may view our electric power shortage scenario as a “scare story.”  Don’t make that mistake.  Unless the government adopts more realistic energy policies and slows down the regulatory onslaught on the energy sector, just such a shortage will develop over the next few years.

What: Occasional power outages are inevitable, as when power lines are downed during a storm, and many things that Americans take for granted are disabled until service is restored.  Thus, electric lights go out, televisions and computers won’t work, food in refrigerators and freezers starts to spoil, etc.

Such events will continue to happen occasionally, that’s life, but suppose they became more frequent – like almost daily.  Or alternatively your power company turned down the voltage in order to avoid shutting down the system, producing what is known as “brownouts.”  wiseGEEK definition.

Voltage reductions are undertaken when utilities sense that a disruption in the grid may lead to serious problems. Rather than instituting rolling blackouts [complete cutoff of power to selected areas on a rotating basis], the utility may temporarily cut voltage to some customers in an attempt to stabilize the grid and to allow reserves of power to accumulate again.


The lights are not going to suddenly go out all across America and stay that way, as one observer implied in a recent column.  Where will you be when the lights go out?  Marita Noon, Townhall.com, 6/3/12. 

We each know where we were when President Kennedy was shot, when the Berlin Wall came down, and on the morning of 9-11. If we continue on the current course, you’ll be telling your grandchildren where you were the night the lights went out in America.


But the situation that is developing will represent a big change from the abundant and reliable electrical power that Americans have been accustomed to.  It is not hard to imagine the “why didn’t anyone tell us this was going to happen” and “when is this going to be fixed” reactions. 

The public won’t be happy to learn that the power outages cannot be quickly resolved, but will require months or even years to fix. 

It would seem desirable to anticipate where things are headed and make decisions now to prevent the electric grids from being overloaded, e.g., functional coal power plants should not be shuttered before economic and reliable alternatives have been installed to take their place.  As already discussed, however, the government has been following a different path. 

When: To some extent, the overloaded-grid situation may have arrived already.  Consider these examples of real world power blackouts:

#A cascade of failures (high voltage power lines brushing overgrown trees, failed alarm system in the control room of FirstEnergy Corporation in Ohio) resulted in a power outage in eight states and Northeastern Canada that affected 50 million people and lasted two days. The blackout contributed to at least 11 deaths and caused an estimated $6B in damage.  The ensuing investigation blamed this event on human errors and equipment failures.  The 2003 Northeast blackout – five years later, J. R. Minkel, Scientific American, 8/13/08.  http://bit.ly/JS6E3

#Over 1.4 million Californians were left without power after a high voltage line from Arizona to California “tripped out of service.”  Grid officials said the blackouts could last for hours.  Offices shut down, workers sent home – people rescued from amusement parks and elevators – numerous traffic accidents due to nonworking traffic signals – no outbound airplane flights.  Officials begin attempting to restore power in San Diego area blackout, LA Times, 9/8/11.   http://lat.ms/nWN8en

#Rolling blackouts (power company initiates selective blackouts versus an overall voltage reduction) have been reported in Texas since early 2011.  Some observers blamed EPA regulations that are forcing coal power plant shutdowns and thereby reducing the power grid’s margin of safety, although a White House official attributed the early 2011 blackouts to mechanical failure and said the anti-EPA claim was “unquestionably false.”  Draconian EPA regulations to cause rolling blackouts, Paul Watson, PrisonPlanet.com, 12/2/11.  http://bit.ly/spEaq2

Although gas power plants can be installed to replace existing coal plants, power companies will understandably expect to earn a return on the additional investment.  This may force a sharp increase in the current price caps on peak power in Texas, or alternatively an overhaul of the rate-setting process.  Either way, consumers would pay more for electric power. Texas may triple [peak] power prices to avert summer blackouts, Mark Chediak & Julie Johnson, Bloomberg.com, 6/1/12.  http://bloom.bg/KRBAAK

Assessment: It seems logical that government support for renewable energy sources and environmental crackdown on coal power are contributing to growing vulnerability to power disruptions.  Proving the point is difficult as many other factors can be involved – such as weather events, equipment failures, and failures to prune trees near power lines – but let’s give it a shot.

There is concrete evidence that intermittent wind or solar power cannot take the place of coal or natural gas power – and indeed that just so much power from these sources can be tolerated if a grid is to function properly.  

In Texas, which has more installed wind-power capacity than any other state, wind turbines sometimes are ordered shut off because the state's electrical lines can't handle the surge of fresh juice.

Or consider the situation in Germany, where more and more wind and solar power is coming on line while there is a nuclear power moratorium in the wake of the Fukushima meltdown in Japan. Germany faces a growing risk of disastrous power blackouts, Paul Frederik-Bach, GreentechMedia.com, 5/30/23. http://bit.ly/JQA944

Some experts say a “smart” grid could handle more power produced from renewable energy sources, but creating such a grid might take 20 years and consumers or taxpayers would have to pay for it.

The challenge of modernizing the electrical grid to accommodate cleaner energy rivals the monumental task of extending the grid into rural America in the 1930s and building a fleet of new power plants in the wake of World War II.

Also, the “smart” grid would represent a step toward centralized control versus allowing the system to be driven by consumer demand.  We do not relish the idea of the power companies (let alone government agencies) turning things on and off in American homes and places of business, thank you very much. The matrix overloaded: Clean energy will depend on a new, “smart” grid, Jeffrey Ball, Wall Street Journal, 10/24/08.

[The current grid is] not sophisticated enough to minimize electricity waste by allowing, for instance, power companies and consumer appliances to communicate about fluctuations in energy supply and demand.


Another flaw in the smart grid vision is that it would increase already substantial vulnerabilities to cyber attacks.  The cyber security risks of a smarter grid, Joshua McGee, Center for Strategic & International Studies, 6/23/11.

With full 2-way communication, increased automation, and an ever-greater reliance on the Internet, the Smart Grid will need greater protection than the current electric grid. One scenario described by a Department of Energy document is where “smart meters” could be programmed by hackers to send messages simultaneously that would ultimately create drastic fluctuations in the energy provided; such an attack could cause great grid instability and power outages.


Ironically, the most authoritative confirmation of our view that government policies are endangering the availability of cheap, reliable electric power in this country has been provided by the work of a federal government agency.  2011 long-term reliability assessment, North American Electric Reliability Corporation (NERC), November 2011 (updated 4/25/12).  http://www.nerc.com/page.php?cid=4|61 (download PDF)

NERC’s mission is to monitor operations of “the bulk power system in North America” and recommend measures to ensure system reliability.  Formed in 1968, it is “a self-regulatory organization,” which operates “subject to oversight by the U.S. Federal Energy Regulatory Commission and governmental authorities in Canada.” In 2007, FERC empowered NERC to enforce reliability standards with all users, owners and operators of the bulk power system in the United States. http://bit.ly/NoJJjo

The 2011 long-term reliability assessment is a lengthy and sophisticated report, which toes the “party line” in assuming increasing use of renewable energy sources, tougher environmental standards, and increased emphasis on “demand side” management (aka energy conservation).

However, the NERC report does identify some risks associated with these policies.  See executive summary (pages 1-4) and the more detailed text that follows.  For example:

One of the greatest risks indentified by the NERC Planning Committee (high likelihood, high consequence), is the potential impacts of future environmental regulations. (page 2)

In addition to the regulatory drivers triggering an unprecedented resourcemix  change, societal  and political  pressures continue  to  prompt the industry to integrate  more renewable generation into its resource portfolio. (page 2)

. . . fundamental  changes to planning  and  operated strategies must conform to  consider evolving risks  such as gas and electric interdependencies, increased  uncertainty  from variable generation consuming less predictable fuel  sources, and new  vectors  of  penetration for emerging cyber and physical security threats. (page 3)

[In Texas,] more generation may be retired, depending on how finalized environmental regulations are implemented . . . worsening reliability issues in the Region. (pages 5-6)

Environmental Regulations are shown to be the number one risk to reliability over the next 1 to 5 years. (page 82)

Early retirement of multiple units in the shortrun can stress the bulk power system if plans are not in place to add additional resources to cover the loss of generation from facilities affected by EPA regulations.  (page 84)

Studies demonstrate that regional reserve requirements could be compromised by the cumulative impact of EPA’s actions, which indicate that between 2012 and 2018, the nation’s power grid will be stressed in ways never before experienced and could pose a reliability concern.   (page 85)

Conservatives hailed the NERC report – in contrast to other Energy Department statements – for candidly acknowledging the likely consequences of the EPA’s regulatory assault on coal power. EPA to raise electricity prices, risk blackouts, Romina Boccia, Heritage Foundation, 12/6/11. 

A recent report by the U.S. Department of Energy fending off concerns that pending air pollution regulations pose risks to electricity reliability is far from settling the question of possible blackouts. Just a few days prior, the government-designated expert panel to ensure electricity reliability, the North American Electric Reliability Corporation (NERC), warned that the EPA’s proposed regulations pose one of the greatest risks to the electricity sector.


Others were less pleased with the report, and it apparently triggered adverse audit findings by the Federal Energy Regulatory Commission (NERC’s designated overseer).  FERC audits shows continuing tension with NERC, martindale.com, 5/10/12.  http://bit.ly/MjQ1Pj

The real knock against FERC was its stubborn insistence on doing its job.  Getting even on reliability, Wall Street Journal, 5/21/12 (link not available).  

Imagine if some obscure trading desk within J.P. Morgan had tried to warn [CEO] Jamie Dimon about corporate malfeasance – or perhaps a risky investment – and it turned out he tried to shut up the whistleblower.  We’d never hear the end to it.  Somehow the same norms don’t apply in government, as shown by a federal energy regulator’s reprisals against an independent advisory body.

In sum, the NERC report corroborates our thesis that current energy and regulatory policies are threatening the availability of cheap, reliable electric power – which is essential for a healthy US economy, not just now but for many years to come. 

To borrow a line from Motel 6, here is our message for future generations: “We’ll leave the light on for you.”

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6/4/12 – Coal succession planning            Read Replies

Last week’s entry reviewed the case (both environmental and economic) for moving away from coal as a source of energy for generating electricity.  In principle, the idea seems sensible, assuming other energy sources can economically take coal’s place.

We would, however, offer two caveats.  (A) The push to shutter coal plants is based on exaggerated environmental claims, notably the manmade global warming theory.  (B) Energy (wind, solar, etc.) sources do not represent a viable alternative to coal because they are only available intermittently and must be backed up by reliable power sources.

The logical alternatives to coal are natural gas and nuclear power. Both of these energy sources have drawbacks.  Natural gas is a fossil fuel; burning it results in CO2 emissions (albeit less than coal), which are seen by some as a problem.  Nuclear power plants generate radioactive materials, and there is a risk of operating disasters.

In addition to the foregoing concerns, which can be rationally discussed, some people oppose fossil fuels or nuclear power on ideological grounds:

#The sustainability argument is that no source of cheap energy can last, so human beings must adopt more modest lifestyles before (fill in the blank) happens.  Upcoming United Nations summit repackages global warming agenda under the guise of sustainability, Kevin Mooney, netrightdaily.com, 3/22/12. http://bit.ly/GNSVZ9

#The fairness argument is that wealthy countries should curb their consumption of the Earth’s resources, help poorer countries, etc.  More than two planets needed by 2030, wwf.org (a South African biodiversity site ), 5/15/12.  http://bit.ly/IXS4We

By dint of ignoring the ideological critics (they cannot be satisfied), this country can ensure access to cheap and reliable electrical power for the foreseeable future.  The main obstacle is not technical, it is overbearing and/or misguided government policies that threaten to accomplish two results simultaneously: (1) shut down coal power, and (2) block the practical alternatives.  Details follow, as well as “one more thing.” 

COAL: It would be a herculean task to review all of the Environmental Protection Agency (EPA) regulations, actual or proposed, that have been aimed at coal power.  Conference speakers say EPA at war with coal industry, Hank Hayes, Kingsport (TN) Times-News, 5/24/12.

According to Chamber of Commerce Senior Vice President Bill Kovacs: (A) there are now 154,538 pages of EPA regulations, and “if the agency wants to get you, they can get you;” (B) since March 2010, 350 energy projects with a $570 billion economic impact and 1.9 million jobs haven’t been able to get EPA permits; and (C) the Sierra Club has taken credit for retiring more than 100 coal-fired power plants and preventing another 150 from being built.


But here are some of the key rules in question, which the EPA has proposed lately or is currently implementing:

Ozone - Instead of proceeding with implementation of an ozone reduction standard that it had adopted in 2008, and which would have been subject to reconsideration in the future, the EPA proposed to issue a more stringent standard immediately.  Dire effects were expected for the manufacturing sector (including coal power plants).  EPA to drain $1 trillion from economy, Washington Times, 10/7/10.

. . . the Manufacturers Alliance/MAPI last month predicted that implementing the technologies needed to meet EPA’s proposed goal would cost the economy a staggering $1 trillion every year. A total of 7.3 million jobs would be lost along the way, adding 4.3 percent of the work force to the unemployment line by 2020. 


Nearly a year later, the president sounded a retreat, after which EPA Administrator Lisa Jackson announced that the 2008 ozone standard would be implemented after all – despite having previously characterized it as “legally indefensible.”  Jackson says EPA required to implement Bush Administration standard for ozone, Jessica Coomes & Andrew Childers, BloombergBNA, 9/23/11.  http://bit.ly/pBNBdv

This outcome was decried by the [Wilmington, DE] News Journal, which reported that “state health and environmental officials joined with citizen groups Wednesday in calling on President Barack Obama to reconsider postponement of new and tougher national smog standards.” http://bit.ly/ghPVOu (9/22/11)

Hazardous air pollutants – In December 2011, the EPA imposed draconian new limits on emission of mercury and other air toxins by coal and oil power plants.  Compliance costs were expected to be high, e.g., the “final rule may be the most expensive one ever devised by EPA,” while the envisioned health benefits appeared dubious at best.  Agenda-driven “science” at EPA, Paul Driessen & Willie Soon, Townhall.com, 2/1/12.

[Re the claimed benefits from reducing mercury emissions, for example, the EPA] confessed that U.S. power plants actually contribute a mere 3% of the total mercury deposited in computer-modeled American watersheds, and thus in fish tissue. Citizens will justifiably wonder where the other 97% comes from, and why we should spend so much money for so little benefit. (The “missing” mercury comes from foreign sources and from volcanoes, subsea vents and other natural sources.)


Interstate air pollution – In July 2011, the EPA announced the imposition of new limits on sulfur dioxide (SO2) and nitrous oxide (NOx) emissions from power plants in 27 designated upwind states.  The rule was to take effect  on 1/1/12.

Legislation to block the rule fell short in the Senate; both senators from Delaware (a designated downwind state) voted against it.  The News Journal reported that EPA officials “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://bit.ly/ghPVOu (11/11/11)

Implementation was stayed at the proverbial “eleventh hour” by an appellate court.  Court delays EPA’s cross-state air pollution rule, Andrew Restuccia, The Hill, 12/30/11.  http://bit.ly/vvQ4lV To the best of our knowledge, the matter is still being litigated.

Greenhouse gases – In late March, the EPA proposed the first ever carbon emission limits for power plants.  Their “watered-down” rule exempted existing coal power plants plus any new ones to be started within the next year. 

New plants beyond that would be required to approximately halve their carbon emissions to match the performance of gas power plants, which could in theory be done by underground sequestration (long-term storage) of CO2. Government proposes first carbon limits on power plants, Timothy Gardner, Reuters, 3/27/12. http://reut.rs/Hgzjwb

As sequestration is a costly procedure that is not currently in commercial use anywhere, this exception would be of no practical significance. EPA announces historic rule to limit climate pollution from new power plants, Renee Schoof, Kansas City (MO) Star, 3/28/12.


Coal exports: Due to both EPA regulations and low natural gas prices, the use of coal to generate electricity has been sinking in the US. Fortunately for the coal-mining sector, a rising volume of coal exports to Asian markets has offset this trend.  Coal exports surge to highest level since 1991, Matthew Brown, Business Week, 4/10/12. http://buswk.co/HI8AXZ

Coal burned in Asia adds CO2 to the atmosphere, just as surely as coal burned in the US, so environmentalists are less than delighted. Coal, gas exports meet tough environmental resistance, Ben Wolfgang, Washington Times, 5/1/2012. http://bit.ly/JBAyta

Government resistance to coal exports can be expected, as evidenced by Seattle’s efforts to block coal export facilities.  Ironically, the coal to be exported is cleaner – and therefore generates less pollution – than the coal China would otherwise obtain from other sources, e.g., Australia. There are no winners in the war on coal, Rebekah Rast, NetRightDaily, 1/6/12. http://bit.ly/L8qIks

In sum: Unless something happens to stop them, the EPA will systematically strangle coal power, in which case this country will either use energy sources to make up the electricity shortfall or do without.   

The results of the November election may not materially affect this outlook. The EPA is so deeply embedded in their regulatory niche that it would take strong action – which Congress has not been noted for in recent years – to redirect them.  America’s real climate and environmental crisis, Paul Driessen, Townhall.com, 5/25/12.

Nationwide, 319 coal-fueled power plants totaling 42,895 megawatts (13% of the nation's coal fleet and enough for 40 million homes and small businesses) are already slated to close, the Sierra Club joyfully proclaimed. Illinois families and businesses could pay 20% more for electricity by 2014, the Chicago Tribune reports. Chicago public schools may have to find an extra $2.7 million a year to keep the lights and heat on and computers running.


NATURAL GAS: The short-term alternative to coal power is natural gas.  (1) Gas power plants can be quickly installed, (2) they emit less CO2 (not to mention real pollutants) than coal plants, and (3) natural gas is abundant and cheap  – thanks to the perfection of hydraulic fractioning (aka “fracking”) + horizontal drilling technology that permits the economic extraction of gas from shale formations.

Ironically, point 3 has converted environmentalists from supporters to opponents by threatening to position natural gas as a long-term solution versus a temporary expedient.  Natural gas flip-flop, Ronald Bailey, Reason, August/September 2011.

The national green lobbies initially welcomed shale gas. In 2009, for example, Robert Kennedy Jr., head of the Waterkeeper Alliance, called it “an obvious bridge fuel to the ‘new’ energy economy.” Local environmental activists were not as enthusiastic, arguing that fracking contaminates drinking water and causes other forms of pollution. After a while, some of the national lobbies began to come around to the locals’ side. In the words of the journalist Matt Ridley, “it became apparent that shale gas was a competitive threat to renewable energy.” Josh Fox, director of the anti–natural gas documentary Gasland, put it bluntly on Kennedy’s radio show: “What’s really happening here is not a battle between natural gas and coal. What’s happening here is a battle between another dirty fossil fuel and renewable energy.”


A more recent report suggests opposition to any viable sources of energy.  Sierra Club declares war on natural gas, Sean Hackbarth, Free Enterprise, 5/7/12.

They oppose coal, they oppose oil, and now natural gas is off limits. To them, it’s wind and solar wind and that’s about it. But if they have their way and we start to get more of our electricity from wind and solar, expect them to move the goalposts again. In fact, maybe they already have. Local Sierra Clubs have been and continue to work to block solar and wind projects in Maryland, Texas, Florida, all over California, and elsewhere.


And consider an anti-fracking cartoon, which recently appeared in the editorial section of the News Journal.  http://bit.ly/IS7Ktq (5/30/12)

A huge, ominous tanker truck labeled “fracking industry” is pumping “SECRET SAUCE” to an oil derrick at rear left.  Bemused onlooker, positioned near right and labeled “Ohio,” has his arms outstretched in a “what’s happening” pose. Worker standing on top of tanker: “We could tell you what’s in it, but then we’d have to let it kill you.”

It has not taken long for developing sentiment against fracking and natural gas to be manifested in new government (federal, state and local) requirements.  The purported goal is to protect public health and the environment, but there may well be a hidden agenda.  Load enough studies, hearings, permits, operating restrictions, inspections, and lawsuits on fracking, and shale gas will not be so abundant or cheap after all.

Notice how the president threaded the needle in the 2012 State of the Union Address, celebrating the shale gas boom on the one hand, but promising rigorous regulation and a “clean energy” future on the other. Transcript, page 6, 1/24/12.

We have a supply of natural gas that can last America nearly 100 years . . . my administration will take every possible action to safely develop this energy . . . I’m requiring all companies that drill for gas on public lands to disclose the chemicals they use. Because America will develop this resource without putting the health and safety of our citizens at risk . . . we don’t have to choose between our environment and our economy . . . public research dollars, over the course of 30 years, [helped] develop the technologies to extract all this natural gas out of shale . . . I will not cede the wind or solar or battery industry to China or Germany because we refuse to make the same commitment . . . It’s time to end the taxpayer giveaways to an industry [oil] that rarely has been more profitable, and double-down on a clean energy industry that never has been more promising.  


State regulatory approaches have varied, being relatively liberal in Pennsylvania, for example, and very strict in New York.  Natural gas is being produced by Pennsylvania, as a result, while fracking operations in New York are stymied.

Delaware has no shale formations itself.  Governor Jack Markell has opposed clearance by the 4-state (DE, NJ, NY, PA) + federal Delaware River Basin Commission of fracking operations within the area subject to its purview, however, on grounds that the environmental risks need to be studied further and the proposed regulations are not tough enough.  Debate seeps into Delaware, News Journal, 5/20/12.

Long and involved article elaborates on Governor Markell’s resistance to fracking regs proposed by Delaware River Basin Commission, with DNREC Secretary Colin O’Mara and environmental critics doing the talking.  Sample from O’Mara: “We’ve done a lot of work comparing and contrasting the draft DRBC regulations with those in other parts of the country as with New York’s proposed rules.  In many cases, we believe the DRBC’s proposed regulations fall short.”

http://bit.ly/IS7Ktq (5/30/12)

Federal regulators are currently playing catch-up on fracking, but longer term they may do a lot of damage.  Here are some scattered reports of their activities:

#EPA regulations of air emissions from fracking wells included a last minute concession.  The agency gave drillers until January 1, 2015, to “invest in equipment that slashes unhealthy air emissions from fracking wells, citing a lack of clean technology.” Fracking rules let drillers flare til 2015, Reuters, 4/18/12. http://reut.rs/HYfZVa

#Interior Department has proposed regulations concerning fracking operations on public land – they reportedly require disclosure of the chemicals to be used (information is considered proprietary) and address issues of well integrity & water management – Anadarko Petroleum and others met with White House staff to express their concerns.  Gas industry presses White House on “fracking rules, Ben Geman, the Hill, 4/9/12.

Anadarko, according to a presentation provided to OMB, fears that the rules could lead to hundreds of millions of dollars' worth of annual delays for industry projects on public lands, and warns of “onerous” reporting requirements.  The presentation also cites concerns that Interior could deny fracking from occurring at wells that have already been drilled.


#EPA is studying the environmental effects of fracking and the disposition of liquid wastes, but they apparently have not identified any serious problems. Fracking: an existential threat to green dogma, Paul Driessen, Townhall.com, 3/28/12.

Despite these facts [summary of prior studies of fracking and drilling, etc.], EPA is nevertheless trying to invent problems and inject itself into already vigilant and responsive state regulatory efforts. The agency has conducted a roundly criticized study [of alleged drinking water contamination] in Wyoming and is conducting water tests in Pennsylvania, where state officials view its activities as unnecessary meddling.


#Another line of attack is offered by the Endangered Species Act (Fish & Wildlife Service has administrative jurisdiction).  We previously reported that a proposal to classify “the little (less than three inches long) dunes sagebrush lizard” as endangered could lead to significant disruption of oil drilling operations in the Permian Basin.  An administrative blitz, 5/9/11. 

A similar controversy concerning the desert sage grouse now threatens gas drilling and also ranching activities in western Wyoming, and this may be just the beginning.  Killing jobs to save the sage grouse, William Pendly, Washington Times, 5/31/12.

. . . the Sublette County case involves only one of 16 federal planning areas, covering 25 million acres in six Western states, in the Idaho court. Worse yet, environmental groups demand the sage grouse’s accommodation, regardless of the cost to humans and other species, all across its former range: 156 million acres in 11 Western states.


NUCLEAR: A new wave of nuclear power plants to supplement those already in operation would represent an elegant replacement for coal plants – much cleaner, far less fuel and process waste, lower operating costs.  Consider, for example, this comparison of a coal plant and a nuclear plant that are both located near Omaha, Nebraska.  Terrestrial Energy: How nuclear power will lead the green revolution and end America’s energy odyssey, William Tucker, Bartelby Press (2008), p. 38.

#The North Omaha Power Plant produces 500 megawatts (MW) of electricity, about one-fifth of the power needed to run the city.  Every three days, a 110-car-unit train arrives, each car is loaded with 125 tons of coal. The plant occupies more than two square miles – much of it needed to store the mountains of coal. Waste products include 15,000 tons of CO2 a day.

#The Cooper Nuclear Station plant occupies two square miles, slightly less than the coal station.  Every eighteen months, a single tractor-trailer arrives carrying several dozen bundles of nuclear fuel rods. The Cooper Station produces no sulfur emissions, no mercury, no soot, no particulate matter, no slag, and no greenhouse gases.  And it does produce more electricity than North Omaha – 750 MW.


Nuclear power also has drawbacks, notably concerns about the process getting out of control and causing enormous damage.  Although there have been few reactor meltdown events, and the only one on US soil (Three Mile Island, 1979) was wildly exaggerated, the concerns have a rational basis and deserve to be taken seriously.

Last year’s earthquake/tsunami-induced meltdown at the Fukushima plant in Japan represented a huge setback for nuclear power, both in Japan (where all nuclear plants are being closed down) and around the globe.  SAFE advocated a reasoned, fact-based response to the event (see 3/21/11 letter to Delaware members, http://bit.ly/hkK4kT), but this was not a mainstream view at the time.

Today, over a year later, the Fukushima disaster is still unfolding with reports of widespread dissemination of radioactive materials and fears that fresh damage will occur at the shutdown but still not stabilized plant. Spent fuel rods drive growing fear over plant in Japan, Hiroko Tabuchi & Matthew Wald, New York Times, 5/26/12.

“The No. 4 reactor is visibly damaged and in a fragile state, down to the floor that holds the spent fuel pool,” said Hiroaki Koide, an assistant professor at Kyoto University’s Research Reactor Institute and one of the experts raising concerns. “Any radioactive release could be huge and go directly into the environment.”  Senator Ron Wyden, Democrat of Oregon, expressed similar concerns during a trip to Japan last month.


Renewed fears about nuclear power in the wake of the Fukushima disaster will probably not be allowed to interfere with the operation of existing nuclear plants in the US.  However, these fears – coupled with the high cost for new nuclear power plants and the availability of cheap natural gas – will impede a US nuclear power renaissance any time soon.

The Nuclear Regulatory Commission did recently approve permits for two new nuclear reactors, by a 4-1 vote, and the dissenter {Gregory Jaczko) has since resigned.  The Georgia plants will take years to build, however, and the cost estimates are staggering.  Moreover, we predict the private investors will demand government loan guarantees, which SAFE opposes in principle.  Nuclear agency approves first nuclear reactors since 1978, Larry Copeland, USA Today, 2/10/12.

[Southern Co.] expects to begin operating the new units in 2016 and 2017. They will cost more than $14 billion.


Another issue is the disposal of nuclear waste disposal, given a Carter era decision to prohibit recycling of partially consumed nuclear fuel.  Withdrawal of support for the long-contemplated national repository at Yucca Mountain, Nevada, has left this question in limbo.  We think recycling would be the best answer, but in any case nuclear power cannot have a stable future unless the issue is resolved in some fashion.  If coal power is too “dirty,” how about nuclear?  3/8/10

Summing up, nuclear power could represent an attractive alternative to coal power – but only over the longer term.  Building nuclear plants on a crash basis would be enormously costly, and the American public is not prepared for such a program at this time.

ONE MORE THING: Shutting down coal power while tightening the screws on natural gas fracking would predictably result in this country’s electric grids being overwhelmed. Power prices would soar while reliability plummeted.

Tune in next week for a discussion of this gloomy scenario, including the findings of an obscure government agency (the North American Electric Reliability Corporation) that deserves more thanks for candor than it has gotten

*        *        *        Replies for this Blog        *        *        *

Progressives are not for growth, and they are using energy costs to make this country less competitive. It will be tough to stop them until energy prices go through the roof and the public starts to notice. SAFE director 

I couldn't digest all of this.  I read MOST of it, but my mind bogged down.  Sorry. – SAFE director [The entry was pretty long; we will try to do better.]

Dangers from nuclear power have long been disabused and countered by the Access to Energy newsletter and every other scientific discussion of energy and its costs. The costs of building new nuclear power stations has been warped upward by magnitudes due to the special interests that have come to control energy in Washington. 

By the way, Dr. Arthur Robinson, the current editor of Access to Energy, is running in Oregon to unseat a 13-term congressman named Peter DeFazio.  I recommend Robinson’s book, Common Sense in 2012 , which teaches what's wrong with D.C. as well as how to fix it.   SAFE member, GA

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5/28/12 – Coal power is out of style

The president expressed his distaste for coal-fired power plants during the 2008 campaign, and his administration has acted accordingly.  Obama’s plan to kill coal, Christopher Prandoni, Townhall.com, 5/22/12.

. . . President Obama charged Environmental Protection Agency Secretary Lisa Jackson with the task of regulating America’s coal industry out of existence. The EPA’s strategy is simple: impose punitive, costly regulations on existing coal plants and mandate unattainable emissions standards on future coal power plants.


There are valid reasons for transitioning away from coal, which currently provides some 40% of US electricity (not an energy source per se, but a medium for distributing it), and coal’s declining role in the mix is driven by market economics as well as by environmental considerations.

Coal power should not be abandoned, however, without thoughtful consideration of what would take its place.  The economic consequences of “ready, fire, aim” policymaking could be disastrous.  EPA to raise electricity prices, risk blackout, Romina Boccia, Heritage.org, 12/6/11.  http://bit.ly/tUNUGy

Bottom line, let’s consider the issues objectively instead of rejecting the “war on coal” just because the Environmental Protection Agency (not our favorite federal regulator) is leading the charge.  Not only are the choices and tradeoffs complex, but they will be affected by future developments that cannot be predicted with assurance.

Background – Here are some observations about the rise and fall of coal from a journalist who has written about energy and the environment for the past three decades.  A recurring point in the story (seemingly obvious, yet often overlooked) is that energy prices matter.  Terrestrial Energy, William Tucker, Bartleby Press (2008).  http://www.s-a-f-e.org/terrestial_energy.htm

Sixteenth-century England experienced an energy crisis because “the forests, which had provided wood and fuel since time immemorial, were beginning to disappear” as people struggled to stay warm during the “Little Ice Age.”  The solution was to burn coal, which was much cheaper than firewood, even though it turned the London air into a “foul and pestilent canopy of vapors.”  TE, pages 62-64.

One thing led to another, and the Industrial Revolution began two centuries later.  Manufacturing mills powered by coal vastly out-performed mills powered by wind or water, although the resulting environmental problems in English cities “were so appalling that many observers believed humanity was spiraling toward destruction.” TE, page 65.

Given the technological edge coal power provided for manufacturing and soon transportation (railroads and steamboats), its use inevitably spread to other countries, notably Germany and the United States. TE, pages 66-69.

Generating electricity from coal provided a new way to carry and distribute energy for a variety of tasks.  Thomas Edison opened the first electrical generation station in 1882.  TE, page 69.

Air pollution from coal-fired plants - e.g., sulfur dioxide (SO2), nitrous oxides (NOX), and particulates (both large particles, which can be filtered effectively with today’s technology, and smaller ones that cannot) - was mitigated by burning anthracite vs. bituminous coal, locating the plants in remote locations, developing more efficient boilers, etc.  It continued to be a serious problem, however, especially as coal was also the primary source of residential heat. In 1940, “King Coal” was producing more than half of America’s energy. TE, pages 69-71.

After World War II, the drawbacks of coal power attracted growing attention.  For example, a temperature inversion over London in December 1952 caused a “Black Fog” that resulted in 4,000 deaths.  There were similar, but less deadly events in New York City, and coal mining safety hazards also became more widely known.  TE, pages 72-73.

Remedial legislation was enacted: 1955 National Air Pollution Control Act, 1969 Federal Coal Mine Health and Safety Act, 1970 Clean Air Act (which, among other things, created the EPA).  TE, pages 73-74.

Early attempts to reduce coal power emissions were somewhat tentative and not particularly effective.  For example:

# The Clean Air Act mandated that all new coal plants be equipped with sulfur scrubbers, but exempted any coal plant licensed before 1973.  Utilities rushed to apply for licenses and sat on them.  In the 1990s, coal plants were still being built without scrubbers, and in 2008, 60% of coal plants still did not have them.  TE, page 74.

# Saying “the solution to pollution is dilution,” the EPA encouraged the construction of smokestacks that would send power plant emissions high into the atmosphere.  “Only later was it realized the sulfur dioxide was returning to earth as acid rain.” TE, page 77

Environmental activists proposed a different strategy: switch from coal to low sulfur oil power plants. “From 1965 to 1971, coal consumption dropped for the first time in the nation’s history,” while “oil consumption surged.” After the 1973-74 Arab Oil Embargo, however, the goal became cutting oil consumption and the transition to oil power plants was abandoned.  TE, page 75.

President Carter proposed increased reliance on coal power in 1977, while imposing new restrictions on nuclear power. Thirty years later, the US was burning over a billion tons of coal a year, twice the consumption in 1976.  TE, pages 75-76

An oft-told regulatory success story is the “cap and trade” limits on SO2 that finally got these emissions under control.  Actual costs of meeting the new and tougher limits were far lower than projected, and the results handily exceeded the goals set in 1990. However, improvement was primarily accomplished by switching to natural gas for new electrical generating capacity (95% between 1990 & 2008), not by developing and installing better clean-up technologies.  TE, pages 77-78.

After 2000, natural gas grew scarcer and market prices quadrupled.  Many gas plants were idled, and coal once again became the cheapest option for utilities.  TE, page 78. 

Tucker’s book was published before the “fracking” boom for extracting gas from shale deposits.  Gas has become an economical fuel for power plants again, and utilities are responding accordingly. US coal generation drops 19 percent [from 45% to 36% of the total] in one year, Stephen Lacey, EnergyBulletin.net, 5/15/12.  http://bit.ly/JPZflV

Reliability – A key factor in choosing power sources is whether they will be available when and as needed to meet the needs of the households and businesses on the electric grid.  Coal, oil, natural gas, and nuclear power can be generated continuously (aside from maintenance shutdowns), so they are reliable (aka dispatchable).  The principal forms of “renewable energy,” wind and solar, are only available on an intermittent basis, so they are not reliable. Accordingly, wind and solar power must be “backed up” by an equal amount of reliable power. Simple, neat and wrong, John Nichols, SAFE newsletter, Spring 2012. http://bit.ly/Lgm1QM

It follows that replacing coal power with wind and/or solar power will not work, although the idea of doing so is often cited. Consider two Delaware energy policies: (1) participate in a Regional Greenhouse Gas Initiative (RGGI) that will establish a “cap and trade” regime for electrical power producers in the region and progressively penalize producers that fail to reduce their CO2 emissions (an inevitable by-product of burning coal, oil or natural gas, although coal produces more CO2 than the others due to its higher carbon content); (2) phase in a Renewable Portfolio Standard (RPS) that will require Delaware utilities to buy a growing share of the power they sell from renewable energy sources or acquire renewable energy credits to cover the shortfall.

Many comments at a public hearing on a proposed pause in phasing in the RPS revealed scant interest in and/or understanding of how the need for cheap, reliable power can actually be met.  A real world skirmish over energy policy, 4/2/12. 

Father Flowers was the last witness in favor of HR 247; over a dozen people who opposed the bill remained to be heard from.

After a bit more  – sea level rise, how long are we going to wait - cannot imagine any good reason for this legislation - today is the 33rd anniversary of the Three Mile Island tragedy and now we are sitting on a “fossil fuel bomb” - renewable energy has nothing to do with current economic problems and it’s time to accelerate the program - we’re installing solar systems at our site and they work – the SAFE team departed.

Renewable energy advocates give short shrift to the reliability issue, probably because they would like to see consumers forced to use less electricity.  Thus, a 2007 “green vision” plan of San Jose, California (former employer of Delaware Secretary of Natural Resources and Environmental Control Colin O’Mara) set a goal of reducing per capita energy use by 50% in 15 years.  http://bit.ly/J7Cn3D Although no such goal has been formally proposed for Delaware, we suspect a “less is more” mindset is in play here as well.

There is nothing wrong with voluntary energy conservation; it is perfectly sensible to strive for more efficient use of electricity and other forms of energy.  Experience has shown, however, that relatively low energy prices promote rising energy consumption. TE, pages 128-138.

Doing the same amount of work with less energy is the same as doing more work with the same amount of energy.  There is no proscribed limit to human demands.  If it become easier to produce things by using less energy, then people will want more of it. 

*** Today’s refrigerators, for example, are more than twice as efficient as those of 1980.  Yet most homes now have two or more refrigerators. *** Improvements in [auto] engine efficiency may improve gas mileage, but this also makes it easier for people to increase their driving.

Global warming, etc. – OK, what about the argument that the burning of coal (and by the same logic other fossil fuels) must be stopped before the buildup of CO2 in the atmosphere causes irreversible harm that will threaten life as we know it? 

In other words, cost does not matter – nor the convenience of our spoiled population – fossil fuels must go for the greater good.  Destroy the economy, save the planet, Washington Times, 5/9/12.

Socialists hate the idea that individuals acting through the free market would be allowed to improve their living conditions as a result of a process lacking centralized direction. The leftist impulse is to entrust government with the responsibility of making decisions and imposing order.


We do not share this enthusiasm for government control, and the supposedly overwhelming scientific consensus about the catastrophic manmade global warming theory is starting to unravel.  Scientists in revolt against global warming, Karin McQuillan, American Thinker, 11/27/11.

More and more scientists are revolting against the global warming consensus enforced by government funding, the academic establishment, and media misrepresentation. They are saying that solar cycles and the complex systems of cloud formation have much more influence on our climate, and account for historical periods of warming and cooling much more accurately than a straight line graph of industrialization, CO2, and rising temperatures.  They also point out that the rising temperatures that set off the global warming panic ended in 1998.


Political leaders in the alarmist camp have likewise dialed back their warnings about global warming, although the change is probably tactical versus strategic.  Obama steers clear on climate, Steven T. Dennis, Roll Call, 5/24/12. 

Environmental activists, Senate Democrats and Republicans alike have noticed the White House’s shift, both in softened rhetoric and in using administrative tools to bypass Congress.


Republican critics say the White House has figured out that its policies aren’t popular, particularly in a still-sluggish economy. The White House instead is pushing administrative measures to accomplish the same results via Environmental Protection Agency regulations on power plants and the like. GOP lawmakers suggest the White House is hoping that it can push things under the radar.


Here is our take on the global warming theory:  The Earth has warmed since the end of the Little Ice Age, but (1) there have been far more significant cooling and warming periods in the Earth’s history, (2) it is unclear what drives changes in global temperatures (e.g., variable solar activity), and (3) the warming trend since 1800 (about the start of the Industrial Revolution) has been intermittent, while atmospheric CO2 levels have steadily increased.  See, e.g., letters to the editor, 1/8/12 (Day) http://bit.ly/xqbOrC; 2/27/12 (Morris) http://bit.ly/JitmyN.

The observed warming has had positive as well as negative effects, quite possibly representing an overall plus.  The same can be said for the increase in atmospheric CO2 (a trace gas that currently accounts for less than .05% of the atmosphere). The Many Benefits of Atmospheric CO2 Enrichment, Craig Idso & Sherwood Idso, 2011 (Vales Lake Publishing).  http://bit.ly/JdJDEZ

For an in-depth discussion based on recent scientific work, see Climate Change Reconsidered, Interim report of the Nongovernmental International Panel on Climate Change (alter ego of the UN-sponsored IPCC), 2011.

On the most important issue, the IPCC‘s claim that most of the observed increase in global average temperatures since the mid-twentieth century is very likely due to the observed increase in anthropogenic greenhouse gas concentrations [emphasis in the original], we once again reach the opposite conclusion, that natural causes are very likely to be dominant. Once again, we stress we are not saying anthropogenic greenhouse gases (GHG) cannot produce some warming or have not in the past. Our conclusion is that the evidence shows they are not playing a substantial role.

http://bit.ly/KTIT9p (download PDF)

Powerful interest groups remain invested in the global warming theory, both in the US and elsewhere.  Thus, yet another in the seemingly endless series of UN-sponsored conferences on the subject – aimed at persuading “developed countries” to curb their greenhouse gas emissions by taxing (directly or via “cap and trade” schemes) the use of coal and other fossil fuels and remitting part of the proceeds to “poor” countries – just wound up in Bonn, Germany. Is China poor?  Key question at climate talks, Karl Ritter (AP), Washington Times, 5/25/12.  http://bit.ly/JUWiSK

Whatever the ongoing scientific research may establish, the global warming (aka “climate change”) theory will be cited for years to come as an argument for ending the use of coal power and curtailing the use of other fossil fuels.

Even skeptical observers tend to accept the argument in an “abundance of caution.”  See Terrestrial Energy, which concludes a chapter on the global warming theory as follows (page 27).

Even if all the alarms about drowning Florida are exaggerated, putting three billion tons of carbon dioxide into the atmosphere each year has to force some change somewhere.  We are headed into unknown territory.  That is why we must take climate change seriously.

The path forward Summing up, a consensus has developed in the US for moving away from coal power.  (It is unclear whether China et al. will be willing to follow suit.)  The notion of replacing coal with renewable energy (e.g., wind or solar) is impracticable.  Natural gas and/or nuclear power could potentially fill the bill, although – as will be seen later – there are objections to both of them as well.

Given the failure of the Carter era energy policies, which with a bit of tinkering have been in effect ever since, a new approach is needed.  We will review the EPA’s recent proposals and present our thoughts next week.

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5/21/12 – Coming attractions: lame duck session            Read a Reply

If Congress meets between the November elections and early January of the following year, legislators on the way out (aka “lame ducks”) can potentially vote for bills their successors would block. 

This transitional period creates opportunities for postponement of votes on controversial issues until after elections and/or attempts to push through legislation that might face tough sledding in the new Congress. Elgin Hushbeck, 1/3/11. 

Lame duck Congresses can be measured on two factors, the number of members changed, and the significance of the legislation passed.  Insignificant legislation, with little change in Congress, results in a pretty innocuous lame duck session, while significant legislation passed when Congress is changing hands, is highly undemocratic, and should be considered illegitimate.


If there is also a “lame duck” president (a possibility this year), the potential for political shenanigans is compounded. What will happen in the lame-duck session?  Ryan Beckwith, Congress.org, 4/27/12.

President Jimmy Carter and a lame-duck Democratic Congress enacted a number of major bills before the Reagan revolution began in earnest.  [We aren’t convinced that any serious damage was done.]


And however this year’s presidential race turns out, a perfect storm of fiscal issues is scheduled to hit at year end. 

(1) Will Congress establish a budget for fiscal year 2013 or continue to fly by the seat of its pants subject only to the dreaded sequesters?

(2) Will Congress renew the expiring Bush tax cuts and other tax provisions or allow them to expire, and is the tax system going to be overhauled or not?

(3) What will be the terms for the next debt level increase, which is coming up within a few months because the government has not curbed its spending habits?

It might be nice to address some of these issues now, but is this possible?  Let’s review where matters stand and critique the efforts of some of the key players.

Budget  – Prior entries have tracked this situation, which we summed up as follows in early April.  Bitter budget battle building, 4/9/12.

#A budget stalemate will last until after the elections (or longer), while the national debt keeps growing rapidly.

# [The situation] has developed fast and turned nasty (almost personal).  The Republicans have the better argument on the merits; the Democrats will attempt to discredit their motives or change the subject.  Fiscal visionaries should demand a fact-based, logical debate.  If you agree, please help us spread the word.

Senate Majority Leader Harry Reed’s wanted to sideline the House-passed budget, but he was maneuvered into allowing a vote on it and several other budget proposals.  The results are recapped below. Democrat-led Senate votes down 4 GOP budgets for 2013, Stephen Dinan, Washington Times, 5/16/12.  Senate kills five budget proposal[s] in a single day, Susan Ferrechio, Washington Examiner, 5/16/12.



Vote (for-against)

House budget (aka Ryan plan)

Cut spending by $5T over 10 years, no tax increases


Pat Toomey’s budget

Cut spending more sharply than House budget


Mike Lee’s budget

Cut spending and replace income tax with 25% consumption tax, balance the budget


Rand Paul’s budget

Eliminate departments of Energy, Education, Commerce, & Housing and Urban Development, balance the budget


President’s budget

Key numbers from the budget proposed by the president in February 2012

0-99 (earlier rejected 0-414 in House)

Bowles-Simpson plan

Plan proposed by co-chairs of the Fiscal Commission in 2011

Not introduced, but the House rejected a version 38-382

http://bit.ly/L8s35w [WT story] & http://bit.ly/JIh5Xp [WE story]

Instead of admitting their many contributions to the fiscal problem, Senate Democrats attempted to discredit the exercise and the tactics used by the Republicans.

“Democrats won’t agree to a one-sided solution that lets the superwealthy off the hook while forcing the middle class to bear all the hardship,” said Senate Majority Leader Harry Reid, Nevada Democrat. “These four stunt budgets all take that one-sided approach.” [WT story]

"This is not the president's budget [as only the key budget numbers were presented], so of course we are not going to support it because it is not what the president proposed," said Sen. Kent Conrad, D-N.D.

Some members implied that resolution might be easier after the elections, but Senator Joe Lieberman (I-CT), who will retire soon, suggested otherwise.  WE story.

"I know everybody says we are going to come back here after the election and there is going to be a burst of courage, I guess, because the election is over," Lieberman said. "What I'm sort of hearing in the wind around here is don't count on it."

Two House leaders, Representatives Paul Ryan (chairman, Budget Committee) and Chris Van Hollen (ranking minority member), likewise sought to lower expectations for a year-end breakthrough. US Rep. Ryan doesn’t expect permanent fiscal fix in lame duck session, Michael Crittenden, nasdaq.com, 5/17/12.

Both Ryan and Van Hollen suggested the most-likely outcome would be some form of short-term extension putting off the tough decisions on taxes and the spending cuts until 2013. 


For his part, the president seems to have little interest in spending cuts.  He is currently advocating a mélange of ideas to boost spending while further complicating the tax law. President’s weekly address: Congress must act on “To-Do List,”  5/12/12.

(1) Impose tax penalties on “companies that ship jobs overseas” and provide subsidies for “companies that bring jobs back to America;” (2) Subsidize mortgage refinancing by “millions of Americans who have worked hard and made their mortgage payments on time;” (3) Give small business owners “a tax break for hiring more workers and paying them higher wages;” (4) Renew subsidies for clean energy companies so they will not “be forced to lay off employees;” (5) Create a Veterans Job Corps to help military personnel returning from Iraq and Afghanistan.


SAFE to DC: You will never solve the fiscal problem unless you start working for smaller, more focused, less costly government vs. the reverse. Please see our 5/8/12 letter to selected members of Congress. http://bit.ly/JZMHFR

We also recommend an interview of Senator Tom Coburn, author of “The Debt Bomb,” concerning the inexcusable inaction of this nation’s political leaders. “US has 2-5 years before fiscal meltdown,” video (4 minutes), 5/15/12.  http://thedc.com/K2yLLv

Taxes – The tax situation remains basically unchanged from January.  A slew of tax provisions are set to expire at the end of this year, notably the Bush tax cuts that have been in place for a decade and the more recent “temporary” payroll tax cuts.  Happy 2012, and why it’s time to focus on taxes, 1/2/12.

SAFE believes Congress should overhaul the US tax system, not continue tinkering with the tax law on a piecemeal basis. The overhaul would require months of work, so it should be started on a timely basis rather than deferred until after the elections.  Letter to all members of Congress, 2/1/12.

Don’t argue about the expiring Bush tax cuts in December; overhaul the tax system now.  Revenue should be collected in a manner that is simple, efficient, and fair.  Our tax plan (http://www.s-a-f-e.org/the_simple_tax.htm) may represent a useful template.


Others have begun to suggest that decisions about the tax system should ideally be made before the elections.  There seems to be more concern about impending tax increases, however, than about the potential benefits of a tax overhaul.  Taxmageddon coming?  Answer could cost Americans $500 billion, Jim Angle, Fox News, 4/18/12.

# "Almost the entire tax code has been put on a year-to-year lease, and in some cases, month-to-month lease, which is no way to run a tax system," Scott Hodge of the Tax Foundation said.

#"Taxmageddon falls 70 percent on middle and low income families. That's because 60 percent of the Bush tax cuts were for middle- and low-income taxpayers," [Curtis] Dubay [of the Heritage Foundation] said. The payroll tax cut was aimed at the same taxpayers.

# All this raises the stakes for the economy, because until Congress acts, businesses can't know what their tax rates are going to be, making it hard to hire more workers or plan for the future and leaving both taxpayers and the economy awash in uncertainty.


How can the logjam be broken?  The typical answers contemplate a politics as usual approach, e.g., extending all of the Bush tax cuts now while deferring a tax overhaul until later.  Congressional GOP pushes for action on taxes, Alan Fram, Real Clear Politics, 5/17/12. http://bit.ly/LmY9kh

Forty-one Senate Republicans wrote to Majority Leader Harry Reid in this vein.  Text of 5/17/12 letter.

It is essential that Congress and the President address these coming tax increases this summer, rather than creating additional uncertainty for families and job creators by waiting until the last possible minute. 


And House Speaker John Boehner urged extension of the Bush tax cuts in a speech at the Peterson Foundation’s 2012 Fiscal Summit . . .

Any sudden tax hike would hurt our economy, so this fall – before the election – the House of Representatives will vote to stop the largest tax increase in American history. 

. . . with a tax overhaul to follow next year.  Text of prepared remarks, 5/15/12.

[Our] bill to stop the New Year’s Day tax increase will also establish an expedited process by which Congress would enact real tax reform in 2013 *** something like how we handle Trade Promotion Authority, where you put in place a timeline for both houses to act. *** The Ways & Means Committee will work out the details, but the bottom line is: if we do this right, we will never again have to deal with the uncertainty of expiring tax rates.  We’ll have replaced the broken status quo with a tax code that maintains progressivity, taxes income once, and creates a fairer, simpler code. 



Focused as they are on hiking taxes for high earners, Democrats are unlikely to embrace the Republicans’ approach on taxes.  Obama loses vote on “Buffett [Rule],” gains tool; Democrats vow to bring it up repeatedly, Stephen Dinan, Washington Times, 4/16/12.

Mr. Obama has spent much of the past month pushing for the tax to be imposed as part of his campaign-year message that the wealthy must be made to pay more taxes in order to fund the promises that the federal government has made over the years on Medicare and Social Security. [The estimated revenue gain would be minor in relation to the projected growth in the costs of these and other “entitlement” programs.]


Too bad, because concerns about the taxmageddon scenario may be impeding economic recovery.  Extend the Bush tax cuts now, Larry Kudlow, Townhall.com, 5/18/12.

The uncertainty over the Bush tax cuts already has caused a number of business leaders to threaten a hiring freeze and a dampening of investment until they can figure out the after-tax cost of capital and rate of return on investment. Hiring has slowed noticeably in recent months. And a number of Wall Street economists are marking down the anemic recovery even more, suggesting that the 3 percent growth at the end of last year, which faltered to 2 percent growth in the first quarter, could be even less in the period ahead.


Debt limit – Speaker Boehner’s comments on this topic at the Peterson Foundation conference attracted a lot of attention even though he was not staking out a new position. Text of prepared remarks, 5/15/12.

When the time comes, I will again insist on my simple principle of [spending] cuts and reforms greater than the debt limit increase.  This is the only avenue I see right now to force the elected leadership of this country to solve our structural fiscal imbalance.


The need for another debt limit increase is still months away (current debt $15.7T, debt limit $16.4T).  No one knows who will be president when it arises.  But the fight over the last increase was exceptionally bitter, and the key players have not forgotten it.

Claims were soon flying that Republicans planned to shut down the government.  Boehner vows showdown over debt ceiling, Susan Ferrechio, Washington Examiner, 5/15/12.

Congressional Democrats quickly refuted the Republican leader for reviving demands that nearly shut down the government last summer and eventually [led] to a downgrading of the nation's AAA bond rating.  Senate Majority Leader Harry Reid, D-Nev., said Boehner's ultimatum is further evidence that House Republicans are captives of a conservative Tea Party faction that is "driving them over a cliff."


Congressional leaders met with the president the next day.  The president’s “to do” list for Congress was supposed to be the main topic, but the discussion veered off course.  Obama, Boehner clash at White House meeting over raising debt ceiling, Russell Berman & Alicia Cohn, The Hill, 5/16/12.

Boehner asked Obama if he was proposing that Congress increase the debt limit without corresponding spending cuts, according to a readout of the meeting from the Speaker’s office. The president replied, “Yes.” At that point, Boehner told Obama, “As long as I’m around here, I’m not going to allow a debt-ceiling increase without doing something serious about the debt.”

Shortly after the meeting, White House press secretary Jay Carney told reporters that the president warned the leadership that he would not allow a repeat of last August’s debt-ceiling “debacle,” which led to a downgrade in the U.S. credit rating.


We see nothing wrong with the line taken by Speaker Boehner – but doubt it will prove effective.  After all, what did the last debt limit deal accomplish? Boehner’s bluff, Robert Romano, NetRightDaily, 5/16/12.

All the American people got in return for the $2.1 trillion increase in the borrowing limit, the largest such hike in the nation’s history, was a slight reduction in the growth rate of spending via sequestration — which Congress is busy crafting legislation to overturn — and the ill-fated Supercommittee that achieved exactly nothing.


In effect, trying to control spending by freezing the debt limit is like “locking the barn door after the horse has been stolen.”  Fiscal discipline can only be achieved by controlling spending before the fact.

Synthesis – There does not appear to be a fiscal breakthrough on the horizon – and the outlook will not necessarily improve after the election.

It does no harm for the nation’s leaders to discuss the fiscal problem, and some observers have suggested that such an effort could speed up action later. Boehner’s early stand sets up second round of debt limit battle, Russell Berman, The Hill, 5/19/12.

Boehner and his allies argue that the push for substantive talks over the summer are a necessity, and not merely wishful thinking.  “Anybody who thinks with all the things that are coming due between the election and Jan. 1 of next year that we can do in 45 days what we haven’t done in 10 years is crazy,” Rep. Steve LaTourette (R-Ohio) said. “It only works if we’ve built consensus over the last several months.”


But we do not see the debt limit as much of a “trump card” for Side B, nor do we envision a consensus on either budgets (Side A does not want one; neither side is keen on cutting spending) or taxes (Sides A & B have incompatible goals).

The main potential benefit would be to educate Americans about the fiscal problem. What a concept: an election in which the voters actually knew where the candidates stood on budgets, taxes and debt before voting instead of finding out later. 

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No spending cuts and the debt soars. Get set for a major fiscal event in 2-3 years; buy gold.  – SAFE director

top      ww3@atlanticbb.net

5/14/12 – What about the Export-Import Bank?        Read a Reply

In reviewing government programs on a comparative basis, one can easily get confused.  Hey, this program may be unnecessary, but it achieves some useful results and has been reasonably well managed.  Don’t we have more important battles to fight?

On the other hand, as the saying goes, “the road to hell is paved with good intentions.”  Start accepting unnecessary programs and the “approved by exception” category will tend to expand over time.  It is easy to rationalize a program, for example, if the beholder values the program beneficiaries.   And never underestimate the risk that programs that seem OK now will be expanded and perverted in the future.

Take the Export-Import Bank of the United States (“EIB”), whose current charter will expire on May 31.  Despite an unusual level of “conservative” opposition, the House voted last week to keep the EIB going for another 2+ years and the bill appears headed for enactment.  Would this be an appropriate outcome, and why?

Background – The EIB was founded in the 1930s to ensure the availability of financing for US export deals.  It makes direct loans in some cases, but more commonly guarantees loans or provides credit risk insurance.

We do not compete with private sector financing, the EIB says, but “assume credit and country risks that the private sector is unable or unwilling to accept.” 

Another talking point is “level[ing] the playing field for US exporters by matching the financing that other governments provide to their exporters.”

Most of the “success stories” posted on EIB’s website involve export financing for small businesses.  Thus, Delaware Intercorp, an 11-employee service firm in Newark, DE, has grown its revenues by about 5% since it started working with EIB in 2008.  The company was most recently authorized a $100K multi-buyer insurance policy and has seen growth in its major export markets, China and Taiwan.

"What [EIB’s] insurance policy has done for us,” says the company’s president, “is extend more competitive terms to buyers and mitigate our risk and it has absolutely contributed to our growth."

Over the years, the EIB has supported more than $456 billion of U.S. exports, primarily by Boeing and other big companies.


Arguments against – The EIB has become something of a target this year, as already noted, with serious calls for winding down the 77-year-old bank.  Its pledge of financial support for deepwater oil drilling off the coast of Brazil, even as similar projects in US waters were being blocked or delayed (by decisions of the president, the Interior Department, etc.), may have been a contributing factor. After all, how does favoring Brazilian over US oil development serve our national interests?

But the financing will encourage Petrobras (Brazil’s national oil company) to purchase US goods and services, not drill for oil per se, and the $2 billion preliminary commitment was announced a year before the Deepwater Horizon explosion in the Gulf of Mexico.  EIB press release, 5/9/09.  http://1.usa.gov/1s6Ozn

By the way, Petrobras apparently asked for up to $10 billion in EIB financing, but the EIB only committed $3 billion to Brazil ($2B re offshore oil development and $1B re infrastructure for the 2014 Soccer World Cup & 2016 Olympics). InvestinBrazil, 3/22/11.  http://bit.ly/eXkppw

All of the EIB board members who approved the Petrobras financing were appointees of the previous president, and only a fraction of the commitment had been utilized (to support exports by some 150 US companies) as of May 2011.  EIB statement, 5/27/11.

To date, Ex-Im Bank has approved a request from JP Morgan Chase, acting as lender, for a more than $300 million, medium-term guarantee. This facility was made operative on May 27, 2011 and is being used to finance the Petrobras's general purchases of U.S. manufactured oil and gas equipment and services.


Although this is not as well known, the EIB has approved an even bigger commitment for a natural gas project in Australia.  US Ex-Im Bank, nearing House vote, OKs $2.9 bln. loan, Doug Palmer, Reuters, 5/8/12.  http://bit.ly/ISDinq

Leaving aside the Brazilian offshore drilling controversy, which seems to have been blown somewhat out of proportion, the best argument against the EIB is very simple. US business firms could get along without government-supported export financing if necessary – as they did before the 1930s.  If one supports smaller, more focused, less costly government, therefore, it would seem logical to close the bank down.

The lobbying arm of Citizens Against Government Waste notes that the bulk of EIB financing supports exports by large, well-established companies, i.e., is simply “corporate welfare.”

In many years, the majority of [EIB’s] guarantees and loans have gone to Boeing, which is one of the world’s largest and most profitable firms, rather than a high-risk borrower.  [EIB] has also made or guaranteed loans to Halliburton, Dell, Caterpillar, Chevron, and Emirates Airlines [as a customer of Boeing]. 

Thanks to this selectivity, the EIB has had favorable loan payment experience and operated profitably.  But why couldn’t private banks provide the export financing that EIB’s customers need?   Press release, CCAGW, 5/8/12.

“[EIB] often justifies its mandate by pointing out that it operates at no cost to taxpayers,” said CCAGW President Tom Schatz.  “While it is true that the bank makes a profit in some years, that is only possible because it does so much business with successful firms with excellent credit ratings.  If [EIB] were truly focused on filling ‘gaps in private export financing,’ those profits would disappear.  If Congress disagrees, and [EIB] can operate profitably and at no cost to taxpayers while doing work shunned by existing firms, it should be privatized.”


Similarly, columnist Tim Carney complains about the willingness of both parties to do favors for political allies (aka crony capitalism).  Just as Democrats support financing and other subsidies for renewable energy firms who are near and dear to environmentalists, Republicans and Democrats alike – heeding requests of the US Chamber of Commerce et al. – support government-supported export financing for the EIB’s customers.  Republicans thereby fail to draw a clear distinction between their policies and those of the Democrats.  GOP joins Obama in embracing crony capitalism, Washington Examiner, 5/9/12.  http://bit.ly/LgHXgI

Some members of Congress do say the EIB should be terminated as a matter of principle, such as Representative Justin Amash (R-MI).  It appears to us, however, that they are in a distinct minority.  Export-Import Bank is case of corporate welfare, Alison Meyer, Heritage, 5/4/12.

[This is] the kind of corporate welfare we should do away with. We should have a free-market system; taxpayers shouldn’t be on the hook for subsidized loans to anyone. I see it as just another Fannie Mae, Freddie Mac in the making and I have a bill to end it.”


Arguments for – Although the EIB could probably be dispensed with, backers insist that its operations have paid off in practice and there is no significant downside. 

Other countries support their export industries.  Don’t US companies deserve similar support? As for Brazilian offshore oil drilling, the Australian natural gas project, etc., China has promised financing support too.  Wouldn’t it be foolish for this country to stand idly by and let the Chinese government sew up natural resources around the world?

Remember too that the EIB’s operations have been well managed.  They have therefore contributed to US exports that create jobs in this country without any resulting cost to taxpayers. Shaky Export-Import Bank deal no portent of progress, Norman, Omstein (American Enterprise Institute), Roll Call, 5/9/12.

The [EIB] is a huge success story through numerous administrations of both parties and is under particularly strong management now. The [EIB] not only does not cost taxpayers a dime, it turns a dandy profit (almost $2 billion during the past five years) from its careful management of the fees it charges companies for loans and assistance.


Such pragmatic and political considerations underlay an agreement to renew the EIB charter through September 2014 (a four-year extension was initially proposed) and raise the bank’s commitment limit from $100B to $140B.  As a sop for conservative opponents, the bill calls for the Treasury Department to engage in “multilateral negotiations with foreign countries that have similar banks to reduce or end all export subsidies.”  The House bill passed last week by a 330-93 margin (all the “no” votes were cast by Republicans). House OKs bill to reauthorize Ex-Im bank, Tim Devaney, Washington Times, 5/9/11.  http://bit.ly/K5x6EG

This outcome delighted the business community, as evidenced by a statement of the National Association of Manufacturers.  Export-Import Bank deal reached, David Rogers, Politico, 5/7/12.

Leaders on both sides of the political aisle came together today to prevent the unilateral economic disarmament of the United States on the issue of export financing. Our international competitors are aggressively promoting exports and capturing markets, while some in Congress have been working to eliminate a vital tool for job creation. Today, Rep. Cantor and Rep. Hoyer displayed much-needed leadership to bring both parties together to save the Ex-Im Bank and protect nearly 290,000 jobs.


A dynamic situation – So far we have implicitly assumed that the EIB will continue to operate as it has in the past.  This is not necessarily true, and indeed changes have been proposed that could significantly affect the EIB’s operations.

First, the president has proposed that the EIB and several other trade-related organizations be combined into a new department, supposedly to achieve operating efficiencies. 

The proposal would reportedly combine some of the functions of the Office of the U.S. Trade Representative, the Small Business Administration, the Export-Import Bank, the Overseas Private Investment Corporation, the Trade and Development Agency, and certain trade functions of the Commerce Department into a single government entity. The White House says the move would save $3 billion over 10 years—barely a rounding error in Washington. The White House also says it would trim 1,000 people—again, a blip in the 2.1-million-person federal workforce, but not negligible.

Experience shows, however, that reorganization savings often fail to materialize unless programs or activities are eliminated (which does not appear to have been proposed). Obama’s trade agency consolidation proposal, Alison Acosta Fraser, 1/18/12, Heritage.

. . . Congress and the public should keep a sharp eye on the proposal, as government reorganizations have a way of starting out as plans to reduce costs and cut the size of the federal workforce and end up adding to both spending and head count.


It also occurs to us that the proposed “department of trade” (or whatever it would be named) might facilitate politicization of the EIB’s operations, which are currently said to be managed so well, e.g., by blurring the distinction between export (EIB) and small business (SBA) loans.

Suppose it was decided, for example, that “green” energy companies, companies located in urban development zones, or the like – which already receive government support of other types - should enjoy preferential access to EIB financing as well?  The question is not hypothetical; some biases of this nature have already crept into the EIB’s operations.

The bank has special programs for certain types of industries — green energy, for example — and certain groups of people (women, minorities). The conditions and preferences that the bank sets in its activities compound the market distortions stemming from the bank's intervention in credit markets, leaving the economy less efficient and less prosperous than it would be overall, even if certain firms or groups happen to benefit.

Second, there is reportedly a move afoot for the EIB to support domestic sales of US products as a means to offset the support of imported products by governments of other countries.  No longer limited to supporting exports, the EIB would have virtually unlimited discretion to determine who it would help to obtain financing. Expanding Ex-Im’s mandate is a big mistake, Sallie James, Cato Institute, 3/14/12.  

Any firm put at what [EIB] and treasury bureaucrats consider a "competitive disadvantage" by imports could conceivably apply for [EIB] assistance. It all sounds like a license to dole out favors.


We understand that the EIB guaranteed a $10M export loan for Solyndra, which presumably is uncollectable now.  And it recently provided $80M in financing for a solar power project in India, which most likely would not be proceeding otherwise due to “a general lack of available long-term financing at commercially feasible terms for solar projects in India.”  Clean Edge News, 4/26/12.  http://bit.ly/Kve7FH

If the protection of domestic sales were also on the EIB’s radar screen, the opportunities for politically motivated loans would be that much greater.

Conclusions –If one supports smaller, more focused, less costly government, as SAFE does, the EIB seems to belong in the category of government operations that should be eliminated.

But there are many battles brewing in the budget war, and the EIB has not done much harm thus far.

We would be concerned about alterations to the EIB’s charter or structure that could make the situation worse, e.g., by empowering the bank to defend domestic sales.

But so far as we know, the current renewal bill would not have this effect. 

On to more pressing problems . . .

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The Ex-Im Bank is just another federal subsidizer for all sorts of unsavory institutions, plus part of the bailout network. It's a taxpayers' nemesis, and a counterforce to stable economic policy. If the Republicans support continuation of the EIB, they are part of the problem.  Abolish the EIB and all like it. They are millstones around the neck of legitimate enterprise.  –  SAFE member (Georgia)

top      ww3@atlanticbb.net

5/7/12 – The student loan iceberg

The latest issue in the budget war is about a proposed extension of the halving of student loan rates that was enacted in 2007 and is scheduled to lapse on June 30.  Both parties have declared support for a one-year extension of the 3.4% interest rate, and the estimated cost is a trifling (by Washington standards) $6 billion.  However, the players can’t seem to agree on how to “pay for” the extension.

The situation illustrates several points: (A) Government programs that start small, with seemingly good intentions, can spiral out of control.  (B) Anticipated benefits tend to be outweighed by unintended consequences.  (C) Political battles are often fought over seemingly minor details instead of the real issues.

America’s political leaders need to raise the level of their game, and it is up to “We the People” to demand that they do so.  Going beyond the immediate issue, fiscal visionaries should demand that the student loan program be terminated or dramatically pruned. The idea may not be politically feasible right now, as the ensuing discussion will make clear, but it never hurts to ask.

A brief history: Federal government support for low cost student loans dates to the National Defense Education Act of 1958, which was enacted after the USSR’s launch of Sputnik raised concerns that this country was falling behind in science and engineering.

Then came the Higher Education Act of 1965, which among other things created a guaranteed student loan program (later known as Stafford Loans).  Under this program, the government paid interest accrued while borrowers were in college and also subsidized the interest rates they paid after graduation.

When reauthorizing the Higher Education Act in 1972, Congress rounded out the program to create “the basic charter of today’s federal student aid system.”  A history of college student loans in America, RandomHistory.com, 3/15/08.  http://bit.ly/n1RmrR

One 1972 change was to create the Student Loan Marketing Association.  Like Fannie Mae and Freddie Mac in the housing industry, “Sallie Mae” was a publicly owned, for-profit company.  It facilitated the student loan market by acquiring loans that lenders were not anxious to hold. SLM Holding Corp., FundingUniverse.com, circa 2000.

Since collection procedures made carrying student loans costly once they reached the repayment phase, many lenders sold student loans to Sallie Mae when the student graduated. Student loans were costly not because student default rates were high (defaults were guaranteed by the government anyway), but because they were relatively small loans that required a lot of work. In addition to the federal collection and reporting requirements that had to be followed to qualify for the government guarantee in the case of default, student loans were often complicated to keep track of. For example, students had to be granted deferments for unemployment, a return to school, or any of a host of other reasons. *** by 1988, Sallie Mae held 24 percent of all outstanding student loans.


In 1993, President Clinton proposed that the government take over the issuance of subsidized student loans on grounds that direct issuance would be more efficient and less costly than guaranteeing loans from private issuers.  Due to Republican opposition, it was agreed to phase in the new approach.  Time to end costly direct student loans, Matthew Spaulding, Heritage, 9/20/95.

[The agreed phase-in schedule]: 5 percent of loan volume in 1994-1995, 40 percent in 1995-1996, 50 percent or more in 1996-1998, and 60 percent or more in 1998-1999. The U.S. Department of Education in July 1994 began making direct loans to 104 schools, representing 5 percent of the loan volume. In a sign that schools are hesitating to participate, the 1995-1996 loan volume will end up at around 28.7 percent- far short of the 40 percent target.


The educational institutions enthusiastically participating in the direct loans program were not necessarily top tier schools.  Budget watch: President and Congress agree to prop up failing student loan program, NCPPR, 7/30/97.

Seventy-eight percent of all schools choose to use privately-run loan programs exclusively while only 8% of schools choose to use the direct lending program exclusively. In 1996, just 32 new schools joined the direct lending program. Of that number, 10 had student default rates of 20% or more. Only 10 of the new program participants this Fall will be four-year institutions. The program has instead become popular with such proprietary schools as the Desert Institute of Healing Arts (Tucson, AZ), the Chic University of Cosmetology (Warren, Michigan) and the Hypnosis Motivational Institute (Tarzana, California).


The student loan program continued to grow with a mix of lenders. A history of college student loans in America, RandomHistory.com, 3/15/08.

In its present state, the system of federal financial aid is “an amalgam of state programs, federal programs and tax credits, practices of private institutions, and programs of some private foundations and charities” (Archibald 2002). The consequence of this ramshackle architecture is “a bewildering maze of programs and options” that is chronically under-performing and in a constant state of deterioration (ibid 2002).


Still the student loan leader, Sallie Mae was taken private in a leveraged buyout.  Builder of Sallie Mae deal has a daring history, Michael Merced & Peter Edmonston, New York Times, 4/18/07. http://nyti.ms/IEu3ow

In 2008, amid growing concerns about the health of the financial markets, legislative proposals blossomed to “put taxpayers on the hook to finance increased student aid no matter what happens with lending companies.”  Inventing a student loan crisis, Neal McCluskey, American Spectator, 4/21/08.

[However], no students have actually reported an inability to get federal loans. And while several large firms, including HSBC and CIT Group, have recently stopped originating federal loans, J.P. Morgan Chase and other companies reportedly plan to expand their student lending operations. So while a shortfall in federal loan funding is possible, it's far from a clear and present danger.


The student loan rescue idea matured into a proposal that the government directly issue all subsidized student loans.  In addition to ensuring that everyone who wished to borrow for higher education could do so, it was said this change would save the government billions of dollars versus having guaranteed loans issued and serviced by for profit lenders. Student loan fix will prove costly, Neal McCluskey, Cato, 8/29/09. http://bit.ly/Kqx7SU

Enacted in 2010 as part of the GovCare legislation, the new student loan approach was credited by the Congressional Budget Office with “reductions in direct spending of $61 billion over the 2010-2019 period.”  How so when roughly $500B [other sources indicate new loans of more than $100B per year so this figure may have been understated] in direct loans would be going out the door?  Congress had previously required that a net present value estimate of the future cost of guaranteed student loans be charged to the budget in the year the loans were guaranteed, but this requirement did not apply for directly issued loans.  Also, an estimated $5B increase in administrative costs was ignored as the funds would be subject to future appropriation by Congress.  Letter of CBO Director Douglas Elmendorf to House Speaker Nancy Pelosi, 3/20/10, pages 6-7.  http://cbo.gov/publication/21351

Few members of Congress protested the government takeover of student loans; the focus was on the bitter battle over GovCare.  Private lenders did express concern about the effect on their operations, however, which going forward would be limited to issuing private student loans over and above loans issued by the government. Student-loan reform slipped into health[care] law, Washington Times, 3/29/10.

Edamerica’s Ms. Lubimtsev estimated the industry could see some 30,000 jobs lost because of the changes. Student-loan giant Sallie Mae has said that the overhaul law will lead to major internal consolidations and layoffs of more than a quarter of its 8,600 employees.


Note to Delawareans: In the process of retrenching, Sallie Mae moved its corporate headquarters from Virginia to Delaware.  Go, First State! http://1.usa.gov/cayV3v

Assessment: Outstanding student loan debt has grown rapidly over the years as a result of more students attending institutions of higher learning, colleges hiking their tuition rates faster than inflation, and rising delinquency rates.  Student-loan debt tops $1 trillion, NCPA, 3/26/12. http://bit.ly/HaxGyw

And even based on the more conservative estimates of the New York Federal Reserve, outstanding student loans now exceed either credit card debt or auto loans. Daniel de Vise, Washington Post, 3/6/12.  http://wapo.st/wkssxg

Many student loans are repaid with interest, so the cost to taxpayers – although substantial – is a fraction of the loans issued.  Likely losses can be estimated based on interest charged, historical default rates, etc.  It is difficult, however, to anticipate “changing default risks or future increases in federal loan forgiveness programs.”  What we spend on, and get from, higher education, Neal McCluskey, Cato, 10/27/11, page 4. http://bit.ly/HBWFwh (download PDF)

It was seemingly not enough to abandon the practice of charging the budget for estimated loan losses.  By some fiscal sleight of hand that we do not fully understand, direct student loans are now being shown as moneymakers.  See, e.g., the president’s proposed budget for fiscal year 2013, pages 98-100.

Fiscal year, dollars in billions




Student aid administration




Legislative proposal: Federal student loan programs








CREDIT ACTIVITY: Direct loan disbursements




http://www.whitehouse.gov/omb/budget/Overview (download PDF)

Fans of big government happily tout the benefits of encouraging young people to attend college and thereby enhance their lifetime earning potential.  And isn’t it great that no one will be barred from even the most elite schools based on their (or their parents’) inability to pay the applicable tuition (currently $50K+ per year)?

But the cost to taxpayers is real, while the benefits from subsidized student loans and other forms of government assistance for higher education have been considerably exaggerated. McCluskey study, op cit. http://bit.ly/HBWFwh (download PDF)

# Despite the statistical correlation between college or advance degrees and higher income, it does not follow that “the college wage premium” applies to all students.  “Looking at averages, one can miss a lot of data, and many people with college degrees might not get much economic value from them.”

This is certainly true for millions of student who sign up for higher education, “perhaps lured by the promise of government aid to pay for it,” but fail to graduate.  Note that (A) only 57% of 2001 starters on a four-year program completed it within six years, and (B) only 28% of 2005 starters on a two-year junior college or trade school program finished it within three years.

It is also true for students who migrate into training that is not highly valued by the marketplace. Certain engineering degrees can lead to lucrative careers, for instance, but “degrees in the arts or social work tend to lead to very low earnings.” Pages 12-16.

#Subsidized student loans are thought to be fueling “credential inflation.”  If most job applicants have degrees, employers may “screen out job seekers without degrees” whether the degree matters for the given job or not.  One study found that about 33% of bachelor’s degree holders are placed in jobs that do not require a degree.

Also, a mere bachelor’s degree carries less weight than it used to.  As competition for managerial positions stiffened, for example, some employers began to “expect” an MBA degree for access to corporate jobs.

Enhanced skills and knowledge probably are needed in the 21st Century for certain functions.  But if so, the additional expertise may be better acquired through on the job training and/or employer development programs than through ever more years of academic study.  Having young people stay in school through much of their twenties before going to work does not seem clearly desirable.  Pages 12-14.

#Subsidized student loans are supposed to make higher education more affordable, but they also make it possible for colleges to charge higher tuition, inflate faculty salaries, and “gold plate” their operations.  Thus, according to “Bowen’s Law” (named after economist and multiple-college president Howard Bowen), “colleges raise all the money they can, and spend all the money they can raise.”

Even if one rejects this somewhat cynical view, skyrocketing college tuition charges have undeniably created pressure to keep expanding the student loan program.  Page 17.  

In sum, the costs of the student loan program to taxpayers are being obfuscated while the benefits for students have been exaggerated. Doesn’t it follow that the program should be reexamined, particularly with the government facing a grave fiscal problem?

There is something to be said for young people making their own decisions about whether to attend college and where to apply.  Government subsidies may encourage decisions that are not grounded in economic reality.

After years of cultural bombardment, a college education has gone from being a means to an end - a successful career - to an end in itself. Parents who don't send their children to college lose status. American kids feel both entitled and pressured into getting a college education regardless of whether they have the intellectual capacity to profit from it, the work ethic to manage it, or the money to pay for it.

But instead of acknowledging the distortions created by subsidized student loans, advocates see opportunities for further government action. Before we know it, the government will be not only be encouraging students to go to college but trying to tell them – as the Chinese government is said to be doing now – what to study.  The root cause of market failure in higher education, Bill Frezza, Real Clear Politics, 11/28/11.   http://bit.ly/vwSxTz

In a similar vein, the US Department of Education has proposed a program for “aggressive new government involvement in American higher education.” Federal overreach into American higher education, Matthew Denhart, Heritage, 11/4/10.

One regulation would require higher education institutions to obtain authorization from their state governments in order to participate in federal financial aid programs. Historically, nongovernmental accrediting agencies have played the leading role in this certification process. A second would require certain educational institutions to demonstrate that their graduates find gainful employment, and a third regulation would impose a federal definition of what constitutes a “credit hour” in higher education.


Current skirmish: The College Cost Reduction and Access Act of 2007 cut the student loan rate from 6.8% (probably about the market rate at the time) to 3.4% (clearly below market given the likelihood that students who fail to graduate or find good paying jobs after graduation will default).  For whatever reason, the change was made for five years, with the higher rate to resume as of July 1, 2012.

Rising college tuition rates have inflated loan balances for recent graduates and borrowing requirements for students now in school.  Meanwhile, good paying jobs after graduation are in short supply; some half of recent graduates are said to be either unemployed or working in areas unrelated to their degree.  College, loans and the road to success, Cal Thomas, Townhall.com, 5/3/12.  http://bit.ly/IGLqo6

Predictably, younger Americans are disenchanted with student loans, etc.  Here is how SAFE director Daniel Kerrick describes the mood in his age cohort:

Most of the 30 year old crowd I talk to is saddled with student loan debt, they're working harder wherever they're employed, and their wages have been static for Obama's entire presidency.  So they're not happy.  I have not heard anyone specifically address the interest rate situation, but the general theme I hear is uncertainty. 30 year olds don't know what the next year will bring, and they can't plan anything.  

Well aware of the potential clout of young voters (who decisively affected the 2008 election results, but have sat on the sidelines in other elections), the president et al. are gunning for their support. And as student loans (unlike most debt) is not dischargeable in bankruptcy, the government faces no competition if it chooses to play Santa Claus. 

One step was administrative action (made possible by the previous federal takeover of the student loan sector) to place new limits on collection of student loans.  Obama taps taxpayers for student stimulus, Chris Stirewalt, Washington Examiner, 10/26/11.

Take this example: If Suzy Creamcheese gets into George Washington University and borrows from the government the requisite $212,000 to obtain an undergraduate degree, her repayment schedule will be based on what she earns. If Suzy opts to heed the president’s call for public service, and takes a job as a city social worker earning $25,000, her payments would be limited to $1,411 a year after the $10,890 of poverty-level income is subtracted from her total exposure.  Twenty years at that rate would have taxpayers recoup only $28,220 of their $212,000 loan to Suzy.


Championing a freeze on student loan rates is another step to court this voting bloc, especially if Republicans can be painted as opposing the idea. Obama struggling to win back the under-30 crowd, Susan Ferrechio, Washington Examiner, 4/28/12.

Last week, Obama traveled to college campuses in [Colorado, Iowa and North Carolina] to promote legislation that would freeze student loan interest rates. The president used the trips to denounce Republicans as indifferent to the struggles of young people and unwilling to act to prevent Stafford Loan rates from doubling to 6.8 percent on July 1.


By way of illustration, here are some snippets from the president’s North Carolina speech.  Transcript, 4/24/12.

Five years ago, Congress cut the rate on federal student loans in half.  That was a good thing to do.  But on July 1st -- that’s a little over two months from now -- that rate cut expires.  And if Congress does nothing, the interest rates on those loans will double overnight. *** So stopping this from happening should be a no-brainer.  Helping more of our young people afford college, that should be at the forefront of America’s agenda.   *** And yet, the Republicans who run Congress [actually just the House of Representatives] right now have not yet said whether or not they’ll stop your rates from doubling.  We’re two months away.  Some have hinted that they’d only do it if we cut things like aid for low-income students instead. 


Republicans quickly announced support for an interest rate freeze – never mind policy, it would have been politically difficult to do anything else – and passed a bill in the House to prove it.  The bill included a “pay for” provision, however, that the president had already threatened to veto.  House defies Obama to pass student loan bill; GOP needs Democratic support [13 votes, due to 30 Republican defectors] to push bill through, Stephen Dinan, Washington Times, 4/27/12.   

The 215-195 vote puts the House GOP on a collision  [course] with the Senate, where Democrats also want to extend the subsidies — but would rather raise taxes on a type of income from business partnerships to fund the new spending.


Suggesting elimination of a prevention fund in GovCare was politically maladroit, and House Minority Leader Nancy Pelosi pounced.

In order for your [child] to go to college … we’re not going to be able to have preventative care, in terms of screening for breast cancer, cervical cancer, the list goes on and on.

Reporter Emily Miller concluded that the Republicans had been outplayed again, as they were on the payroll tax cut extension, and predicted Senate Democrats would be slow to let them off the hook. Obama’s loan trap; Republicans will lose the youth vote without a better strategy, Emily Miller, Washington Times, 5/27/12. 

The Republican misstep has set up a fight during the last week in June over who cares more about young people. Instead of focusing on which party platform would create economic conditions most likely to encourage future success, the debate is now over who can dole out the most freebies - a game Democrats know how to play best.


Hmm, might it actually have been safer to block the student loan interest freeze based on policy consideration instead of pandering to the youth vote?

First, the alleged harm to student lenders was grossly exaggerated by the president and his supporters and college graduates would not be affected at all.

While the president tells college students their loans will go up $1,000 unless Congress acts, the truth is only new loans taken after June 30 would be affected.  Even then, those students won’t have to start making loan payments for at least four-and-a-half years. By then, they’ll pay an extra $7 or so per month. If Mr. Obama fails in his re-election bid, these new graduates most likely will have an easier time of landing a job that will allow them to pay back this amount.

Second, Miller’s idea of establishing an inventory of “pay for” offsets that are not subject to political attack is a pipe dream.  All spending programs have supporters who will fight to the last breath, so votes for any spending cut are subject to political attack.

As a political matter, our suggestion to Republicans would be to stick to the bill they passed.  If it was blocked in the Senate or vetoed by the president, the GOP could legitimately say Democrats were responsible for doubling student loan rates.

OK, they would have to stand up to rhetoric like the president uncorked in a Virginia speech last Friday.  Obama slams Congress during Virginia visit, Hayley Peterson, Washington Examiner, 5/4/12.

“The House Republicans are saying they are only going to prevent these rates from doubling if they can cut things like preventive health care for women,” Obama told a crowd of high school students and parents at Washington-Lee High School in Arlington. "We shouldn't have to choose between women having preventive health care and young people keeping their student loan rates low."


But politics is not a game for the faint-hearted, and it is imperative that the nation’s leaders stop justifying ever more government spending and start cutting the programs that are in place.  Otherwise, a fiscal meltdown is inevitable – and it will be far worse than most people imagine. 

What do you readers think?  We’d love to hear from you.

top      ww3@atlanticbb.net

4/30/12 – Beware the Debt Bubble          Read replies

Most observers would agree the current economic situation is dismal, but there seems to be some confusion about what to call it. 

One name in vogue is “the Great Recession.” This conveys the idea that the current economic slump is not so deep as the Great Depression that blighted the 1930s, yet is graver – and should therefore be expected to take longer to deal with - than other recessions since World War II.  Great Recession sounds a bit contradictory to us, however, like talking about a “great” Category 2 hurricane.

Or one could reference the period of economic instability that began with the subprime crisis and bursting of the housing bubble in 2007-2008 and has continued ever since, but this is rather a mouthful.  Besides, the situation has evolved over time and no longer seems like the financial system panic that it started out as.

Our suggestion would be to call the current economic situation “the Debt Bubble.” Like the term “stagflation,” which was coined to describe the economic malaise of the late 1970s, this name is short, catchy, and identifies the key economic problem of our time.

It could even influence the outcome, as will be explained later, but let’s start at the beginning.

September 2008: There was consternation in the nation’s capital when Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke lobbied Congress for a $700B bailout package.  The stated purpose for the funds was to buy complex financial securities because, after a sharp fall in the values of mortgage-backed securities and housing, no one could figure out what the collateralized debt obligations, credit default swaps, etc. held by financial firms and investors around the world were worth. Without the package, warned this redoubtable duo, the financial markets might collapse. 

The House voted down the package, was intensely pressured, and capitulated.  For reasons that were never explained to our satisfaction, most of the $700B was loaned to banks and other firms rather than being used to buy distressed financial securities.

SAFE supported the bailout package, unlike many fiscal conservatives at the time, on grounds that a global financial collapse was too dire a risk to run, but we stressed the necessity of also facing up to the next financial crisis.  Are we there yet? 9/29/08.

We think a fiscal meltdown is on the horizon, and that it is time to have an adult national conversation about it.  If the public continues to sit back and rely on the folks up front to steer the ship of state towards the Promised Land, periodically asking “are we there yet,” the result may be a calamity too big for anyone to fix.

If US political leaders or the mainstream media were aware of our suggestion, they paid no attention to it. Time to get real, 10/6/08.

Vice-presidential debate: There were no questions – let alone answers – about the longer-term fiscal crisis looming on the horizon.

The first presidential debate was similarly devoid of content in this regard, and there are only two presidential debates left.

Several months later, it seemed timely to reconsider our conclusion that the longer-term inability of the government to continue servicing its debt on acceptable terms was the critical problem.  We acknowledged having underestimated the gravity of the immediate economic slowdown (now retroactively classified as a recession), but stressed the need to proceed with caution.  Recession plus: could this be the big one?  3/9/09.

The current recession arguably justifies massive government intervention, including actions already taken and actions that have been proposed.  But such intervention could speed the onset of another crisis – the fiscal meltdown that SAFE and others have been warning about.

Picture a gymnast on the balance beam, whose right foot comes down partly off the beam.  Over compensating, she winds up toppling to the left.

So while it would be unrealistic to sit back and let the recession run its course, there is every reason to intervene with surgical precision and a clear recognition of the challenges that lie ahead.

Far from being surgically precise, however, the economic rescue efforts were massive and haphazard.  Federal government spending soared, with some $6 trillion in debt added between 9/30/08 and 9/30/12 (estimated). The Federal Reserve Bank pursued extraordinarily relaxed monetary policies without regard to the risk of igniting double-digit inflation.  And withal, the US economy has remained in the doldrums. 

Where things stand: The housing bubble and mortgage-backed securities bust that began in the US and sent shock waves around the globe have not yet fully run their course, but there is no longer an apparent danger that major private sector firms will collapse. The key challenge has morphed into coping with a rapid run-up in government debt.  The rising burden of government debt, Brookings Institution, 11/1/10.

The level of aggregate net government debt in the world rose from $23 trillion in 2007 to an expected $34 trillion in 2010. IMF forecasts indicate the level will reach $48 trillion in 2015. The ratio of world debt to world GDP rose from 44 percent in 2007 to 59 percent in 2010, and is expected to climb to 65 percent in 2015.

For the most part, debt is concentrated in countries with advanced economies and large social welfare programs (figures 2-3): 

Global distribution





Net Debt


Net Debt


Net Debt
















Other advanced economies







Emerging (China, India, et al.)














In terms of net debt to GDP, the number of developed countries in the 80%+ red zone is on the rise (figure 6).  And focusing specifically on this country, gross US debt (including trust fund IOUs, which although notional are dwarfed by unfunded liabilities) has risen from 71% of GDP as of 9/30/08 to an estimated 105% as of 9/30/12.  Ouch!




Four (Italy, Greece, Singapore, Japan)

Six (Greece, Japan, Italy, Belgium, Singapore, Portugal)

Nine (Japan, Greece, Italy, Portugal, Belgium, US, France, Spain, UK)


Once debt rises into the red zone, it is difficult to reverse the trend.  Governments find it politically convenient to keep borrowing to support their spending habit until lenders demand painfully high interest rates, at which point an explicit or implicit (e.g., expansion of the money supply causing rapid inflation) default on the debt is the typical result.  This time is different; eight centuries of financial folly, Carmen Reinhardt & Kenneth Rogoff, Princeton University Press (2009).  http://www.s-a-f-e.org/this_time.htm

An intense debate is now in process as to whether the US government should start reducing its deficit (forecast as $1.3T for the current fiscal year) or continue present policies in hopes that massive deficit spending will revive the economy and lead to an improved long-term outlook.  Bitter budget battle building, 4/9/12.

The budget showdown has developed fast and turned nasty (almost personal).  The Republicans have the better argument on the merits; the Democrats will attempt to discredit their motives or change the subject.  Fiscal visionaries should demand a fact-based, logical debate.

In our view, the budget can and should be balanced – as soon as may be reasonably possible – to minimize the damage from the reckless spending and borrowing spree that was begun in 2009.  We see little resulting risk of tanking the economy.

Others disagree, claiming that continuing economic stimulus will be required to reboot the economy.  See, e.g., letter to the editor, [Wilmington, DE] News Journal, 4/28/12.

[The stimulus package in 2009] was not really large enough to patch the gigantic hole that had been created, but at least it turned us around so that we emerged from the recession within a few months, and ever since, the economy has been improving and jobs have been added, albeit far too anemically.  [Fie on the Republican Party, which has] succeeded in turning the national conversation – just like in Europe – to deficit reduction instead of economic recovery, long before it made any economic sense to do so.

But our concern that a fiscal meltdown could strike unexpectedly and do a great deal of damage is generally acknowledged by informed liberals as well as conservatives – if only in the interests of self protection. [Federal Reserve Chairman Ben] Bernanke points to increased “possibility of a sudden fiscal crisis,” Matt Cover, CNSnews.com, 2/7/12.

Even the prospect of unsustainable deficits has costs, including an increased possibility of a sudden fiscal crisis. As we have seen in a number of countries recently, interest rates can soar quickly if investors lose confidence in the ability of a government to manage its fiscal policy.


There is a similar split of opinion about the policies of the Federal Reserve, with monetary doves stressing the overriding importance of juicing the economy.  Time to reset the central bank, 4/16/12.

A bit of inflation must be accepted to ensure a sustained recovery, coo some economists, notably Paul Krugman of Princeton, while glossing over what level of inflation might be thought excessive.

Fed Chairman Bernanke has shied away from Krugman’s enthusiastic advocacy of inflation, albeit implicitly toeing the same policy line.  Bernanke calls Krugman “reckless,” Mike Shedlock, Townhall.com, 4/28/12.

“The question is, does it make sense to actively seek a higher inflation rate in order to achieve” a slightly faster reduction in the unemployment rate, Bernanke said yesterday to reporters after a Federal Open Market Committee meeting. “The view of the committee is that that would be very reckless.”


The economic situation is darker in Europe than here, at least in the short term, and absent continuing action to prop up half dozen governments with heavy debt the Eurozone may contract or collapse.  Even France is on the rocks, with a Socialist victory expected in the May 6 runoff election.  United States of France, Jeffrey Kuhner, Washington Times, 4/26/12. 

The French economy is stagnant, weighed down by a bloated welfare state. High taxes and runaway spending have led to economic sclerosis, severe unemployment and soaring deficits. France’s debt-to-gross-domestic-product (GDP) ratio is at 90 percent - the tipping point at which it is almost impossible for a nation to avoid bankruptcy.


There has been a chorus of demands to relax the pressure on improvident governments to get their fiscal houses in order.  Why can’t everyone see that the European Central Bank should start providing unlimited monetary resources to bail everyone out instead of forcing reliance on halfway expedients such as having the International Monetary Fund pass the hat for an anti-speculation fund?  IMF encourages Europe’s economic suicide, Ambrose Evans-Pritchard, UK Telegraph, 4/22/12.

Central banks have to take the risk onto their own balance sheets, not fob it off onto distressed lenders. They must act with overwhelming force, taking the possibility of sovereign defaults off the table entirely. The ECB has not done so.


The strongest resistance to this siren song resides in Germany, where the hyperinflation that decimated the middle class in 1923 and sowed the seeds of World War II has not been forgotten.  Austerity’s advocate: a date with Dr. Nein (Jen Weidman, president of the Deutsche Bundesbank), Peter Coy, Business Week, 4/25/12.

#Backers of “growth now” warn that austerity is plunging Europe into a depression in which fiscal stringency reduces growth, drying up tax revenue and forcing even deeper spending cuts, and so on in a downward spiral.


#[Weidmann] rejects the argument that the European Central Bank is “the last man standing” in the euro zone and must therefore bend its rules to make money easier and credit more freely available. His prescription for growth is “structural reform”—exercise and diet for an out-of-shape patient, not more medicine.


It remains to be seen whether German support for fiscal responsibility will prevail or be overcome. Miracles do happen: someone in Brussels accurately analyzes Europe’s fiscal crisis, Daniel Mitchell, Townhall.com, 4/24/12.

Frederik Erixon of the European Centre for International Political Economy: Europe’s crisis economies will now have to radically reduce their welfare states. State spending in Spain will have to shrink by at least a quarter; Greece should count itself lucky if the cut is less than a half of the pre-crisis expenditure level. *** [Longer term,] the cost of pensions will rise and providing health care for the elderly will be an even bigger cost driver. This demographic shift will be felt everywhere, including in the Nordic group of countries that has been saved from the worst effects of the sovereign-debt crisis.

Mitchell: While I agree that current trends are unsustainable, I fear that the “optimistic” scenario is for governments to semi-stabilize their finances with both taxes and spending consuming about 50 percent of gross domestic product.  That’s obviously far beyond the growth-maximizing size of government, which means European nations  – on average – would be condemned to permanent economic stagnation.


The path forward:  Those who succeed in framing the issue have the best chance of winning a debate.  So long as we are thought to be experiencing “the Great Recession,” there will be a tendency to think of rising government debt as an unavoidable by-product of government efforts to promote full employment.  Such a view is unlikely, however, if government debt is seen as the primary problem.

If a Debt Bubble is in process, the natural policy response would seem to be cutting government spending before a lot of people get hurt.  Bingo! We think this would clearly be the best policy response on both sides of the Atlantic.

Remember that there is more at stake than the economic need to balance the budget, important though that may be.  The independence and self-respect of millions of productive citizens being conditioned to rely on government handouts also hangs in the balance.  Christie the prophet, Michael Tanner, National Review, 4/18/12.

This is the real danger of the welfare state. It’s not that it will bankrupt us — though it will. It is that it slowly and insidiously destroys our national character, saps our will to be great, and makes us content with the way things are rather than how they could be. We have seen where this road ends. As Governor Christie warns, it “will not just bankrupt us financially, it will bankrupt us morally.”


So let’s hope the Debt Bubble is deflated before it is too late!

*        *        *        This Blogs Replies        *        *        *

Rapid elimination of the budget deficit would tank US economy in the short run; it’s simple math (40% deficit x 25% of economy = 10% hit to GDP).  On the other hand, soaring debt has reduced the potential economic growth rate by two percentage points and this drag effect will keep getting worse.  There being no apparent will to make material spending cuts in any area other than defense, I see no hope for a “soft landing.” – SAFE director

Yale economist Robert Shiller sees the world in a “new age of austerity,” which is akin to “the late Great Depression.”  Quantitative Easing “might help,” but is unlikely to offset the general mood of austerity.  The outcome will not be simply a matter of economic variables, but how people react to the situation. http://bit.ly/IIDsZH (9+ minute video of Shiller interview on Squawk Box Europe.)

Generally, the debt for other countries reflects their total debt.  In our case, we have all the state debt over and above national debt.  I don't know what our total state debt is, but I'll bet that it plus national debt would be even more staggering. Can we ever repay? – SAFE director

Well worded - I like it. – SAFE director

top      ww3@atlanticbb.net

4/23/12 – Fiscal visionaries should be positive when possible

Americans may understand that the budget needs to be balanced, we recently commented, but they don’t appreciate incessant “we can’t afford it” responses to the relentless litany of stories about deserving and/or needy people who will suffer if spending programs are cut.  Bitter budget battle building, 4/9/12.

Then we chanced to re-read a classic little book about advertising, which advocates presenting one’s wares as a positive solution to the public’s interests and concerns.  Lessons from Madison Avenue, SAFE newsletter, Spring 2012.

It is not what you think you can do for your prospective “customer” that counts; it is what your prospective “customer” thinks you can do for him! 


Eureka! Maybe fiscal visionaries would do better to offer some positive ideas for a change instead of harping about out of control spending and debt.

There is an issue in play that makes the point, namely the donnybrook over the Keystone XL Pipeline since the president chose to delay approval until after the elections to avoid offending environmentalists who oppose this energy project (or any other that would promote the efficient use of fossil fuels).  Obama faces choice on Keystone pipeline: big labor or big green, Washington Examiner, 11/7/11. http://bit.ly/JmDta5

Republicans say the Keystone project would create jobs, boost the economy, and contribute to reducing the fiscal problem – which is more than can be said for the government’s renewable energy programs.  The GOP has pushed for expedited approval, forcing the president to say “no” repeatedly, and Democrats seem increasingly reluctant to support the president’s position.   

Provisions in the pending transportation bill would transfer Keystone from the president’s purview to that of the Federal Energy Regulatory Commission. Having no sound reason to do otherwise, FERC would presumably approve this long studied project.  The House passed the transportation bill last week by a veto-proof majority, and it will be nip and tuck whether the Keystone provision can be stripped out in the Senate.  If not, the president will either sign the bill or make good on his veto threat – taking a political hit either way.  Obama faces defeat on Keystone pipeline, Byron York, Washington Examiner, 4/20/12.  http://bit.ly/Jc9lKP

How sweet to be able to say “yes” for a change and win a policy victory anyway!  But the other side is seldom as politically tone deaf as they seemed in this case, and the tactic of making positive public promises should be used judiciously.  Here are three suggestions for either party in the fiscal area: don’t waffle – don’t pander – don’t squabble.

Don’t waffle: When “no” is the right answer, there is no substitute.  Still, there may be better ways to explain your position than to keep apologetically mumbling that “we can’t afford it.” 

Ever notice how few federal government programs get terminated or even decisively pruned?  No wonder, when would-be budget cutters typically start from the premise that the overall program or activity is of value and cuts must be justified on a by exception basis.  How not to make the case for terminating federal programs, Tad DeHaven, Townhall.com, 4/9/12.

Yes, we should cut spending instead of going deeper into debt. Yes, a program’s ineffectiveness is a reason to cut it. But even if the federal government was running budget surpluses and a particular program wasn’t a complete disaster, there’s a darn good chance that the program in question should still be terminated.


Instead of putting all the weight on budgetary constraints, fiscal visionaries should be willing to explain that some major government programs – such as the federal Department of Education - are not worth the taxpayer money being “invested” in them. 

Once that point has been made, one should be able to propose bold action to solve the fiscal problem without being accused of having a “Chicken Little” complex.  And maybe, just maybe, support would develop from folks who are not overly fond of the tax increases that will inevitably be proposed to pay for the ever larger and more intrusive government that is being created.

Don’t pander: It is human (or chimpanzee) nature to emulate high status leaders.  Thus, instead of differentiating themselves from Democrats by supporting limited government, the GOP has at times exhibited a big government mindset of its own. 

The political results have been mediocre; one doubts Republicans will profit from betraying their political base in search of votes from the other side. Leviathan on the Right, Michael Tanner, Cato Institute (2007).

The Republican Party lost Congress in 2006 [and the White House in 2008] at least partly due to fiscal laxity, and it will not regain traction without returning to its small government principles.  “If [the American people] come to believe that the choice is between liberal Democrats who will give them lots of things and big-government conservatives who will give them a little bit less,” says Tanner, “they will choose the liberal Democrats.”


Fast forward to the present, when the prime fiscal initiative of the president et al. seems to be the so-called Buffett Rule.  You know, it’s just common sense that a billionaire like Buffett should pay a higher tax rate than his secretary, so why not enact a new version of the Alternative Minimum Tax to make this happen? Sounds reasonable, except -

First, the Buffett Rule would have a miniscule impact on the overall fiscal problem – even if all the projected increase in tax revenue (some $50B over ten years) materialized and was applied to reduce the deficit (the actual plan seems to be using the funds to support spending programs). 

Second, Buffett’s income consists primarily of dividends and capital gains from investments that are also taxed at the corporate level.  We believe such double taxation of business income is inappropriate, for which reason we eliminated it in SAFE’s SimpleTax proposal (instead of making the problem worse as the Buffett Rule would do).

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. 


Moreover,  Buffett’s income and assets are dependent on continued business success, whereas his secretary’s salary is assured so long as she is employed.

Third, the timing is patently political.  There was nothing to stop Democrats from enacting the Buffett Rule before they lost control of the House in 2010, so why didn’t they do it then.  The Republicans will block the proposal now, so the proposal no longer has real world significance.  The unanswerable question about the Buffett Rule, Michael Medved, Townhall.com, 4/18/12.  http://bit.ly/HXRY0H

We think these points should be sufficient to dismiss the Buffett Rule as a cynical political ploy.  But some strategists believe the issue will help Democrats because many Americans favor requiring the wealthy (perhaps including Mitt Romney) to pay higher taxes.  Obama loses vote on “Buffett,” gains tool; Democrats vow to bring it up repeatedly, Stephen Dinan, Washington Times, 4/16/12.

The Buffett tax has failed in the Republican-controlled House multiple times. *** Still, the tax has proved to be popular with voters, according to pollsters, who say support stands at better than 50 percent.


If House Republicans were working on a comprehensive tax overhaul, thereby attempting to convert a negative into a positive by showing leadership in the tax area, we would be delighted.  That is exactly what we said they should be doing earlier in the year.  House Ways and Means should get moving, 2/27/12.

Don’t argue about the expiring Bush tax cuts in December; overhaul the tax system now.  Revenue should be collected in a manner that is simple, efficient, and fair.  Our tax plan (http://www.s-a-f-e.org/the_simple_tax.htm) may represent a useful template.

Instead, the Republicans have developed a phony tax proposal of their own.  It is a one-year tax reduction for small businesses (500 employees or less), which would increase the current deficit by some $46B without any discernible effect on job creation.  (Business investment tends to be driven by long-term expectations about revenues, costs, regulations and taxes, not one-year tax cuts.)  House Republicans proposing 20% small business tax cut, Richard Rubin, Bloomberg Businessweek, 3/22/12. http://bit.ly/Jn99w4

The president has rightfully announced his opposition to the bill, which in any case stands little chance of passage in the Democrat-controlled Senate.  Obama threatens to veto Cantor’s small business tax cut, calls it a “giveaway,” Peter Schroeder, the Hill, 4/17/12.


By emulating the Buffett Rule proposal, Republicans missed an opportunity to show they were taking a more serious approach to taxes than their political opponents.  Too bad!

Don’t squabble: In the budget area, Republicans have a distinct edge in terms of substance.  Thus, the House has passed a budget framework that, while not exactly austere, would compare very favorably to the FY 2013 budget that the president submitted in February.  House budget opponents circle the wagons, 3/26/12. 

Senate Democrats appear intent on ignoring the House budget (or any other budget proposal) lest they might be blamed for current and projected deficits.  What a concept, that members of Congress might be held accountable for the damage they do!

True, Budget Chairman Kent Conrad has started hearings on the Bowles-Simpson plan (2010, not adopted by the Fiscal Commission), but committee members will not be allowed to propose any amendments nor will any votes be taken before the elections.  Democratic senators on the committee have demonstrated their disdain for the proceedings by showing up only to make statements.  Democrats not even attending budget meetings anymore, Conservative Byte, 4/20/12. http://bit.ly/JcS7iN

For his part, the president has threatened to veto any appropriation bills that may be proposed on grounds that the House budget calls for a $19B (1.7%) reduction in overall discretionary spending versus the overall cap spending cap specified in the August 2011 debt limit increase deal.  Really, the leader of the free world is threatening to shut down the US federal government over a budget cut of this magnitude?  Such a position borders on the surreal!  New spending clash looms: Obama threatens veto on House bills that would raise caps, Rosalind Helderman, Washington Post, 4/18/12. http://wapo.st/Jxz3sz

If most of the players are ducking the fiscal problem or hiding behind phony, politically motivated proposals, one would think they could at least interact with each other like adults.  But apparently, even this is too much to ask.  This country is in real trouble!

One more thing: We noted a recent report about “the huge amounts of debt pilled onto American citizens by an irresponsible government and politicians.”  The description sounded like the federal situation, but the author was talking about the state finances of Pennsylvania – which in theory should have been fixed by the Republican regime that was voted in two years ago.  Joe Hilliard, Leadership in Liberty newsletter, 4/19/12.

For those who believe that mere elections and changing party labels is enough to “fix things,” I hope you begin to wake up.  We no longer have Governor Ed Spendell to blame and the Republican Party is in firm control in Harrisburg.  And in two years, they will add $2.97 Billion of debt in Harrisburg.  THREE BILLION DOLLARS!


The federal election results in November may have a salutary effect, let’s hope so, but experience shows it would be unwise to rely on this.  There is no substitute for Americans starting to pay attention to the fiscal problem and rejecting phony or ill-advised solutions. 

If that is not what people want to hear, too bad, because it’s the truth.

top      ww3@atlanticbb.net

4/16/12 – Time to reset the central bank

Switching gears, let’s talk about an area of government that tends to operate under the radar because it is viewed as outside the political (shudder!) process. 

We’re referring to decisions of the Federal Reserve System re creating money, setting short-term interest rates, and buying or selling securities (which makes it possible to influence long-term interest rates). For all the Fed’s claims of independence and impartiality, such decisions impact the interests of the haves versus the have-not.  They are therefore inherently political. 

The Fed was created to maintain monetary stability, but Congress has seen fit to give the central bank responsibility for promoting full employment as well.  The potential for conflict in this dual mandate is obvious.  Even if it would be highly inflationary, easy money policy can be justified in the name of promoting economic activity and job creation.

Moreover, under Chairman Ben Bernanke, the Fed seems to have developed a savior complex that could promote ill-advised decisions.  Consider this rumor, which surfaced last summer shortly before a deal was struck on raising the debt limit. Bernanke to bail out Obama debt, John Ransom, Townhall.com, 7/29/11.

One Wall Street source has told me that . . .the Federal Reserve will stand in as the buyer of record on maturing Treasuries, therefore taking care of principal payments. The Treasury Department would then presumably only have to pay interest on the debt. *** As far fetched as it may seem, politicians have already gone to desperate measures in order to avoid taking responsibility for the debt mess the country is in.  And nothing would surprise me now as debt turns to desperation.


Bernanke insists the Fed can and will keep inflation under control, but we are not convinced.  Gas and food prices are already spiking up (despite efforts to downplay them) – to combat a sharp inflationary uptick it would be necessary to slam on the monetary brakes – that would inconveniently kill the “good news” of an economy on the mend.   A tale of two videos, 3/19/12.

Even if nothing major goes awry between now and November, excessive monetary ease could cause serious problems over the longer term.  The dangers include asset bubbles, artificial stimulation of consumption vs. investment, and double-digit inflation (last seen in the US under President Carter).  So why is the Fed doing this? 

Theory 1: insurance - It is imperative to prevent deflation, the public has been told, so the Fed must err on the side of caution by accepting a bit of inflation.  We were never sure what was thought to be so dreadful about falling prices, isn’t that Wal-Mart’s business mission, but at least the issue sounded like a proper central banker concern.  What’s this “QE2” all about?  Bill Butos, Christian Science Monitor blog, 10/18/10.  

Chairman Bernanke’s October 15 speech on “Monetary Policy Objectives and Tools in a Low-Inflation Environment” at the Boston Fed Conference argues that deflation will seriously handicap implementing countercyclical monetary policy given the zero bound on nominal short term rates. The Fed’s current (and implicit) inflation target of 2% is meant to ensure adequate maneuverability for Fed discretionary monetary policy.


In November 2010, following massive securities purchases in 2009, the Fed embarked on a second round of Quantitative Easing (QE) to buy $600B in securities. Chairman Bernanke announced QE2 on the day after the elections and the program was completed by mid-2011. 

Over the past year, the Fed has refrained from injecting additional liquidity into the financial system.  Bond purchases continue,