SAFE’s “hit nail on head” blogs:   2013

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12/23/13 – Not by bread alone


Although the economic picture has brightened in recent months, the gains won’t last without structural changes.  Slash wasteful spending – restructure entitlement programs – overhaul the tax system – rationalize regulations – rein in the Federal Reserve.


Some political leaders agree with us, but they are not in the majority.  Perhaps conservatives will gain ground in the mid-term elections, which many envision as a referendum on GovCare.  Even if Republicans (not all of whom are conservatives) recapture the Senate, however, the Democrats will control the White House and the vast government bureaucracy until at least the end of 2016.


In order to win longer term, conservatives (or fiscal visionaries) will need to raise the level of their game.  Developing sound proposals and supporting them with facts and logic is not sufficient.  Our side must also learn to tap into the emotional chords that drive human action.  And the best way to do this is by telling stories.  Story power: the hero’s journey, Rich Karlgaard, Forbes, 11/18/13.


In fact and fiction, as well as in religion and secular life, the hero’s journey is an eternally appealing story: Abraham Lincoln, Jesus Christ, Luke Skywalker, a near-crippled Kirk Gibson hitting a game-winning home run for the Dodgers in the 1988 World Series opening game.  The mystery is why businesses [or conservatives?] are so reluctant to tell their stories in this way.


Two days before Christmas, what better time could there be to tell a few stories that have touched our heartstrings and might inspire others as well?  And as readers may recall, we did something similar last year. “Five golden rings,” 12/24/12.


A. The little engine that could – This story originated with a children’s book published in 1930.  It seems that some rail cars need to be pulled over a mountain, and the big train engines decline to take on the task.  A little engine volunteers to give it a shot.  “I think I can, I think I can.”  The mantra becomes more hesitant as the climb grows steeper, but changes to a triumphant “I thought I could, I thought I could” after the engine reaches the top and races downhill. Wikipedia, accessed 12/17/13.


In a film based on the story, which yours truly remembers watching with a grandson, the train’s cargo is specified as toys for the girls and boys on the other side of the mountain.


In a third version, which may have been adjusted to fit someone’s ideas of political correctness, the gender of the little train is specified and “she” succeeds by joining forces with another little train – thereby extolling the power of teamwork (“we think we can” vs. “I think I can”).


Moral: Don’t be afraid to try things, even if you are small; you may be able to accomplish more than people expect.


 B. First job – Dr. Ben Carson is a very successful person, who enjoyed a distinguished professional career (director of pediatric neurosurgery at Johns Hopkins, recently retired).  He has also written five books including “America the Beautiful” (number one on the New York Times bestseller list in 2012), and spoken at events all over the country. 


Carson’s family background was humble, however, and his path in early life far from easy.  Thus, he had “a long list of different types of jobs as [he] was growing up,” most of which were not very glamorous.  But the future brain surgeon was not looking for glamour, he was looking to make himself useful and set the stage for bigger and better things. Getting to the top by starting at the bottom; the lessons learned in youth jobs can pay off later, Washington Times, Ben Carson, 12/3/13.


His first job with a regular paycheck was as a high-school biology-lab assistant.  It was exciting for Carson to be receiving a salary and contributing to the support of the family household, but even better he was “doing something important” and “acquiring skills that would prove useful in the future.”  While still in high school, he would land a lab assistant job at a well-known university – chosen over college students because he had “the advantage of experience.”


Other jobs included mailroom clerk, payroll office clerk, student assistant to the police department, supervisor of a highway cleanup crew, and “a much higher-paying factory job” that “eventually led to my dream summer job of driving very fancy, new sports cars off the assembly line.”  Carson viewed each job as a learning experience, which would enable him to learn new skills and prepare for better jobs in the future.


Here are some thoughts for youngsters today, who face a job market that Carson aptly characterizes as “quite challenging.”


First, those who are simply interested in “being sustained” may find they can collect as much if not more from the various forms of welfare benefits that are available than they can get by working.  But taking a minimum wage job makes sense for those whose “goal is to pursue the American dream,” because one can learn from it and move up.


Second, don’t restrict your job search to perusing want ads and Internet notices, which might lead you to conclude there are no jobs to be had.  Carson’s strategy back in the day was to personally visit small businesses and identify himself as a college student home for the summer and seeking employment.  “This was almost always successful,” he recalls, “because many of the small businesses did not have an advertising budget but were delighted to see an industrious, young college student looking for a job.  The salary wasn’t always the greatest to begin with, but I received frequent raises as I became more valuable to my employers.”


Moral: Don’t believe everything that you read about the economy.  For those who are willing to work, America remains a land of opportunity.


C. The acid test – A Golden Knights parachute team was engaged in requalification training, flying from Homestead Air Reserve Base in Florida.  The four men attempted a Quad Side-By-Side, which they had never done before.  This involved jumping at over 12,500 feet, tethered together and forming a straight line to fall in formation. 


The maneuver started well, but spun out of control around the 4,000-foot mark.  With parachutes tangled, Golden Knights make split-second decision to save life, Drew Brooks, Stars and Stripes, 12/11/13.


[Staff Sergeant Christopher] Clark said that when the Golden Knights pulled down the flags they were flying with, he was pulled out of formation and violently slung through the lines of the two soldiers next to him. "We were all wrapped up in each others parachutes," said [Sgt. David] Echeverry.


The fourth jumper cut away, and the third jumper also managed to “untangle himself.”  Echeverry and Clark couldn’t cut away because of lines tangled around their necks.


Echeverry climbed up Clark’s body in an unsuccessful attempt to untangle the lines.  Clark squeezed his legs, and said “don’t worry buddy, we’ll be OK.”  The two men were attempting to steer themselves towards the drop zone, but then, as Clark put it later, things “got interesting again.”


. . . they hit a pocket of warmer air, which spun their parachutes into a downplane - a term that describes two parachutes facing 180 degrees apart, parallel to the ground.  Now, the two were falling about 65 mph and were roughly 600 feet from the ground.  "Neither one of us were getting away from each other," Clark said. "It just wasn't happening. It was a big giant mess.”


Echeverry was being strangled by a parachute cord, and he had given up hope for his own survival.  In an attempt to give Clark a chance, he pulled his release cord.  Echeverry’s last thoughts before blacking out were of his wife and children, who he never expected to see again.  But that’s not how the story would end.


Although Echeverry didn't hear what his teammate was shouting from above, Clark wanted him to cut his lines in hopes that they might be able to right themselves.  “I had him,” said Clark later, and “I wasn’t letting go.” 


The men fell much faster than usual because Clark was holding on to Echeverry’s lines, and both were injured in the resulting impact, but they would live to jump again – and also to receive a Soldier’s Medal (the Army’s highest award for noncombat bravery).


“A lot of people talk about what they would do in a dangerous situation,” said the Golden Knights commander, who witnessed the action and took part in the awards ceremony.  “But you don’t know.”  Clark and Echeverry have “been there, done that,” he added.


Moral: We should all be very proud of the US armed forces.  They are the best.


D. Stranger than fiction Amazon’s CEO is a dynamic business executive and one of the richest men in the world.  But instead of focusing on how Jeff Bezos has accomplished so much, let’s focus on the journey of his biological father. The secrets of Bezos: How Amazon became the everything store, Brad Stone, Business Week, 10/10/13.


Born in Chicago in 1944, Ted Jorgenson was reared in Albuquerque, NM, where his father worked as a purchasing agent at Sandia Base (now Sandia National Laboratories), a nuclear weapons installation.  In high school, he started dating Jacklyn (“Jackie”) Gise, who got pregnant when he was in his senior year.  The couple married, and the baby, Jeffrey (“Jeff”) Jorgenson, was born in 1964.  


The marriage was problematic from the start.  Jorgenson was a carouser and an inattentive parent.  Moreover, his efforts as a circus performer and unicyclist (see description below) and other jobs didn’t pay very well.


A newspaper photograph taken in 1961, when [Jorgenson] was 16, shows him standing on the pedals of his unicycle facing backward, one hand on the seat, the other splayed theatrically to the side, his expression tense with concentration. The caption says he was awarded “most versatile rider” in the local unicycle club.


That year, Jorgensen and a half-dozen other riders traveled the country playing unicycle polo in a team managed by Lloyd Smith, the owner of a local bike shop. Jorgensen’s team was victorious in places such as Newport Beach, Calif., and Boulder, Colo. The Albuquerque Tribune has an account of the event: Four hundred people showed up at a shopping center parking lot in freezing weather to watch the teams swivel around in four inches of snow wielding three-foot-long plastic mallets in pursuit of a six-inch rubber ball. Jorgensen’s team swept a doubleheader, 3 to 2 and 6 to 5.


In 1963, Jorgensen’s troupe resurfaced as the Unicycle Wranglers, touring county fairs, sporting events, and circuses. They square-danced, did the jitterbug and the twist, skipped rope, and rode on a high wire. The group practiced constantly, rehearsing three times a week at Smith’s shop and taking dance classes twice a week. “It’s like balancing on greased lightning and dancing all at the same time,” one member told the Tribune. When the Ringling Brothers and Barnum & Bailey Circus came to town, the Wranglers performed under the big top, and in the spring of 1965 they performed in eight local shows of the Rude Brothers Circus.


When Jeff was three years old, Jackie took him and moved back in with her parents.  She subsequently married a college student named Miguel Bezos, who would go on to work at Exxon as a petroleum engineer and manager.  As a result, Jeff Bezos grew up in a tight-knit family with two deeply involved and caring parents and two younger siblings.  As for his biological father, Jeff told “Wired” in 1999 that he’d never met the man.


Writer Brad Stone tracked down Ted Jorgenson in late 2012.  He had been married to another woman (Linda) for 25 years, who had four sons from a previous marriage, and owned a bike shop in Glendale, AZ – a far cry from the Amazon fulfillment center located 30 miles away, let alone the overall Amazon enterprise.  Still, Jorgenson enjoyed what he was doing and had no thought of retirement. “I don’t want to sit at home,” he told Stone, “and rot in front of the television.”  As for Jeff Bezos, the man “was baffled by my suggestion that he was the father of this famous CEO.” 


A few weeks later, Stone got a call from one of Linda’s sons, Darin Fala, following a family meeting in which Jorgenson had shared the news and solicited Fala’s help in an effort to reach out to the Bezos family and reestablish contact after all the years that had passed.


Curious about Bezos, Fala had watched some online clips of the Amazon CEO being interviewed.  He was stunned to hear Bezos’s laugh – described by Stone as “a pulsing, mirthful bray that he leans into while craning his neck back” – because the sound was so very familiar.


“He has Ted’s laugh.  It’s almost exact.”


Moral: Life is full of surprises, and sometimes people accomplish far more than they know.


E. Unchained melody – Recently turned 110, Alice Herz-Sommer “no longer plays Bach and Schubert at concert level.”  At times, “her arthritic fingers fail to cooperate,” and she must rely on “her prodigious musical memory, as she can no longer see to read a score.”  But “the woman who made her debut as a soloist with the Czech Philharmonic before her 21st birthday” is still playing, and reportedly “seems joyful when practicing piano or listening to classical music programs on the radio.” 


As though the foregoing was not remarkable enough, Ms. Herz-Sommer (Alice) is the world’s oldest Holocaust survivor – with some haunting memories of the Nazi years.  A pianist who survived Hitler plays today at 110, Caroline Stoessinger, Wall Street Journal, 11/26/13 (no link available). 


The Nazis invaded Prague on March 15, 1939.  Being Jewish, Alice was forbidden from playing public concerts after that, but she continued to practice at home until July 1943.  Then, she, her husband Leopold, and their six-year-old son Rafi were sent to a concentration camp.


 Leopold was shipped to Auschwitz in September 1944; she never saw him again.  Rafi survived, and after the war Alice would raise him in the new state of Israel.


The camp managers detailed Alice and other musicians to play concerts, as was featured in a 1944 propaganda film, “Hitler gives the Jews a city.”  The only available piano was in bad shape, the buildings were unheated, practice was rarely permitted – “but as best they could, the performers shared the eternal sounds of Mozart, Bach and Dvorak with their fellow prisoners.  And somehow, Alice kept her sanity and escaped the trap of bitterness.


“Music was our food,” Ms. Herz-Sommer has said often since those days.  “Through music we were kept alive.”  She greets visitors today in her tiny London flat with the same radiant smile that must have given much comfort to her fellow inmates as she performed. *** “I think, no I am sure,” she says, “I am one of the happiest people in the world.”


Moral: It may seem otherwise at times, but love is stronger than hate.


12/16/13 – The great bank robbery                  Read Replies


Who or what caused the financial crisis of 2007-2008, which began with a bursting bubble in housing prices and subprime mortgages and spread to the entire banking system? 


Many observers blamed this crisis (and the ensuing recession) on the private sector actors involved, and the response was shaped accordingly.  First, legislation was enacted that would enable political leaders to claim they had dealt with the problem by imposing new rules of the road.  Second, there has been a litigation blitz against banks and other financial firms for their presumed misconduct.


But suppose the real fault, or at least much of it, resided with the government actors who were involved?  In that case, the response that is now in process might be wide of the mark.  Let’s take a closer look.


A. Two theories – One view (Theory X) is that financial industry executives took or authorized excessive risks in order to maximize short-term profits and their own compensation. If the bubble burst, they knew the government would bail their banks out rather than letting the financial system collapse.  “Heads we win, tails they lose!”


Observers ranging from Senator John McCain (during his 2008 presidential bid) to the Occupy Wall Street protestors evoked Theory X with the “Wall Street greed” label.


An official inquiry reinforced this theme, albeit in a more subtle way. The Financial Crisis Inquiry Report, January 2011, pp. xv-xxviii (majority conclusions). (download PDF)


. . . to pin this crisis on mortal flaws like greed and hubris would be simplistic. It was the failure to account for human weakness that is relevant to this crisis.


“The captains of finance” were variously accused of “[failing] to question, understand, and manage evolving risks within a system essential to the well-being of the American public,” of “dramatic failures of corporate governance and risk management,” of “excessive borrowing, risky investments, and lack of transparency,” and of contributing to “a systemic breakdown in accountability and ethics.”


Government agencies and officials were faulted too, but mainly for their regulatory ineffectiveness versus setting or administering flawed policies.  Thus, the report cites the “Federal Reserve’s pivotal failure to stem the flow of toxic mortgages, which it could have done by setting prudent mortgage-lending standards,” while giving the Fed a pass for maintaining the excessive liquidity that made the bubble possible.  After all, “the maintenance of well-priced capital – both foreign and domestic – is an opportunity for economic expansion and growth if encouraged to flow in productive directions.” 


Similarly, government policies that encouraged home loans to marginal, low-income borrowers – which had been “put in place and promoted by several administrations and Congresses” – were seen as fine. The problem was “the failure of the Federal Reserve and other regulators to rein in irresponsible lending.” 


While the involvement of two government sponsored entities (GSEs) in the debacle was acknowledged, Fannie Mae and Freddie Mac were painted as followers rather than leaders in the race to the bottom.


We conclude that these two entities contributed to the crisis, but were not a primary cause.  Importantly, GSE mortgage securities essentially maintained their value throughout the crisis and did not contribute to the significant financial firm losses that were central to the financial crisis.  


It is easy to look at the same facts and draw different conclusions, however, as was demonstrated by two lengthy dissents from the majority report, which in total were supported by 4 of the 10 commissioners. 


After the FCIC report, a book was published that places most of the onus for the financial crisis on government policies and actions (Theory Y). The financial crisis and the free market cure, John Allison, McGraw Hill (2012).


As a long-time CEO of a major US bank (BB&T Corporation), John Allison personally observed what was going on during the crisis. He has since left BB&T and become CEO of Cato Institute.


While readily conceding the existence of Wall Street greed, which has been around for a long time, Allison suggests that private sector mistakes varied from one bank to another – his own bank weathered the storm better than most that were involved in the housing loan business - and could hardly have caused the huge housing bubble (overvaluation) that occurred and eventually (as with all bubbles) burst. 


The real problems, in his view, were flawed government policies and actions that led to the bubble and panicked blunders that compounded the damage.  Here is a brief recap of his argument, which ends with rejection of the conventional wisdom about how the economy should function.


1. The financial crisis was not caused by a shortage of regulation.  “Financial services is a very highly regulated industry, probably the most regulated industry in the world.”


2. Government policy created the bubble, starting with Lyndon Johnson’s “Great Society” of the late 1960s.  “The errors multiplied and went exponential over about a period of 10 years ending in 2007.” 


3.  Individual financial institutions (Wall Street participants, most of them “crony capitalists”) made very serious mistakes that contributed to the crisis, but their errors were “far less important than government policy mistakes” and “almost all the errors were the direct result of government policy incentives.”  Instead of being propped up, the errant firms should have been allowed to fail.


4. Most of the actions taken in response to the crisis were counterproductive.  “If you misidentify the fundamental cause of a problem, you will almost certainly recommend the wrong solution.” And that goes double when some “primary culprits,” notably Federal Reserve Chairman Ben Bernanke, Tim Geithner (president of the Federal Reserve Bank of New York during the crisis, later Secretary of Treasury), Rep. Barney Frank, and Senator Chris Dodd, were put in charge of developing the solution.


5. The deeper problems with our financial system are philosophical, not technical, and US universities have been teaching ideas  that run counter to the principles that made America great.  While rightly in favor of academic freedom for themselves, the professors “somehow believe that businesspeople can continue to innovate and create wealth despite the ball and chain of government regulations.  In reality, government regulations prevent businesspeople from being innovative and from thinking creatively.”  Note that creativity requires the freedom to try different things and sometimes to fail, and without such freedom sustained progress is impossible.


6.  Barring a change in direction soon, the US is headed for grave financial trouble.  “Countries do not go bankrupt the way businesses do.  They typically hyperinflate – that is print valueless money – and move to some form of authoritarian government.”  Currently, our country is on track to “be the next Argentina.” 


In practical terms, the biggest difference between the two theories may be the attitude towards government regulation. 


Fans of Theory X don’t worry about policies that are inherently unstable – a super abundance of liquidity, well-intentioned housing policies to benefit the lower economic echelon, rating agencies paid by issuers rather than borrowers, loan reserves based on complex mathematical formulae using experience data that do not reflect periods of extreme economic volatility, allowing GSEs with an implicit government guarantee to dominate the mortgage loan market so private banks will have no choice but to become loan originators/sellers versus holding a portfolio of the mortgage loans they write, etc. – as they expect government regulators to oversee the situation and prevent disasters.  If there is a failure like the financial crisis, moreover, the solution is more and tougher regulations to ensure that bankers et al. will not stray from the beaten path again.


Fans of Theory Y favor policies that would encourage private actors to behave themselves and minimize the task of regulators, who they see as at best only moderately effective.  Instruct the Federal Reserve to increase the money supply by 3% per year (or return to the gold standard), eliminate artificial incentives for substandard housing loans, allow financial institutions that make mistakes to go under instead of bailing them out, keep the rating services honest by requiring that they be compensated by borrowers,  simplify the accounting for loans transactions, and phase out the GSEs.


Who is right?  Not surprisingly, given its smaller government agenda, SAFE favored Theory Y from the start. SAFE cartoon says it all, 9/22/08.


. . . the current financial turmoil is not primarily a result of greed on Wall Street, nor is the creation of new government regulatory structures necessarily the best antidote.  William M. Isaac (chairman of the Federal Deposit Insurance Corp. from 1981-85) makes a good case that the root problem is the Fair Value Accounting rules of the Financial Accounting Standards Board, which have been mindlessly enforced to force assets to be written down to unrealistic distress sale levels.


While going along with the Troubled Asset Relief Program (TARP), which has been largely (perhaps entirely) repaid at this point, we opposed all subsequent proposals for expanded government intervention in the financial system.


But let’s allow for the possibility that SAFE is not entirely right and the truth falls somewhere between Theory X and Theory Y.  There would still appear to be ample reason to reconsider the vindictive response to the financial crisis that is playing out.


B. Changing the rules – Even before the FCIC issued its report about what went wrong, legislation was proposed to cure the problems that had supposedly been revealed.


SAFE was skeptical.  The legislation was being rushed, it did not appear to address several core issues, e.g., reining in the GSEs or curing the “too big to fail” syndrome, and certain provisions (notably creation of a Consumer Financial Protection Bureau) seemed only tangentially related to the financial crisis.  “Reforming” the financial system: a play in three acts, 5/3/10; GovFinance: too bad to fix, 5/10/10.


No matter, the legislation was rammed through while the Democratic Party still controlled both houses of Congress.  Supporters claimed that it would provide protection against future crises. President’s remarks at signing of Dodd-Frank Wall Street Reform and Consumer Protection Act [GovFinance], 7/21/10.


. . . because of this law, the American people will never again be asked to foot the bill for Wall Street’s mistakes. There will be no more tax-funded bailouts -- period. If a large financial institution should ever fail, this reform gives us the ability to wind it down without endangering the broader economy.  And there will be new rules to make clear that no firm is somehow protected because it is “too big to fail,” so we don’t have another AIG. 


Since 2010, other observers have confirmed our conclusion that GovFinance did not solve the “too big to fail” problem and will not ensure against future asset bubbles.  What’s more, the true impact of the legislation will depend on the regulations that it authorizes – which are still being written.  Former FDIC Chairman Isaac: Dodd-Frank is “worst financial legislation I’ve ever seen,” Michael King,, 4/14/13.


If it had been around 15 years ago, it would not have prevented the last crisis and it's not going to prevent the next crisis," Isaac told Newsmax TV in an exclusive interview.  Plus, the law doesn't address concerns about financial institutions that are too big to fail, it is far too complex, and it is hurting growth, said Isaac, now chairman of Cincinnati-based Fifth Third Bank Corp. and a senior managing director of FTI Consulting.


Isaac goes on to note that in his experience, mindless legislation after a financial crisis is nothing new.


Each crisis repeats the same old story, he said. "Our reaction to each crisis is the regulators go to the Hill and they are criticized for not doing their job right," he noted. "And they say if only we had more authority, more laws and so they respond with FREA, FDICIA and Dodd-Frank and give them more and more laws and regulations that don't address the problems."


There is already talk about the need for further legislation (or aggressive regulation) to deal with the “too big to fail” problem.  At last, some bright news on the TBTF front, Ted Kaufman (a senator when GovFinance was enacted), (Wilm., DE) News Journal, 9/29/13.  


It’s finally being acknowledged that the massive GovFinance bill did not deal with TBTF, which was the central issue in the 2008 financial crisis.  *** Although “neither the president nor Congress are coming up with new legislation to fix the TBTF problem,” there is “a decent chance” that regulators in the US and Europe will simply use the power they already have “to end TBTF without any help from the governments they serve.”


Our suggestion would be to wait and see how GovFinance plays out.  If and when further action is taken, moreover, it might be appropriate to consider rolling back some of the rules that have already been issued instead of adding a bunch of new ones.


C. A legal vendetta – There have been so many lawsuits stemming from the financial crisis that it’s hard to keep track.  Most of them have resulted in settlements, and the aggregate payout by the big banks (notably Bank of America and JPMorgan) and other financial firms is expected to handily top $100 billion.


In a general sense, this legal onslaught is related to the financial crisis – and for those who buy into Theory X it may seem justifiable.  Indeed, $100 billion might be viewed as pocket change in comparison to the losses Americans suffered, e.g., “about four million families have lost their homes to foreclosure” and “nearly $11 trillion in household wealth has vanished, with retirement accounts and life savings swept away.”  FCIC report, January 2011, page xv.


Another line of argument is the annual subsidy that big banks supposedly enjoy, from which, according to critics like Senator Elizabeth Warren (D-MA), they could pay the agreed settlements and still come out ahead.  The logic  is that these banks have deliberately gotten big and inefficient, making themselves “too big to fail,” so they can borrow at lower rates than their smaller competitors. (No one has seriously suggested, however, that the government should break up all the big banks, etc.)  Why should taxpayers give big banks $83 billion a year?, 2/20/13.


Making sense of all the lawsuits is challenging as they have been brought at different times (with a 10-year federal statute of limitations, investigators can take their time), based on several different (and potentially overlapping) theories of liability, by various plaintiffs (the Department of Justice, SEC, FHA, state attorney generals, etc.), against different firms or groups of firms. See, e.g., “US accuses Bank of America of a ‘brazen’ mortgage fraud,” Ben Protess, New York Times, 10/24/12.

Financial firms have been battling chaotic — and at times redundant — litigation related to the mortgage mess. The cases have come from a patchwork of federal agencies, state officials and shareholder suits, some of which have been resolved in multibillion-dollar settlements.  “They never know who’s going to be coming after them next,” said Dan Hurson, a former federal prosecutor who now defends securities cases. “There’s no central traffic cop.”


While we hold no brief for the big banks et al. and some of the cases no doubt have merit, it’s hard to escape the conclusion that in the aggregate the legal assault is being taken too far.  Indeed, there is a school of thought that a scheme is afoot to seize the wealth of the “rich” banks and redistribute it to political allies. Wall Street shakedown; Obama administration redistributes $13 billion from JPMorgan, Washington Times, 11/26/13.


J. P. Morgan makes the perfect scapegoat and provides a ready excuse to redistribute wealth to the administration’s best friends. The biggest chunk of loot, $613 million, goes to New York state, while California will cash a check for $299 million. Joe Biden’s Delaware gets $19 million; Mr. Obama’s state of Illinois takes $100 million. Massachusetts will take $34 million. The jackpot also contains several earmarks, including $4 billion for “consumer relief” and “anti-blight” programs. Community organizers for a group called NeighborWorks will fill their pockets. Presents will be doled out to some of Mr. Obama’s favorite unions, including $75 million for the Illinois Teachers’ Retirement System, $16 million for the Illinois State Universities Retirement System, and $11 million for the Illinois State Board of Investment.

In addition to the way in which the settlement payments are being doled out, here is some other evidence that seems to support the view that a “shakedown” is in process.


First, some of the government claims seem inherently overstated or inappropriate. 


• In early 2012, for example, five big banks agreed to pay roundly $25B to settle civil charges stemming from shortcuts on mortgage foreclosures (e.g., robo-signing).  It was expected that other banks would be pressured into joining in the settlement, raising the aggregate tab to some $40B.  Yet there was very little evidence that the errors were other than technical, e.g., that people had been put out of their homes based on misinformation as to the money they owed or their payment status.  Banks to fork over $25B, Eric Ruth, News Journal, 2/10/12. 


Much of the proceeds were to be recycled for the benefit of distressed borrowers, who had taken on loans they could not afford based on the prevailing assumption that housing prices would inevitably keep going up and were now unable to meet their obligations.  The arrangement bore a striking resemblance to a legislative proposal that had fallen short in Congress earlier.  Administration proposes that banks spend $20 billion to help strapped borrowers, Patrice Hill, Washington Times, 3/28/11.


The administration has proposed requiring the nation’s largest banks to spend $20 billion modifying loans of delinquent borrowers to make them more affordable as part of a deal settling charges that the banks botched the paperwork on thousands of foreclosures. If the plan succeeds, the president would attain a key goal sought by community groups and Democratic grass-root constituencies whose support will be critical for his re-election without having to spend further federal dollars on the program.


• An FHA suit against 17 financial firms on behalf of Fannie Mae & Freddie Mac, seeking billions in damages for “bad” mortgage loans, essentially claimed that the biggest players in the housing loan business did not appreciate the risks associated with the securities it was buying. Feds sue US banks over risky mortgages, Eileen Connolly & Pallavi Gogoi, Washington Times, 9/2/11.


Given the role the government had played in lowering underwriting standards over the years, its claim rang hollow. The government should sue itself, Robert Romano,, Sept. 2011.


In short, the government created the regulations that forced banks to offer loans to borrowers that could not afford to repay them, forced the GSEs to purchase said loans through quotas, and now is suing the banks for helping to meet the GSEs’ demand for the weaker loans. To call this hypocritical would be an understatement.

• And here’s a case that, although not related to the financial crisis per se, involves a bank that has become one of the prime targets for retribution.  JPMorgan had suffered a roundly $6B loss as the result of risky bets by a trader whose activities were not being properly monitored.  Was it truly appropriate for the regulatory authorities (Comptroller of the Currency, Federal Reserve, SEC, and UK’s financial conduct authority) to collect a total of $920 million in fines, which, like the loss itself, came out of the pockets of the JPM shareholders? London Whale scandal to cost JPMorgan $920M in penalties, Dominic Rushe,, 9/19/13.


Second, there are indications that political considerations may have played a part in deciding who should be sued.


•  JPMorgan became a prime target of government litigators after CEO Jamie Dimon made statements critical of the president before the 2012 elections. US “robbed” JPMorgan, payback for criticism of Obama,, 10/20/13.


Politico noted that Dimon was once considered "one of President Barack Obama’s most prominent Wall Street friends." A Democrat and one-time Obama donor, he was also a frequent visitor to the White House and praised by Obama himself as the "one of the smartest bankers we got."  But that relationship went into meltdown as Dimon began criticizing Obama's handling of the economy in the run-up to the 2012 election.

• Goldman Sachs, which was deeply involved in the packaging and sale of mortgage securities, is also reputed to be politically connected.  So far, to our knowledge, the firm has gotten off with a relatively minor (given its financial resources) fine.
Goldman will pay $550 million to settle civil fraud case, Washington Times, 7/15/10.


• When the government decided to go after the rating agencies for unrealistically high ratings of mortgage securities, the initial target was Standard  & Poor’s and over $1B in damages was reportedly demanded, which S&P could hardly afford to pay.  Was it merely a coincidence that S&P was the firm that had lowered the US debt rating in the summer of 2011. S&P expects US lawsuit over pre-crisis credit ratings, Reuters, 2/4/13.


Third, the threat of criminal prosecution is being used as a club to coerce settlements.


The failure to prosecute any major financial executives for their alleged role in causing the financial crisis has been much criticized.  See, e.g., “Who decided US megabanks are too big to jail?”  Simon Johnson,, 2/3/13.


Perhaps there will be a show trial or two before the curtain comes down, time will tell, but in most cases the threat of prosecution is far more useful than following through on the threat would be.


Not only do financial executives dislike the idea of going to jail, but a criminal suit against one’s firm will probably put it out of business even if the case is ultimately won.  Look what happened to Arthur Andersen a few years ago, despite the fact that the US Supreme Court unanimously reversed its conviction.  Bittersweet verdict for firm’s alumni, Kathy Kristol, Los Angeles Times,  6/1/05.


With that example in mind, who is going to quibble about a few billion dollars if their bank has the capability to pay it without going under?


Meanwhile, as many financial firms/executives are getting clobbered, what has been done to hold government leaders accountable for their role in bringing about the financial crisis?  Little or nothing!

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I've always contended that the bust was ultimately caused by the Community Reinvestment Act (1977), because as a realtor I saw it happening in a real-time basis.  And by way of support, see this analysis: Here’s how the Community Reinvestment Act led to the housing bubble’s lax lending, John Carney, Business Insider, 6/27/09. Let me know what you think - SAFE member (and still a realtor)


SAFE response: Our blog entry is written from a 20,000 foot view and doesn’t cite the CRA as such, but see point 2 (Government policy created the bubble, starting with Lyndon Johnson's "Great Society" of the late 1960s) and the "Fans of Theory X" paragraph (listing a string of "policies that are inherently unstable" including "well-intentioned housing policies to benefit the lower economic echelon"). Chapter 5 of John Allison’s book is in harmony with Mr. Carney’s analysis.


12/9/13 – Regulate or subjugate?        Read a Reply

Government bureaucrats may be focused on promoting the general good, but some of them operate rather aggressively.   Here is one regulator’s “philosophy of enforcement,” which he publicly expressed in Texas of all places.

It was kind of like how the Romans used to, you know, conquer villages in the Mediterranean. They'd go in to a little Turkish town somewhere, they'd find the first five guys they saw, and they'd crucify them. And then, you know, that town was really easy to manage for the next few years. 

When an issue was made of this statement, Mr. Armanderiz apologized for a “poor choice of words” and resigned.  But was his attitude toward the firms under his purview the real issue, or just the bluntness with which his views were expressed? If EPA Administrator Lisa Jackson was concerned about the possible harassment of energy firms, it didn’t come through in her statement. Top EPA official resigns after “crucify” comment, Fox News, 4/30/12.

I respect the difficult decision he made and his wish to avoid distracting from the important work of the agency," she said, thanking [Armanderiz] for his service. 

We have written before about the pernicious effects of administrative overreach.  See, e.g., “Regulatory common sense requires eternal vigilance,” 11/22/10. Nothing came of our suggestion for a Regulatory Common Sense Commission in 2010, however, and the problems seem even worse now.

With the GOP controlling the House (and hoping to win the Senate next year), the administration sees regulatory action as the main avenue for advancing its policy agenda. 

Republicans have yet to find an effective response to administrative excesses - lawsuits take too long and hearings are of limited utility. And now, the minority’s ability to oppose presidential appointments in the Senate has been vitiated by outlawing the filibuster.  Senate Democrats execute “nuclear option,” 12/2/13.

So let’s review some recent examples of the regulatory process run amok to see what is going on these days.  Reader’s advisory: no one is immune from overweening bureaucracy, and some of these cases may hit close to home.

A. Microwave ovens, etc. – Six months ago, the Department of Energy finalized a rule requiring a costly change to microwave ovens sold in 2016 and thereafter.  In its explanation, the DOE cited an increase in the “social cost of carbon” (SCC) from $22 per ton (for 2013, estimated in 2010) to $36 per ton (for 2016, estimated in 2013).  No support was provided for the higher estimate (by the EPA), which potentially applied to many things besides microwave ovens.  Carbon (and practically everything else) just got more expensive, David Kreutzer & Katie Tubb,, 6/13/13.

High SCC estimates could be useful in justifying forced cuts in CO2 emissions, which are allegedly causing global warming, and the microwave regulations were aligned with presidential policies.  The microwave tax, Washington Times, 6/19/13.

The latest microwave regulations are a test case for an agenda that includes a broader tax on carbon dioxide, which the president said he would be willing — read, eager — to impose through “executive action.” “If Congress won’t act soon to protect future generations, I will,” he said in his State of the Union address. So far, Congress has refused.

Rep. Duncan Hunter (R-CA) introduced a bill to force consideration of public input on the SCC estimate, although there was little reason to think the Senate would support such an implied rebuke of the administration.  GOP bill challenges the administration’s change in [SCC], Ben Geman, The Hill, 6/28/13.

In November, the administration reluctantly agreed to offer an opportunity for public input on the SCC, and about time as this estimate is highly subjective.  Victory for Cato: Feds now seeking input on the [SCC], Paul Knappenberger & Patrick Michaels, Cato Institute, 11/12/13.

. . . the theory is so loosey-goosey that with a little creativity, you can arrive at pretty much any value for the SCC *** While it is too early to tell, this willingness to hear public comments on the SCC probably originated from the comments received on the Petition to Reconsider the proposed Microwave Oven ruling—the first rulemaking to incorporate the Administration’s latest-worst iteration of the SCC (which was about a 50% increase over its original figure). There hasn’t been an official announcement as to the result of [the] Petition, but the scientific argument against it is a Cato product.

However, don’t look for an EPA surrender.  “The feds could selectively use some comments,” say the writers, and still “find a way to raise the SCC even further,” as by lowering the discount rate or “making up new damages not included in the current models.” 

If skeptics lost the fight, there could be ruinous consequences. Lies my president told me; climate exaggeration and prevarication bring horrid policy and massive wealth redistribution, Paul Driessen,, 12/1/13.

Like threads in a tapestry, “dangerous manmade climate change” is intertwined with anti-hydrocarbon, imminent resource depletion, renewable energy, sustainable development, and wealth redistribution theses and ideologies. They are used to concoct and justify energy and economic policies, ranging from delays and bans on oil and gas leasing and drilling, to the war on coal mining and use, and diehard opposition to hydraulic fracturing and the Keystone XL pipeline.

EPA Administrator Gina McCarthy (she replaced Lisa Jackson earlier this year) was pressed in congressional testimony on whether implementation of EPA regulations of greenhouse gas emissions would have a demonstrable effect on any of the 26 indicators of climate change listed on the agency’s website.

McCarthy responded that implementation of the regulations would be useful to “show the commitment of the United States” and thereby promote international cooperation.  Her testimony implicitly conceded that the case for curbing greenhouse gas emissions is political rather than scientific.  EPA’s McCarthy admits regs are for show, not results, Larry Bell,, 9/25/13.

I think the President was very clear [in a 6/25/13 speech in which he said “we don’t have time for a meeting of the flat earth society,”] What we’re attempting to do is put together a comprehensive climate plan, across the Administration, that positions the U.S. for leadership on this issue and that will prompt and leverage international discussions and action.

Politics aside, the scientific case for the manmade global warming theory is starting to unravel.  One key point: the global warming trend apparently stopped about 15 years ago, contrary to models based on the theory, even though atmospheric levels of carbon dioxide have continued to rise.  Global-warming “proof” is evaporating, Michael Fumento, New York Post, 12/5/13.

B. Health is priceless – Another way to justify costly environmental regulations is to claim that huge human health benefits will be achieved.  See, e.g., this “state of the air” infographic from the American Lung Association.

Statistical gains are rattled off as though they were indisputable; here’s an illustrative example.  Obama abandons smog restrictions [actually, he gave a bit of ground on the timing], Juliet Eilperin, (Wilmington, DE) News Journal, 9/3/11.

The proposed regulations would have tightened restrictions on ground-level ozone emanating from power plants, other industrial facilities, vehicles and landfills, which were lowered to 75 parts per billion in March 2008 under the Bush Administration.  Apparently, the EPA intended to set the standard at between 60 and 70 parts per billion. *** Associated “health benefits” were estimated at $13 billion to $100 billion a year.  In his statement, the president praised the EPA’s “effort to improve the nation’s air quality” and pointed out that the ozone standard would come up for review in 2013 under the normal five-year review interval.

Health benefit claims can be easily exaggerated, however, as was done in support of rules requiring US power plants to sharply reduce (already low) emissions of mercury and 83 other air pollutants.  EPA: Environmental propaganda activity, Willie Soon,, 6/6/11.

EPA Administrator Lisa Jackson claims that, while the regulations will cost electricity producers $10.9 billion annually, they will save 17,000 lives and generate up to $140 billion in health benefits. *** [However,] US power plants account for less than 0.5% of all the mercury in the air Americans breathe. *** [And] blood mercury counts for US women and children decreased steadily 1999-2008, placing today’s counts well below the already excessively “safe” level established by EPA.

As with SCC estimates, the data underlying health benefit claims are not necessarily available for evaluation.  The question Obama’s EPA pick, Gina McCarthy, can’t answer, Mark Drajem, Business Week, 5/23/13.

. . . GOP Senator David Vitter of Louisiana—who alone has made 400 inquiries—is insisting [McCarthy] turn over data linking air pollution to early death. The EPA has used that research, much to the consternation of energy companies, to justify regulations that curb pollution from diesel engines, coal-fired power plants, and industrial boilers. There’s one problem: The agency doesn’t possess the data. They were compiled by Harvard University two decades ago—long before McCarthy became an EPA official—and confidentiality agreements with thousands of participants prevent researchers from making the information public. Nor can the EPA access the Harvard analysis.

One of the Harvard researchers is quoted to the effect that the science is settled, but the scientific method requires that research results be independently verifiable.,  Without public access to the data, it’s hard to see how this requirement could be met to the reasonable satisfaction of other scientists.

C. Greedy payday lenders – Much more could be said about the EPA, including its efforts to outlaw mountain top mining of coal in Appalachia, regulate the permissible drainage of storm water, and block a big copper mine in Alaska, but let’s switch to a project of the Consumer Financial Protection Bureau.

Payday (aka short-term) lenders offer credit to millions of Americans who are living from paycheck to paycheck and come up short at times.  The interest rates are very high on an annualized basis; so are the costs and risks.  The only alternative lenders for some of the customers would be illegal loan sharks.

No one is terribly fond of payday lenders, and their activities surely deserve to be regulated in some fashion.  State and/or local regulation might seem sufficient, but it’s not surprising that the CFPB (created by the Dodd-Frank Act in 2010, it is looking for things to do) would aspire to play a role.

The normal approach would have been to request legislation on payday lending or, if there was enabling language on the books, issue proposed regulations with an opportunity for public comment.  Instead, the administration cracked payday lenders over the head.  Obama’s end run; he bypasses Congress to go after payday lenders, Washington Times, 8/22/13.

The Federal Deposit Insurance Corporation, Department of Justice and Federal Trade Commission recently notified banks and payment processors to stop processing transactions for short-term online lenders through the payment process known as the Automated Clearing House, which handles most credit card transactions and direct debits. Being shut out of this network means a short-term lender can’t set up an automated payment for a loan when payday arrives.

In itself, this move may not seem terribly important – particularly for Americans who are not reliant on payday loans. But allowing the government to crack down on whomever it dislikes, whenever it wants to, is dangerous – and was certainly never contemplated in our constitutional scheme of things. 

The system of checks and balances was put in place to prevent such abuses. Mr. Obama is determined to lend himself as much power as he can. If Congress won’t assert its constitutional authority by blocking such behavior, it will never retrieve the power and authority the Constitution gave it.

D. Muzzling conservatives – When revelations about IRS harassment of tea party groups first surfaced, the president addressed the nation on television – disavowing any advance knowledge of the IRS activities and labeling them “inexcusable.”  Kabuki theater in DC, 5/20/13 (item C).   

Perhaps the president had had more knowledge of what was happening at the IRS than he let on, but let’s not go there.  Suffice it to say that he and his aides had publicly disparaged the tea parties, see examples below, and that the officials who arranged for enhanced scrutiny of tea party applications for tax exempt status probably knew this. 

A top adviser to President Barack Obama takes a dim view of last week's anti-tax "tea parties," promoted by organizers in the spirit of the Boston Tea Party.  "The thing that bewilders me is this president just cut taxes for 95 percent of the American people. So I think the tea bags should be directed elsewhere because he certainly understands the burden that people face," David Axelrod said Sunday., 4/20/09.

During an interview broadcast Tuesday on NBC's "Today" show, Obama said he feels "there's still going to be a group at their core that question my legitimacy." But he said he didn't want to paint tea party activists "in broad brushes" and he hopes to win over members who have "mainstream, legitimate concerns." Obama slams tea party “core” as fringe radicals, birthers, Newsmax, 3/30/10.

In line with the pledge to regularize practices in this area, new IRS rules have been proposed re advocacy group applications for tax-exempt status under Code Sec. 501(c)(4) (which, unlike Sec. 501(c)(3), permits some overt political activity). Treasury Department proposing new rules on tax-exemption eligibility, Josh Hicks, Washington Post, 11/26/13.

On their face the proposed rules draw no distinction between liberal and conservative advocacy groups, but critics saw them as intended to discourage the activities of conservative groups in practice. 

Karl Rove, who heads the 501(c)(4) super-PAC Crossroads GPS, said clear rules of the road were already in place; Crossroads has ensured compliance by allocating 60% of its resources to policy issue advocacy versus electioneering.  Now there would be qualitative restrictions on a new and broadly-defined category of “candidate-related political activity,” making it far hard to demonstrate compliance.  Rove: IRS rule change aimed at gagging conservatives, Wanda Carruthers,, 11/27/13.

Thus, a group might be denied tax exempt status (i.e., taxed on contributions) due to communications that mentioned the names of candidates for office within 60 days of the election – even if said materials had been posted on its website for months. The latest IRS political crackdown; an ambiguous new rule to stop Americans from influencing elections, Wall Street Journal, 11/28/13.

Americans for Limited Government might have to take down much of its website (which has been maintained since 2008), said Robert Romano, to ensure its continued qualification as a Sec. 501(c)(4) organization.

Remove articles that mentioned public officials who happen to be running for reelection or redact their name and replace the names with black rectangles – black out the face of any officials who happened to be running for election in cartoons – yank offending Youtube videos – maybe even remove hyperlinks to roll call votes alerting the American people how their elected representatives had voted on critical issues.

And while such interpretations might sound farfetched, it would take time to get them stricken so the expression of political opinions could be effectively chilled during the 2014 and 2016 election campaigns!

There would be a way out for ALG et al., namely register as Section 527 political action committees (also tax exempt) instead of as Section 501(c)(4) organizations.  Just one catch: Section 527 pacs must disclose their donors while Section 501(c)(4)s are not required to do so.  And indeed, disclosure may be what the administration is really after.

And therein we get to the true intent of the new IRS regulation, which is to achieve via regulation what Congress could not when the DISCLOSE Act was defeated in 2010. The Obama administration is hell-bent on regulating critics of the administration out of existence by threatening to expose organizations’ membership lists.

Finally, the proposed rule does not apply to labor union or trade association funds, and there has been no definitive indication as to when parallel rules might be proposed for these entities. Obama expands war on political speech,, 12/2/13.

E. The nanny state – Many examples could be cited under this heading, which encompasses the actions of state and local regulators as well as the feds.  The following sampling should be sufficient, however, to show how regulations can be used to monitor and intimidate citizens who are not doing anything very terrible.

It’s hard to imagine the Federal Trade Commission worrying about the suppression of competition between piano teachers.  Yet a few months ago, the Music Teachers National Association – a Section 501(c)(3) based in Cincinnati with about 22,000 members – was notified that they were being investigated.  The issue turned out to be a provision in the MTNA’s code of ethics exhorting music teachers not to poach students from their colleagues.  This provision was purely aspirational; no effort had ever been made to enforce it.  The FTC’s authority over nonprofit groups was cloudy.  And the MTNA offered to immediately remove the provision from its code of ethics.  Not good enough!  The MTNA staff was compelled to devote months producing documents, some going back over 20 years, and the consent decree that was finally issued prescribed an extensive and ongoing program of corrective action.  Piano sonata in FTC minor, Kimberly Strassel, Wall Street Journal, 11/29/13 (no link available).

In Virginia Beach, a three-person disciplinary committee sanctioned two seventh graders for playing with a toy gun – and it didn’t even happen at school.  School authorities supported the punishment as nothing out of the ordinary.  School expels kids who played with airsoft gun on private property, Robby Soave, Daily Caller, 9/25/13.

“This is not an example of a public educator overreaching,” said the statement. “This was not zero tolerance at all. This was a measured response to a threat to student safety.” The statement claims that administrators made the absolutely correct decision, while noting that [one of the students] had been in trouble several times before.

In California, local officials forced the cancellation of a traditional and seemingly harmless student activity.  High school cheerleader car wash violates environmental laws, Michael Bastach, Daily Caller, 10/25/13.

“Anything that is not storm water or rain water is considered a pollutant,” said Jennie Loft, acting communications manager for San Jose’s Environmental Services Department. “If it goes into a storm drain, that pollutant will harm wildlife and habitats in the creeks. Water goes directly from the storm drains into our creeks.”

In Portland, Oregon, a private security guard told a young girl to stop selling mistletoe near an outdoor market in violation of city rules but said it would be OK for her to beg for donations. Specifically, Chapter 10.12 of the Portland city code states that soliciting or conducting business includes the display of “goods, or descriptions or depictions of goods or services, with the intent to engage any member of the public in a transaction for the sale of any good or service.”  However, pot sellers in the area were not being interfered with.  City shuts down 11-year-old selling mistletoe to fund braces, Jon Kahn,, 12/2/13.

The Department of Health and Human Services has traditionally blocked the sale of bone marrow as akin to the sale of an extracted organ (prohibited by a federal statute enacted in 1984), although the sale of blood to the Red Cross is regarded as fine.  Medical technology has advanced, and it is now possible to extract the needed stem cells from blood via a procedure that is similar to giving blood albeit more time-consuming.  A family in Maine whose three children were being kept alive by stem cells donated (with a $3,000 incentive) to a non-profit organization overcame a legal challenge under the 1984 act, but HHS is now proposing a regulation that would reverse the result.  Is this a sign of things to come?  The HHS blood feud; administrative officials don’t want the free market to save lives, Washington Times, 12/3/13.

As Obamacare’s grip on our medical system grows ever tighter, callous decisions based on bureaucratic interpretations of the law will continue to crowd out common sense. Americans must reclaim their healthcare before it’s too late.

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Attorney General Eric Holder at Justice is the dude who scares me the most in this administration, but you are right about the EPA. Their policies are ideologically driven, and we are already feeling, in the coal industry and coal fired power plants, the resulting potential for damage to our economy. – Military historian


12/2/13 – Senate Democrats execute “nuclear option”            Read Replies

Some observers lauded the November 21 vote to end the filibuster for vetting presidential appointments (excluding Supreme Court nominees) – about time they said!  Others called it a naked power grab, designed to further a sinister political agenda.  Either way, the US Senate is looking less and less like “the world’s greatest debating society.”

Curious to see what the rule change looked like, we did a bit of research – and made an interesting discovery.  The votes in question violated the rules of the Senate, and said rules were not changed. As one critic put it: “Democrats did not actually amend the rules, they just voted to pretend [the rules] don’t exist.”  Fed’s $1 trillion a year subsidy to banks [meaning QE3] to continue under Yellen’s watch, Robert Romano, NetRightDaily, 11/26/13.

This entry will address the following questions: (I) What were the issues that led to this fight? (II) How was the result squared with the Senate rules? (III) What are the implications for the US political system?

I. The issues – There have been many complaints about Republican tactics to delay votes on controversial presidential appointments, which can result in nominees being denied an “up or down vote.”  Similar complaints about Democratic tactics were common when the shoe was on the other foot during the previous administration.

The “up or down” vote principle may be appropriate in most cases, but hearings on the competence or fitness of presidential appointees should not be unduly rushed.  Otherwise, the Senate’s “advise and consent” role could be reduced to “rubber stamping” nominations – particularly when the White House and the Senate are held by the same party, as has been the predominant pattern since 2001. Balance of power between Congress and the presidency, 1945-2010,

Balance of Power, Appointments

















President (nominate)








Senate (confirm)








*After Sen. James Jeffords (R-VT) switched to Independent status and announced (effective 6/6/01) that he would caucus with the Democrats.

Herewith a sampling of contentious appointments in recent years, which demonstrates two general points: (A) Both parties have engaged in obstructionism at times, and (B) Democrats have won most of the fights (in some cases by sheer doggedness).

• Miguel Estrada as judge on DC Court of Appeals, 2001-03:  Although considered highly competent, the nominee was opposed as “too conservative.”  Senate Democrats also complained that the White House had blocked requests for additional information (on grounds of privilege) re Estrada’s tenure at the Department of Justice.  After 28 months and 7 filibuster votes, the candidate bowed out.  Estrada drops out of judicial race, Fox News, 9/4/03.

• John Bolton as US ambassador to the United Nations, 2005: The nominee was on record as making critical comments about the UN, and some former colleagues “described him as an abrasive bully who sought to remove people who got in his way.”  Over the course of five months, Senate Democrats twice blocked an up-or-down vote.  On August 1, 2005, the president confirmed Bolton via a recess appointment – which expired by law on January 3, 2007.  Bush names Bolton UN ambassador in recess appointment, Washington Post, 8/2/05.

In the fall of 2007, Senate Majority Leader Harry Reid devised a strategy to prevent the president from making any more recess appointments while Congress was out of town.  It entailed conducting pro forma sessions – with minimal attendance – during recesses.  Reid to keep Senate in session to prevent recess appointments, Erin Billings, Roll Call, 11/16/07.

• Peter Keisler, as judge on DC Court of Appeals, 2006-07: Here was another conservative judicial nominee; Keisler had clerked for Robert Bork (whose nomination to the Supreme Court was famously blocked in 1987, giving rise to the term “borked”) and co-founded a conservative legal group called the Federalist Society.  The president nominated Keisler in June 2006 and re-nominated him in 2007, but Senate Democrats (who regained the majority in the 2006 elections) never allowed a vote on the nomination.  Peter Keisler, Wikipedia, 11/28/13.

One of the arguments against Keisler’s nomination was that the vacancy on the DC Court of Appeals did not need to be filled.  Letter to Judiciary Committee Chairman Arlen Specter, 7/27/06, from the Democratic members of the committee (at the time in the minority) – Leahy, Schumer, Feingold, Kennedy, Feinstein, Durbin, Kohl & Biden.  Congressional Record, 11/20/13, S8318-19.

. . . the Committee should, before turning to the nomination itself, hold a hearing on the necessity of filling the 11th seat on the DC Circuit, to which Mr. Keisler has been nominated. There has long been concern—much of it expressed by Republican Members—that the DC Circuit’s workload does not warrant more than 10 active judges. As you may recall, in years past, a number of Senators, including several who still sit on this Committee, have vehemently opposed the filling of the 11th and 12th seats on that court:

• Richard Cordray as director, Consumer Financial Protection Bureau, 2011/13: There were no serious questions about the fitness of the nominee, but Republicans wanted changes in the form of the CFPB, which was being established under the Dodd-Frank Act (or GovFinance). Ixnay on Cordray: Not another Obama czar, Michelle Malkin,, 12/7/11.

Senate Republicans have vowed to block Cordray or any other candidate for the job until key reforms are made to the sweeping law and its half-billion-dollar enforcement arm, the Consumer Financial Protection Bureau. The common-sense changes include subjecting the CFPB to the congressional appropriations process instead of the Federal Reserve; restoring independent judicial review; ensuring that it takes into account the impact of new rules on the safety and soundness of financial institutions; and creating a bipartisan oversight board instead of a single director to run the agency.

When the Senate recessed for the holidays at the end of 2011, the “prevent” defense (originated in 2007 by Senator Reid) was in effect.  Nevertheless, the president chose to make four recess appointments (Richard Cordray plus three members of the National Labor Relations Board), claiming Congress was not really in session after all. 

In our view, this circumvention of Senate review was patently illegal, but we predicted a court challenge would take years to resolve.  About those recess appointments, 1/9/12

Three recess appointments (by its terms the lawsuit only applied to the NLRB appointments, but the result should also discredit the Cordray appointment) have since been ruled invalid at both the district court and appellate (DC Circuit) levels. National Labor Relations Board v. Noel Canning,, 2013.

The legal issue remains unresolved, however, as the government is appealing the result to the highest court in the land. Supreme Court will decide fate of checks and balances, Nathan Mehrens, Washington Examiner, 7/16/13. i

The Cordray recess appointment expired by law in January 2013, but the president  renominated him and he remained in office. Confirmation (by a 66 to 34 vote) finally came in July pursuant to a deal Republicans agreed to under duress (threatened execution of the nuclear option). Senators reach agreement to avert fight over filibuster, Jonathan Weisman & Jennifer Steinhauer, New York Times, 7/16/13.

• Chuck Hagel as Secretary of Defense, 2013: Formerly a GOP Senator from Nebraska, the nominee was seen by critics as an uncertain supporter of a strong national defense.  Dick Cheney blasts Obama’s “second-rate” national security team, Washington Times, 2/10/13.

Mr. Cheney said Mr. Hagel, a former Nebraska U.S. senator, was chosen because Mr. Obama “wants to have a Republican that he can use to take the heat for what he plans to do to the Department of Defense.” [Cheney] said Mr. Obama’s plans are to allow severe cuts in U.S. defense spending, which would limit the capability of the US military to respond to future foreign crises well after Mr. Obama has left office.

Republicans won one filibuster vote, but Hagel was ultimately confirmed (58-41).  For perspective, only one nominee for this post has ever been rejected: John Tower’s nomination was blocked in 1989 due to allegations of personal misconduct. Hagel approved for Defense in sharply split Senate vote, Jeremy Peters, New York Times, 2/26/13.

Republicans in the Senate, joined by an array of conservative activists, waged an all-out campaign to discredit Mr. Hagel, digging into his financial records for evidence that he was paid by anti-American groups and scouring his old speeches for signs that he was hostile to Israel. Those efforts produced little, forcing Republicans to acquiesce after filibustering his nomination in an initial vote this month.

• Ron Binz as Commissioner, FERC, 2013: A former head of Colorado’s Public Utility Commission, Binz was nominated to head the Federal Energy Regulatory Commission (oversees the interstate transmission of electricity, oil and gas).  Critics questioned why he was being backed by several lobbyist groups (damaging e-mails surfaced) and claimed that he would bring a “radical agenda” (anti-coal) and prickly personality to the agency.  Green lobbyists and partisans helping Ron Binz, Obama’s FERC pick, move through Senate, Stephen Dinan, Washington Times, 9/12/13.

Some Democrats backed away from the nominee during the confirmation hearings, including Senator Joe Manchin of West Virginia, and the nomination did not make it out of committee.  Ron Binz, Obama’s energy nominee, withdraws under pressure, Cheryl Chumley, Washington Times, 10/1/13.

• Patricia Millett, Nina Pillard & Robert Wilkins as judges on DC Court of Appeals, 2013: A mere two weeks after the confirmation of a new judge on this court (the first one approved in 7 years), which arguably has had a declining workload, the president nominated candidates to fill all remaining vacancies on the 11-member court (there are eight active judges and a half dozen senior judges who are still hearing cases) and urged swift confirmation to end the “political obstruction.”  Obama nominates three candidates to DC Circuit, Ashley Post, Inside Counsel, 6/6 /13.

I recognize that neither party has a perfect track record here. Democrats weren’t completely blameless when I was in the Senate. But what’s happening now is unprecedented. For the good of the American people, it has to stop.

The failure to expedite these nominations was the lead argument for executing the nuclear option in November.  Senator Jeff Merkley (D-OR), S8294 (11/20/13).

Now we have a special situation that has arisen in which the minority says: We are going to block all nominees to the DC Circuit Court regardless of their qualifications because we want to see it dominated by the nominees from a former president, and we do not let the existing president put his fair share of nominees into those vacancies.

In summing up, the Senate leaders of the two parties both sought to claim the moral high ground while slamming their opponents.  Here’s a recap from the proceedings on November 21.

Senator Harry Reid: “The American people believe the Senate is broken, and I believe the American people are right.”  Instead of passing helpful legislation, “we are burning wasted hours and wasted days between filibusters.”  And “even one of the Senate’s most basic duties – confirmation of presidential appointees – has become completely unworkable.”  Republicans have routinely used the filibuster to block presidential appointees, “even when they have no objection to the qualifications of the nominee,” as a means “to circumvent the political process” and “force wholesale changes to laws.”  So “it is time to get the Senate working again – not for the good of the current Democratic majority or some future Republican majority, but for the good of the United States of America.” S8414.

Senator Mitch McConnell: Democrats – “a party that is willing to do and say just about anything to get its way” – are embarrassed about the manifest failures of GovCare and seeking to change the subject by cooking up “some fake fight over judges – who are not even needed.”  He quoted the senior senator from New York (Chuck Schumer) as having said, “earlier this year,” that the Democrats wanted to “fill up the DC Circuit one way or another.”  And logically so, as the president’s agenda “runs through the bureaucracy and through the DC circuit.”  But “before this current Democratic gambit,” the Senate had confirmed 215 of the president’s judicial appointees while rejecting only 2.  “That’s a 99-percent confirmation ratio.” S8415-6.

II. The rules - Senate Rule XX11 provides ( that 16 senators can call for a vote on a motion to close debate on any matter. "Is it the sense of the Senate that the debate shall be brought to a close?"  To carry, the motion must be decided in the affirmative by 3/5 of the senators (normally 60 out of 100) or by 2/3 of the senators present and voting in the case of a measure or motion to amend the Senate rules.

As we understand it, these requirements have been in effect since 1975.  Dictionary of American History, 2003.

Over time, the supermajority required for cloture has changed from two-thirds of the membership, to two-thirds of those voting. Since 1975 the Senate may, upon the petition of sixteen senators and after two days' delay, act to end a filibuster or any other debate by a three-fifths vote of the senators duly chosen and sworn (normally sixty votes) except on a measure or motion to amend the Senate rules, in which case a vote by two-thirds of those present and voting is required.

There is no indication in the applicable portion of the Congressional Record (S8414-8418) that any part of the Senate rules was amended on November 21 – which would have required a 2/3 majority – nor that 60 votes were cast for cloture. 

The key steps in what did happen, as best we can follow the script (there seems to be an error in the record of step a), were as follows:

a. Senator Reid moved to reconsider the nomination of Patricia Millett, and the vote was 57 yeas/43 nays.  “The motion was [not?] agreed to.”

b. Senator Reid raised “a point of order that the vote on cloture under rule XXII for all nominations other than for the Supreme Court of the United States is by majority vote.” 

c. “Under the rules” said the Chair,” the point of order is not sustained.”

d. Senator Reid appealed the ruling of the Chair.  The resulting vote (48 yeas/52 nays) failed to sustain the Chair’s ruling, so it was viewed as being reversed and a change in the rules was inferred based on a simple majority vote.

Hmm, how can the Senate circumvent its own rules in this fashion?  The argument seems to boil down to “well, the Constitution doesn’t prevent it.”  Senate rules: Common sense reform, Senator Tom Udall (D-NM), 12/6/12.

Article I, Section 5 of the Constitution authorizes the Senate to make its own rules – a super majority 2/3) is expressly required for expelling members – there is no mention of cutting off debate, so a super majority is not required for this purpose.

III. Consequences – Amending Senate rules on the fly complicates their application and reduces their transparency.  In addition to consulting the Senate rules posted on line, interested parties (including senators, staff members, and outside observers) must keep track of and interpret precedents that may be buried goodness knows where in the Congressional Record.

We would also point to the oft-quoted adage that when rules are made by a simple majority vote, “there are no rules.”  Without the filibuster, a tyranny of the majority, Senator Lamar Alexander, Washington Post, 11/22/13.

If the filibuster is being eliminated for most presidential appointments, why should it continue to apply for Supreme Court nominations and legislation?  The practical answer is that the filibuster is being retained in these cases for cosmetic purposes only, and will be done away with in a heartbeat if it ever becomes inconvenient for the majority.

There aren’t any Supreme Court nominations pending (or to our knowledge expected) right now.  Furthermore, this is an area where most of the blockage over the years has been directed against nominees of Republican presidents (Harriet Miers in 2005, a close call for Clarence Thomas in 1991, & Robert Bork in 1987).   

As for legislation, Republicans should be able to block bills they don’t like so long as they hold the House – whether senatorial filibusters are allowed or not. Aside from hanging on to previous legislative victories, therefore, the president’s hopes for furthering his big government agenda rest on aggressive administrative action.

By depriving the minority of filibusters, the president may be able to nominate more ideologically extreme candidates to key administrative positions.

Having more liberal judges on the DC Court of Appeals could improve the chances of beating back challenges to aggressive regulations of the Environmental Protection Agency, et al.

And packing the Independent Advisory Board with liberals now would make it more difficult to moderate the implementation of GovCare if Republicans regained the White House in the 2016 elections.  “Nuclear option” does enable Democrats to ensure one-party authoritarian control of healthcare, Michael Cannon, Cato Institute, 11/29/13.

On that last point, however, the demise of the filibuster would seemingly make it easier for the Republicans to repeal GovCare outright if they regained full control of the government. Perhaps that is why Democrats only chose to end the filibuster for appointments. 

All things considered, we are not big fans of the filibuster.  Perhaps its elimination will turn out to be for the best.  But the manner in which the change was made, midway through the legislative session and without amending the rules on the books, was highly improper.

Worse, this action was part of a pattern of behavior in DC, which breeds distrust and invites retaliation, thereby placing growing pressure on the stability of our political system.  An outbreak of lawlessness, Charles Krauthammer, Washington Post, 11/28/13.

A Senate with no rules. A president without boundaries. One day, when a few bottled-up judicial nominees and a malfunctioning health-care Web site are barely a memory, we will still be dealing with the toxic residue of this outbreak of authoritative lawlessness.

If you don’t like what is going on, dear readers, it’s time to let your views be known!

*        *        *        This Blogs Replies        *        *        *               

Why should we be surprised? The rabid leftists actually believe they are on a holy crusade to redistribute wealth for the good of the poor. They will grab all they can get.  And IF they lose the Senate, they will want the old filibuster rules back. – SAFE director

Excellent review of what's going on in the Senate. – SAFE director


11/25/13 – Some thoughts for Millennials – part 2

The Can Kicks Back (TCKB), a Millennial-run organization with high-level connections, has posted a position paper entitled Swindled: How the millennial generation will pay the price of Washington’s paralysis

For reasons discussed last week, Swindled seems a little hard on fiscal conservatives.  SAFE has certainly done what it could to represent the economic interests of younger Americans, and we think the same is true for other fiscal conservatives.

As for policy aspects, TCKB seems to be buying the idea that the fiscal problem is long-term in nature and perhaps underestimating the urgency of starting to take remedial action now.  The following discussion consists of a series of excerpts from Swindled (in blue font) with SAFE’s reactions.

A. Our true debt: Comparing America’s official debt of [over] $17 trillion to its $200 trillion fiscal gap as shown in Figure 1, reveals America’s true budget problem. The fiscal gap considers more than just our accumulated annual budget deficits; it takes into account the full extent of the government’s future liabilities. These include guaranteed benefits through entitlement programs such as Social Security and the costs of servicing the official debt itself. Essentially, it is a measurement of our immoderation – the difference between what the federal government has promised and what it is scheduled to collect.

[p. 13] These entitlements [Social Security, Medicare & Medicaid, see p. 4] are “mandatory” because the government is obligated to pay them no matter the cost.  They are on autopilot and not subject to annual review or debate by Congress.

It is instructive to look at unfunded liabilities as well as current liabilities, and SAFE has often done so itself.  Nevertheless, there are questions as to how far into the future one should go, how fast the US economy will grow, how future liabilities should be discounted to reflect the time value of money, etc.  We have seen other estimates of the fiscal gap that are considerably lower than $200T, although this is not to say Professor Kotlikoff et al. are being unduly alarmist – so much depends on the assumptions that are made.  Plumbing the depth of the fiscal hole, 2/13/12.

“Figures don’t lie,” as the saying goes, so one might think fiscal experts would all come to basically the same answer.  The total liabilities estimates diverge considerably, however, ranging from about $60T (4X current GDP) to $120T (8X current GDP). 

Also, it is not true that the government is obligated to pay for entitlement programs “no matter the cost,” as Congress could slash or even eliminate these programs and beneficiaries would have no legal recourse.  There would be some political pushback, of course, but government leaders might not be deterred if the nation was in desperate financial straits. 

Finally, let’s not lose sight of the actual debt, which is a problem in its own right.  This $17T and growing burden must be managed in the here and now, and circumstances can readily be imagined in which lenders would lose confidence in the ability of the government to pay.  Were this to happen, the situation could get very ugly – fast. 

When might a US fiscal meltdown occur?  That’s hard to say, as Professor Kotlikoff has pointed out, but it definitely could happen.  The Coming Generational Storm, Laurence Kotlikoff & Scott Burns, MIT Press (2004), p. 134.

Exactly when your sand pile crashes, or the earth quakes, or the volcano erupts, or the dam breaks is difficult to predict.  But one thing is sure – abrupt change will occur at some point.  Economies also go critical.  When the fiscal pressure gets too high, financial markets start to boil.  Interest rates soar, currencies collapse, stock markets plummet.  But timing the boiling point is damned near impossible. 

B. Who’s paying the tab? Generational accounting is a measure of net taxes that calculates what future generations must pay over their lifetimes to close the fiscal gap, assuming their net tax payment rises in proportion to their labor earnings. Generational accounting estimates for 2013 show that all Americans alive today, except for the Millennials [defined as born between 1980 & 1995], will receive a net benefit from the federal government. In other words, most Americans alive today will pay fewer taxes over their lifetime than they will receive in benefits.

2013 US Generational Accounts ($K)

Current age










Lifetime net tax burden (benefit)










One can readily imagine Millennials and the unborn getting stuck for some of the benefits paid to their elders, but we aren’t clear why both of them should be expected to do worse than today’s children.

Also, the foregoing data assume the normal costs of government plus all the entitlement commitments that have been made will be covered without interruption on a long-term basis. It would seem more realistic to expect (see discussion of point A) that either (1) existing entitlements programs will be amended to make the benefits more affordable, or (2) there will be a fiscal meltdown with all age cohorts sharing in the resulting pain.

C. Widening the gap: Tax cuts in the first decade of the 2000s account for nearly half of the entire fiscal gap.  Moving forward, the main driver of our debt is mandatory spending which includes interest on that debt, entitlement programs and other government benefits.

Fiscal Gap ($ in trillions), selected years









Based on the $115 trillion increase in the fiscal gap between 2003 and 2007, one might infer that the Bush administration was primarily responsible for this problem. Note that the fiscal gap estimate has only grown about 2.3% a year since 2007, even as the growth rate for actual debt was accelerating.

Fiscal year




2013 est.

Fiscal Gap






2003 = 100





Total Debt

$ T





2003 = 100





The fiscal gap analysis appears loaded in favor of tax increases.  Consider that (1) a big share of the gap is attributed to the Bush tax cuts (even though they were originally made “temporary”), and (2) the preponderance of projected expenditures is labeled mandatory (which implies they can’t be cut, or at least not cut very much).

Thus, suppose Congress enacted a Value Added Tax with rates set at European levels. The long-term fiscal gap would vanish – problem solved – or would it?

One potential problem is that such a levy would tank the economy, with adverse effects for everyone. The value added tax would raise tons of money; and that’s why it’s wrong, Daniel Mitchell,, 5/4/12.

Another concern is that tax increases typically serve as a pretext for spending increases rather than being applied to pay back the national debt (or even stop running it up). Message to Congress: cap taxes now, 6/2/08.

Accordingly, SAFE believes that spending cuts represent the only effective answer to the fiscal problem – even if the blunderbuss sequestration process is needed to get the ball rolling.  We can’t keep spending like this, 3/4/13

D. What drives our debt? As healthcare costs continue to outpace economic growth and an increasing number of Baby Boomers retire [and live longer], the costs of entitlement programs will soar, consuming an even larger share of the budget. By 2023, [annual] spending to fund Medicare, Medicaid, and Social Security will total $3.03 trillion, an increase of $1.29 trillion over the course of ten years.

As debt continues to accumulate through consistent annual deficits, federal spending to service that debt will need to grow as well. [Also, interest rates are projected to increase from the current very low levels.] In the next ten years, annual net interest on the debt will rise from $237 billion to $823 billion. Interest spending is projected to more than double as a share of the budget, from 6.6 percent in 2014 to 14.1 percent in 2023 – making it the fastest growing piece of the government’s pie.

Ten years from now, entitlement programs, debt payments and other mandatory spending will total over 67 percent of the budget. This leaves the discretionary budget, which includes funding for education, research and infrastructure to fight for an increasingly smaller piece of the government’s pie.

As an alternative to breaking the budget into mandatory and discretionary components, which elevates administrative protocol over substance, let’s focus on the functional breakdown. OMB historical charts,

Percentage of total outlays – selected years







2013 est.

Human Resources







National defense







Other functions







Net interest







Total Outlays







% of GDP







Note the explosive growth of “human resources” programs (Social Security, healthcare, education & training, income security, and veteran’s benefits). Meanwhile, traditional federal functions represent a generally declining percentage of total outlays and GDP. 

Some may welcome the relative decline in military spending, as implied by the reference (Swindled, page 4) to “a defense budget greater than the next ten countries combined.”  Such a comparison is of limited utility, however, in assessing how adequately the US military is being funded to meet a range of potential threats (from terrorist strikes like 9/11, which could prove far more deadly if nuclear weapons from a rogue nation were involved, to a future showdown with China and/or Russia). Cut defense spending with care, 1/23/12.

The relative decline in interest rates as a percentage of outlays is not due to lower borrowings, debt has increased, but rather to abnormally low interest rates (due to current Federal Reserve monetary policies) that will predictably revert to the mean.  As noted in Swindled, interest expense is expected to more than triple over the next decade.

E. The generation gap: This section presents several perspectives that arguably demonstrate the folly of providing generous entitlements for seniors while shortchanging the needs of younger Americans.

• Investments, which include research, education and infrastructure, made up 32 percent of the total budget in 1962. This was very close to payments for individuals, which accounted for 27 percent of the budget. By 2012, a significant shift took place, with investments making up only 14 percent of the overall budget while payments to individuals have soared to 65 percent. *** Young Americans should have the freedom to use discretionary funding to create, target and develop truly efficient programs that effectively grow the economy and overall quality of life.

[Global economic leadership] requires increased investment—not shortsighted policies like the sequester, which will reduce investments to their lowest share of the federal budget on record. As the country pushes further into the 21st century, American workers will increasingly compete for jobs with workers from India, China and Brazil. These countries are investing more, while Congress makes the conscious choice to invest less.  

Labeling government programs as investments does not prove their economic merit; it’s important to evaluate what the money is actually being used for. 

The referenced investment numbers from an OMB historical table are totals for defense and domestic programs.  Non-defense investments represented about the same percentage of outlays and GDP in 2012 as in 1962. (table 9.1)


“Investment” - % of outlays

“Investment” - % of GDP
















• In 1960, 20 percent of the budget was dedicated to children and 22 percent to Medicare, Medicaid and Social Security benefits received by seniors. By 2011, the children’s share dropped to 15 percent while seniors saw spending soar to 50 percent.

Medicare and Medicaid were created in 1965, and seniors represent a growing segment of the total population.  Although the cited increase in outlays for seniors since 1960 is striking, therefore, it is hardly surprising. 

According to 1960 and 2010 census data, children (here defined as 18 or under) accounted for a larger percentage of the population in 1960 than they do now.  This could help to explain the reported decline in the children’s share of outlays.

In millions

1960 census

2010 census

Total US population



Under 18



Under 18 (% of total)



• Young adults’ ability to grow their personal assets over the past 30 years has decreased considerably. Average wealth for individuals in their 20s and 30s dropped 7 percent from 1983 to 2010, while those 74 and over have seen wealth increase by 149 percent in the same time period.  *** Without quality paths for financial growth, Millennials will have greater difficulty retiring comfortably after experiencing a lower quality of life in their younger years.

Clearly, there was greater economic opportunity in, say, the 1960s than there is currently.  This circumstance has contributed to the relative affluence of today’s seniors, as well as the entitlement programs from which they have benefitted.

• In 1960, those with the highest amounts of consumption were also in the workforce earning wages. Over time, rising healthcare costs and increased benefits for senior citizens have dramatically increased consumption for those 65 and older. In fact, “consumption by older persons relative to younger ones is higher in the United States than in any other country.” *** When consumption patterns favor individuals not earning wages, it becomes increasingly difficult to raise the overall living standards of the country.

We agree with the idea that consumption patterns should favor the gainfully employed, but this is not simply a generational issue.  There is considerable evidence that generous welfare programs have encouraged millions of younger Americans to go on the dole. Why get off welfare?  Michael Tanner,, 8/26/13.

. . . in 33 states and the District of Columbia, welfare pays more than an $8-an-hour job. In 12 states, including California, as well as the District of Columbia, the welfare package is more generous than a $15-an-hour job. In Hawaii, Massachusetts, Connecticut, New York, New Jersey, Rhode Island, Vermont and Washington, D.C., welfare pays more than a $20-an-hour job, or more than 2.75 times the minimum wage.

F. We can’t pay that tab: Job prospects have been bleak for Millennials graduating into a slow economy – businesses have slowed or reduced hiring because of economic uncertainty – average age of retirement has slowly risen (57 in 1993 to 61 now) – gradual decrease in the number of young people working – Millennials who have been lucky enough to find employment often wind up underemployed – significant loan payments following college graduation – delinquency rates for student loans now hover around 17 percent [so] even if Millennials could afford to buy homes, at least 1 in 5 of them would not have the credit score to do so. 

The truth is that nobody can conveniently pay the tab.  It is therefore time to stop running it up as though they could.

G. Conclusion: All agree that the trajectory of the federal budget and the national debt is unsustainable. While many disagree on what to do about it, we know that if we simply wait for the tab to come due, it will cause severe economic hardship and government austerity on the young and most vulnerable. To avoid foreclosing on Americans’ future, policymakers must act to close the country’s long-term fiscal gap by reducing spending, increasing revenue and helping grow the economy –– in a generationally equitable way.

The longer such action is delayed, the larger the adjustments must be and the bigger the burden that will be placed on young people, including those of the Millennial generation. Already burdened by record high unemployment due to the lasting impact of the Great Recession and record high personal debt from skyrocketing costs for college education, Millennials are least prepared to shoulder this economic burden alone.

Fine, in principle, but many details need to be filled in. Reducing what spending?  Increasing revenue and helping grow the economy how?  And what’s the time table for action? 

H. A path forward: The issue of the federal budget is fundamentally about arithmetic, and a solution is eminently achievable.  Politics, not policy, is unfortunately standing in the way.

Actually, the issues go far deeper – to ideas of what works and what matters in life – and although solutions exist they may or may not be achievable.    

First, policymakers need to set the right goals and face the right set of facts. *** Taking a longer view of the budget and examining the intergenerational impact of taxing and spending would orient policymakers to focus on the true problem at hand. To this end, elected leaders should immediately enact the INFORM Act , a bipartisan piece of legislation championed by The Can Kicks Back that would require government agencies to regularly reveal this information. Over 1,000 prominent economists, including more than a dozen Nobel laureates, have endorsed this legislation.

Professor Kotlikoff is a leading proponent of the INFORM Act, which has also picked up some congressional sponsors including Senator Chris Coons from the First State. The bill would require the government’s budget staffs (CBO, OMB and GAO) to provide annual fiscal gap and generational accounting analyses in more or less the fashion used in Swindled.

Whatever their theoretical merit, we think there are some substantial questions about the fiscal gap and generational accounting concepts.  See the preceding discussion.

Also, experience has shown that this type of “solve the problem by changing the process” approach often does more harm than good.  Thus, the Administrative Procedure Act created all kinds of theoretical safeguards on new rulemaking – but in practice all the extra steps have done little to prevent regulatory agencies from running amok.  The Death of Common Sense: How Law is Strangling America, Philip K. Howard, Grand Central Publishing (1994).

Second, policymakers should enact a “Grand Generational Bargain” that . . . [replaces] the current politically-driven negotiation between Democrats and Republicans premised on trading high income tax hikes with discretionary spending cuts with a new policy-driven negotiation based on both trading short-term increases in federal investment for long-term savings in entitlement spending and agreeing to comprehensive tax reform.  *** Democrats can claim credit for rolling back the senseless sequester and doubling down on investments ranging from scientific research to national service, while Republicans can claim credit for a massive reduction in long-term government spending. Meanwhile, both parties can trumpet a bipartisan accomplishment of making our tax code fairer and simpler.

We don’t accept the characterization of sequestration as “senseless,” nor do we share the enthusiasm for “doubling down on investments ranging from scientific research to national service.”  There are many savings opportunities in the discretionary budget, and it’s high time that our political leaders started exploiting them.  Let’s make a deal: some thoughts for the budget conference committee, 10/28/13.

We agree that long-term savings in entitlements would be worthwhile, but it’s far from obvious that real reform is contemplated. 

• Social Security was saved in 1983 by hiking taxes and trimming benefits; it seems to be contemplated that the same tack would be taken again (“The Social Security Fix” on p. 16 of Swindled) – but this would not improve the program or provide a permanent solution for its funding problem.  For discussion, see the Social Security page of this website.

• No suggestions are made as to how to rein in the costs of Medicare or Medicaid, let alone to deal with the problems that can be expected from the disastrous Affordable Care Act (aka Obamacare) that is currently being implemented.  SAFE’s ideas are spelled out on the Healthcare page of this website.

• Who could quarrel with making “our tax code fairer and simpler,” and indeed SAFE has proposed a plan to do just that. But would the real goal be tax increases (which in our view would spoil any chance of success)?  One could so imply from the reference (Swindled, p. 4) to “an inefficient tax code that collects too little,” plus the previously mentioned bias for tax increases in the fiscal gap methodology.

I. End notes: We did not notice any citations to experts or groups that SAFE normally follows.  This might suggest that conservative views were not taken into account, despite statements to the effect that Millennials span the political spectrum (e.g., 38% liberal, 26% moderate, 36% conservative) and TCKB is a nonpartisan organization. Swindled, page 5. 

Why not check out what the other side has to offer? 


11/18/13 – Some thoughts for Millennials, part 1        Read a Reply

Given chronic deficit spending and continuing growth in the national debt – not just during wars or emergencies, but almost every year – younger Americans were bound to notice they were at risk of getting stuck with the tab. It took a while, but some pushback is starting to materialize.

Witness the efforts of The Can Kicks Back (TCKB), a Millennial-run organization with connections to heavy duty fiscal experts (e.g., former Comptroller General David Walker & economist Laurence Kotlikoff) that has recently organized a Generational Equity Tour, posted a 40-page position paper (Swindled: How the millennial generation will pay the price of Washington’s paralysis), and backed a bill called the INFORM Act.

We appreciate TCKB’s enthusiasm and energy, but don’t fully concur in their assessment of the situation.  First, they seem to blame the shifting of current costs to future generations on the very people who have been trying to represent their interests.  Second, the remedial steps they envision would not be effective.  Remember an adage from the real estate world: “don’t buy the first house that you look at.” 

Let’s begin by discussing why fiscal conservatives (using SAFE as a convenient example although we aren’t necessarily representative of conservatives in general) are not the prime culprits in this situation.  Next week’s entry will review policy points in TCKB’s position paper.

A. SAFE’s quest – The cartoon below (circa 1997) portrays older Americans seeing to it that the national debt should not be run up and left as a burden for coming generations.

Perhaps the metaphor was unduly paternalistic – us the adults, them the children – and in any case there was sure to be a role reversal over time.  Still, our idea of paying off the national debt (then around $5.4 trillion) would have minimized the chances that older Americans benefitting from and/or supporting the cost of Social Security and other current spending programs might escape bearing the cost.

Leaving the huge federal debt unpaid is not only unfair to the next genera­tions, it increases the risk to all of us of a financial crisis. With this huge debt (over $5 trillion) we are vulnerable to unpredictable future events such as a huge natural disaster, a war, a depression, or even medical breakthroughs that could prolong life enough to swamp entitlements. A big increase in interest rates, such as occurred the 1980s, would multiply spending for interest on government bonds. If rates reached the 1980s level, interest would soar from 15% to 45% of the federal budget. Such an increase could occur if a financial crisis occurs in any the countries holding large amounts of U.S. government bonds.  If they dump their U.S. bonds, prices would drop, thereby increasing interest rates.

SAFE’s action plan had two prongs: (a) eliminate wasteful government spending (hence our name, “Seniors Against Federal Extravagance”), and (b) reform the Social Security system so that it would be sustainable over the long haul.  It was our view that most Americans would have to give up something in the process, including seniors, and in this vein we (unlike AARP) suggested the possibility of adjusting the COLA formula (to less generously index Social Security benefits for inflation). 

Reforming Social Security was perceived as a matter of some urgency because the program was projected to go into the red around 2012, and there was nothing in the “trust fund” except IOUs, i.e., no money that could be used to continue paying benefits at the prescribed levels. SAFE newsletter, Spring 1997.

B. Setbacks - For a time, it seemed that our vision might come to pass.  Thanks to a concerted effort to cut spending plus favorable economic conditions, the federal government ran a surplus for several years.  Then the pressure was relaxed under the Bush administration, and the fiscal gap returned.  Congressional Budget Office chart,

Democrats blame this backsliding on the wars initiated after 9/11 plus the Bush tax cuts, but the complicity of Republicans in expanding domestic spending was also important. Leviathan on the Right, Michael Tanner, Cato Institute (2007).

Republicans have traditionally favored seeking state, local, or private sector solutions to problems, while Democrats tended to favor a larger role for the federal government.  Despite considerable growth in federal programs over time, voters were at least offered a lower taxes/ less government alternative.  In recent years, elements of the Republican Party (neoconservatives, religious right, supply siders, etc.) have adopted a more expansive view of what the federal government should be doing. This goes a long way towards explaining why federal spending has grown faster (real annual growth of 4.9% per year) on George W. Bush’s watch than under any president since Lyndon B. Johnson.

Ostensibly due to the “Great Recession,” the current administration ramped up spending dramatically. The deficit exceeded $1 trillion for four straight years; then it fell - under pressure from conservatives – to a still very high $680 billion in fiscal year 2013.

The Bush administration took a stab at Social Security reform in 2005 by offering a watered-down version of Cato Institute’s “6.2 percent solution” (younger participants could use their contributions to fund personal retirement accounts).  Poorly explained and fiercely resisted, this proposal fell by the wayside; there has been no serious reform effort since 2005 and outlays for the program are now exceeding revenues.  Social Security page, this website.

C. SAFE evolves – Our group changed its name from “Seniors Against Federal Extravagance” to “Secure America’s Future Economy” in 2006, and here’s why:

• The new name conveyed support for building the economy (ultimately the only security for government commitments) and not just opposition to unwarranted government spending.  That didn’t mean, however, that we would no longer be concerned about wasteful government programs/activities.  Our agenda had been and remains “smaller, more focused, less costly government.”

• We aspired to recruit younger members, who have at least at much at stake in solving the fiscal problem as seniors do, to keep SAFE going for the longer term.  It was a nice thought, and the signup window remains open (, but there are still very few Millennials in our ranks.  Too bad, there could be some great synergy!

SAFE’s initial policy agenda (federal extravagance and Social Security) has been broadened over the years to include real healthcare reform (not GovCare, the dismal legislation enacted in 2010 that now appears to be imploding), more explicit ideas about how government spending can and should be cut, tax reform, common sense energy policies, prudent monetary policies, and more.  It’s hard to know where to stop, because almost any government policy one can think about has fiscal and economic implications.

Last but not least, doubts have been building about what might be called the “better mouse trap” theory of policy advocacy.  It doesn’t seem to be enough to come up with the “best” policies, because all too often policy decisions are determined by political factors that swamp the facts and logic involved.

This has caused us to muse about reforming the political system, and also how SAFE’s policy ideas can be more effectively marketed.  One of the possibilities, clearly, is to network with other people who share our values and goals – such as the “tea party” that emerged in 2009 as a response to a “progressive” takeover of the government and has impacted the policies and activities of the Republican Party ever since.

Not that SAFE is part of any political party or faction, but we have attended tea party rallies and backed some of their policy positions.  Here are a few examples:

• Our first hand account of a “March on Washington” rally on September 12, 2009. The march that was, and what it may mean, 9/21/09.

• Our notes from a recent Heritage meeting in Wilmington re stopping GovCare. Heritage campaign to “defund Obamacare” came to Delaware Valley last night, 8/30/13.

• SAFE’s endorsement of a delay in GovCare, which would have served the interests of both sides. Preserve reputation of the US government – cure a legal discrepancy – don’t undercut employer plans – discourage tax fraud – protect Americans from identity theft and fraud.  Less is more: a 10-step plan to reboot the economy, 9/2/13 (step 10).

The brouhaha over defunding GovCare is rather remarkable, it seems to us, because a one-year delay should be helpful for all concerned.  Let’s get it done!

D.  The TCKB perspective – One might infer from “Swindled” that conservative Republicans and/or the tea party are gumming up the works in Washington.  If only they would sit down and shut up, maybe some useful things could get done for a change.

To be sure, the argument is couched in terms of rising above ideological and/or partisan differences, with Millennials occupying the moral high ground:

The real choice we face is not one between ideologies or political parties, but one between principled compromise that can secure our future or the status quo that would inevitably sacrifice it. Rather than chastise older generations for our current position, we seek to collaborate with them to solve the problem. Indeed, their legacy and our well-being depend on it.

But notice how the position of conservatives is portrayed.  Rather than being credited with at least trying to reduce the deficit and stabilize the debt in recent years – largely due to the tea party influence - they are seen as ignoring the need for entitlement reforms while single-mindedly pushing short term spending cuts and resisting tax increases.

• Over the past few years, our country has suffered through budget brinksmanship of historic proportions, as “debt ceilings,” “credit ratings,” “fiscal cliffs,” and “sequesters” have entered the national lexicon.

Young Americans should have the freedom to use discretionary funding to create, target and develop truly efficient programs that effectively grow the economy and overall quality of life.

• . . . shortsighted policies like the sequester . . . will reduce investments to their lowest share of the federal budget on record.

• Pandering to concerns about increasing budget deficits in years past . . . Republicans have largely focused on cutting spending on discretionary programs.

Contrary to the TCKB analysis, fiscal conservatives (not just SAFE) have repeatedly acknowledged the need for entitlement changes.  They have also agreed that sequestration (originally suggested by the White House in 2011) is not the best way to control spending and shown a willingness to replace across the board spending cuts with targeted spending cuts that would do less damage (there are many possibilities in the nearly $4 trillion a year budget).

Time and again, however, the party in power has balked at targeted spending cuts unless accompanied by tax increases (with revenue neutral tax reform being scornfully rejected, even though the economy would benefit and revenues would be enhanced over time). 

That’s why the Joint Committee on Fiscal Responsibility deadlocked in 2011, and it’s the main sticking point in current negotiations of the budget conference committee tasked with reconciling the House and Senate budgets for fiscal year 2014 et seq. Budget conference committee holds second meeting, 11/14/13.

Note this comment on our recap of the BCC meeting from one of SAFE’s readers – a military historian.

BCC meeting was damned discouraging if you ask me. The Democrats can't wait to kill off the Sequester and the Republicans seem to be begging for an opportunity to do help them get it done. I guess those Congressmen and women just accepted the CBO's promise that the Affordable Care Act will save the government money. Those people seem to be living in an Alice in Wonderland world. I cannot think of one government program that has actually saved money and I can think of dozens of government programs that have cost the taxpayer a lot more money than the CBO originally estimated. There seems to be an air of unreality wafting from Washington, D.C. these days - and it scares me.  

By the way, the House budget called for a balanced budget within 10 years – to be achieved in large part by entitlement changes – while the Senate budget called for continuation of the deficits and debt increases indefinitely.  When budget collide, 3/25/13.

Not that we want to take sides here, but it’s inaccurate to blame conservatives for the sequester and for unwillingness to consider entitlement reforms while giving their political opponents a pass on these issues. 

Tune in next week for some additional feedback for TCKB, this time focusing on policy ideas versus politics.

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I like it.  As for the next installment(s), the proposed solutions for the fiscal problems we face get very little traction in the media.  So anything that illustrates some of the proposed solutions, and the pro's and con's of those solutions would be great. – SAFE director


11/11/13 – Budget talks resume, sides remain far apart        Read a Reply

The budget conference committee (BCC) is scheduled to meet again at 10:00 a.m. on November 13.  This entry will (A) recap some background information, (B) preview the upcoming session, and (C) offer some thoughts on a Plan B for Republicans if the talks end in a deadlock.

A.     Background – It seems like a long time ago, so much has happened since then, but the government “shutdown” ended when the president signed the Continuing Appropriation Act in the early morning hours of October 17.  Hours later, four leaders of the BCC met for breakfast to discuss the challenge of reconciling the budget plans that had been previously passed by the House and the Senate.  The government shutdown ends, with unresolved issues aplenty, 10/21/13.

On October 28, SAFE sent some ideas for accomplishing the committee’s goal to the BCC members.  Rather than proposing a “grand bargain,” which seemed out of reach, we urged them to focus on targeted spending cuts (not tax increases, even if they arguably represented “reforms) that could pay for ending sequestration (across the board cuts of discretionary spending).

On October 29, a higher profile organization wrote to the BCC members – in essence advocating a “grand bargain” or as close thereto as the committee might be able to get.  The “Fix the Debt” letter was signed by Erskine Bowles & Alan Simpson (co-chairs of the 2010 Fiscal Commission), Mayor Michael Bloomberg, Senator Judd Greg, Governor Ed Rendell, and 17 others. (download PDF)

The American public wants solutions which replace short-term crises with long-term stability and certainty. On behalf of the more than 360,000 Americans who have signed the Citizen’s Petition to Fix the Debt, the 170 CEOs, the over 2,500 small business owners, and the hundreds of former Members of Congress, Governors, economists, community leaders and partners around the country that make up our broad coalition, we wish you luck and stand prepared to support you in any way we can as you begin the important work of negotiating a budget conference agreement.

Incidentally, the Fiscal Commission did not approve the Bowles-Simpson plan by the requisite super majority in 2010, and the plan hardly merited the praise that has been heaped on it posthumously.  Fiscal Commission co-chairs’ proposal, 11/15/10; Fiscal Commission sets stage for further discussion, 12/6/10.

We cannot agree that the CCP [B-S Plan] has “harpooned all the whales” (to use Co-Chair Simpson’s metaphor), nor even that it represents a bold and tough proposal. *** The analysis ignores the deteriorating fiscal situation of state and local governments around the country.  If California declared bankruptcy, say, who could doubt this development would be deemed to trigger the “low economic growth, unanticipated military conflict, or major disaster” exception that is specified on slide 41? *** It is time to end the artificial distinction between “discretionary” and “mandatory” spending, which is perpetuated in the CCP.  *** The plan does not address soaring healthcare outlays in a meaningful way. *** The proposed Social Security “reforms” would leave the minimum retirement age at 62, and a new increase (from 67 to 69) in the normal retirement age would not begin to take effect until after 2027.  *** A successful program for cutting “discretionary” spending programs will necessarily involve a thoughtful review and pruning of government functions/programs so that unneeded, wasteful, or duplicative programs are eliminated while justifiable programs are adequately supported.  The illustrative domestic spending cuts in the CCP go to great lengths to avoid this reality – and are basically useless. *** The “Zero Plan” for tax reform has some attractive features, but it would leave several major problems unscathed – including the double taxation of corporate earnings, the marriage penalty for two-earner households, the high number of Americans who are exempted from the individual income tax, and the proliferation of federal excise taxes (including the new GovCare levies). ***The budget should be balanced by 2015, not 2037.

The first BCC meeting took place on October 30.  All 29 members made 5-minute opening statements, which ran the gamut from ultra liberal to staunchly conservative.  There were no questions or interactive discussion.  It was announced that the next meeting would be on Nov. 13 (following a 2-week House recess), and, after brief remarks by the co-chairs (Representative Paul Ryan & Senator Patty Murray), the meeting was adjourned. C-Span video (2.5 hours).

Since October 30, other observers have offered suggestions for the BCC and/or talked about discussions behind the scenes.  Here is some of the traffic:

•  Passing a budget that reflects our priorities, president’s weekly address, 11/2/13.

On my watch, [deficits are] falling at the fastest pace in 60 years.  So that gives us room to fix our long-term debt problems without sticking it to young people, or undermining our bedrock retirement and health security programs, or ending basic research that helps the economy grow.  *** The question can’t be how much more we can cut; it’s got to be how many more jobs we can create, how many more kids we can educate, and how much more shared prosperity we can generate. 

• Obama aide stakes out budget stance, Peter Nicholas & Damian Paletta, Wall Street Journal, 11/5/13.

Speaking Monday at a Wall Street Journal breakfast, Mr. Furman said *** the White House would prefer that any deal include new spending to help boost economic growth. “You don't want to take the sequester and replace it with something that is just as bad or even worse."

ª Parties hunt for [nontax] revenue streams, John McKinnon, Wall Street Journal, 11/6/13.

Possibilities include selling surplus federal property, increasing fees that airlines pay for airport security, leasing more federal lands for oil and gas production, boosting Medicare premiums for higher-income seniors and raising how much federal employees must contribute to their pension programs, among many others.

Our reactions; fine to sell surplus federal property, including millions of acres of land; yes to leasing more federal lands for oil and gas production; boosting Medicare premiums for upper-income seniors may be acceptable, but it’s wrong in principle; higher fees for airport security should come with a privatization option; scrutinize the details re federal pension contributions.

• Tax breaks for wealthy targeted by Democrats in budget talks, Heidi Przybyla,, 11/7/13.

“It shouldn’t be difficult for Republicans to agree to put just a few of the most egregious, wasteful loopholes and special-interest carve-outs on the table,” Patty Murray, chairwoman of the Senate Budget Committee and the lead Democratic negotiator, said on Nov. 5.  The clash with Republicans over revenue stands in the way of the lawmakers reaching a deal by a Dec. 13 deadline. Democrats have long urged Republicans to agree to scrap at least some of the tax preferences, while Republicans argue that doing so would undermine efforts for a broader tax-code revision.

SAFE believes there is no surer way to kill real tax reform (which over time would enhance revenues) than to continue tinkering with the tax code as Congress has been doing ever since the tax reform act of 1986 was enacted. Also, no solid economic arguments for tax increases have been presented – just political arguments.

# Cut spending by . . . cutting spending, Michael Tanner,, 11/8/13.

Scholars at the Cato Institute have put together a plan that balances the budget without tax increases and reduces our dangerously high debt burden, by cutting $3 trillion over the next ten years. It builds on good ideas from both Republicans and Democrats, liberals and conservatives, to expand individual freedom and reduce the burden of government. *** The cuts we recommend [cut corporate welfare, more privatization, trim the intelligence budget, end the drug war, reform Social Security and Medicare, block grant Medicaid, etc.] will almost certainly arouse the ire of powerful interests and constituencies. Others may legitimately have better ideas for what and how to cut. But in the end, the only way to reduce the size, cost, and intrusiveness of government is to cut spending. And the only way to cut spending … is to cut spending. 

These ideas may be too ambitious for present circumstances, but - like the Citizens Against Government Waste “Prime Cuts” list we cited earlier – here is a great inventory of potential spending cut targets.  Moreover, the elimination of government bloat cannot work without the type of “no sacred cows” mindset that Tanner advocates.  Hats off!

B. Second meeting – Unlike the first BCC meeting, there will be a speaker on Wednesday. Congressional Budget Office Director Doug Elmendorf (CBO) will recap the budget and economic outlook and answer questions.

Predictably, Director Elmendorf will make two points as he artfully avoids taking sides on how the fiscal issues that are in play should be addressed. 

First, the $680B deficit for fiscal year 2013 was the lowest since fiscal year 2008 – but still too high.  Summary of Fiscal Year 2013, CBO, 11/7/13.

Fiscal year totals ($ in trillions)





























Deficit - % of GDP







Second, the deficit is projected to keep falling for the next several years, but longer term it will start rising again and the debt overhang will grow as well.  The 2013 long-term budget outlook, CBO, 9/17/13 (reposted 10/31/13).

In CBO’s 10-year baseline budget projections, which incorporate the assumption that current laws generally remain in place, the deficit is projected to continue to drop over the next few years, falling to 2 percent of GDP by 2015. As a result, by 2018, federal debt held by the public [excludes debt held by Social Security, etc. trust funds; includes debt held by the Federal Reserve, which now owns more US debt than China] would decline to 68 percent of GDP from its current level of 73 percent. [Thereafter], budget deficits would gradually rise again under current law, CBO projects, mainly because of increasing interest costs and growing spending for Social Security and the government’s major health care programs,  *** By 2023, CBO projects, the budget deficit would grow to almost 3.5 percent of GDP under current law, and federal debt held by the public would equal 71 percent of GDP and would be on an upward trajectory.

So if it already pretty clear what Director Elmendorf will say, why call him to testify at the meeting – much as he did at past sessions of the Fiscal Commission (2010) and the Joint Committee on Deficit Reduction (2011)? 

One reason is to give the BCC members an opportunity to ask questions.  And there are some good questions about the CBO projections that could be asked, although the members may or may not do so.  For instance, could current Federal Reserve policies lead to double-digit inflation, a panicked policy reversal, and skyrocketing government interest expense? Janet Yellen’s mission impossible, Peter Schiff,, 11/9/13.

[Quantitative easing] will come to an end, [not] because the Fed wants it to, but because the currency markets give it no choice. A dollar crisis would ultimately force the Fed's hand, and the longer the Fed succeeds in postponing the inevitable, the more damage its policy mistakes will inflict on our economy. ***[We] should not be asking when Ms. Yellen will begin withdrawing stimulus and shrinking the Fed's balance sheet. Instead we should be asking how the markets will react when she runs out of excuses for delaying the taper, or ultimately decides to expand QE rather than contract it.

At the risk of sounding cynical, another reason for hearing from Director Elmendorf is to display congressional diligence.  But the presentation will basically be a “dog and pony show,” and no one should be unduly impressed.

If the BCC winds up striking a deal, it will not happen at public sessions with 29 members (22 of them senators) making speeches.  Still, it should be interesting to hear what the members have to say, and SAFE will be following the action on Wednesday just as we did at the first meeting.

C. Fallback plan – It’s anyone’s guess what will happen, but we think there is about a 60% chance that the BCC talks will deadlock over tax increases versus spending cuts - just as happened with the Joint Committee on Fiscal Responsibility two years ago. Joint statement of co-chairs (Representative Jeb Hensarling and Senator Patty Murray), 11/21/11.

If so, will Republicans revert to the strategy used in September, when they attempted to extract concessions in return for authorizing ongoing spending authority (now extended until January 15) and raising the debt limit (which will come back into play in February). 

The predictable result would be another government shutdown, with each side attempting to blame the other. Rightly or wrongly, SAFE supported an aggressive strategy in September, including the controversial demand for a delay in GovCare that tea party Republicans insisted on.  The conventional wisdom is that the president and his supporters won this battle in the court of public opinion.  Zogby report card: GOP helps Obama out, Paul Bedard, Washington Examiner, 10/18/13.

There is just no way to minimize how badly the GOP has hurt itself from the shutdown-debt ceiling crisis. Only the most ardent flamethrowers will say they launched a debate over Obamacare. They did not; their actions actually took focus off of its problematic launch and now it is more popular than it was two weeks ago.

It would be wrong to think the public only blamed the Republicans for the shutdown, however, as approval ratings of the president and congressional Democrats also took a hit.  Moreover, problems with the botched GovCare launch (now even being reported by the mainstream media) may well be remembered longer than the shutdown angst. Low sign-up rate grows more problems for ACA, (Wilmington, DE) News Journal, 11/8/13.

This editorial surveys accumulating problems with the GovCare rollout, including the fact that only four Delawareans have signed up for coverage so far - “even if the AP numbers were off 100-fold, the situation would be a disgrace” - “probably far more than 400 Delawareans have been told their current insurance policies are being canceled” - on the national level, cancellation of HCI policies is in the millions - workers with employer-sponsored HCI at many companies have already been hit with word that next year’s insurance coverage “will be much more costly.”  - don’t bet the ranch on the government making that Nov. 30 deadline to solve all the problems with the GovCare website – far from clear that young & healthy will sign up for HCI through the exchange so as to subsidize older/sicker customers.

If the GovCare problems persist and the administration finds it necessary to delay the independent mandate to carry approved healthcare insurance after stonewalling the Republican request for such a delay earlier, they could wind up looking rather foolish. Obamacare fiasco proves president is no chess master, Jonah Goldberg,, 11/1/13.

Republican demands were a bit of a moving target, but basically the GOP wanted either an all-out repeal of Obamacare or, as a fallback, a one-year delay of the individual mandate. By the end, they would have taken even less. But Obama wouldn't consider it. *** Conventional wisdom says Obama won, and I basically agree with the conventional wisdom.  Or at least I did. There's something those of us scoring that bout didn't know: The president desperately, urgently and indisputably needed to delay the rollout of Obamacare.

But it would be unwise for Republicans to tempt providence, not to mention being boringly predicable, by forcing another budget showdown early next year.  Instead, it seems to us that their smartest strategy would be to insist on continuing observance of the sequestration provisions of the Budget Control Act of 2011.

Although SAFE is no fan of across the board spending cuts, which are based on the false premise that all government spending programs are of equal value, sequestration is the only way to start reining in spending that has worked.  It should remain in effect unless and until the parties can agree on targeted spending cuts to pay for its replacement.

Perhaps that’s what the GOP senators who have been tasked with identifying “budget alternatives in case the [BCC] fails to reach a deal” will be talking about.   McConnell quietly organizes group for next fiscal showdown, Alexander Bolton, The Hill, 11/8/13.

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The CBO never gets anything right.  They should be focused on the US national debt (not simply the amount of the debt in public hands), which stands at $17.1 trillion and represents 107% of the Gross Domestic Product.  – SAFE director

See update on what actually happened at the BCC meeting.  Delaware Chatter, 11/14/13

BCC meeting was damned discouraging if you ask me. The Democrats can't wait to kill off the Sequester and the Republicans seem to be begging for an opportunity to do help them get it done. I guess those Congressmen and women just accepted the CBO's promise that the Affordable Care Act will save the government money. Those people seem to be living in an Alice in Wonderland world. I cannot think of one government program that has actually saved money and I can think of dozens of government programs that have cost the taxpayer a lot more money than the CBO originally estimated. There seems to be an air of unreality wafting from Washington, D.C. these days - and it scares me.  Thanks for your emails, even when discouraging, they keep me informed. Please keep fighting the good fight. – Military historian


11/4/13 – The website is fixable, but GovCare has deeper problems

Americans do not expect their political leaders to leap tall buildings at a single bound or make water run up hill.  Neither are leaders expected to pour two gallons into a one-gallon jug, which as Mark Twain famously said would “strain the jug.”

Why then was there so much surprise when a massive healthcare overhaul, sold as offering great benefits and no downside, did not roll out smoothly at the appointed time?

Perhaps Americans wanted to believe the plan would work, giving them the satisfaction of helping the less fortunate without any personal cost or sacrifice.

In any case, the reality of what is afoot began to hit home last month – and many people are upset.  Too bad they ignored SAFE and other critics earlier, because it will be difficult if not impossible to reverse course at this point. 

A. The pitch – Americans already covered by healthcare insurance (HCI) could keep what they had and pay less, it was said, while uninsured Americans would be taken care of as well.  This picture was painted during the presidential campaign in 2008 and repeatedly thereafter until GovCare was enacted in 2010.  Here are some examples from the archives:

Both candidates offer “pie in the sky” healthcare plans, 10/20/08

Senator Obama (debate 2): “If you've got healthcare already, and probably the majority of you do, then you can keep your plan if you are satisfied with it. You can keep your choice of doctor. We're going to work with your employer to lower the cost of your premiums by up to $2,500 a year.”

A tale of two summits, 3/16/09

The president stated the purpose of the [healthcare] forum as starting to determine how to “lower costs for everyone, improve quality for everyone and expand coverage to all Americans.”

A national conversation about GovCare,

If GovCare included a “public [insurance] option,” could people who liked their existing healthcare insurance keep it?  Yes, said the president, and in a 6/15/09 speech to the American Medical Association, he rejected the “illegitimate concern” that a public option could be a Trojan horse for single payer healthcare. 

GovCare: Good intentions are not enough, 11/9/09

Consider the case being made for GovCare.  Nearly everyone will get HCI – only way to bring healthcare costs under control – waste and abuse will be curbed – more money invested in preventive care – if you like your HCI, you can keep it – crack down on insurance company abuses – a public option will compete with private insurers and keep them honest.

Really, tens of millions of uninsured Americans would receive HCI – presumably accompanied by more liberal access to healthcare services – yet everyone in the system would pay less?  Such an outcome seemed improbable, and we said so early and often. Healthcare plan will not pay for itself, 3/23/09

Re how the plan would be paid for, GovCare supporters managed to manipulate the numbers so the Congressional Budget Office would score the bill as a deficit reducer.  Low-ball new spending commitments – embed proposed tax increases and Medicare cuts (which Congress might or might not sustain when the time came) in the legislation.  Déjà vu: scoring a healthcare bill, 10/12/09.

Critics deemed this approach dishonest as the tax increases and Medicare cuts bore no necessary connection to the new program.  If the administration was serious about reducing the deficit, why not make these changes and forget about GovCare?  But, of course, fiscal responsibility was not the goal.  The trillion dollar “bargain,” Dr. David Gratzer,, 3/20/10.

The real goal is to sugarcoat a massive expansion in government entitlements at the precise moment the U.S. is least equipped to pay for them. ObamaCare adds a projected 16 million people to Medicaid and CHIP entitlement rolls – projected to cost $434 billion, or almost half the price of the plan. $466 billion of the rest subsidizes lower income families to help them buy private insurance – with no guarantee that health inflation won’t outpace those subsidies a few years later.

Our side lost the argument. GovCare was enacted, the US Supreme Court upheld the legislation (although further legal challenges are pending), and the last clear chance to stop it evaporated when the president won reelection.

Implementation loomed with predictably dismal results. Healthcare costs and HCI premiums will keep rising rapidly – 30 million Americans will remain without HCI – many employers will drop their HCI plans – many HCI exchanges will be run by the federal government – budgetary pressures will force de facto healthcare rationing.

Could anyone doubt that demands for further healthcare “reform” – this time to achieve universal (aka single payer) HCI – would soon follow. The GovCare muddle, 12/3/12.

But to be complete, the administration has continued to paint an optimistic picture. Consider this message currently displayed on the White House website (blue font added):

What Obamacare Means for You
The Affordable Care Act means better coverage for those who already have health insurance, and more options for those who don’t.

B.  The launch - Preparations for the GovCare rollout went into high gear this year, with government-run insurance exchanges scheduled to open on October 1 and the new HCI coverage to begin on January 1.  Despite repeated assurances that things were on track and all of the HCI exchanges (some run by states, others by the federal government) would be ready to go, various problems surfaced.

In April, Senator Max Baucus (one of the GovCare architects) pressed HHS Secretary Kathleen Sebelius for assurances that Americans understood the new program and would be prepared to support it.  She responded that a public education program was planned for the summer.  Baucus wary of “huge train wreck” [implementing] Obamacare provisions, Sam Baker, the Hill, 4/17/13.

Several GovCare provisions were postponed by administrative fiat, notably the employer mandate, but administration officials vowed the individual mandate would proceed on schedule.  Surprise: GovCare employer mandate postponed until 2015, 7/8/13.

HHS established a front web page, featuring an attractive young woman (aka the Obamacare cover girl), which informed visitors that the health[care] insurance marketplace was about to open.  There was a raft of supporting publicity around the country, much of it free.  Thus, in Delaware, see “Health[care insurance] plan rates posted,” News Journal, 9/20/13; and “Unwrapping Obamacare,” News Journal, 9/29/13.

On October 1, however, the very expensive (some $630M if all related contracts are taken into account) website didn’t work.  Initial claims that this was due to overwhelming traffic on the website soon became untenable, and in due course a telling change was made. Obama cover girl becomes first victim of ACA’s death panel, Terry Ponick, Washington Times, 10/29/13.

A new team is now working on the website problem with a goal of achieving functionality by not later than November 30. (Some observers, e.g., Steve Hayes of the Daily Standard, say this target date is completely unrealistic.)  Although the March 31 deadline for individuals to sign up for HCI to avoid a fine remains in place for now, the administration has already eliminated the prescribed buffer period between signing up and the registration deadline. White House . . . will tweak deadline, Susan Ferrechio, Washington Examiner, 10/24/13.

"Because open enrollment doesn’t end until March 31, 2014, the Administration is seeking to close the gap between February 15 and March 31 so that anyone who signs up by the end of March does not face the penalty. This is simply conforming dates. This is not a delay in the individual mandate," [a] Democratic aide said.

Both Secretary Sebelius and the president have acknowledged the website malfunction and put the best face on it that they could. Sebelius apologizes for botched health[care] website; President “not happy” with site problems, News Journal, 10/31/13.

HHS Secretary Kathleen Sebelius is quoted as saying “hold me accountable for the debacle” in congressional testimony, and the president, speaking in Massachusetts, declared himself “not happy” with the healthcare insurance enrollment problems and took “full responsibility” for resolving the computer problems. 

GovCare critics have pounced on the malfunctioning website and the HHS secretary’s alleged incompetence, but they should not overdo it. First, the website can and no doubt will be fixed.  It’s just a matter of hiring the necessary technical talent.  Second, more fundamental problems are afoot and the critics would be smart to look ahead instead of harping on something that has already happened.

C. Broken promises – A flood of cancellation notices has called into question the president’s earlier promise that if you like your insurance you can keep it.  The individual HCI policies of an estimated 16 million people do not meet GovCare requirements and are not eligible for the narrowly drawn grandfathering provision.  Millions of Americans are losing their health[care] plans because of Obamacare, John McCormack, Weekly Standard, 10/23/13.

Was the president unaware that this would happen when he made the promise, or did he brazenly misstate the facts?  Either way, the discrepancy does him little credit.  Obamacare laid bare, Charles Krauthammer, Washington Post, 10/31/13.

Many more Americans may lose their employer plan coverage, but this wave of HCI cancellations will likely hit next year due to the one-year delay in the employer mandate. [HCI] losses to get worse: 51 percent to lose employer based insurance, Katie Pavlich,, 10/31/13.

In terms of the number of future uninsured Americans, we're look[ing] at more than half of those in the individual market losing their plans and at least half of those with employer based insurance losing their insurance, which leaves at the very least half of the currently insured population uninsured.

Various explanations have been offered.  Individual insurance is only a small segment of the overall HCI market (never mind the coming shakeout in employer plans) - the insurance companies could have amended the plans to meet GovCare standards instead of cancelling them so it’s their fault - Americans should have understood that the promise did not extend to the renewal of substandard HCI coverage.  See, e.g., “Obama blames ‘bad apple’ insurers for cancelled insurance policies,” Aaron Black, Washington Post, 10/30/13.

"One of the things health[care] reform was designed to do was to help not only the uninsured but also the under-insured," Obama said. "And there are a number of Americans, fewer than 5 percent of Americans, who've got cut-rate plans that don't offer real financial protection in the event of a serious illness or an accident.”

OK, suppose that someone’s HCI plan – which he or she was satisfied with – is cancelled.  Can the customer find another policy as good or better at an attractive price, or is there a real economic loss?  Conflicting information has been reported on this score, so let’s take a look.

GovCare forbids premium adjustments for preexisting conditions and limits the differential for premiums based on age, so the new HCI premiums will favor older, sicker people over younger, healthier people. If many people in the latter category (aka “the invincibles”) choose to pay the fine and defer taking out HCI (figuring they can always opt in if they develop health problems), insurance companies will be forced to raise the premiums for older, sicker people in order to avoid losing money on an overall basis.  Obamacare’s success depends on young buyers, Michelle Smith,, 7/26/13.

Young people are not expected to rack up a lot of medical bills. Therefore, if they readily purchase coverage, their premiums should offset the costs for older Americans and for sicker people.  But if young buyers don't flock to the healthcare market, prices across the United States could spike . . .

Since existing state policies on HCI differ, the relationship between GovCare rates (before subsidies) and previous rates will vary considerably from state to state.  In a few states, e.g., New York, rates are expected to fall initially.

In many states, however, premiums on the new HCI policies will be sharply higher than the premiums for previously available coverage.  See, e.g., “How will you fare in the Obamacare exchanges?  Drew Gonshorowski, Heritage Foundation, 10/16/13. (Study data for the First State are shown below as an example.)


Monthly HCI premiums (Delaware)




% Increase

Adult, age 27




Adult, age 50




Family of four




It’s also important to consider the details of what is covered as a simple comparison of monthly premiums may be misleading.

A low monthly premium may be negated, for example, if the doctors one wants to see are not in the network.  Race to the bottom in the Obamacare exchanges, John Goodman,, 9/28/13.

Also, some exchange HCI plans provide for high levels of patient cost sharing, e.g., 40% in the case of a “bronze” plan.  Obamacare metal plans [bronze, silver, gold, platinum],

Here’s an example based on one couple’s experience.  Ouch!  Sticker shock often follows insurance cancellation, Kelli Kennedy, Associated Press, 11/2/13.

The Griffins, who live near Philadelphia, pay $770 monthly for their soon-to-be-terminated healthcare plan with a $2,500 deductible. The cheapest plan they found on their state insurance exchange was a so-called bronze plan charging a $1,275 monthly premium with deductibles totaling $12,700.

GovCare supporters prefer to talk about the cost of the new HCI plans on a net (after deduction of subsidies) basis – which can partially or wholly offset a cost increase over previously available coverage. “Affordable” care depends on the size of your Obamacare subsidy, Byron York, Washington Examiner, 11/1/13.

This doesn’t help customers who aren’t subsidized, however, and some of them may be none too happy about making a forced contribution to others.  Consider these comments from California, where hundreds of thousands of HCI policies are being cancelled by Blue Shield and Kaiser Permanente.  Some health[care] insurance gets pricier as Obamacare rolls out, Chad Terhune, LATimes, 10/26/13.

• Jennifer Harris thought she had a great deal, paying $98 a month for an individual plan that is being canceled because it does not conform with the new federal rules. Now Harris, a self-employed lawyer, must shop for replacement insurance. The cheapest plan she has found will cost her $238 a month. She and her husband don't qualify for federal premium subsidies because they earn too much money, about $80,000 a year combined. "It doesn't seem right to make the middle class pay so much more in order to give health insurance to everybody else," said Harris, who is three months pregnant. "This increase is simply not affordable."

• Pam Kehaly, president of Anthem Blue Cross in California, said she received a recent letter from a young woman complaining about a 50% rate hike related to the healthcare law. "She said, 'I was all for Obamacare until I found out I was paying for it,'" Kehaly said.

Time will tell how Americans take to the new HCI policies, but people will probably make their decisions based on perceived self-interest versus the “general good.” 

Thus, older & sicker Americans will sign up.  The invincibles will hold back unless they qualify for a big enough subsidy to make the coverage attractive on a net basis.  There may be more enrollment in Medicaid than was expected in those states that have agreed to liberalize eligibility requirements.  And the federal government, which will be on the hook for the HCI subsidies and most of the cost of Medicaid expansion, stands to be the big loser.   The website is fixable, Obamacare isn’t fixable, Peter Schiff,, 10/29/13.

Put simply the program is built on a mountain of false assumptions and is covered by a terrain of unanticipated incentives. Any cleared-eyed observer should conclude that it is perfectly designed to raise the costs of care and wreck the federal budget.

Not a very happy outlook for one-sixth of the national economy and the federal treasury, but there is something that concerns us even more.

Judging from the GovCare saga, Americans have reached the point of accepting “feel good” proposals for government action without asking obvious questions or considering opposing opinions.  They know better; they simply don’t bother to get involved. 

Unless things change, all of us will pay a heavy price for this!


10/28/13 – Let’s make a deal: some thoughts for the budget conference committee        Read Replies

Just about everyone seems to agree there will be no “grand bargain” on the federal budget this year, but perhaps there could be a small bargain.  It all depends on thinking clearly and not letting egos get in the way.

To achieve consensus, focus on points that both sides should be able to agree on and avoid demanding concessions the other side is dead set against.

The result could be replacement of sequestration with smarter spending cuts plus a clear track for real tax reform.  Just about everyone would come out ahead as a result, which is more than can be said for many actions of the federal government.  Discussion follows.

A. Don’t aim too high – Some ideas that SAFE supports are simply not in the cards right now, particularly with divided control of government.

A plan to balance the budget in three years would be great, but there doesn’t seem to be much support for it.  The Senate budget, which Side A was responsible for passing, projects deficits as far as the eye can see.  Even the House budget would take 10 years to bring spending into line with income.

House v. Senate budget plans, 2014-23, $ in trillions





2023 Total Debt





20.4 (79% of GDP)





24.4 (94% of GDP)

Social Security, Medicaid, and Medicare are costly programs, and the cost will become unsustainable as the Baby Boomers retire.  Adjustments must be made at some point, and the longer that action is postponed the more painful the changes will be.  Nevertheless, no political will to address this problem is apparent, and indeed some supporters of Side A have served notice that they will fight any cuts to these programs. Big labor threatens to end careers of Democrats who support entitlement reform, Sean Higgins, Washington Examiner, 10/21/13.

We like to talk about eliminating whole departments, such as Education (federal oversight over state schools does more harm than good) and Energy (department has done very little to accomplish its core mission of supporting US energy independence), but no one seems to be listening.

Finally, the recent fiscal showdown established that GovCare will be implemented on schedule – come what may – because Side A simply will not accept any second-guessing of this program.  Too bad, because a one-year delay in the individual mandate would solve problems for everyone, as we pointed out earlier. Less is more: a 10-step plan to reboot the economy (see step 10), 9/2/13. Our arguments have since been reinforced by the GovCare website debacle.

Ergo, all of the big issues are off the table at this point so the budget conference committee (BCC) should lower its sights and shoot for agreement on spending levels for the current fiscal year and some resolution on the debt ceiling.  Such an agreement might make the government run a bit better between now and the elections in November, and we think that would be a good thing.

Leaders of the BCC are reportedly thinking along similar lines. Perpetuating fiscal excess, Steve Chapman,, 10/24/13.

Last week, The New York Times reported House and Senate budget conferees "largely agreed at a closed-door breakfast on Thursday that a deal involving significant new tax revenues and large-scale changes to Medicare, Medicaid and Social Security, whose growth in an aging population is driving long-term projections of growing debt, is not going to happen."

B. Seek common ground – It’s easy to agree on general goals, witness an interview of the BCC leaders after their breakfast meeting on October 17, yet have very different ideas of how to get from A to B.  Playing nice: Budget talks may start with an extra-friendly tone, Lisa Desjardins, CNN, 10/18/13.

The examples of common ground were broad goals: a stronger economy, more jobs, a smaller deficit. The vast differences over how to accomplish those things were not mentioned, but have stymied Congress for years, including the high-profile and failed “super committee” in 2011.

A more specific goal that the two sides might be able to agree on is finding a replacement for sequestration – the across-the-board spending cuts to discretionary spending mandated by the Budget Control Act of 2011 unless an alternative plan to achieve at least $1.2 trillion in deficit reduction over ten years could be agreed on. 

Ensuing discussions (notably deliberations of the Joint Committee on Deficit Reduction, aka super committee) deadlocked, so the first round of sequestration went into effect earlier this year.  A second (and deeper) round of cuts is scheduled in January 2014.

Side A sees sequestration as an unmitigated negative, which is blocking necessary and appropriate increases to government spending.  The next budget battle, Michael Tanner, National Review, 10/23/13.

Repealing the sequester’s mandated spending cuts is likely to be the Democrats’ No. 1 priority in budget negotiations. Already, Obama has promised to “keep fighting to get rid of” the law, saying it’s “hurting our military and our economy.”

For Side B, sequestration is the only tool at their disposal that has actually produced some spending cuts – and they would be loath to give it up.  Never mind that sequestration is a blunt instrument, which treats all government programs as of equal worth (not so!) and is particularly damaging to the military (at a time when the international situation is becoming rather dicey).  Without the debt ceiling or shutdown, what will Republicans use as leverage now?  Jonathan Chait, Daily Intelligencer, 10/18/13.

 It wasn’t so long ago that Republicans depicted sequestration as a horror show. It’s “harmful,” said John Boehner months ago, “The sequester is bad policy. It's taking a meat-ax approach to cutting government spending.” *** Now they think sequestration has real charms. It’s spending cuts! They love spending cuts! Indeed, Republicans now portray sequestration as a beloved feature, one which they will part with only for a dear price.

Sounds like there could be some common ground here.  Perhaps the two sides could agree to replace sequestration with other measures to achieve an equivalent amount of deficit reduction (roundly $1 trillion over 10 years) in a less destructive way.

SAFE previously recommended that defense side sequestration be replaced by targeted spending cuts (domestic). Less is more: a 10-step plan to reboot the economy (see step 7), 9/2/13.  Subject to identification of a satisfactory quid pro quo, it might be even better to scrap sequestration entirely.

C.  Don’t overreach –The principals in the budget negotiations (of which the BCC exercise is only the latest phase) might do well to consider what the “best answers” are, and not simply what answers appeal to them or would be easiest to sell.  Similarly, they should avoid demanding concessions the other side is dead set against in the absence of compelling evidence that they are “right” and their opponents are “wrong.”

We recommend that both sides rethink their positions with these principles in mind if they really want to make a deal.

# TAX INCREASES - Side A has stated repeatedly that any deficit reduction plan must be “balanced,” by which they mean that at least half of the gross reduction would be achieved by raising taxes and some additional spending (aka “investment”) would be thrown in to boost the economy.

For example, consider the thoughts of the junior senator from Delaware, who will participate on the BCC. Coons hopeful panel can find answers, Nicole Gaudiano & Ledyard King, News Journal, 10/22/13.

“Republicans and Democrats agree that automatic federal spending cuts now in place are bad for the country, but they don’t agree on much else.” [Senator Chris] Coons’s suggestion for progress is that “everything has to be on the table,” which apparently means there will be no chance for the deal unless Republicans agree to revenue (aka tax) increases.  They don’t necessarily have to agree to tax rate increases, it might be sufficient to close loopholes. *** Coons is not sure how the working assignments will be parceled out, but “said his priorities include protecting money for Amtrak and promoting investments [more spending] in infrastructure and research and development.”

Side A’s yen for tax increases soared after their “win” in the fiscal showdown.  Dems to go on offense on taxes, Alexander Bolton, The Hill, 10/22/13.

Democrats say they would not accept any budget deal unless it includes tens of billions in new tax revenue. Their opening bid is $1 in new taxes for every $1 in spending cuts to offset the cost of ending sequestration for domestic and defense discretionary spending programs.

Side B has ruled out any more tax increases, however, even if the increases are achieved by closing tax “loopholes” versus raising tax rates.  Both sides agree: no major budget deal foreseen, Andrew Taylor,, 10/25/13.

Republicans say they simply won't agree to any further taxes atop the 10-year, $600 billion-plus tax increase on upper-income earners that President Barack Obama and Democrats muscled through Congress in January.

Despite being allergic to tax increases, Side B does support revenue neutral tax reform.  Here’s how we can end this stalemate, Representative Paul Ryan, Wall Street Journal, 10/8/13.

Rep. Dave Camp (R., Mich.) and Sen. Max Baucus (D., Mont.) have been working for more than a year now on a bipartisan plan to reform the tax code. They agree on the fundamental principles: Broaden the base, lower the rates and simplify the code. The president himself has argued for just such an approach to corporate taxes. So we should discuss how Congress can take up the Camp–Baucus plan when it's ready.

Side A’s leadership is unreceptive.  Consider Senate Majority Leader Harry Reid’s statement that tax reform is “going nowhere unless there’s an agreement that the legislation will bring in more money to the Treasury.” He and Senator Chuck Schumer suggested that the Finance Committee “look at the Senate budget framework – which would raise $975 billion in fresh revenue for the government – to find a starting point for a viable tax reform bill.”  Tax reform in Senate?  Not so fast, says Reid, Bernie Becker, The Hill, 7/25/13.

On the merits, we agree with Side B’s position.  The basic driver of the fiscal problem has been spending growth, which Congress has done a miserable job of controlling. Tax increases typically raise less revenue than expected due to associated economic drag and represent a convenient excuse for new spending.  There has been a flurry of tax increases since 2009 with little apparent benefit.  Insisting on immediate revenue increases would kill the incentive for tax reform, which is sorely needed but not easy to sell because every tax preference has its defenders.  On the cusp of a crisis in DC (point 4), 10/14/13.

There is lots of evidence that spending restraint is the most effective tool in the budget repair kit, from the negative results after Connecticut instituted a state income tax to the success of spending caps in Switzerland.  For any fiscal policy question, spending restraint is the answer, Daniel Mitchell,, 10/25/13.

Side A’s policy arguments seem to boil down to perceived fairness.  Thus, Senator Reid has suggested that everyone except congressional Republicans thinks the rich should pay more taxes. Harry Reid: “Everybody . . . willing to pay more” taxes, Daniel Halper, Daily Standard, 10/24/13.

Unfortunately for this argument, high earners are already paying a disproportionate share of total taxes.  Thus, tax filers in the top half (ranked by adjusted gross income) pay nearly 98% of individual income taxes while lower income filers contribute very little to the general costs of government.  National Taxpayers Union,

SAFE believes a graduated income tax is appropriate, so we do not support a flat tax or the FairTax (national sales tax in lieu of income & payroll taxes).  Nevertheless, we think far too many Americans have been effectively exempted from paying income taxes or even allowed to come out ahead due to refundable tax credits.  Our SimpleTax proposal suggests fixes for these issues.

# ENTITLEMENTS – Side B has not proposed entitlement changes of the magnitude that will be necessary in coming years (the current programs are simply not sustainable), but it is at least thinking about the problem.  Thus, the House budget proposed to strangle GovCare in its cradle, block grant Medicaid, and prune other mandatory spending (not including Social Security). 

There would be much to be said for providing “relief from the discretionary spending levels in the Budget Control Act [aka sequestration] in exchange for some pruning of entitlement programs.” Paul Ryan column, 10/8/13.

However, the numbers would need to be reasonably proportionate, e.g., Side B could hardly expect to buy a fundamental fix of entitlements simply by giving up sequestration. Without the debt ceiling or shutdown, Jonathan Chait.

Mitch McConnell and the Wall Street Journal editorial page both float versions of this “deal,” insisting that Obama show his good faith by giving Republicans cuts to Medicare and Social Security without demanding any revenue increase to balance it off. *** But why would Democrats agree to cut trillions in return for billions? Well, they wouldn’t. It’s a terrible, terrible deal.

The Ryan column recognized this point by proposing “modest reforms to entitlement programs,” e.g., means testing Medicare benefits, rather than fundamental changes.

This isn't a grand bargain. For that, we need a complete rethinking of government's approach to helping the most vulnerable, and a complete rethinking of government's approach to health care. But right now, we need to find common ground. *** So let's negotiate an agreement to make modest reforms to entitlement programs and the tax code.

It seems likely, however, that Side A is too invested in the idea of extracting concessions for any reductions in entitlement outlays to take the bait.  Note the uncompromising tone of Senator Reid’s subsequent remarks. “Everybody . . . willing to pay more” taxes, op cit.

They have their mind set on doing nothing, nothing more on revenue, and until they get off that kick, there’s not going to be a grand bargain on — there’s not going to be a small bargain.  We’re just going to have to do something to work our way through sequestration.

Ergo, spending cuts in other areas may need to be considered in place of the entitlement changes Side B (Ryan) has suggested. 

Targeted spending cuts are probably unpopular in the “go along to get along” culture of Washington.  There is an abundance of targets to pick from, however, and the information is readily available.  As a starting point, we would suggest that BCC members review the Prime Cuts list maintained by Citizens Against Government Waste.

“This year’s version contains 557 recommendations that would save taxpayers $580.6 billion in the first year and $1.8 trillion over five years.” Hmm, that’s more than three times the amount of savings needed to cancel sequestration, so the BCC would have considerable flexibility to pick and choose from the CAGW menu

Another approach might be to target a specific class of spending, say corporate welfare, which is running about $100 million a year.  (This is exclusive of the special tax breaks mentioned in the article; they should be eliminated in the context of revenue neutral tax reform rather than claimed as “offsets” to sequestration.)  In budget fight, GOP should target corporate welfare, Timothy Carney, Washington Examiner, 10/22/13.

A one-page letter based on this entry is being faxed to all members of the BCC.  Their first meeting on Wednesday, October 30, will be public although closed sessions may follow. SAFE will follow the action to the extent practicable.  Stay tuned for further reports.

*        *        *        This Blogs Replies        *        *        *

I don’t think the left is seriously interested in anything except tax increases and more spending & social programs, so it’s hard to see a constructive budget deal – even simply to replace the sequester with targeted spending cuts. – SAFE director

I am so glad that you diligently research these matters and offer concrete suggestions--however many times they go un-heeded. Your group is to be congratulated for your perseverance. – Family connection


10/21/13 – The government shutdown ends, with unresolved issues aplenty

The president signed the “Continuing Appropriations Act, 2014” in the early morning hours of October 17, following evening passage by the House and Senate.  Thirteen pages of dense legislative language reopened the spending spigot until January 15 and lifted the debt limit until February 7.  The sequester caps on spending remain in effect. 

The only provision pertaining to GovCare: verification of eligibility for healthcare insurance subsidies of policies purchased on government-run exchanges will be required.  (There was concern about this due to the one-year delay of the employer mandate.)

If the CAA effected any spending cuts, we failed to detect them, but there is a series of earmarks including a $2.9 billion Ohio River project ($2.2B increase to previous authorization) of interest to Senator Mitch McConnell’s state and a $174K gratuity for the widow of Senator Frank Lautenburg (who was a multimillionaire).  Thomas (Library of Congress) (HR 2175, download PDF).

The CAA does not appear to provide for a budget conference committee to reconcile the House & Senate budgets for fiscal year 2014, but the two sides did agree on such a committee to be charged with reporting back by mid-December.  In the normal course, a BCC would have been convened months ago; the House Republicans reportedly blocked it based on procedural considerations (sorry, but we question their reluctance to engage in the reconciliation process without a pre-conference agreement).

Wasting no time, four members of the BCC met for breakfast on September 17.  They were Representatives Paul Ryan (R-WI) and Chris Van Hollen (D-MD), the chair & ranking minority member of the House Budget Committee; and Senators Patty Murray (D-WA) and Jeff Sessions (R-AL), the chair & ranking minority member of the Senate Budget Committee.

Obvious problems: (1) the House and Senate budgets are far apart, (2) the only consequence of failing to narrow the differences would be another budget battle in January (which everyone is expecting), and (3) Senate conferees will outnumber House conferees by a 3/1 margin as all Senate Budget Committee members (including freshman Senator Chris Coons from Delaware) have been invited to participate.  Budget conference committee kicks off, Ginger Gibson, Politico, 10/17/13.

Many observers say Americans are fed up with Washington politics and deserve better, the Republicans should get their obstructionist fringe under control, etc.  And clearly, Republicans “lost” the most recent budget battle – so they would be well advised to adjust their tactics before the next round.

But that does not mean the country would be better off if the GOP reverted to a “go along to get along” approach. To the contrary, we cannot recall a time when there was such a crying need for principled opposition to actions that would worsen the nation’s problems instead of solving them. A survey follows in point/counterpoint style.

Overview – Speaking at 11:00 a.m. on October 17, the president said there had been “no winners” in the shutdown deal; and expressed concern about the harm that had resulted from this “self-inflicted crisis.”  He also suggested that “the American people are completely fed up with Washington,” albeit taking no personal responsibility for this.  Transcript,

Absent from this speech, unlike some of the president’s earlier ones, was a slap at the tea party Republicans for gumming up the works.  But he did say the way in which “business is done in this town has to change,” to which end “all of us need to stop focusing on the lobbyists and the bloggers and the talking heads on radio and the professional activists who profit from conflict,” and “focus on what the majority of Americans [like the “silent majority” talked about during the Nixon era?] sent us here to do.” 

The president identified three specific areas “where I think we can make progress right now,” namely: (1) a balanced approach to a responsible budget; (2) fixing our broken immigration system; and (3) a farm bill.  Let’s consider each these items in turn.

A responsible budget – While everyone should favor a responsible budget, we disagree with several elements of the president’s plan.  

He claims the deficit is “going down faster than it has in the last 50 years," but the deficit for fiscal year 2013 was still about $750 billion – which is horrendous. (The deficit for the first 11 months of the fiscal year was $750B; the full year figure may be a bit lower as receipts were expected to exceed outlays in September.  Congressional Budget Office, monthly budget review, August 2013.

There is no call for balancing the budget, but only for pursuing “a budget that grows our economy faster and shrinks our long-term deficits further.”  Enough with the double talk, the goal should be to balance the budget and keep it that way.  A status report on the fiscal problem, 5/6/13.

The president suggests that making a budget should not be an “ideological exercise,” e.g., “cutting for the sake of cutting.”  Sorry, but our reasons for balancing the budget are eminently practical, and not based on “thinking or theorizing of an idealistic, abstract or impractical nature” or the like.

While granting the necessity of “fiscal responsibility,” the president also calls for “growth” of the type that creates “more good jobs that pay better wages.”  There is precious little evidence, however, that his economic policies (in effect since 2009) have effectively fueled growth or created jobs – so we think it’s time to try a different approach.  Less is more: a 10-step plan to reboot the economy, 9/2/13.

A balanced approach to a responsible budget” (emphasis added) is code for a budget that includes tax increases, and the president reinforces this impression by proposing to close “corporate tax loopholes that don’t help create jobs,” which would appear to backtrack on previous commitments that the elimination of some corporate tax preferences would be offset by lowering corporate tax rates. 

We remain of the opinion that both individual and corporate income taxes should be radically simplified in a manner designed to be revenue neutral, and that there should be no further tax increases until a serious effort has been made to eliminate wasteful government programs and activities. 

The president does call for “a budget that cuts out the things that we don’t need,” but to date he and his supporters have shown little zest for spending cuts except in the defense budget.  President’s budget plan, 4/15/13

. . . what about block granting Medicaid and/or SNAP (aka food stamps), agreeing to study a private healthcare insurance option for future Medicare participants, or at the very least medical tort reform?  These and other ideas are thoughtfully presented in the House budget plan, and we fail to see why they should not even warrant discussion.

Even left-leaning observers have suggested Democrats should give up on expecting Republicans to accept tax increases (via cutting tax preferences or boosting tax rates) and seek other concessions in the budget negotiations, e.g., immigration reform.  Democrats should surrender on taxes, focus on growth, Ezra Klein, News Journal, 10/18/13.

We predict that Democrats will continue insisting on tax increases, however, as their representatives on the Joint Committee on Deficit Reduction did in 2011.  If so, that will probably ensure another deadlock.  Republicans must get wise to Obama’s hard-line fiscal strategy, Larry Kudlow,, 10/19/13.

The real agenda is to jack up taxes on businesses and the wealthy. On top of this year’s $700 billion tax hike, the Democrats are going back to the $1 trillion tax-hike idea mentioned in recent years by Obama, Harry Reid, and Nancy Pelosi.

Immigration reform – What the president proposes, in effect, is House approval of the Senate immigration bill, which he characterizes as “comprehensive immigration reform” supported by a broad bipartisan coalition “from business leaders to faith leaders to law enforcement.”

Purported pluses: The proposed legislation would make the biggest commitment to border security in our history - modernize our legal immigration system - make sure everyone plays by the same rules.  Folks who came here illegally would have to pay a fine, pay back taxes, meet their responsibilities.  Economists estimate that if that bill becomes law, our economy would be 5 percent larger two decades from now.  That’s $1.4 trillion in new economic growth. 

Negatives: None are mentioned, so how could anyone oppose this legislation? Unless, perchance, they attempted to do their homework – as SAFE did – instead of relying on breezy generalities from government officials and advocates.

The primary problem with the US immigration system, in our opinion, is that a continuing stream of people are entering illegally or overstaying their visas instead of complying with the law.  The cost of attempted enforcement and bureaucratic paper shuffling is substantial, and the social effects of tolerating lawless behavior are corrosive.

The only bar to illegal immigration in the proposed legislation would be a quasi-militarization of the US/Mexican border.  We believe this approach would be ineffective and doubt the authorized expenditures would be supported in practice.  As for law enforcement support, agents of the US Immigration and Customs Enforcement (ICE) don’t seem to have read the memo. ICE union heads calls on Congress to investigate administration’s ICE policies, Caroline May, Daily Caller, 9/2/13.

[Chris] Crane and his union have been vocal opponents of the Obama administration’s immigration policies — notably its Deferred Action for Childhood Arrivals program — and the Senate-passed immigration bill. “There is no more of a clear cut case in our country of the president overstepping his authority, ignoring the law, ignoring the Constitution, than the president’s ordering of ICE agents not to enforce U.S. immigration law,” he said. “Yet we have no investigations from Congress into this whatsoever.”

Re the alleged economic benefits, it is unclear how US economic growth could be boosted by letting in a large number of unskilled workers while more and more native Americans went on the dole because suitable jobs were supposedly not available for them.  It’s also unclear that the assumptions about limited welfare benefits for new arrivals, e.g., denial of GovCare benefits, would be borne out in practice.

SAFE has no brief against immigration reform, nor do we favor closing the border to further immigration.  Any reform legislation worthy of the name must stop illegal immigration, however, and the Senate bill would probably make this problem worse.  Immigration reform, SAFE, June 2013.

No matter, House Republicans will be strongly pressured to pass the Senate bill before the end of the year and savagely attacked in the 2014 elections if they block it.  Here are a few examples of the campaign being waged – with the knowledge and possibly support of the administration.

# Activists “shadowed” conservative Republicans during the August recess, e.g., by picketing their offices and infiltrating public meetings.  Hecklers confont Ted Cruz at town hall meeting, Sean Sullivan, Washington Post, 8/20/13.

There has been a surge in asylum requests at the border, which set in motion a lengthy process during which applicants cannot be deported.  Sudden flood of asylum requests at US/Mexico border, Lee Stranahan,, 8/11/13.

Now activists and illegal immigrants are engaging in civil disobedience.  Protestors chain themselves to stop deportations in Arizona, Stephen Dinan, Washington Times, 10/14/13.

Immigrant-rights protesters have chained themselves in front of [a] detention facility in Eloy, Ariz., and planned to blockade the main federal immigration office in Phoenix later Monday, hoping to stop anyone from being deported. *** “Undocumented — unafraid,” the protesters chanted as they blocked the road at the facility Monday morning, which is southeast of Phoenix and is one of the busiest detention locations in the country.

# Business interests have threatened to provide financial support for anti-tea party candidates.  Business groups preparing to fight conservatives over immigrants, Tony Lee,, 10/18/13.

For the most part, business support is based on practical considerations.  Many firms have benefitted from an inflow of cheap immigrant labor in the past, and therefore been less than vigilant in obeying laws against hiring illegal immigrants.  The Senate bill would give them little if any responsibility for helping to clean up the problem, and it would also liberalize the existing quotas for high-skill immigrants.

Some business leaders seem to be motivated by ideological considerations, however, such as Facebook billionaire Mark Zuckerberg who bankrolled a slick and deceptive ad campaign that characterized the Senate immigration bill as a “conservative plan” to clean up the illegal immigration mess.  Now a new tactic has been announced that sounds like cyber-subversion.  “Dreamers” to code alongside Mark Zuckerburg in hackathon, Jessica Cuynn, Los Angeles Times, 10/18/13.

Famous coders including the Facebook chief executive and Dropbox's Drew Houston will team with those who came to the U.S. as children, often referred to as "Dreamers," to build tools that address "the problems within our immigration system," according to President Joe Green. will then work with the teams to get the projects up and running.

Complementary efforts are being organized by George Soros, again for what would appear to be ideological reasons.  Soros-funded group plans “fly-in” to push House Republicans on amnesty, Matthew Boyle,, 10/18/13.

The event will take place on Oct. 28, coinciding with President Barack Obama’s and Senate Majority Leader Harry Reid’s renewed push against House Speaker John Boehner for amnesty. Now that Obama, Reid, and House Minority Leader Nancy Pelosi are publicly pushing for amnesty after many mainstream media outlets declared it dead earlier this year, Soros’ groups are trying to make it appear as though conservatives support immigration legislation like the Senate-passed “Gang of Eight” bill. Ultimately, the left’s goal is to get the House to pass a series of piecemeal immigration bills and then combine them with the Senate bill in a conference committee.

Some observers have suggested Republicans should not be picky about the details of immigration “reform,” lest they permanently alienate Hispanics.  But even here, the countervailing arguments seem more convincing.  Rout of the cave men, Washington Times, 10/14/13.

A 2012 Pew Research poll asked whether Americans would rather have a “smaller government providing fewer services” or a “larger government providing more services.” Hispanic Americans favor larger government 75 percent to 19 percent. Among Hispanics who have been in the United States for three generations or more, enthusiasm for big government wanes slightly but is still strong at 58 percent. The Democratic prescription to throw open the border is transparently self-serving.

Farm bill – The main reason for this proposal seems to be that the president wants to reverse a House vote that cut about 5% per year from projected food stamp outlays.  House Republicans pass deep cuts in food stamps, Ron Nixon, New York Times, 9/19/13.

The bill, written under the direction of the House majority leader, Eric Cantor, Republican of Virginia, would cut $40 billion from the food stamp program over the next 10 years. It would also require adults between 18 and 50 without minor children to find a job or to enroll in a work-training program in order to receive benefits.

As far as we are concerned, a more fundamental adjustment is needed – namely the food stamps program should be block granted and turned over to the states.  Some food stamps history and where to now, 4/29/13

But at least the House bill was a step in the right direction, and the Democratic response (including a White House veto threat) seems clearly inappropriate.

The measure has little chance of advancing in the Senate, and Senator Debbie Stabenow, Democrat of Michigan and the chairwoman of the Senate Agriculture Committee, called it “a monumental waste of time.”

One more thing – Given that the core Republican demand during the budget fight was to do something about GovCare – defund it, delay it for a year, pass the Vitter amendment so members of Congress and their staff would not get free healthcare insurance (HCI) purchased on exchanges, or at least repeal the medical device tax– one might have thought the president would have commented on the status of the GovCare program and assured Americans that it was on the right track.

He chose to say nothing about the subject, however, beyond a remark about “folks on the other side who think that my policies are misguided – [and] that’s putting it mildly.”

One might speculate that the subject was not mentioned because the GovCare roll out, by any objective measure, is going very badly at the moment.  Potential customers have experienced great difficulty in accessing the website, premiums quoted have in many cases been much higher than people with existing HCI plans are used to paying, the number of Americans enrolling in HCI programs has been unimpressive, and there have been reports from insurance companies of erroneous data getting through the system.

No doubt the system glitches can be fixed in time, but the cost for HCI policies that meet  GovCare requirements (never mind what kind of HCI people actually want) – even after factoring in the applicable subsidies at taxpayer expense - will not be resolved so easily. 

Don’t take our word for it, either, but consider some of the criticism from the left. The case for optimism, Charles Cooke, National Review, 10/18/13.

. . . even the law’s fiercest advocates have been impressed into conceding that the rollout has been a disgrace. The Washington Post’s Ezra Klein, Obama cheerleader par excellence, has characterized the launch as a “disaster.” Former White House press secretary Robert Gibbs has argued on television that the episode has been “excruciatingly embarrassing.” Mother Jones’s Kevin Drum, meanwhile, has echoed the growing fear that the issues will be with us for the long haul. “The bugs,” he wrote this week, “seem deep and profound.”

Given what has happened, one could easily make a case that the Republican demand for a one-year delay was eminently reasonable – while the president and his supporters responded irresponsibly, preferring to shut the government down than admit they had made some mistakes.

Conclusion –Barring unexpected concessions from the Democrats, the budget conference committee is unlikely to make much progress.  Too bad!

10/14/13 – On the cusp of a crisis in DC        Read Replies

This time it was not a White House adviser, but the president himself, who was likening the Republicans to terrorists.  Press conference, 10/8/13.

Think about it this way.  The American people do not get to demand a ransom for doing their jobs.  You don't get a chance to call your bank and say, “I’m not going to pay my mortgage this month unless you throw in a new car and an Xbox.  If you’re in negotiations around buying somebody’s house, you don't get to say “Well, let’s talk about the price I'm going to pay, and if you don't give me the price then I'm going to burn down your house.”

That’s not how negotiations work.  That's not how it happens in business; it’s not how it happens in private life.  In the same way, members of Congress -- and the House Republicans, in particular -- don’t get to demand ransom in exchange for doing their jobs.  And two of their very basic jobs are passing a budget and making sure that America is paying its bills. 

We found the words that were used shocking, and the widespread acceptance of this attack even more so.  But some observers were encouraged that the president seemed to be backing away from previous statements that no negotiations with his political opponents would take place until (1) a spending resolution was passed to end the government shutdown, and (2) the debt limit was raised.  The way out, Charles Krauthammer, Washington Post, 10/10/13.

The president will deal. In his Tuesday press conference, he’d already abandoned his original ultimatum of: Give me a long-term extension or I don’t budge. Now it’s: Give me an extension of any length and I’ll come to the table.

On Thursday, it appeared the log jam was breaking and there would be some kind of deal that included modest concessions for the Republicans and a commitment for ensuing negotiations on budgetary issues. In the event, however, the president et al. refused to accept any resolution of the situation short of unconditional surrender by Republicans.  Despite positive talks, Dems stand their ground after meeting with Obama, Susan Crabtree, Washington Examiner, 10/13/13.

Aside from some kind of a dialog (details not available) between the Senate majority leader and Senate minority leader, it appeared that matters had reached an impasse – with the supposed deadline (Oct. 17) to avert a debt limit crisis coming up fast. Reid, McConnell talk deal, Alexander Bolton & Peter Schroeder, the Hill, 10/12/13.

We agree that a debt limit crisis could have far-reaching and adverse consequences, for which reason fiscal visionaries should not be urging Republicans to “stand firm” unless it’s clear that they are acting properly.  Let’s take this opportunity, therefore, to consider a series of questions.

1. Are Republicans acting like terrorists? – Our answer to this question is an unequivocal “no” for several reasons.

# Congress is given “the power of the purse” under the US Constitution, which necessarily means the members of Congress are entitled to propose conditions and limits on approved expenditures (including increases to the authorized debt limit).  Otherwise, this power would have purely formal significance and the Executive Branch would enjoy a “blank check” to spend whatever it wanted.

# Republicans did make one rather aggressive demand, namely the defunding of GovCare, but it was abandoned shortly after being put on the table.  Ensuing demands concerning GovCare have been progressively tamer, despite mounting evidence that the Gov Care “roll out” is going badly.  Embarrassing Obama; his expensive healthcare scheme is not ready for prime time, Washington Times, 10/10/13.

 “The government is now shut down,” Mr. Obama boasted early last week, “but the Affordable Care Act is still open for business.” But it’s not, and no one knows this better than the president himself.

# Far from presenting an ultimatum, as one might expect terrorists to do, Republicans have offered one proposal after another for resolving the purported crisis.  See, for example, the eminently reasonable suggestions of Representative Paul Ryan (R-WI, chairman of the House Budget Committee) that were published last week.   How we can end this stalemate; both Reagan and Clinton negotiated debt-ceiling deals with their opponents; we're ready to negotiate. Paul Ryan, Wall Street Journal, 10/9/13.

2. What are Democrats trying to accomplish? – One possibility, noted in the Krauthammer column, is that the “real intent is to score a humiliating victory over the GOP.”  We have a similar but simpler theory - revenge.

Think back to the summer of 2011, when an earlier debt limit confrontation was resolved at the last minute by agreeing to cut future discretionary spending across the board via sequestration unless follow-up negotiations (by the Joint Committee on Deficit Reduction) could achieve an alternative plan.  Debt limit deal settled nothing, 8/8/11.

Apparently, the budget brawl is just getting started.  It will continue until the 2012 elections and beyond.  And the principals may or may not address the basic issues: cutting government spending, streamlining taxes, and rationalizing regulations, before a top-heavy government tanks the US economy.

Some envisioned that sequestration would prove so unpalatable to all concerned that the Joint Committee would agree on some other approach – and in the minds of Democrats this meant a healthy dose of tax increases.

Certainly the Democratic members of the Joint Committee showed little interest in discussing anything except tax increases.  Our conclusion is based on watching all of the publicly videotaped sessions, and observing not only the participants’ words but also their demeanor. Tax cuts for rank and file now; tax increases for wealthy in 2013, 11/28/11.

Last Monday, the Joint Select Committee on Deficit Reduction announced it had deadlocked due to “significant differences.”  *** This outcome was disappointing, but not surprising. As we noted in August, deadlock could be expected if “Side A says tax increases are essential/ Side B says tax increases are a nonstarter.”

Ever since, Democrats have been fulminating against sequestration – which has now gone into effect – not simply because across the board spending cuts are a crude way to cut spending but also due to their determination to substitute tax increases for as much of the 2011 spending cuts as possible. 

One might think Democrats would have been appeased by the outcome of the “fiscal cliff” negotiations at the end of 2012, which was heavily weighted in favor of tax increases. Budget war grinds on, SAFE newsletter, winter 2012.

The fiscal gap is basically the result of out of control spending, yet the deal relies primarily on tax increases to reduce it. Fiscal cliff deal: $1 in spending cuts for every $41 in tax increases, Matthew Boyle,, Indeed, by our reckoning the net effect will be to increase spending.

But memories of past defeats can fester, as evidenced by this statement attributed to a former member of Senate Majority Leader Harry Reid’s staff. Biden’s involvement notably absent from federal shutdown negotiations, A1/A5, Nicole Gaudiano, News Journal, 10/12/13.

According to Jim Manley, Reid’s “former chief spokesman,” Reid has long wanted to take a tougher position in disagreements with Republicans based on a view that “members of the president’s staff thought Republicans were on the up and up and it was possible to negotiate with this gang,” but “I think they finally figured out that that’s not possible.”

And Senator Reid appears to be playing his role as the Democrats’ “primary champion” in the current situation to the hilt. GOP makes offers to raise debt limit in exchange for healthcare, budget changes, David Espo, News Journal, 10/12/13.

. . . the White House “seemed to wobble” on its refusal to negotiate unless the GOP agreed to an unconditional increase of the debt limit and end to the shutdown “until Senate Majority Leader Harry Reid, D-NV, emphatically reinforced” the “no negotiations” position.

Now it’s true, of course, that the president has held out the prospect of being open to negotiating any budgetary issues that Republicans might want to talk about after the current impasse is resolved. Weekly address, 10/12/13.

It’s a positive development that House Republicans have agreed on the need to avoid the economic consequences of not meeting our country’s commitments. Because once the debt ceiling is raised, and the shutdown is over, there’s a lot we can accomplish together.

We’ve created seven and a half million new jobs in the past three and a half years. Now let’s create more. We’ve cut our deficits in half over the past four years. [Deficit for fiscal year just ended was about $750B, so this is not much of an accomplishment.] Now let’s do it in a smarter, balanced way [do away with the sequester] that lets us afford to invest [new spending programs vs. deficit reduction] in the things we need to grow.

But it doesn’t take much imagination to figure out what would come up in those talks, once the Republicans had given up whatever leverage they enjoy by virtue of the power  of the purse, namely renewed demands for additional tax increases.

3. How bad is the fiscal problem? - At some level, everyone inside the Beltway knows the government’s fiscal affairs are out of control.  And most political leaders are on record as saying action should be taken – ideally by the other side.

Barring action, there will be a day of reckoning sooner or later.  It might go something like this: investors start questioning soundness of US government debt, interest rates and inflation soar, Federal Reserve slams on monetary brakes throwing economy into deep recession, deficit skyrockets, government is forced into actual or de facto default.  This time is different, Carmen Reinhart & Ken Rogoff, 2009.

No one knows when the day of reckoning will come, and there is a tendency to find excuses for deferring action.  The economy remains weak - the deficit is coming down so let’s not overreact – there will be more flexibility after the election – the real problem is longer term, not this year’s budget.  Many such statements could be cited from the president’s speeches, e.g., “we’ve cut our deficits in half” claim that was just mentioned.

So long as such excuses remain in vogue, politicians will keep kicking the fiscal can down the road instead of taking effective action.  We think it is time for an attitude adjustment.  SAFE letter to Congress, 6/3/13.

Otherwise, things could suddenly turn ugly.  The shutdown is a sideshow; debt is the threat, Niall Ferguson, 10/6/13.

Yet, entertaining as all this political drama may seem, the theater itself is indeed burning. For the fiscal position of the federal government is in fact much worse today than is commonly realized. As anyone can see who reads the most recent long-term budget outlook—published last month by the Congressional Budget Office, and almost entirely ignored by the media—the question is not if the United States will default but when and on which of its rapidly spiraling liabilities.

4. OK, why not raise taxes instead of fixating on spending? - The basic driver of the fiscal problem has been nonstop growth in government spending (with uncontrolled spending for “entitlement” programs consuming a steadily growing share of the overall budget).  Federal spending by the numbers,, 8/20/13.

Accordingly, we believe the logical solution to the fiscal problem is to “cap taxes” and focus on cutting spending.  A line in the sand on taxes, 5/26/08.

# It would make little sense for Congress to raise taxes so as to balance the budget in lieu of terminating wasteful spending programs.


# We find it troubling that the top half of taxpayers in terms of income are currently paying some 97% of the personal income taxes collected.

 # Taxes would have to be raised to unprecedented levels to cover the long-term fiscal gap, which would tank the economy. 

Congress has done very little to cut wasteful spending, however, except perhaps when it comes to the defense budget.  Thus, it was quite easy to offer the Joint Committee members some ideas for meeting their spending cut quota when they were appointed in 2011. A list of targeted spending cuts, 8/22/11.

5. Now what’s going to happen? – In the normal course, a political deal would have been struck by now – but the insistence of Democrats on total victory has complicated matters.  In effect, as we see it, the president et al. are the ones holding the nation hostage in this situation – not the well meaning but poorly organized Republicans.

Furthermore, management of the government shutdown – which for all the attempts to blame Republicans is basically within the discretion of the Executive Branch – has revealed a petty and vindictive disdain for the general public.  Death benefits for combat casualties denied based on a legalistic reading of the special legislation to keep paying the military (now fixed by more legislation) – closure of World War II memorial in DC (a protest rally took place on 10/13, Breitbart News, –– Amber Alert website shut down (hastily reopened after an issue was made about the matter - states forced to take over paying for national parks to get them reopened (Statute of Liberty, Mount Rushmore, Grand Canyon, etc.)

One observer suggests the point is to teach Americans not to mess with the government.  It’s worse than you think: why the administration must make the shutdown hurt, Gordon Ryan,, 10/8/13.

You don’t think the government knows it’s being unequal in its treatment of citizens? C’mon. You’re not hearing the message, which is: Agree with Big Brother and your life will go smoothly. Disagree and you will be punished. We’ll make it hurt.

If you don’t care for what is going on, our advice is to let your views be known – without delay.

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And what happens when interest rates go up to control inflation? – Retired investment & insurance adviser  Overloaded borrowers start going bust and gov't defaults on debt, or Fed starts printing more and more money and we wind up with hyperinflation.  Either way, the consequences will be toxic for the middle class.  Rich can protect themselves if they are smart; poor have nothing to lose. - SAFE

No surprise: the Republicans caved with no discernible benefit from all the flak they are taking for shutting down the government (actually, it is the president who will negotiate with Russia and Iran, but not Republicans, who shut down the government). – SAFE director


10/7/13 – Humans can be replaced, and then what?        Read replies

The last several entries have been about the budget showdown, which predictably led to a “government shutdown” starting on October 1. It is unclear when this situation will end or what the results will be, so we propose to discuss a different issue this week.

Much has been written about the death of “good” jobs in the United States, which is attributed to outsourcing of manufacturing operations to China et al., a slow economic recovery, and new labor saving technology. See, e.g., “Congress must address new normal in job creation,” Robert Shapiro, News Journal, 2/18/13.


Although technological advances unquestionably put people out of work, they have heretofore spawned investments that create new, often higher-level job opportunities. Some observers question, however, whether the second part will continue to hold true. Jobs debate – scientist vs. economist, Bill Tatro,, 8/29/13.

What will be the next great discovery?  Will it be a revolutionary event, similar to the launch of the internal combustion engine, the radio, or the internet?  And if so, will this greatly anticipated groundbreaking occasion fill the need for the masses, subsequently giving rise to jobs?  

Perhaps future investments will not create enough new jobs because computerized machines are increasingly capable of doing just about “everything” better than human beings. [Robocalls] – call center systems to handle “routine” requests – [automated checkout lines] - machines to replace anesthesiologists - driverless cars – medical websites for diagnostic purposes -– [computers that beat human champions at chess and Jeopardy]. Oxford professors: Robots and computers could take half our jobs within the next 20 years, Michael Snyder,, 9/29/13.

And if the jobless rate keeps growing due to a shortage of new jobs, how will our society cope with the situation?

A. Overall gains – From the standpoint of investors and business managers, new labor saving technologies offer compelling cost savings. So beware, humans, unless you can truly do things smart machines cannot. Oxford professors, op. cit.

Robots and computers never complain, they never get tired, they never need vacation, they never show up late, they never waste time on Facebook, they don't need any health[care] benefits and there are a vast array of rules, regulations and taxes that you must deal with when you hire a human worker. If you could get a task done more cheaply and more efficiently by replacing a human worker with technology, why wouldn't you want to do it?

Great! Lower costs boost demand and output, which enables more consumption, more investment (creating at least some new jobs), and more government spending (or better yet, tax cuts). Benefits of government growth,

Many of the financial or fiscal policies set in place by government agencies are designed to spur economic development, or encourage economic growth. While the effects of economic growth are widespread, one of the primary benefits is an improvement in the standard of living. As the economy grows, the people in that economy enjoy greater income levels, increased confidence and ultimately, a better quality of life.

B. Downside – Despite big overall gains from automation, there can be wrenching changes for displaced workers. Not only does their former pay stop coming in (forcing them to find other employment or seek welfare), but they suddenly have a lot of idle time on their hands. Also, some of them may miss the old ways of doing things, which cost aside were arguably superior to the new ways.

Consider the Luddites in the early 1800s, disgruntled workers who took to smashing textile-manufacturing machines, e.g., stocking frames (a knitting machine invented during the Elizabethan era). Although this activity ran counter to the overall public interest and was forcibly repressed by the authorities, it was somewhat understandable given the Luddites’ perceptions that they were being economically marginalized. What the Luddites really fought against, Richard Conniff,, March 2011.

A seemingly endless war against Napoleon’s France had brought “the hard pinch of poverty,” wrote Yorkshire historian Frank Peel, to homes “where it had hitherto been a stranger.” Food was scarce and rapidly becoming more costly. Then, on March 11, 1811, in Nottingham, a textile manufacturing center, British troops broke up a crowd of protesters demanding more work and better wages. That night, angry workers smashed textile machinery in a nearby village. Similar attacks occurred nightly at first, then sporadically, and then in waves, eventually spreading across a 70-mile swath of northern England from Loughborough in the south to Wakefield in the north. Fearing a national movement, the government soon positioned thousands of soldiers to defend factories. Parliament passed a measure to make machine-breaking a capital offense.

Today, there is an analogous vision: an erosion of “good” jobs (well paid positions on the assembly line and in offices) due to the growing use of computers, robots, etc. As a result, our society could wind up being stratified between the top echelon and the downtrodden, with the once dominant middle class fading away. Visions of a permanent underclass, William Galston, Wall Street Journal, 10/2/13 (no link available).

Two sources are cited: (1) an essay written in 1958 by British Labor Party’s Michael Young on “The Rise of the Meritocracy,” and (2) a just out book by economist Tyler Cowen entitled “Average is Over.” The future (about 20 years from now) visions in these pieces are similar, but the endings diverge.


Rise of the Meritocracy

Average is Over

Described a year-2034 dystopia in which general intelligence determined the distribution of income and status. The losers knew they were failures, and the ideology of meritocracy had eliminated the moral basis of complaint. But although the “losers deserved their subordination,” they ultimately revolted against the system.

People who work with and around smart machines, have high general intelligence, serve as useful subordinates to the leaders, or can sell ideas to the wealthy, say 10-15% of the population, will enjoy fantastically wealthy and interesting lives. Everyone else will slog along, tranquilized by free Internet and canned beans.

After rejecting differences in individual merit as a rationale for substantial inequality in outcomes, Galston concludes that “Average is Over” presents a fundamental intellectual challenge to: (1) “government-hating, market-worshiping conservatives” (are you prepared to endorse this result?); (2) liberals and progressives (what are you going to do about it?), and (3) all Americans (is this a country you would be willing to live in?).

Hmm, perhaps the picture painted is exaggerated, more about that later, but this futuristic scenario has enough substance to warrant reflection about what, if anything, should be done about it.

C. A fundamental dichotomy – Let’s start by making clear that SAFE is not a group of “government-hating, market-worshiping conservatives.”

Believing in “smaller, more focused, less costly government” does not demonstrate hatred – it merely reflects our conviction that the government has already been expanded beyond its proper ambit and needs to be reined in (or at least not further expanded).

Nor are we market worshipers, despite our belief that (A) free markets make for the best economic decisions, and (B) the private sector is an engine of wealth creation. There are things the private sector simply cannot do, such as national defense and dispute resolution, and others in which the government can play a constructive role (so long as government officials do not acquire excessive power).

As we see it, the private sector is responsible for economic growth and job creation. Government should refrain from excessive interference in the functioning of the economy, which is unlikely to improve the results and may well muck them up. SAFE Jobs Manifesto, 10/15/12.

Liberals/progressives see the real problem as unequal distribution of wealth and success, not slow growth or unemployment per se. They therefore favor government action to squeeze high earners while distributing goodies to the less fortunate. And given that high earners represent a small percentage of the electorate, such a pitch is politically potent. Redistribution of wealth popularity not to be taken lightly, Matt Towery,, April 19, 2013.

The president has offered many proposals that would supposedly benefit middle and lower class Americans. Mortgage refinancing options – universal preschool education – school construction - incentives for colleges to moderate tuition increases – Paycheck Fairness Act (tighten gender pay equity requirements) – higher minimum wage – incentives for hiring the long-term unemployed - elimination or reduction of tax preferences (back door tax increases) – tax incentives for manufacturing operations in the US – tightened environmental regulations to spur investment in renewable energy facilities – comprehensive immigration reform.

We do not believe that any of these proposals – nor all of them together – would revitalize the US economy and spur a hiring boom. Government “investment” will not solve the fiscal problem (analysis of the State of the Union address), 2/18/13.

# The president’s approach represents a logical extension of policies that have been followed over the past five years – and are clearly not working very well. What the numbers really show about the Obama economy, Sara Marie Brenner, Washington Times, 9/18/13.

The Obama economy has become everything candidate Barack Obama said he wanted to reverse: a widening gap between the rich and poor; higher poverty rates; declining household incomes; women not earning as much as men; fewer jobs available in total; jobs that are not full time; and, most minority groups receiving the brunt of the flailing economy. That is what the numbers really show about the Obama economy.

# Only the private sector creates productive jobs, and most investors and business managers are taking a cautious view of new investments and hiring right now because they are not optimistic about the resulting payoff. Not only is the government doing little that is helpful, but some of its actions (e.g., ever stricter environmental rules, implementation of GovCare, proposed increase in the minimum wage) would materially boost business costs. Five years of financial failure, Donald Lambro, Washington Times, 9/20/13.

The country will pull out of the Obama recession eventually, but it’s not going to happen until we have a president who, like Reagan, believes in the power of American capitalism and understands how it works.

Perhaps it is time to try something else. To this end, SAFE recently put an economic plan on the table. Less is more: a 10-step plan to reboot the economy, 9/2/13.

But our plan did not factor in the threat of massive unemployment due to the growing ascendancy of computers and robots, which might be thought to necessitate government programs (perhaps resembling some of the president’s proposals) to provide appropriate support for an army of displaced workers who do not happen to fall in the “high achiever” class.

So let’s talk about that.

D. The automation challenge – There are basically two responses to the envisioned elimination of the middle class One is to view this trend as a threat, which must be resisted or controlled. The other is to view it as an opportunity that could spur a productive response.

1. Threat – Should our society emulate the Luddites and attempt to disable machines that threaten to upset the established order of things? If the computers and robots were put out of commission, then there would hopefully continue to be enough jobs to go around.

Galston’s column does not advocate a ban on further automation, and we don’t know of anyone who does. Other nations would be unlikely to follow suit, so the upshot would be our country’s abdication of its role as leader of the global economy. Surely Americans do not want to commit economic suicide.

But that is not to say the underclass (or plebes) would cheerfully accept their lot in the imagined future society. Human beings do not necessarily act in their own self-interest all of the time, let alone accept the presumed dictates of rationality. Notes from the underground, Fyodor Dostoyevsky, 1864.

And why are you so firmly, so triumphantly convinced that only the normal and the positive – in other words, only what is conducive to welfare – is for the advantage of man? Is not reason in error as regards advantage? Does not man, perhaps, love something besides well-being? Perhaps he is just as fond of suffering? *** Whether it’s good or bad, it is sometimes very pleasant, too, to smash things. *** I will not accept as the crown of my desires a block of buildings with tenements for the poor on a lease of a thousand years . . .

So thoughts might naturally turn to measures to make the lot of the plebes more palatable by providing them with additional advantages while chipping away at the perks of the “top achievers” they envy and resent.

Some of the likely measures have a familiar ring. Universal preschool to minimize the advantage of kids reared by good parents – standardization of the educational system – programs to encourage everyone to get a college education whether they are cut out for it or not – minimum wage (ideally linked to inflation so conservatives could no longer oppose increases) – maximum wage (this has not been proposed yet, but it would fit a perceived need to control the pay of business executives) - massive welfare programs – subsidies for favored economic activities - highly progressive tax system (rife with special breaks for politically favored groups) – growing perks for the government class (competitive wages, superior benefits, and exceptional job security for the worker bees).

Such measures would not eliminate the disparity in treatment of plebes versus high achievers, although they might result in more government workers joining the top echelon. Short of force, differences in wealth distribution are tough to eradicate.

The prime result of redistribution of wealth initiatives would be to depress future economic growth, thereby resulting in less wealth to go around. Our proof? Current programs along these lines have been a big failure, as already discussed.

Consider also the failure of similar efforts during the 1930s. New Deal or Raw Deal?  Burton Folsom, 2009.

Also consider this analysis of the motivation and results of the wave of progressive legislation that began during the New Deal and has generally continued up to the present day. The problem isn’t Obama; the problem is . . . us, Bill Murchison,, 10/1/13.

The current crisis is only peripherally about healthcare exchanges, spending resolutions and vitriol spewed by the political and journalistic fraternities. The current crisis, at its heart, is about greed and the human lust for authority over other humans. It is what happens when the government -- a construct made up of humans -- acquires, one way or another, nearly uninhibited power over a society's financial resources.

Do Americans really want to keep going on this way, and what do they imagine the consequences would be?

2. Opportunity – People who approach life in a positive way are more likely to find prosperity and happiness than those who spend most of their time focusing on how things could go wrong. Over time, one’s own thinking can change real life outcomes. “The Secret,” 90+ minute video (which we watched) plus lots of related materials (not sampled or rated).

To achieve financial independence, start thinking about ways to earn money instead of the bills that must be paid. To recover from a terrible accident, when the doctor has said it can’t be done, start visualizing step by step how you will walk out of the hospital by Christmas. To live a long life, assume you are going to be healthy rather than dwelling on every ache and pain. To find love, start thinking of what you truly appreciate about the other person instead of how you would like to change them.

In short, the “law of attraction” will permit your unconscious mind to bring you the results that you desire – and there is “no limit” to what you can ask for.

Like most ideas, this one can be carried too far. It really is necessary to pay the bills, and some illnesses are all too real. Jumping out of an airplane in the belief that one will be able to fly is also not recommended. But much of what is said by the various speakers in “The Secret” rings true, and we would suggest taking a positive view of our present topic.

Major disparities in wealth have existed in human societies since the dawn of history – democracies included – so why is the vision of a meritocracy so negative? Isn’t it better to pick the ruling class based on merit than based on family lineage (aristocracy), friends in high places (crony capitalism), or raw power (kleptocracy)?

Another point: the coming disaster may be a tad exaggerated. We can think of other disaster scenarios that failed to materialize, such as the grim predictions of Thomas Malthus (1798 et seq.) about the consequences of unchecked population growth.

With increasing prosperity, it turned out, people did not automatically keep breeding until the human race found itself on the cusp of starvation. Some present day observers are still warning of a population time bomb, often associated with an environmental disaster of some kind, but based on the current evidence we are not inclined to take their concerns seriously.

One could further argue that the willing support of the high achievers is essential for the functioning of society, so their ultimate ascendancy is inevitable. Atlas Shrugged by Ayn Rand offers an imaginative example of what might happen if the high achievers got mad and went on strike.

Last but not least, there should be many ways for individuals outside the “top achiever” category to adapt and flourish in a society enjoying unprecedented prosperity due to gains from automation.

For example, it’s time to discard the notion that only managers and professionals do work of real value. Skilled trades people are needed too, and they should be able to command a premium for their time and skills.

Manufacturing is far from dead, and automation may help to attract operations that might otherwise be off-shored. Far from eliminating factory workers, computers and robots will enable many of them to work in new and more creative ways. Manufacturers try to win over a skilled generation, Matthew Albright, News Journal, 10/4/13.

As for having more free time in an automated society, that’s not necessarily a bad thing. Think longer vacations – fewer two-earner households (in some cases, it might be the husbands staying home) – mid-career education to acquire new skills – doing catch-up work (many people have a lengthy list of home projects they never seem to find time for) – and maybe even starting to keep track of what is going on in the world and holding our political leaders accountable.

Does that sound like a plan, dear readers? If so, please pass it on.

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"Singularity" (point at which “artificial intelligence exceeds human intelligence) is predicted as not being too far in the future. The critical issue then will be who programs or controls the computers. "Singularity Is Near" by Ray Kurzwell, 2005. - SAFE director

It’s easy to understand the current economic stagnation, with most of the new jobs being less than 30 hours a week to avoid the obligation to provide healthcare coverage under GovCare. Economic growth is stunted by high business taxes, increasingly onerous regulations, and government officials more interested in serving their own interests than boosting the economy. A political shakeup is needed, but it won’t happen until things get really bad and the middle class is hammered. – SAFE director


9/30/13 – Dems to GOP: Shut up and sit down            Read Replies

Note: This entry was informed by a lively discussion of the budget/GovCare showdown at the SAFE board meeting on Sept. 26.  Your faithful scribe has done his best to reflect the general consensus about what is going on and the path forward.

Senator Ted Cruz spoke against GovCare for 21+ hours last week (he yielded the floor for questions occasionally, but stood the entire time).  It was a fine effort, in our opinion, and one SAFE member reported watching 8 hours of the speech and signing off with the conviction that he had been watching a future president in action. 

The overarching point Cruz made is that it’s time to challenge an insular and corrupt political establishment, but he also covered policy specifics in an understandable manner.  Mr. Cruz goes to Washington, Jeffrey Kuhner, Washington Times, 9/27/13.

For more than 20 hours, Mr. Cruz *** refuted every promise Mr. Obama made. Mr. Cruz exposed the president as a charlatan and slick con man. For the establishment, this was the Texas Republican’s real crime. He refused to play by Washington’s rules, which places the corrupt status quo over genuine reform.

Oh well!  Senate Majority Leader Harry Reid characterized the marathon speech as “a big waste of time,” debate was cut off, and the continuing resolution (CR) to keep the government going after Sept. 30 was amended to remove the “defund GovCare” provision.   Also, the expiration date was changed from Dec. 15 to Nov. 15, as Democrats are still hoping to kill the sequestration spending cuts at some point and did not want to commit to keeping them alive until Dec. 15. 

The amended CR was sent to the House, and the Senate was declared in recess until 2:00 PM on Monday – at which point there would be only ten hours left before the end of the fiscal year.  The president subsequently indicated that no counteroffers would be entertained.  Weekly address, September 28.

On Friday, the Senate passed a bill to keep the government open.  But Republicans in the House have been more concerned with appeasing an extreme faction of their party than working to pass a budget that creates new jobs or strengthens the middle class.  And in the next couple days, these Republicans will have to decide whether to join the Senate and keep the government open, or create a crisis that will hurt people for the sole purpose of advancing their ideological agenda.

Accordingly, just as we had predicted a week ago, House Republicans appeared to be confronted with “the ultimate decision: cave or force a government shutdown.” 

A. House counteroffer – As House Republicans expected a government shutdown anyway, they could have just reaffirmed the “defund GovCare” CR that had been approved before and sent it back to the Senate.  However, the focus turned to alternative demands that might be harder for the Senate and the president to reject.  

One suggested demand was that (a) taxpayers not reimburse the members of Congress and their staffs for the cost of healthcare insurance coverage purchased through exchanges in accordance with the express requirement of the GovCare statute (the so-called Vitter amendment), and (b) the GovCare individual mandate be delayed for a year.  On Obamacare, Republicans get in their own way, George Will, Washington Post, 9/25/13.

A variation on this theme would be to pair the Vitter amendment with a repeal of the GovCare tax on medical devices.  For Republicans battling healthcare law, “victory” is a relative term, Susan Ferrechio, Washington Examiner, 9/27/13.

Other potential demands had been mentioned at one point or another, such as approval of the Keystone Pipeline, revenue neutral tax reform, and additional spending cuts.

What actually passed at a rare Saturday session of the House that ended after midnight were two resolutions that provided, respectively, for a one-year delay of GovCare (not just the individual mandate) and for repeal of the tax on medical devices, plus a bill providing that the troops will keep getting paid if there is a shutdown.

The tax on medical devices is quite unpopular and 17 Democratic representatives voted for the CR that provided for its repeal.  In the end, this could represent the “price” for averting a government shutdown.  But up to the time that we went to press, Senate Majority Leader Harry Reid and the White House were ruling out the possibility of any sort of deal. House passes bill to delay Obamacare, keep government funded; Obama vows veto; Senate says it’s dead on arrival, Stephen Dinan, Washington Times, 9/29/13.

Our interpretation is that Democrats think they have the upper hand.  They will therefore reject any significant concessions, even giving up the tax on medical devices, unless a government shutdown takes place (as looks increasingly likely) and the tide of public opinion turns decisively against them.

B. Possible GOP fallback – It remains possible that House Republicans will blink at the last minute and accept the Senate CR in order to avert a shutdown for which they might possibly be blamed. This would alienate 80 members of the Republican caucus, but 150 Republicans plus many Democrats would vote “aye.” Why John Boehner might shun Obamacare fight, pass clean CR, avoid shutdown, and move on, Byron York, Washington Examiner, 9/28/13.

Such an outcome would be spun as a strategic decision to link GOP demands to the upcoming decision on the debt limit, which according to Treasury Secretary Jacob Lew must be increased by Oct. 17 to ensure against a government default.   Realistically, however, it would put the Republicans on the road to a crushing political defeat.

The president has stated repeatedly that he has no intention of negotiating on the debt limit, and we believe him.  Consider, for example, how he put this point in his previously cited weekly address.

. . . I will not negotiate over Congress’ responsibility to pay the bills it has already racked up.  I don’t know how to be more clear about this: no one gets to threaten the full faith and credit of the United States of America just to extract ideological concessions.  No one gets to hurt our economy and millions of innocent people just because there are a couple [of] laws you don’t like.  It hasn’t been done in the past, and we’re not going to start doing it now.

Having won a “clean” CR might embolden the president to declare that since Congress had tied a bunch of conditions to a debt limit increase he was instructing the Secretary of Treasury to ignore the debt limit and borrow as needed to satisfy the government’s obligations. Although Section 4 of the 14th Amendment (“The validity of the public debt of the United States . . . shall not be questioned.”) should not be viewed as trumping the debt limit, in our opinion, it would provide a bit of cover.  And a legal challenge – if one was mounted - would take the courts years to resolve.

It would seem foolhardy to risk such an outcome – taking Executive Branch overreach to a dangerous new level – just to buy a couple of weeks for the GOP or choose a supposedly more favorable point (debt limit versus CR) to do battle over.

C. Messaging war – The political rhetoric has been heating up for several weeks; it will now get even hotter.  Each side will blame the other, predict catastrophic consequences from the shutdown and the prospective default if there is a second failure to come to terms about raising the debt limit, and demand immediate surrender. 

So far, conservative Republicans have been taking a beating.  Not only are they being hit hard by Democrats and the left-leaning media, but there has been lots of “friendly fire” as well.  They need to find ways to shore up their position - fast.

Conservative Republicans should try to mend their fences with other GOP members, who supposedly share their goals and just differ on the strategy.    

As for abusive criticism from liberals, conservatives must hit back.  It is absurd to liken House Republicans to 3-year-olds playing with matches who need adult supervision (columnist Eugene Robinson), compare them to terrorists (a mid-level White House official), etc.  Such statements should be challenged quickly and decisively – but without stooping to the same level.

Misrepresentations and omissions in the other side’s coverage of substantive issues should also be countered promptly.  Consider, for example, our comments on a UD economist’s response to former Senator Jim DeMint’s column on GovCare.  To not see healthcare as a right is “un-American,” Saul Hoffman, News Journal, 9/14/13.

A combination of better service, lower cost, and reduced government deficits sounds “too good to be true” – so maybe it isn’t.  Whatever the specifics of the UPS decision, the company (not DeMint) stated that it was dropping spousal coverage due to the provisions of GovCare.  The Hill, 8/22/13.  The writer ignores DeMint’s point that employers are cutting employees back to part time (less than 30 hours) to avoid providing HCI coverage.  And the “un-American” label did not appear in the DeMint column, although it was used at the Heritage town hall and picked up in the News Journal headline. 

Or take the president’s explanation of how GovCare will work in his weekly address; it appears below (underlined for identification) with our comments juxtaposed.

# Many of you will see cheaper prices [for healthcare insurance], and many of you will be eligible for tax credits that bring down your costs even more.  Nearly 6 in 10 uninsured Americans will be able to get coverage for $100 or less.


Query: how can healthcare insurance (HCI) be liberalized (by mandating coverage for additional features, forbidding denial of coverage due to preexisting conditions, etc.) and made cheaper at the same time?  Answer: this cannot and will not happen.


Subsidies aside, the cost of HCI coverage will rise substantially.  Thus, citing a GAO report in July, “Americans who are young and healthy are [currently] able to buy inexpensive policies. A 30-year-old nonsmoker can pay as little as $373 a year [emphasis added] in Georgia or $1,027 in Alaska, the GAO reported.” Obama’s $3,000 health[care] law premiums test limits of affordability, Alex Wayne & Alex Nussbaum,, 9/25/13.


HCI coverage for $100 or less would be roundly 1/3 the insurance rates that have been announced for the Delaware exchange. Healthcare insurance rates posted, Beth Miller, News Journal, 9/20/13.


The basis for this modest figure is government subsidies and Medicaid coverage for lower income people, which does not mean any cost goes away but simply that it is shifted to other people (notably taxpayers).


There are also issues re access to healthcare, which may be degraded under the new HCI policies even as theoretical coverage is being expanded. Race to the bottom in the Obamacare exchanges, John Goodman,, 9/28/13.


In the ObamaCare exchanges, the insurers apparently believe that only sick people (who plan to spend a lot of healthcare dollars) pay close attention to networks. Healthy people tend to buy on price. Thus, by keeping fees so low that only a minority of physicians will agree to treat the patients, some insurers are able to quote very low premiums. They are banking on attracting the healthy and they may even have the good luck to scare away the sick.


# If you’re one of the up to half of Americans with a preexisting condition, these new plans mean your insurer can no longer charge you more than anyone else.  They can’t charge women more than men for the same coverage.  And they take effect January 1st.


This provision gives healthy Americans an obvious incentive not to sign up for HCI insurance.  If they get sick, they can always join later without fear of being denied coverage due to preexisting conditions.


There is also an incentive for insurance companies to design their plans in ways that will attract healthy customers (profitable) while repelling sick customers (unprofitable).  Here’s an example from “a typical California plan.” Race to the bottom in the Obamacare exchanges, John Goodman,, 9/28/13.


Patients will make only nominal copayments when they see a doctor, get a blood test or an X-ray exam - activities that are often discretionary and the source of a great deal of unnecessary care. But if they go into a hospital (where patients have almost no control over what is done or what anything costs) they will be charged from 10% to 20% of the total bill. *** Clearly this plan will be attractive to people who don't plan to enter a hospital and unattractive to people for whom a hospital stay is likely.


# The Affordable Care Act is one of the most important things we’ve done as a country in decades to strengthen economic security for the middle class and all who strive to join the middle class.  And it is going to work.

Given the negative effects of GovCare on employment and economic activity, this statement seems highly misleading. A survey of the US economy, SAFE, August 2013 (especially modules re economic growth and jobs).

It’s not enough to look at the unemployment rate (peaked at 10% in 2009; fell to 7.4% in July 2013), as a big factor in this statistical improvement has been Americans who stopped looking for jobs. Also, many of the added jobs are part time (a trend encouraged by GovCare, which does not require employers to provide healthcare insurance for employees working less than 30 hours a week).  Fewer than 50% of adult Americans currently have a full-time job. 

D. Subtext  – In effect, conservative input re GovCare and other fiscal issues has been purposely given short shrift.  It is as though the president and his supporters expect the conservatives to surrender before any discussion takes place. 

Thus, as the president stated in his weekly address, “Congress has two responsibilities right now: pass a budget on time, and pay our bills on time.”

A similar attitude can be discerned on other issues.  It is as though conservatives are expected to accept the opinions of government officials and their surrogates as dispositive and refrain from any form of pushback – even if said officials and surrogates don’t have very convincing reasons for their statements or actions.  Some examples follow.

# Note the fancy footwork of the EPA director when she was asked to link proposed regulations to 26 indicators of climate change that are listed on the agency’s website.  EPA’s McCarthy admits regs are for show, not results, Larry Bell, NetRightDaily, 9/25/13.

• It is unlikely that any specific one step is going to be seen as having a visible impact on any of those impacts — a visible change in any of those impacts. What I’m suggesting is that climate change [policy] has to be a broader array of actions that the U.S. and other folks in the international community take that make significant effort towards reducing greenhouse gases and mitigating the impacts of climate change.

I think the President was very clear. What we’re attempting to do is put together a comprehensive climate plan, across the Administration, that positions the U.S. for leadership on this issue and that will prompt and leverage international discussions and action.

# In the educational realm, there has been a notable tendency to duck awkward questions about “Common Core” standards (CSS) – falling back on ritualistic talking points, such as that the standards were developed at the state level and will have no effect on teacher lesson plans, etc.

We believe the critics make a better case than the educators, politicians, and business people who are backing the CCS, and there is no question of their sincerity.  Will Common Core standards enhance US education?  8/5/13.

That doesn’t mean the critics get any respect. Markell riles doubters, Matthew Albright, News Journal, 9/20/13, reporting how the Delaware governor characterized CCS criticism (in general) as based on “mythology.”  

And in nearby Maryland, a polite but persistent questioner at a public meeting about the CCS was “hauled off in handcuffs” to shut him up.  Parent’s outrageous arrest, Kyle Olson,, 9/25/13.

When proponents of Common Core are required to defend the indefensible, they simply can’t do it. They arrange phony town hall meetings where parents and taxpayers are expecting to sit quietly while the bureaucrats shuffle through prearranged questions and spout talking points and spin.

# Here is one more example of bureaucratic overreach.  In California, a student at a junior college was ordered to stop passing out pamphlets containing the text of the Constitution on Constitution Day because he had not obtained advance permission. Remembering the Constitution, Washington Times, 9/25/13.

A uniformed campus police officer ordered Mr. Van Tuinen away from a public area where he distributed the pamphlets. “As a student on campus, passing out anything whatsoever,” the officer told him, “you have to have permission through the student development office.” Under the school’s rule, Mr. Van Tuinen and others must make a reservation to use the “free-speech area.”

E.  Conclusion  – The demands the loyal opposition has put on the table in the current situation seem sensible, but we would not encourage them to settle for a repeal of the medical device tax in expectation of further concessions for the debt limit increase.  It would make more sense to have one big fiscal battle and get it over with.

The response of the ruling party – in effect, “shut up and sit down” – has been irresponsible and arrogant.  If you agree, let your voice be heard!

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Unless there is a government shutdown, the Republicans will inevitably get outmaneuvered and run over. – SAFE director

I am praying!!! – Texas steel executive

I saw the exchange prices in Delaware State News. There are really only 2 companies offering coverage on the Delaware exchange, when you think that Coventry has 2 divisions. Most of the plans appear to be very pricy, especially given that many have low co-pays. For example, the cheapest "Bronze" plan is over $2,000 for someone my age, single non-smoker in good general health. But, it would only cover 60% of my costs; I'd still have to pay the other 40%. Even the catastrophic plans are about $1,600 at the cheapest. – Young DE professional


9/23/13 –  Into the budget breach once more, but this time . . .        Read a Reply

With one week left until the start of a new fiscal year, Congress has yet to authorize continued government spending after September 30.  Unless the nation’s political leaders quickly come to terms, a “government shutdown” will occur.

It did not have to be this way.  There was plenty of time to reach agreement. But the two parties had very different ideas about what the terms of the budget (or in its absence spending resolution) should be, and neither was willing to give ground.

In principle, the fiscal problem should be pretty easy to solve.  Here is a recap of our policy recommendations, which have been discussed in previous entries. 

A.  The government should balance the budget within three years and thereafter keep it that way except in time of true national emergency.  This point was underscored in a June 3 letter that SAFE sent to all members of Congress.

B. Targeted spending cuts and restructuring of entitlement programs are essential, never mind across the board spending cuts that never work very well or last very long. A status report on the fiscal problem, 5/6/13.

C. Revitalization of the economy can best be accomplished by revenue neutral tax reform and rationalization of current/proposed regulations. Meanwhile, any further tax increases (there have been quite a few over the past 5 years) should be ruled out.  Less is more: a 10-step plan to reboot the economy, 9/2/13.

While a complete cure before September 30 would have been too much to hope for, the important point was to agree on the goal and start working to achieve it instead of kicking the fiscal can down the road again. 

Regrettably, there have been no signs of progress.  So we sent a “reminder” letter to a bipartisan selection of senators and representatives on September 9, their first day back after the August recess. You still have not addressed the fiscal problem  – there is time to do something about it this year – fixing the economy in the right way should not interfere – stop whining about the other side being unreasonable because there’s enough blame to go around.

Nice ideas, but political goals and self-interest are driving the political conversation – nothing new about that – and time is running out.  So what is likely to be the outcome, and who is calling the shots?

From the archives – Forget the merits of an issue.  Who are the players, what outcomes do they want, and how strongly do they feel about it?  That’s the advice of an analyst who claims great success in using a Political Prediction Model (PPM) to determine the outcome of complex, high stakes negotiations.  The Predictioneer’s Game, Bruce Bueno de Mesquita, Random House (2009).

We applied Mesquita’s logic to the fiscal landscape in 2011, concluding that the GOP (1) was fragmented (between the traditional and tea party factions), (2) had at best a modest edge over Democrats in intensity, and (3) would lack the votes (House action could be blocked by the Senate or by presidential veto) to force major spending cuts (which Democrats were dead set against) unless they gained control of the Senate and/or the White House in the 2012 elections. A status report on the budget brawl, 3/28/11.

In the event, this assessment proved pretty accurate – and, of course, the Republicans lost ground in the 2012 elections instead of improving their position.

Where things stand - The current situation is somewhat similar, but the alignment of factions has shifted a bit.  Also, there seem to be more fiscal issues in play and the tradeoffs are subtler. 

# Republicans remain fragmented.  The “tea party” faction does not envision striking out on its own, however, it just wants to make the Republican Party more conservative.  The congressional tea party caucus relaunched with its first meeting of the 113th Congress, Matthew Boyle,, 4/25/13.

There were about two dozen members of Congress at the meeting, plus staff representatives of other members.  The keynote speaker was Representative Michele Bachmann (R-MN), and the core message seemed to be fiscal conservatism.

“There are three premises behind the Tea Party Caucus,” Bachmann said. “One is that ‘we’re taxed enough.’ Two is that ‘we spend less than we take in.’ And third and most importantly is that ‘we follow the constitution.’”

Democrats are more tightly knit and disciplined.  There has been some recent grousing in the ranks, mainly by “liberals,” but the malcontents will back the president in the coming budget showdown because there is nowhere else for them to go.  As budget fight looms, Obama sees defiance in his own party, Peter Baker & Jeremy Peters, New York Times, 9/17/13.

Howard Dean, the former Democratic Party chairman and Vermont governor: “You don’t see a lot of lock step among Democrats under any circumstances, so I don’t find it at all surprising that they would disagree with him about N.S.A. or Syria,” he said. But “I can guarantee you the Democrats are going to unite around the president when the Republicans try to shut the government down.”

Since his reelection, the president has moved to the left.  His policy positions almost invariably involve the maintenance or further expansion of the government’s writ, his budget proposal (submitted two months late) called for even more spending than the Senate budget, and his speeches have a sharply partisan tone. Obama lays down marker ahead of fiscal battles, Brian Hughes, Washington Examiner, 9/15/13.

With no solution imminent on a wide array of domestic issues . . . Obama continued White House efforts to paint Republicans as obstructionists with little interest in governing.  “The problem ... is we have a faction of the Republican Party – in the House of Representatives in particular — that view ‘compromise’ as a dirty word and anything that is even remotely associated with me, they feel obliged to oppose,” Obama said.

# The prime fiscal issue in 2011 was how much spending should be cut, which seemed pretty straightforward.  Now there are crosscurrents, which complicate the discussion.

Republicans are still talking about spending cuts, but some of them also want to revoke the sequestration cuts that threaten to hobble the defense budget.   A “no” on Syria if military cuts aren’t restored, Representative Buck McKeon (R-CA), Wall Street Journal, 9/9/13.

We cannot keep asking US troops to perform dangerous missions while multiple rounds of defense cuts, including sequestration, hang over their heads. There must be a balance between the missions the president asks the military to do and the missions the president is willing to fund. You don't conduct military campaigns with half a heart or half a wallet. Or, as Napoleon put it: "When you set out to take Vienna, take Vienna."

GOP leaders support revenue neutral tax reform, but they have repeatedly ruled out any more tax increases.  McConnell and Boehner: Republicans united on sequesters, Ben Wolfgang, Washington Times, 3/3/13.

“I’m going to say it one more time: The president got his tax hikes on January the 1st. The issue here is spending. Spending is out of control,” Mr. Boehner said on NBC’s Meet the Press . . .  Senate Minority Leader Mitch McConnell, Kentucky Republican, echoed those sentiments on CNN’s State of the Union. He said no Republican is “willing to raise a dime in taxes to turn off the sequester.”

Democrats want more spending. As they see it, the deficit has been going down, the economy is still weak, and many deserving needs exist. So they would agree to end sequestration for the defense budget and domestic programs, thereby reversing the meager spending cuts achieved in 2011. As for Republicans who might be worried about the debt, they should agree, under the rubric of tax reform, to eliminate or reduce tax preferences that primarily benefit the well to do. While debt crisis looms, Washington still focused on ending sequestration, Romina Boccia,, 8/30/13.

The Washington Post reports that President Obama and a group of Republican Senators stalled on a budget deal on Thursday that revolved in part around the question of how to best renege on sequestration. Republicans want to offset the spending cuts in discretionary spending with “narrow” reforms to entitlement programs, while the Obama Administration insists on more tax increases.

How strongly do Democrats feel about ditching sequestration?  Representative Steny Hoyer (D-MD), Democratic whip in the House, would apparently be willing to shut down the government over the issue.  Other party leaders would not go quite that far. Hoyer plays hardball on sequester cuts, Mike Lillis, The Hill, 9/17/13.

# There is a new element in the mix this time, namely the demand of “conservative” Republicans that any spending resolution defund GovCare implementation and therefore delay or derail this huge new entitlement program before it can be put into effect.

The defunding strategy is aggressive, but there is some logic in it.  GovCare is bad legislation – a majority of Americans have a negative opinion of GovCare, and might therefore perceive defunding as an attempt to look after their interests – and no other attack on the fiscal problem would carry comparable emotional punch.  The next budget battle takes shape, 7/29/13.

We have also pointed out some advantages of a one-year delay in GovCare, which should carry weight on both sides of the aisle.  Less is more: a 10-step plan to reboot the economy, 9/2/13 (step 10).   

The brouhaha over defunding GovCare is rather remarkable, it seems to us, because a one-year delay should be helpful for all concerned.  Let’s get it done!

Democrats intend to brook no delays in GovCare, however, other than delays in the employer mandate, etc., which they themselves decreed earlier.  Enrollment in the new government-run healthcare insurance exchanges will begin on October 1, insurance coverage and the prescribed subsidies will begin on January 1, end of story!  Remarks of the president, Business Roundtable, 9/18/13.

We have not seen this in the past that a budget is contingent on us eliminating a program that was voted on, passed by both chambers of Congress, ruled constitutional by the Supreme Court, is two weeks from being fully implemented, and that helps 30 million people finally get healthcare coverage.  We've never seen that become the issue around a budget battle.  And so that's right now the primary roadblock to resolving the budget. 

Against his initial inclinations, House Speaker John Boehner went along with a spending resolution that defunded GovCare; it passed the House last Friday and has been sent to the Senate – where Senate Majority Leader Harry Reid has vowed that the defunding provision will be stripped out and conservative Republicans – notably Senator Ted Cruz – have promised to do all they can to save it.  House defunds ObamaCare, keeps government open,, 9/20/13.

Predictably, a “clean” spending resolution will be returned to the House towards the end of next week, and then House Republicans will face a stark decision: cave or force a government shutdown. 

# Republicans are hoping to extract further concessions for their agreement to raise the $16.7 trillion debt limit by mid-October.  We understand that their wish list will include explicit acceptance of a one-year delay in GovCare (versus simply defunding implementation in a spending resolution running until mid-December), approval of the Keystone Pipeline, additional spending cuts, etc.

This position flies in the face of repeated statements that the president will not risk the credit standing of the United States by negotiating over the debt limit, as occurred in 2011.  His 9/18/13 remarks on the subject to the Business Roundtable could hardly have been more pointed.  (Note the assumption without discussion that the government will continue running deficits and increasing the debt.)

I have responsibilities at this point not just to the current generation but to future generations, and we’re not going to set up a situation where the full faith and credit of the United States is put on the table every year or every year and a half, and we go through some sort of terrifying financial brinksmanship because of some ideological arguments that people are having about some particular issue of the day.  We’re not going to do that.

For his part, House Speaker John Boehner has generally seemed more enthusiastic about taking a stand on the debt limit than on spending authority.  Consider his remarks at a fundraiser during the August recess.  John Boehner: “Whale of a fight” coming on debt ceiling, Susan Ferrechio, Washington Examiner, 8/27/13.

“The president doesn’t think this [tactic] is fair, thinks I’m being difficult to deal with,” Boehner said. “But I’ll say this. It may be unfair but what I’m trying to do here is to leverage the political process to produce more change than what it would produce if left to its own devices. We’re going to have a whale of a fight.”

Now what? – The predominant opinion (of both liberals and conservatives) seems to be that there will be a last minute deal, and certainly this could happen.  Most likely scenario is no government shutdown, Philip Klein, Washington Examiner, 9/21/13.

The sides are far apart. It looks like the crisis may hit. Then, at the last minute, there’s some sort of deal that’s able to pass the Senate that Speaker John Boehner, R-Ohio, is able to get through the House of Representatives with a lot of help from Democrats.

But things always turn out the same until they turn out differently, and we are expecting a shutdown at the end of September for two reasons.

First, the president relishes the prospect of blaming a shutdown on the GOP.  Not only is he hoping to demonize his opponents, but he will not offer them any concessions that might facilitate a compromise.  See, e.g., the president’s weekly address on 9/21/13.

Now, Democrats and some reasonable Republicans are willing to raise the debt ceiling and pass a sensible budget – one that cuts spending on what we don’t need so we can invest in what we do.  *** But there’s also a faction on the far right of the Republican party who’ve convinced their leadership to threaten a government shutdown if they can’t shut off the Affordable Care Act.  Some are actually willing to plunge America into default if they can’t defund the Affordable Care Act. Think about that.  They’d actually plunge this country back into recession – all to deny the basic security of health care to millions of Americans. *** [As for the debt limit,] The United States of America is not a deadbeat nation.  *** That’s why I will not negotiate over the full faith and credit of the United States.  I will not allow anyone to harm this country’s reputation, or threaten to inflict economic pain on millions of our own people, just to make an ideological point.

And the visualized payoff would come in the 2014 elections, with a discredited Republican Party losing the House instead of regaining the Senate.  While Republicans squabble, Obama plots path to victory in 2014, Byron York, Washington Examiner, 9/19/13.

Many Republicans will roll their eyes; they've heard the president's rhetoric many times before. But it worked in 2012, and with jobs and the economy still by far the nation's number one issue, Obama intends to press those themes hard through 2014. "This was a speech designed to create a clear narrative that is going to last for a while," says the GOP strategist. "He's saying, 'If it hadn't been for me, we wouldn't have turned the economy around, and the Republicans have been trying to blow it up.'"

Second, Republicans cannot afford to back out of the fight over spending authority without anything to show for it.  Also, we do not share Speaker Boehner’s conviction that the debt limit would be a more favorable battleground for the GOP.  Not only does threatening not to raise the debt limit smack of “locking the barn door after the horse has been stolen,” but under Section 4 of the 14th Amendment the president could claim the constitutional power to issue debt on his own. (The fact he did not do this in 2011 does not prove he would not do so now.)  Here comes a debt-limit constitutional crisis, Conn Carroll, Washington Examiner, 3/16/12.

When the “clean” spending resolution comes back to the House next week, therefore, we predict House Republicans will let time run out or offer a counter that Democrats would gag on, such as “piece by piece” spending resolutions covering all areas except GovCare implementation.  Either way, there would be a shutdown.  Ted Cruz outlines game plan, Joel Gehrke, Washington Examiner, 9/20/13.

House Republicans should counter Senate Democrats "by passing one continuing resolution after another by funding each specific part of government, starting with the military," Cruz told Fox News' Neil Cavuto Friday afternoon. "I'd do it one at a time. I hope the House does that if the Senate tries to kill this."

It should be added that the consequences of a government shutdown have been somewhat exaggerated by the president and others; essential government functions would continue to be performed while matters were being sorted out.  Here’s the truth: the government doesn’t shut down, Andrew Taylor,, 9/20/13.

Social Security checks will still go out. Troops will remain at their posts. Doctors and hospitals will get their Medicare and Medicaid reimbursements. In fact, virtually every essential government agency, like the FBI, the Border Patrol and the Coast Guard, will remain open.

Which is not to say such a situation is desirable, but simply that it would not be catastrophic. We would be far more concerned about (1) the loss of an opportunity to achieve real progress on the fiscal problem, or (2) a political outcome that would weaken the loyal opposition.

To be continued . . .

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The Left has secured the allegiance of the economic underclass with promises like free healthcare. They have no interest in solving the fiscal problem and will not attempt to do so. – SAFE director  


9/16/13 – Who or what is to blame for the mess in DC?          Read a Reply

There is no shortage of criticism of the political conversation in Washington (and many states as well), but our view is different than most.  While others complain of gridlock and the difficulty in getting things done, we are more concerned about the substance of the conversation – which is often misleading or woefully superficial.

Thus, in the fall of 2009, SAFE noted some symptoms of “government run amok” disease: crucial issues ignored - bad ideas entertained - proposals presented deceptively - dissent dismissed.  Is this any way to govern a country?  11/16/09. 

Eighteen months later, we commented on abusive tactics used to avoid meaningful debate: deceptive slogans – credibility attacks – stacked proceedings – disruptive behavior. Tips for fiscal visionaries: policies and politics are closely connected, 5/23/11.

Things have improved since 2009 in one sense, as Republican control of the House of Representatives  has made it harder to launch new big government initiatives.  But a huge regulatory backlog (e.g., to implement GovCare and GovFinance) is being worked on, administrative action has been pushed to new limits, and abusive tactics still abound.

In short, “government run amok” disease remains a deadly threat, as shown by the following examples.  It remains to be seen what the consequences will be, but we would be remiss not to sound the alarm.

A. International bungling – Hardly anyone believes the Syrian situation has been well handled, and we don’t propose to review the details.  Suffice it to say that the president’s speech to the nation last week left many Americans confused about what the president wanted and pessimistic about the proposed diplomatic deal with Russia and Syria.  President Obama buys time, but for what purpose? News Journal, 9/11/13.   

The president was faced with an embarrassing political defeat if the resolution for a Syrian air strike was put to a vote in Congress, and he is now in the position of relying on the Russians – who “have armed the Syrians for more than 50 years” and “have never acted in anyone’s interests other than their own.”  So for all the efforts to put a good face on things, there is no indication that the president has “a plan to get out of the Syria mess that he created.”

The prime issue in the Middle East was and remains how the United States will respond to the Iranian drive to develop nuclear weapons, which would drastically alter the regional balance of power, not the Syrian use of chemical weapons (far more casualties have been inflicted with conventional weapons).  And after what has happened, it looks like Israel will probably choose to act alone against Iran – if they can – because they do not trust assurances of US support.  Israeli sources on Obama’s Syria approach: “Not how a superpower acts,” James Rosen, Fox News, 9/3/13.

Also, various aspects of the terrorist attack in Benghazi a year ago have yet to be satisfactorily explained.  Kabuki theater in DC, 5/20/13 (item B).  Far from attempting to clarify matters, the administration has accused its political opponents of pursuing a “phony scandal” and is slow walking the congressional investigation. State Department still refusing to allow oversight committee interviews of Benghazi witnesses, Katie Pavlich,, 9/11/13.

B. Immigration reform – We reviewed the Senate immigration bill in June, concluding that it is directed at the wrong problem (expanding the rights of illegal immigrants) and would do little if anything to stop illegal immigration.  In other words, the bill is a nonstarter that deserves a quiet burial.

The House of Representatives seems to be taking a methodical approach to the illegal immigration issue, and will hopefully craft a realistic solution.  But such a solution is not what the left wants, and no stone is being left unturned in the efforts to pressure the House into taking up the Senate bill.  

GOP opponents of the Senate bill were shadowed and heckled during the August recess – a tactic that does little to promote an informed search for the best answers. 

Immigrant rights issue follows lawmakers home, Stephen Dinan, Washington Times, 8/7/13.

• Five dozen immigration rights activists picketed outside Rep. Frank R. Wolf’s Herndon office Wednesday, demanding he vote for a bill that would extend citizenship rights to 11 million illegal immigrants — a scene that is being repeated outside countless Republican congressional district offices this summer.

Next week, California activists will launch what they expect to be a caravan of 1,100 cars from Dodger Stadium in Los Angeles to Bakersfield to pressure House Majority Whip Kevin McCarthy, the third-ranking Republican in the House.

It has been suggested that if House Republicans ignore the Senate bill, the administration may respond by refusing to enforce the nation’s immigration laws. Maybe, but such a response would not be all that big a departure from what is already happening.

• First it was children (the so-called “dreamers”), and now Immigration and Customs Enforcement (ICE) is going a step further.  Obama adds to list of illegal immigrants not to deport: parents, Stephen Dinan, Washington Times, 8/23/13.

• Similar leniency has been suggested for migrant agricultural workers in California.  (Senator Dianne) Feinstein to Homeland Security (Secretary Janet Napolitano): stop enforcing immigration law, Tim Brown,, 9/7/13.

• There has been an epidemic of new arrivals who claim to be seeking asylum from attacks by Mexican drug gangs and in some cases have been put up in hotels at taxpayer expense while their hearings are pending.  Some believe the government may have facilitated this development rather than simply reacting to it.  (Representative) Bob Goodlatte: Obama administration to blame for spike in asylum requests, Steve Contorno, Washington Examiner, 8/21/13.

• The IRS has tolerated the widespread use of phony Social Security numbers by illegal immigrants, declining to impose fines on either employers (who knew or should have known what was going on) or employees.  IG: IRS “hindered” efforts to stop illegals from misusing Social Security numbers, CNS News, 8/29/13.

The 100 employers who filed the most no-match W-2s and the 100 employers [with] the highest percentage of no-match W-2s together filed 2,477,546 no-match W-2s over three years. The auditors determined that 20 percent of the Social Security Numbers used on these W-2s were not real Social Security Numbers. In fact, 42,164 of the W-2s had Social Security Numbers that were all zeros. 358 were filed with 666 as the first three digits.

Many companies support “immigration reform,” but don’t seem overly concerned about the details. Could it be that they simply don’t want to be bothered with cleaning up the mess they helped to create? Business groups upbeat on fall deal to move immigration bill, Vicki Needham, The Hill, 8/25/13.

In addition to boosting the US economy (by supplying more immigrants with high-end skills and restraining low-end labor costs), the Senate immigration bill would supposedly cut the deficit.

The fiscal benefit claim has been challenged in some quarters, and we think the skeptics make a good case.  See, e.g., “5 immigration falsehoods from the White House,” Jessica Zuckerman & Ken McIntyre, Heritage, 9/6/13.

Under the Senate-passed amnesty bill, each current illegal immigrant would receive more than $900,000 in government benefits [Social Security, Medicare, GovCare, and more than 80 different means-tested welfare programs such as food stamps and public housing] over his lifetime while paying around $300,000 in taxes—a net cost of more than $600,000 to taxpayers. Even if the wages of amnesty recipients were to soar by 25 percent, the long-term costs per recipient would be more than $500,000—costs ultimately borne by the American taxpayer.

Some may question whether immigrants would qualify for and/or receive all of the benefits that Heritage assumed.  Thus, Registered Provisional Immigrants (RPIs) would supposedly not become eligible for GovCare until they attained full US citizenship after a 10+ year wait.  Obamacare, immigration reform may make immigrants cheaper to hire than citizens, David Drucker Washington Examiner, 8/22/13.

But RPIs might qualify for GovCare benefits after all, as HHS Secretary Kathleen Sebelius recently suggested to a Hispanic audience in Philadelphia.  How Obamacare killed amnesty, Conn Carroll, Washington Examiner, 8/24/13.

“The (Obamacare) bill is crafted in such a way that those who are undocumented will not have access to the tax credits or shopping in the (health insurance) marketplace,” Sebelius said. “That has been limited, which is, frankly, why — another very keen reason why we need comprehensive immigration reform.” And Sebelius is right. When the Congressional Budget Office released its score of the Schumer-Rubio amnesty bill, it found the legislation would increase Obamacare subsidy spending by $82.3 billion . . .

In any case, this country does not face a labor shortage in the foreseeable future.  Therefore, a continuing influx of low-end workers should increase overall unemployment and result in higher outlays for welfare benefits.

By the way, welfare is currently quite competitive with gainful employment in some areas of the country.  Why get off welfare?  Michael Tanner (Cato Institute),, 8/26/13.

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The outcome of the immigration “reform” battle remains to be seen, but the Republicans (as usual) seem to be in a tough spot.  Unless they accept the Senate bill, or something close to it, a stalemate is the most likely result because real immigration reform is anathema to the other side. And if there is a stalemate, Democrats will surely attempt to blame the “failure” on Republicans and exploit it in the 2014 elections.

C. Defunding GovCare – Some conservatives have enthusiastically embraced defunding as the last chance to stop GovCare, or at least postpone it.  Others say this would be suicidal as a government shutdown would result and Americans would blame the GOP.  

After weighing the competing arguments, SAFE concluded that “a serious effort to defund GovCare implementation would be worth the risks.”  The next budget battle takes shape, 7/29/13.

At a Heritage town hall meeting in Delaware, former Senator Jim DeMint et al. previewed how the defunding effort might proceed. Delaware Chatter, 8/30/13.

The GOP-controlled House should pass a continuing spending resolution on September 10 (their first day back) that funds every aspect of government except GovCare implementation.  Then, if the other side wants to “shut down the government” over GovCare, let them explain to the American people why they feel that way.

For its part, SAFE has suggested a one-year delay of GovCare for reasons that should carry weight on both sides of the aisle.  Less is more: a 10-step plan to reboot the economy, 9/2/13 (step 10).

On September 10, the House Republican leadership proposed a face-saving ploy.  The House would adopt a continuing resolution to extend spending authority and a second resolution to defund GovCare.  The second resolution could be voided if the Senate voted it down, so, for the record, the Democrats would be responsible for allowing GovCare to go into effect. Many GOP representatives saw this proposal as a thinly veiled surrender, and it was suspended.  Derailing Obamacare, Washington Examiner, 9/13/13.

The other side shot back that it has no intention of accepting a GovCare delay and would blame the Republicans for any government shutdown that might occur. White House won’t accept any bill that “defunds or delays” Obamacare, Meghashyam Mali, Washington Examiner, 9/11/13.

Conventional wisdom has it that Republicans would lose if they refused to fund the government (or down the road raise the debt limit) without a GovCare delay. Democrats would not blink, there would be a shutdown (probably quite brief), and the GOP would get blamed for any adverse consequences.  Now playing: Budget brawl 2013, Tad DeHaven, Cato Institute, 9/12/13.

The unfortunate reality is that the mainstream media has already determined that the GOP will lose if it tries to shut the government down over Obamacare. Therefore, I would agree with my colleague Michael Tanner that getting a CR passed that simply maintains the reduced spending levels under sequestration is about as good as it’s going to get for Republicans. 

Nevertheless, we are not convinced the GOP should start by throwing in the towel – as Speaker Boehner et al. wanted to do.  Such a stance suggests they aren’t really serious, and we are not the only ones who have noticed.  House GOP: United against Obama on Syria, divided on everything else, Byron York, Washington Examiner, 9/12/13.

Although there is no apparent connection, Representative Tom Graves (R-GA) has offered a postpone GovCare resolution that seems rather similar to SAFE’s approach.  Postpone Obamacare compromise the only plan that might work, Robert Romano, NetRightDaily, 9/13/13.

Why not pass the Graves resolution and send it to the Senate?  There, in “the world’s greatest deliberative body,” the arguments for and against delaying GovCare could be publicly set forth.  Maybe Americans would learn something from the debate, and at least the liberals would know they had been in a fight.

In any case, rest assured that apathy and acquiescence will not save the Republic.  So if anyone has a better idea, please speak up!

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I don’t see anyone taking the lead to start dealing with the real issues.  We are between a rock and a hard place. – SAFE director


9/9/13 – No more excuses, it’s time to fix the fiscal problem        Read Replies 

Dear Members of Congress:

Welcome back to Washington.  We hope you are feeling reinvigorated as the result of a bit of time off plus an opportunity to reconnect with the voters in your respective states.

Looks like a busy fall. Not only are the problems that existed in early August still in play, with several deadlines looming, but the international situation has heated up as well.

It would be easy to find reasons to sidestep the fiscal problem again, but none of the all-too-predictable excuses are valid. A discussion follows of four excuses that won’t fly.

1. The fiscal problem has been taken care of already The budget deficit for this fiscal year will be the lowest in years, i.e., roundly $750 billion after four straight years of trillion dollar plus deficits.  Office of Management and Budget: Mid-session review 2014, 8/7/13,; Historical tables,

Accordingly, the OMB suggests, a solution to the fiscal problem is on the way.  Soon the deficit will be reduced to a “sustainable” 3% per year of Gross Domestic Product.  Why sustainable? GDP can be expected to grow more than 3% per year due to economic growth plus inflation, so the ratio of debt to GDP should gradually decline.

. . . the projected deficit in 2013 has decreased by more than $200 billion as compared to the projection included in the Budget.  The 2013 deficit is now projected to be 4.7 percent of GDP.  That is down from a deficit of 10.1 percent four years ago – representing the fastest period of deficit reduction since the years immediately following World War II. Going forward, the MSR shows that, under the President’s Budget, deficits will be reduced to below 3 percent of GDP by 2017 and continue to fall to about 2 percent in 2023.  Importantly, the MSR also shows that the Budget achieves a core goal of fiscal sustainability by putting Federal debt on a declining path as a share of the economy.

There are serious flaws in this logic, however, starting with the fact that the deficits under the previous president were much lower than $750B, e.g., 2008 - $459B and 2007 - $161B. 

Budget projections are notoriously unreliable, and the projected deficits may prove understated.  Consider for example that the fiscal year 2009 budget projected a $29B surplus for fiscal year 2013; now the outlook for fiscal year 2013 is a $750B deficit.

One thing that could result in higher than projected deficits is slower economic growth (which would tend to boost welfare spending and cut revenues).  The president’s budget proposal for fiscal year 2014 (submitted in April this year, two months late) assumed real GDP growth of 3.2% in 2014, 3.5% in 2015, 3.6% in 2016, and 3.5% in 2017, after which the growth rate tailed off to 2.3% by 2023.  President’s budget plan, 4/15/13.  

The 2014-17 growth rates compare to an average annual growth rate of 1.8% for 2002-2012 (and also 1.8% for the first two quarters of this year). Economic survey, SAFE, August 2013.  The projected improvement looks overly optimistic.

Another possibility is that interest expense will exceed expectations.  Not only is the government currently benefitting from ultralow borrowing rates due to Federal Reserve policies, but it is effectively being relieved of interest on roundly $2 trillion in Treasury bonds held by the Fed.  The budget projects that interest expense will rise substantially in coming years, due to more normal interest rates as well as growing debt, but withal assumes a steady 2.2% per year inflation rate.  If inflation spiked and the Fed was forced to slam on the monetary brakes, interest expense would soar.  Stockman’s dose of honesty, Robert Romano, NetRightDaily, 9/11/12.

In his continued gambit to make enemies with just about everyone in the Washington, D.C., former Reagan [budget director] David Stockman is now taking aim at the Federal Reserve’s zero-interest rate policies that he says are incentivizing reckless spending and borrowing on Capitol Hill. “All the way out to five years, you can fund this debt at 65 basis points,” an indignant Stockman 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.

Bottom line, the fiscal problem is far from solved – and it needs to be attacked seriously rather than rationalized.

2. There isn’t enough time to deal with it right now – As everyone knows, there are two deadlines coming up: (A) September 30 marks the end of the current fiscal year, after which Congressional authorization will be needed for the government to keep spending money; (B) the government is already at the $16.7 trillion debt limit, but as of around the middle of October – according to Treasury Secretary Jacob Lew – the Treasury will run out of technical gimmicks to avoid a default.

The deadlines are not a surprise, of course, but there is a new factor that could not have been foreseen – a proposal to authorize the use military force against Syria in response to the Assad regime’s use of chemical weapons in the Syrian civil war.

The president originally proposed a limited air strike, with regime change ruled out as an objective.  Notwithstanding the efforts of some legislators (notably Senator John McCain) to broaden the mission, he has continued to describe the planned action in these terms. Weekly address, 9/7/13.

What we’re talking about is not an open-ended intervention.  This would not be another Iraq or Afghanistan.  There would be no American boots on the ground.  Any action we take would be limited, both in time and scope – designed to deter the Syrian government from gassing its own people again and degrade its ability to do so.

There are serious questions here. Does the United States have any business intervening in this matter without clear-cut international support?  What would be accomplished, especially now that Syria has had ample time to disperse and safeguard its military assets?  Are the anticipated benefits worth the risks of attacks on Israel or Iraq, interruption of oil shipments, etc.?

OK, clearly this topic will be at the top of the DC agenda for the next week or so.  But in the end, Congress will vote “yes” or “no.”  And unless the president changes a lot of minds in his televised speech tomorrow night, it looks like the resolution will be defeated.  Why America is saying “no” – wrong time, wrong place, wrong plan, wrong man, Peggy Noonan, Wall Street Journal, 9/7/13.

That will leave two weeks to address fiscal 2014 spending levels and the conditions for a debt limit increase, but you’ve had plenty of time to think about these things. Experience has shown that the members of Congress are capable of multitasking.  What’s more, you rarely make decisions until the last minute anyway

So please, don’t tell us that there is no time left to do anything but kick the fiscal can down the road again.

3. Fixing the economy should take precedence– There is justifiable concern about the slow economic recovery, and some political leaders keep pushing initiatives to alleviate purported hardship and/or “create jobs.” Witness the president’s weekly address on August 3.

• Even before the crisis hit, we were living through a decade where a few at the top were doing better and better, while most families were working harder and harder just to get by. Reversing this trend must be Washington’s highest priority.  It’s certainly mine.  But too often over the past two years, Washington has taken its eye off the ball. 

• When it comes to creating more good jobs that pay decent wages, the problem is not a lack of ideas.  *** I proposed many of these ideas two years ago in the American Jobs Act.  And this week, I put forward common-sense proposals for how we can create more jobs in manufacturing; in wind, solar and natural gas; and by rebuilding America’s infrastructure.

In a similar vein, consider this recent column in the (Wilmington, DE) News Journal.  Washington must put the focus back on jobs, Senator Chris Coons (D-DE), 9/2/13.

• . . . when Congress reconvenes next week, “it should make helping business create jobs its top priority.” *** We need to make “smarter investments” in the success of “our businesses” – focus on “skills training and the continued growth of the American manufacturing sector” – restore funding for the Manufacturing Extension Partnership.

• Tea Party Republicans in the House – “who believe they can make more of a difference by repealing the Affordable Care Act or imposing reckless across-the-board spending cuts on the economy we’re trying to revive – are the big problem (and should presumably shut up).

The currently declining path of the deficit (already discussed) is cited as support for the idea that the spending party can be prudently ramped up.  Obama says deficit is dropping at near-record pace, Stephen Dinan, Washington Times, 8/23/13.

Mr. Obama said that with deficits dropping now, though, there is no reason not to begin government spending again on education or research and development, which he said act as investments in the long-term economic picture.

Granting the importance of fixing the US economy, however, government spending to create jobs is not the way to go about it.

First, unemployment is not this nation’s only economic problem – slow growth, inflation, eroding government services, and taxes are important too - so a “creating jobs” focus is not broad enough. Economic survey, SAFE, August 2013.

Second, there are more effective ways to reboot the economy than launching a raft of new initiatives, notably reversing failed government policies.  SAFE’s “one-year plan” (see below) would not only cost less money than the new initiatives but work better.

1. Grant a permit for the Keystone Pipeline, which would transport Canadian crude oil (primarily produced from the Alberta tar sands) to refineries along the Gulf Coast. 


2. Enact legislation prohibiting the EPA or any other administrative agency from regulating or taxing carbon emissions.


3. Repeal the federal minimum wage.


4.  Tighten eligibility requirements for food stamps.


5. Repeal the Federal Reserve dual mandate.


6.  Repeal the ethanol blending requirements in motor fuel.


7. Restore defense budget to level requested by the Department of Defense.


8.  Amend federal bankruptcy law to explicitly provide that unfunded employee/retiree commitments can be adjusted in bankruptcy.

9.  Proceed with revenue neutral tax reform.

10.  Delay GovCare implementation for one year.

Please don’t scan this list and dismiss it because one or two of the proposals strike you as “extreme.”  A better approach might be to consider whether you agree with some of the proposals, even if you don’t buy the whole list.

Also, be assured that our plan is not intended to further the interests of either political party.  There is a logical basis for each of the proposals, which we would hope will have appeal on both sides of the aisle.  See last week’s blog entry for discussion. Less is more: a 10-step plan to reboot the economy, 9/2/13.

Ergo, there should be no conflict between rebooting the economy in a sensible fashion and getting to work on the fiscal problem.

4. The other side is being unreasonable – As the recap below suggests, the two parties have very different ideas about what should be done in the fiscal area.

House v. Senate budget plans, 2014-23, $ in trillions





2023 Total Debt





20.4 (79% of GDP)





24.4 (94% of GDP)

And although the political conversation has mostly been about tax increases, the big difference seems to be willingness to cover desired spending by running up the debt. 

So is this a case of two sides taking extreme positions for negotiating purposes, with the “right answer” being somewhere in the middle?  We do not think so, because in our view the goal should be to balance the budget and keep it that way.  By this standard, the House budget takes far too long (ten years) to balance the budget.  And the Senate budget is worse, as it (like the president’s budget) appears to assume deficit spending forever.

Some economists contend deficit spending can provide helpful stimulus during recessions, but John Maynard Keynes (the founder of Keynesian economics) advocated deficits in bad years and surpluses in good years with budget balance over the economic cycle.  Deficit spending can easily become habit forming (the last federal surplus was a dozen years ago), with bigger and bigger deficits required to give the economy a jolt. More stimulus?  Washington Times, 3/15/12.

Add Nobel laureate Joseph Stiglitz to the list of those who somehow think the economy just hasn’t had enough stimulus from Washington. Writing in the Financial Times Monday, Mr. Stiglitz argued that if only the federal government had spent more, unemployment numbers would be a lot lower and the economic growth rates would be a lot higher. *** [The] mediocre performance [in the current recession] wasn’t caused by a lack of spending at the federal level. The Congressional Budget Office just announced that the deficit for the current year is expected to be $1.2 trillion, not exactly a signal that Congress has suddenly become stingy.

Aside from the debatable economic advantages of deficit spending, it is clearly better to balance the budget.  Consider the following comparison:


Balanced budget

Chronic deficits


Simple, easy to understand

Limits unclear, disagreements likely


Borrowing capacity reserved for true emergencies, interest expense prudently minimized

Borrowing capacity can be frittered away, interest expense likely to represent growing share of the budget


Forces timely choices between competing priorities

Promotes spending by deferring collection of the revenue to pay for it

In a letter sent to every member of Congress on June 3, SAFE urged that Congress commit to balance the budget within say three years and keep it that way thereafter. We would encourage you to read it again.

If such a commitment was made, it might become easier to agree on budget issues.  For example, would the Senate budget really call for $5T more spending (over 10 years) than the House budget if it was necessary to call for a $5T tax increase to pay for it? 

There is currently a lot of talk about doing away with the across the board spending cuts that are currently on the books.  While debt crisis looms, Washington still focused on undoing sequestration, Romina Boccia, Heritage, 8/30/13.

Shooting for a balanced budget is not inconsistent with this goal, as point 7 of SAFE’s economic plan demonstrates, but the across the board cuts should be replaced by smart cuts – and plenty of potential targets exist. Less is more: a 10-step plan to reboot the economy, 9/2/13.

There might still be disagreements about taxes.  Given all the tax increases in recent years, however, perhaps there could be agreement to proceed with tax system reform (point 9 of SAFE’s economic plan) without raising taxes once again.

We recognize that it can be hard to work with other people instead of trying to steamroller them, but the US system of government cannot function unless you do – so please try.  Also, bear in mind that (1) you and your colleagues represent the American people, and (2) your performance will ultimately be judged by results versus slick political rhetoric.

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In closing, our message is simple.  The fiscal problem is crucial, only Congress can fix it, and the time for action is now.



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Re Nobel laureate Joseph Stiglitz’s advocacy of deficit spending, his ideas are truly extreme and driven by an underlying political agenda.  See, e.g., - SAFE director 

Solid analysis, wish I thought the members of Congress were listening. – Financial executive

Have you heard that you got a “shout out” on the Rush Limbaugh Show last week? I've forgotten what it was about, but the Rushman definitely did mention the source as Bill Whipple. Keep on, keepin on - you're getting a lot of this stuff right. – Military historian [This was a surprise to us, but nice to hear.]


9/2/13 – Less is more: a 10-step plan to reboot the economy

The US economy has been floundering since 2009, with anemic economic growth, not enough jobs, smoldering inflation, erosion of basic government services, and stealthy tax increases.  Robust recovery seems unlikely any time soon, and things could easily get worse.  A Survey of the US Economy, SAFE, August 2013.

Having identified these problems, which are discussed in our survey, let’s talk about how to fix them.  Our ideas could be readily accomplished, but they would entail abandoning some long-standing government policies that simply don’t work.  No guarantees, but we think most Americans would be pleased with the results.


It is not our intent to further the interests of either political party.  The goal is to get the US economy back on track, and we would encourage both parties to provide their support.  Remember that, as President Harry Truman once said, “It is amazing what you can accomplish if you do not care who gets the credit."

A One-Year Plan

September 2013

This plan offers ten proposals – two for growth, two for jobs, etc.  They stem from the premise that the US needs less government (spending, taxes, regulation), not more. Most of them could be implemented before the 2014 elections.


The proposals are meant to be illustrative rather than exhaustive; their implementation would hopefully create momentum for further action along the same general lines.



Economic growth (GDP): 1929-2001 (3.5%); 2002-2013 (1.8%); 1st half of 2013 (1.8%). Realism of GDP deflator used to purge inflation has been questioned.  If inflation adjustments are too small, growth rates are overstated.


1. Grant a permit for the Keystone Pipeline, which would transport Canadian crude oil (primarily produced from the Alberta tar sands) to refineries along the Gulf Coast.  


No government favors (subsidies, loan guarantees, etc.) have been requested; the project would generate welcome tax revenues for the federal and state governments.  From a national security standpoint, it makes more sense to buy oil from Canada than from Venezuela, etc.  As for purported environmental drawbacks, the Canadian tar sands are going to be developed; the only question is whether this country or China will buy the oil produced. An update on the Keystone pipeline, 2/25/13.


Although the pipeline project seems like an obvious winner, diehard environmentalists have succeeded in delaying its approval for years and several federal agencies are inventing excuses for further delay.  The Obama administration continues to delay Keystone XL, Michael Bastasch, Daily Caller, 8/26/13.


Enough already, if the government is serious about promoting economic growth, it’s time to approve the Keystone Pipeline and get out of the way.


2. Enact legislation prohibiting the EPA or any other administrative agency from regulating or taxing carbon emissions.


Subtle hints won’t work with the EPA, which has been taken over by ideologues with an exaggerated sense of their own authority and importance. Unless someone reins them in, they will continue issuing regulations without serious consideration of the economic consequences.  We concluded three years ago that a very direct approach would be needed to change the situation.  Dear EPA: shape up or ship out, 11/29/10.


Congressional action, which seems more likely [than presidential action] at this point, might start with a statute (a) barring the EPA from regulating carbon emissions under the Clean Air Act without explicit Congressional approval, and (b) imposing a five-year moratorium on lower ozone limits. 

Recent studies show that average global temperatures plateaued about 15 years ago, despite a still rising level of CO2 (now .04% of the atmosphere).  Our intellectual opponents have scrambled to adjust their talking points. First they warned of “global warming,” then it was “climate change,” now the term is “carbon pollution.” Wearing out words, Washington Times, 8/13/13.

Newly appointed Director Gina McCarthy has served notice that the EPA will move ahead without regard to the opinions of Congress.  She also dismisses claims that forced reductions in carbon emissions could disrupt economic growth.  On climate change, Obama, EPA plan action without Congress, Valerie Richardson, Washington Times, 8/14/13.

“We’re going to do this this year, next year, the following year, until people understand these are not scary things to do, these are actions we can all do, they’re actions that benefit everybody, that will grow the economy, and they’re actions that will protect the health and safety of individuals,” Ms. McCarthy said.

Such a “we can have it all” viewpoint defies common sense, and there is ample evidence to refute it including the prospective shutdown of numerous “fully functional coal-fueled power plants” before the end of their useful lives.  Environmentalists want you powerless – to resist, Marita Noon,, 8/18/13.

Federal legislators had better step up to the plate on this issue if they want Congress to remain a relevant institution in the US political system.



Unemployment rate of 7.4% in July 2013 compares to 10% peak in 2009, but other measures may be more meaningful.  Millions of people have stopped looking for work, and many added jobs are part time.


3. Repeal the federal minimum wage.


Productive jobs are created in the private sector, e.g., by the companies who want to build and operate the Keystone Pipeline.  The government can contribute to more robust employment, however, by minimizing distortions in the labor market.  One practical step would be to eliminate the well-intentioned but misguided minimum wage.


The rationale for a minimum wage is that workers can’t live on the pay a free labor market would provide. It’s also argued that low-income workers spend their earnings quickly, so if their wages are raised this will boost the economy.


Worker pay is determined by supply and demand, however, so the practical result of a minimum wage is to reduce the number of jobs available and prevent young or marginal workers from finding employment.  The minimum wage is cruelest to those who can’t find a job, James Dorn, Forbes, 7/22/13.


In lieu of repealing the federal minimum wage, it would suffice to freeze the current minimum ($7.25 per hour) and allow it to fade away due to inflation.  We would favor outright repeal, however, as a more transparent way to address the matter.


The same economic principles apply at the state level, but the federal government should not attempt to dictate state policy in this area.  It’s not a matter of economics, but of respect for our federal system of government.  See the 10th Amendment: “The powers not delegated to the United States by the Constitution, nor prohibited to it by the States, are reserved to the States, respectively, or to the people.”


4.  Tighten eligibility requirements for food stamps.


One reason for widespread unemployment is the availability of government welfare programs that have the effect of encouraging millions of Americans not to seek employment.  After all, why should people work if they can earn more by being idle? 


Welfare recipients typically participate in multiple programs, and the benefit dollars add up. Also, unlike earned wages, welfare benefits are not taxable.  Based on a recent Cato Institute study, being on the dole is the most remunerative choice for millions of Americans – especially where state benefits are generous.  Why get off welfare?  Michael Tanner (Cato Institute),, 8/26/13.


In Hawaii, Massachusetts, Connecticut, New York, New Jersey, Rhode Island, Vermont and Washington, D.C., welfare pays more than a $20-an-hour job, or more than 2.75 times the minimum wage.


Many federal welfare programs should be reviewed, but the Supplemental Nutritional Assistance Program (aka “food stamps”) seems like a good place to start.  SNAP has grown explosively in recent years; some 1 in 7 Americans now receive food stamps and the cost is about $85B per year.  The most obvious cure would be to tighten the eligibility requirements, as was done in 1982 under Regan and again during the Clinton era.

Notable [1996] changes included a work requirement for food stamps under certain circumstances and denial of coverage for most illegal aliens. Participation fell from about 27 million people in 1995 to about 17 million people in 2001, with an outright reduction in expenditures.

Longer term, we would recommend block granting SNAP and turning it over to the states. Some food stamps history and where to now, 4/29/13.




Inflation estimates (CPI): 1961-2012 (4.0%); 2001-2012 (2.4%); last 12 mos. (2.0%). Without changes in methodology made since 1990, however, current estimate might be about 5%.


5. Repeal the Federal Reserve dual mandate.


We believe the Federal Reserve should shoot for price stability and let elected officials worry about economic growth and jobs. Instead, the Fed has set a target of 2% annual inflation and is making every effort to raise inflation to that level.  Moreover, the Fed monitors inflation against the core Consumer Price Index (ex changes in food and energy prices), which tends to run lower than the overall CPI.  There are also questions about how the CPI should be calculated; some observers believe this index understates actual inflation. Economics Survey, August 2013.


The Fed’s current marching orders from Congress – to control inflation and promote full employment – date back to the Humphrey Hawkins Act of 1978. This dual mandate has been used to justify a series of aggressive monetary policy initiatives, most recently purchasing $85B of long-term bonds per month to artificially hold down interest rates (QE3), which could trigger a nasty inflationary spiral down the road.  Federal Reserve launches another monetary policy experiment, 9/17/12.


We aren’t the only ones who think the Fed is playing with fire. US is high on “monetary heroin,” CNBC interview, Peter Schiff, August 2012, video (4:36).


After the dual mandate was repealed, we would expect the Fed to get back to maintaining price stability instead of attempting (without much success) to stimulate the economy.


6.  Repeal the ethanol blending requirements in motor fuel.

The mandate to blend rising quantities of ethanol into gasoline sold as motor fuel dates back to the energy act of 2007.  The legislation was hailed as bipartisan, but that did not impress us at the time. Fiscal visionaries at bay, 12/24/07.

Why should the government mandate the use of ever more ethanol? Producing ethanol from corn is ruinously inefficient, not to mention its adverse effects on food prices and the environment. It may eventually be possible to produce ethanol from switch grass and such, but the technology has yet to be developed on a commercial scale.

Fast forward to 2013.  Gasoline sales have lagged projections, and refiners are being forced to buy renewable energy credits because they can’t meet the prescribed targets without putting so much ethanol in their gasoline that it would damage car engines.  The cost for these credits is passed on to consumers, boosting the retail price of gasoline by 10¢ per gallon or more. The ethanol tax, Wall Street Journal, 7/20/13 (link not available).


As for the purported environmental advantages of using ethanol made from corn (the primary source for now) in motor fuel, even Al Gore has admitted that he only endorsed the idea for political reasons. Gore: US corn ethanol "was not a good policy," Gerard Wynn, Reuters, 11/22/10.


This was a bipartisan mistake.  It is high time to fix it and take a bit of pressure off the wallets of American motorists.



Some examples (federal, state & local): roads & bridges, parks, schools, police & fire fighters, and potentially crippling cuts to defense (per Defense Secretary Chuck Hagel).


7. Restore defense budget to level requested by the Department of Defense.

The international threat level has been on the upswing for some time, e.g., the president will request congressional approval for a limited air strike against Syria based on the Assad regime’s use of chemical weapons.  The risks involved are hard to assess, but could include disruption of oil shipments and attacks on Israel.

Yet the defense budget is under pressure (automatic cuts from sequestration on top of previously planned cuts), and essentially arbitrary reductions in military capabilities might result. Do we want a big military that is obsolete, or a state of the art military that is too small? Hagel: Budget cuts could force Navy to sideline 3 [out of 11] aircraft carriers, Fox News, 7/31/13.

Enough, the US cannot afford to play political games with national security.  The defense budget should be reviewed with Defense Secretary Chuck Hagel et al. to ensure prompt restoration of any cuts the Pentagon legitimately views as beneath the water line. 


Resulting spending increases should be offset by eliminating wasteful spending in other areas.  There is no shortage of potential targets.  See, e.g., the Budget page of our website ( or Citizens Against Government Waste’s list of “Prime Cuts” (


Some political leaders have insisted that sequestration cuts for domestic spending should be reversed before they will agree to fix the defense budget.  Economics Survey, August 2013.  This position does them no credit and should be abandoned.


8.  Amend federal bankruptcy law to explicitly provide that unfunded employee/retiree commitments can be adjusted in bankruptcy.


The erosion of government services in some states and cities (California and Detroit were cited as examples in our survey, but there are other offenders) is typically due to fiscal mismanagement over an extended period of time.  The government officials concerned must make difficult decisions to set things right.  And if the situation is too bad, bankruptcy (available to local governments under the federal bankruptcy law) or a financial workout may be the only answer.  


The federal government should refrain from bailing out insolvent state or local governments.  Not only do the potential liabilities run into the trillions of dollars, but such bailouts would simply delay the adjustments needed for real recovery.

Is there anything positive the federal government could do?  It might be helpful to clarify the federal bankruptcy law provisions re municipal bankruptcies. Facing up to America’s pension woes, David Skeel (Penn Law School professor), Wall Street Journal, 7/25/13 (no link available).

The crucial issue in Detroit’s filing under Chapter 9 (municipal bankruptcy) of the federal bankruptcy law is whether the aggregate loss that creditors are facing (barring a federal or state bailout, neither of which currently seems likely) will be (1) apportioned between current and retired Detroit employees (the unfunded portion of their future pensions is at risk) and bondholders, or (2) borne solely by bondholders (up to 100% of the money owed to them).  If the answer turned out to be (2), this would encourage municipal workers everywhere to reject any proposed pension reductions and support municipal bankruptcy filings.  Interest rates on future state and local borrowing would presumably soar as lenders took this outcome into account.



Taxes have been raised during an economic slump, and further increases are demanded.  All Americans would bear the burden, not just big business and the wealthy.

9.  Proceed with revenue neutral tax reform.

By “reform” we mean changes that will make the tax system simpler, more efficient and fairer.  The anticipated benefits would include compliance cost savings for both the government and taxpayers, less tax cheating, and less distortion of economic activity.

The basic concept is simple: eliminate tax preferences (exemptions, deductions & credits) and offset these changes by cutting tax rates, etc.  For an example of how this might be done, see SAFE’s SimpleTax plan.

Such an approach would not offer an immediate increase in tax revenue, but it would predictably boost the economy and therefore result in more tax revenue over time.  That’s what is known as a “win-win solution.”

Some might be inclined to eliminate tax preferences without commensurate cuts in tax rates, thereby converting tax reform into tax increases.  “Look at the deficit and all the unmet spending needs, we must have more tax revenue now!”

The temptation to raise taxes in such a fashion should be firmly resisted.  Tax increases often bring in less cash than expected, plus which they slow economic growth and divert attention from the real key to a balanced budget – spending cuts. Raising taxes and a crackdown on cheating won’t solve the fiscal problem,” 9/20/10. 

10.  Delay GovCare implementation for one year.

GovCare is folly from an economic standpoint.  It represents a huge tax increase on the American people, with the proceeds earmarked for spending versus deficit reduction, and is also fostering underemployment by creating a bias to hire part-time workers. 

And we are far from the only ones who feel this way.  See, e.g., “Bad medicine,” Michael Tanner, Cato Institute, October 2012.

[This law] is likely to make Americans less healthy, less prosperous, less able to direct their own health care decisions, and places huge burdens on our economy and already massive national debt.

What to do?  SAFE would favor repealing GovCare and implementing an alternative plan.  In search of real healthcare reform, May 2009.

But repeal is not a political possibility right now, so why should a one-year delay be suggested?  Over and above the economic considerations already discussed, there are reasons for a delay that both parties should find persuasive.

# Preserve reputation of US government - Various flaws in the law have already been addressed, e.g., the Class Act and the 1099 reporting requirement were repealed and there have been numerous administrative waivers. The resulting impression of confusion and favoritism does not benefit either party.  10 Obamacare fumbles, Sam Baker & Elise Viebeck, The Hill, 7/4/13.

# Cure a legal discrepancy. - The administration has decided to delay certain GovCare provisions, notably the requirement for large employers to provide HCI for their employees.  As the statute does not authorize such delays, their legality is debatable. Delaying the employer mandate requires delaying all of Obamacare, Michael Cannon, Cato Institute, 7/3/13.

# Don’t undercut employer plans - Implementing the individual mandate without the employer mandate might encourage employers to drop their HCI plans and steer employees into government-run exchanges. “One can expect plenty of workers to hear unhappy news this fall as human resources departments make announcements that rather than the usual ‘open enrollment,’ there will be a workshop for how to sign up for [an exchange].” Obama gets last laugh on health[care] law, Chris Stirewalt, Fox News, 7/3/13.

# Discourage tax fraud - Given the unavailability of income data from employers, individuals will be able to claim tax credits for participation in the exchanges to which they are not legally entitled. Obamacare rule to verify income levels is scrapped, Audrey Hudson, Newsmax, 7/7/13.

# Protect Americans from identity theft and fraud – In its rush to create a huge new system, the administration has reportedly fallen short in terms of ensuring the security of data networks and vetting the healthcare “navigators” who will be involved in helping individuals sign up for HCI coverage. More time is needed to correct these problems.  CNBC: Obamacare a “dream come true for rip-off artists,” Guy Benson,, 8/16/13.

The brouhaha over defunding GovCare is rather remarkable, it seems to us, because a one-year delay should be helpful for all concerned.  Let’s get it done!


Most Americans tune out predictions of future financial crises, no matter how well founded, but pay attention to economic results in the here and now.  If we hope to get their attention, it might pay to look at things from their point of view.

As already discussed, the last four years (since the “Great Recession” officially ended in mid-2009) have brought subpar economic growth, chronic underemployment, smoldering inflation, and erosion of basic government services.  A solid recovery appears unlikely in the near future, and things could easily get worse.

This entry will work taxes into the equation, evaluate the survey findings, and offer some thoughts about the path forward. 

TAXES – No one likes to pay taxes, and the political discourse reflects this fact.  Notice how our political leaders claim credit for tax cuts, no matter how temporary, while resisting spending cuts.  And when tax increases become unavoidable due to constantly growing spending, the proponents characterize them as levies on upper crust folks who should be glad to pay “a little bit more.”

Anything but tell people that they will have to pay, in one way or another, for all the programs undertaken or supported by the government.  As an example of how the game is played, consider this presidential rhetoric.

Scranton, PA, 11/30/11.  Obama: “Since I’ve taken office, I’ve cut your taxes,” Fox News. - We have cut taxes for small businesses, not once, not twice, but 17 times.  The average family’s tax burden is among the lowest it’s been in the last 60 years.  So the problem is not that we’ve been raising taxes.  We’ve been trying to give families a break during these tough times.

Galesburg, IL, 7/24/13, transcript. - Now, today, five years after the start of that Great Recession, America has fought its way back.  *** We changed a tax code too skewed in favor of the wealthiest at the expense of working families -- so we changed that, and we locked in tax cuts for 98 percent of Americans, and we asked those at the top to pay a little bit more. 

There have been many tax increases, however, and the rank and file has hardly been exempt.  Let’s review the record, starting with a bill enacted shortly after the president took office.  Looking ahead to the Fiscal Responsibility Summit, 2/9/09.. . . a bill signed into law on February 4 will authorize a major expansion of the Children’s Healthcare Insurance Program (CHIP) and increase the federal tax on

cigarettes by 62¢ per pack to pay for it. ***Raising taxes during a recession is generally recognized as folly, and this particular tax increase is regressive (disproportionately paid by lower-income people) besides.  Not to mention that the federal tax increase (on top of already high state and local taxes) will promote more cigarette bootlegging. 

Numerous tax increases are embedded in GovCare, which was enacted in 2010. They will total about $90B per year when fully phased in.  Some of the provisions target high earners, e.g., hiking the Medicare tax rate from 2.9% to 3.8% and applying it to investment income as well as compensation, but the threshold levels aren’t indexed for inflation so a growing number of taxpayers may be affected. Taxes upon taxes upon . . ., Wall Street Journal, 7/11/11.

And don’t forget the GovCare fines for nonparticipation, which are the functional equivalent of taxes and have been classified as such by the US Supreme Court. Assessing the GovCare decision, 7/9/12.

In early 2013, after a prolonged debate about expiration of the Bush tax cuts (enacted in 2001 & 2003), the American Taxpayer Relief Act hiked income taxes for high earners only.  Democrats hailed the outcome as a step in the direction of requiring high earners to pay their “fair share,” while Republicans emphasized that most Americans would be permanently shielded from previously scheduled increases in their income taxes.  Expiration of the temporary (2011-2012) reduction (by two percentage points) in employee payroll taxes boosted taxes for all workers, but neither party said much about that.  The fiscal cliff debacle is over, but other issues loom, 1/7/13.

ATRA was a bitter pill for Republicans to swallow, and the GOP has ruled out more tax increases any time soon.  McConnell and Boehner: Republicans united on sequester, Ben Wolfgang, Washington Times, 3/3/13.

“I’m going to say it one more time: The president got his tax hikes on January the 1st. The issue here is spending. Spending is out of control,” Mr. Boehner said on NBC’s “Meet the Press,” an interview that was taped Friday. Senate Minority Leader Mitch McConnell, Kentucky Republican, echoed those sentiments on CNN’s “State of the Union.” He said no Republican is “willing to raise a dime in taxes to turn off the sequester.”


For their part, Democrats want a “balanced” solution to the fiscal problem (code for more tax increases).  There is plenty of money in the economy, they think, and the only problem is accessing it.  Idea: a financial transactions tax might be nice, hopefully no one would notice it.  “What, me worry?”  Washington Times, 8/7/13.

Senators Harry Reid and Chuck Schumer went out of their way to throw cold water on the efforts of Senator Max Baucus (D-MT) and Rep. Dave Camp (R-MI) to promote income tax reform.  The project was a waste of time, they said, unless a major increase in tax revenue – say $1 trillion over 10 years - would be involved.   Tax reform in Senate?  Not so fast, says Reid, Bernie Becker, The Hill, 7/25/13.

Recently, in one of a series of campaign-style speeches, the president suggested a “grand bargain.”  He would be “willing to simplify our tax code,” especially if “incentives for manufacturers bringing jobs back to the United States” (compatible with tax simplification?) were involved, but only if a big portion of the savings would be plowed back into government spending programs, e.g., infrastructure initiatives, high-tech manufacturing hubs, community college training programs, etc.  Heaven forbid that investors and business leaders should decide how the applicable funds would be utilized.  Chattanooga, TN, 7/30/13, transcript.

Summing up, the government has raised taxes repeatedly over the past four years.  And while Party B opposes any more tax increases for now, Party A will have considerable leverage (by virtue of controlling the Senate and the White House) in the fall budget battle.  One might reasonably conclude that more tax increases are likely. 

Some Americans may believe that any further tax increases would be borne by the top echelon, e.g., big business and the wealthy, but stop and think. When businesses are required to pay more taxes, where do they get the money?  And if asked to pay more taxes, do the wealthy have other options, such as investing their wealth outside the tax jurisdiction or simply not working as hard? So as John Donne wrote, “Ask not for whom the bell tolls, it tolls for thee.”

Also, future tax increases will not necessarily take the form of income taxes.  A slicker idea is to impose excise taxes or fees earmarked for feel good purposes that “no reasonable person” could oppose.  Here are two proposals that are in play.

# A new levy on cell phone bills – of which there are a good many already (10 separate city, state and federal fees and charges, not including sales taxes, in New York City) – has been suggested to underwrite high speed internet access in schools.  Instead of being voted on by Congress, which is “dysfunctional” after all, the new “fee” would be imposed by the Federal Communications Commission at the president’s direction.  Obama wants to tack on a $5-a-year phone tax, Geoff Earle, NY Post, 8/15/13.

# A big hike in federal taxes on cigarettes (on top of the CHIP increase in 2009) would help fund the president’s universal access to preschool proposal.  As is typical for new programs, benefits are played up while costs are back-end loaded.  Moreover, the proposed revenue source is inappropriate.  Cigarettes and preschoolers don’t go together, Scott Drenkard & Noah Glyn, Tax Foundation, 8/14/13.

. . . the administration plans on paying for universal preschool by increasing the federal cigarette excise tax from $1.0066 to $1.95 a pack. While it might be politically expedient to isolate a small unpopular group (smokers) to pay for a service to a popular group (preschoolers), universal education would in fact be universal—and therefore should be paid for with broad based (universal) taxes.  But even if the principle of broad-based taxation is not persuasive, funding pre-kindergarten education with tobacco tax revenue will not work in the long run, as tobacco use has steadily declined since 1963.


EVALUATION – Basically in line with economic trends since mid-2009, when the “Great Recession” officially ended, the current US economic situation looks something like this:






Economic growth (GDP): 1929-2001 (3.5%); 2002-2013 (1.8%); 1st half of 2013 (1.8%). Realism of GDP deflator used to purge inflation has been questioned.  If inflation adjustments are too small, growth rates are  overstated.

Unemployment rate of 7.4% in July 2013 compares to 10% peak in 2009, but other measures may be more meaningful.  Millions of people have stopped looking for work, and many added jobs are part time.

Inflation estimates (CPI): 1961-2012 (4.0%); 2001-2012 (2.4%); last 12 mos. (2.0%). Without changes in methodology made since 1990, however, current estimate might be about 5%.

Some examples (federal, state & local): roads & bridges, parks, schools, police & fire fighters, and potentially crippling cuts to defense (per DOD Secy. Chuck Hagel).

Taxes have been raised during an economic slump, and further increases are demanded.  All Americans would bear the burden, not just big business and the wealthy.

Dismal as the picture looks using official numbers for economic output and inflation, the real situation may be worse.  The government class has every incentive to make economic results look good, and there is some evidence of data manipulation.

• As previously discussed, calculation procedures for the Consumer Price Index have been greatly changed since 1990 (and even more so since 1980).  The revised procedures provide more flexibility for product substitution, e.g., hamburger for steak, and giving credit for product improvements.  There is some logic in the changes, but many Americans feel the prices they pay are rising faster than the CPI – and they may be right.

• The GDP Deflator is used to put nominal GDP for different periods on a comparable (inflation-adjusted) basis.  We characterized the GDP Deflator earlier as “similar to [the] CPI, but not identical.”  As it turns out, however, the CPI has risen 40% more than the GDP deflator since 1977.  Unless the CPI overstates inflation, which seems unlikely, the GDP deflator is too low and real economic growth is being overstated. The GDP distractor, Peter Schiff,, 8/21/13.

• A recent restatement of GDP data (back to 1929) will produce higher numbers, e.g., a $560B increase for 2012.  The changes will supposedly not have a major effect on year-to-year trends, but certain fiscal ratios – notably spending, tax revenues, and debt as a % of GDP – will be lowered.  Hmm, wonder if anyone thought of this when the GDP changes were under consideration.

The lackluster economic results of recent years are unsurprising given the policies being followed.  Indeed, we cannot recall agreeing with a single major economic proposal of the current administration.  Nothing personal, but the president seems to think the government should run just about everything, while SAFE favors smaller, more focused, less costly government. 

In comparing the economic plans of the presidential candidates a year ago, we saw the challenger’s plan as clearly better than the president’s “stay the course” proposals – but wanted even bigger changes.  SAFE’s Jobs Manifesto, 10/15/12.

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.

The president won the election, our ideas gained no traction, and the economic situation remains dismal.  There is not much solace in being able to say, “we told you so,” but for what it’s worth that’s what SAFE did.

Is Side A willing to admit error at this point?  Apparently not! Consider these ringing lines from the president’s July 24 speech in Galesburg, Illinois. Transcript.  

# He inherited an economic mess, which simply could not be fixed in four years – even though steps have been taken to get the country headed in the right direction.

Now, today, five years after the start of that Great Recession, America has fought its way back. We fought our way back.  Together, we saved the auto industry; took on a broken health care system.  We invested in new American technologies to reverse our addiction to foreign oil.  We doubled wind and solar power. *** So you add it all up, and over the past 40 months, our businesses have created 7.2 million new jobs.  This year, we’re off to our strongest private sector job growth since 1999. 

# His political opponents, who are obsessed with unwise, mean-spirited spending cuts, are blocking progress.

But right now, what we’ve got in Washington, we've seen a sizable group of Republican lawmakers suggest that they wouldn’t vote to pay the very bills that Congress rang up.  And that fiasco harmed a fragile recovery in 2011 and we can't afford to repeat that.  Then, rather than reduce our deficits with a scalpel -- by cutting out programs we don’t need, fixing ones that we do need that maybe are in need of reform, making government more efficient -- instead of doing that, we've got folks who’ve insisted on leaving in place a meat cleaver called the sequester that's cost jobs.  It's harmed growth.  It's hurt our military.  It's gutted investments in education and science and medical research.  Almost every credible economist will tell you it's been a huge drag on this recovery. 

# The need to bring down the deficit has not been forgotten; it’s just being taken care of without a lot of drama.

And if you ask some of these folks, some of these folks mostly in the House, about their economic agenda how it is that they'll strengthen the middle class, they’ll shift the topic to “out-of-control government spending” –- despite the fact that we've cut the deficit by nearly half as a share of the economy since I took office. 

Revisit the 2012 campaign rhetoric, and you will find that the president and his supporters were saying much the same things a year ago.  So if a majority of voters bought the arguments then, why would they feel any differently now?

Even SAFE sized up the presidential race as a choice between competing economic visions. “This country is facing a fundamental choice about its future,” we wrote, “which may be made by this year’s elections.” Decision 2012,

And in a book published before the 2012 elections, which vaulted to number one on the New York Times best seller list, a distinguished, right-leaning American urged voters to educate themselves on the issues and pay close attention to what the candidates were saying.  Thus, citizens should put “at least as much effort into selecting their representatives as they do into to buying a new car.” America the Beautiful, Dr. Ben Carson, Zondervan, 2012.

We would be thrilled if everyone did study the issues as Dr. Carson suggests, but elections don’t necessarily work in such a logical fashion.  For the 2012 elections, at least, Rush Limbaugh’s lament about the dominance of “low information voters” may be closer to the mark.  And whatever the reason(s) that Americans reelected the president, it was probably not based on what they thought of his economic policies.

Only 35% of Americans currently view the president’s handling of the economy with approval, according to Gallup, while 62% disapprove.  And his disapproval score on the economy has been in 60%+ territory most of the time since 2010, with one notable exception – the disapproval/approval spread narrowed to 7 percentage points in November 2012 only to snap back to 20 percentage points by January 2013. Obama’s economic approval slips to 35%, Lydia Saad,, 8/15/13.

Congressional approval ratings are also in the basement, and it would be a mistake to read too much into the presidential poll results.  Nevertheless, there is growing disenchantment with the economic situation – even though many observers seem reticent about blaming the president.  Still missing: the economy, Donald Lambro, Washington Times, 8/23/13.

In virtually all of the news media’s reporting about the economy’s decline, one name is hardly ever mentioned: Mr. Obama. He is to blame, though, for the economic pain millions of Americans are going through. It all stems from his anti-growth policies, which have given us higher taxes, oppressive gas prices, crushing federal debt, unending economic uncertainty and costly regulatory obstacles.

It’s not going to end until his term is over, and a pro-growth, pro-free enterprise president occupies the Oval Office and declares that America is “open for business.”

We do not agree with the last sentence, which would rule out a solution to the economic problem until at least 2017 – with no assurance of better luck then. By the time a “pro-free enterprise president” was elected, there might not be a country left – so if corrective action is going to be taken it should start now.

Assuming that Side B has some policy changes in mind, therefore, this might be a good time to bring them up.  Any takers for the SAFE jobs manifesto? 

ONE MORE THING – A notable aspect of the current political landscape is the defeatist attitude of some Republicans/conservatives.  If a politician starts with the intention of placing political expediency over principle, never taking on an “unwinnable” battle, and burnishing his or her legacy, what’s the point of being in public life?  Go home and let someone else take a turn!

Here is a video (4:46) that makes the point.  The speaker mentions several issues, but the main thrust is how far the GOP should go in seeking to defund GovCare implementation.  Irish John on legacy, unwinnable battles, and doing the right thing,

Interestingly, there are indications that Side A is made of sterner stuff.  Fight like a Democrat, Elizabeth Meinecke,, 8/20/13.

. . . that “impossible to implement” roadblock never stops Democrats. They work to change the political and cultural climate so such things can pass. Recent voting and court ruling on gay marriage are a prime example of that. Democrats’ constant battle to make illegal immigration more palatable by any other name is another example. Whether or not Democrats’ legislation fails, they labor to create a climate conducive to legislation finally passing at a future date.

Yet when pundits talk about the need for political accommodation, their comments are generally directed at Republicans.  See, e.g., “Does Sen. John McCain hate Republicans,” Catherine Poe, Washington Times,  7/29/13.


Is this the new, improved John McCain, having banished his other self, the vitriolic McCain, who, still smarting after his defeat by Obama in 2008, was  determined to take down Obama? What changed besides time passing and that Obama won again?  *** Perhaps it isn’t that Sen. McCain hates Republicans, as so many on the Right subscribe, but that he actually loves the Republican Party and is trying to save it from itself. Or is it already too late for the GOP? It’s beginning to look that way.

Politicians do need to pick their battles at times, just like the rest of us, and there is much to be said for reaching across the aisle when a chance of making real progress exists.

Even when agreement is impossible, moreover, we are all in favor of civility.  Just because people don’t agree on something, there is no need to be disagreeable.  Stick to the facts, logic and conclusions – never mind the personalities.

But subject to these caveats, the time has come for Side B to speak very plainly about the economy – and probably some other things as well.  Symptoms – diagnosis – solutions.

Would there be a fight?  You bet!

Does it need to happen?  Absolutely.

When should Side B throw down the gauntlet?  It seems to us that they should do it on September 9, when the members of Congress return to Washington – if not before.

A suggested punch list will be offered next week.  In the meantime, dear readers, let us know what your ideas are so we can work them into the mix.

*        *        *        This Blogs Reply        *        *        *

Re being all in favor of civility, Saul Alinsky taught the power of ridicule.  Why should Side B forego use of this weapon? - SAFE director


8/19/13 – An economic reality check: part 2        Read a Reply

With Congress in recess until September, this seems like a good time to kick the tires of the US economy.  Subpar economic growth and a shortage of full-time jobs were covered last week, and now let’s introduce several additional elements.






INFLATION – Some observers believe the current rate of inflation is “benign,” and that speeding it up a bit could boost the economy.  Indeed, the Federal Reserve has set a target inflation rate of 2% and launched aggressive monetary initiatives, e.g., Quantitative Easing 3 (bond purchases), designed to get there.  Fed frets over high mortgage rate, “low” inflation rate,, 7/31/13.

In a post-meeting statement, the Fed's policy-setting committee signaled some concern about the low level of inflation. "The committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term."

The Fed’s primary measure of inflation is the “core” Consumer Price Index (ex changes in food and energy prices), which is less volatile than the “all items” CPI but may also understate aggregate inflation. Thus, for the 12 months ending July 2013, the core CPI rose 1.7% versus an all items increase of 2.0%. Bureau of Labor Statistics, 8/15/13 news release.

Longer term, the CPI has risen at an average rate of about 4% – and it hit double digits during the 1970s due to the oil price shocks of that decade before the Fed under Chairman Paul Volcker got the situation back under control. (access CPI history table)

Average annual increase in CPI index













At the rate of inflation that has been reported, currency value erodes substantially over time.  Thus, a current dollar is the equivalent of about 75¢ in 2001, 57¢ in 1991  . . . 13¢ in 1961. If the reported rate of inflation is understated, which is a real possibility (as will be discussed), the loss of value would be correspondingly greater.

The prices of specific goods and services don’t necessarily track the overall price trend.  Some products (e.g., desktop computers) are cheaper (and also better) today than they were 20 or 30 years ago.  Other prices (e.g., for college tuition) have risen considerably faster than the CPI.  Accordingly, the effect of inflation for an individual will vary depending on his/her pattern of consumption.

Canny spenders may worry about the speed at which prices are rising, which is particularly inconvenient for folks living on a fixed income.  Smaller packages, vanishing discount offers – big prices for little bottles of medicine, not to mention even a brief hospital stay – new car sticker shock – and so forth.

When a big price increase does takes place, moreover, government action is often involved.  Consider these examples: 

• Government mandates on blending ethanol in gasoline are driving up motor fuel prices without adding value.  And if E-15 gas starts being sold, it may damage car motors.  The ethanol tax, Wall Street Journal, 7/20/13 (link not available).

. . . under federal law refiners must comply with a complicated system of buying renewable energy credits to make up for the ethanol they don’t use [due to lower gas consumption than was projected in 2007].  These credits are called Renewable Identification Numbers, or RINs.  Demand for RINs has soared, and so their price has exploded . . .it is now $1.40, [which] translates into a roughly $14 billion a year gas tax, or 10 cents a gallon more for consumers.

• Incandescent light bulbs are being phased out, so everyone will have to buy more expensive CFL bulbs (which contain mercury that in many cases will wind up in landfills) for use in their own homes. 

• In Delaware, trash pickup costs recently jumped about 60% due to a legislative mandate that everyone pay for recycling pickups whether they use them or not. 

Estimating an overall price level index is a complex task, with many decisions re prices to be tracked, data sources, and computational procedures.  It would not be difficult to manipulate the data so as to understate inflation, and some skeptics believe the government is doing just that. 

Walter J. (“John”) Williams, a Dartmouth-trained economist, has had a professional interest in the quality of government statistics for decades.  He publishes alternative CPI indices based on (A) calculation procedures used in 1990 (indicating a current inflation rate of about 5%), and (B) calculation procedures used in 1980 (current inflation rate of about 9%).  Shadow Government Statistics,

Could one of these data sets be a better indicator of price inflation than the official CPI?  Maybe, maybe not, but Mr. Williams makes some interesting points. Public comment on inflation measurement and the chained-CPI, 4/18/13.

• The government has an incentive to understate inflation so as to: (i) reduce upward adjustments of Social Security, etc. benefits (with the traditional CPI, Social Security checks would be more than double what they are today); and (ii) minimize revenue loss from indexation of the income tax rate tables, standard exemption, etc

• Understated inflation makes economic output data look better. Compare charts of GDP since 2001, showing inflation-adjusted output based on alternative measures of inflation. With the official GDP deflator (similar to CPI, but not identical), there has been steady recovery since 2009 and current output is 124% of the level in 2000.  Using an adjusted GDP deflator (roundly 2% points higher) as the measure of inflation, output has stagnated since 2009 and is currently lower than in 2000.

• Traditionally, the CPI (originally named the Cost of Living Index) was meant to represent purchasing power versus a fixed basket of goods and services.  But over time, without much public discussion, it has been repurposed to track purchasing power versus a theoretical level of satisfaction.  This permits substitutions in the market basket, e.g., hamburger for steak, and giving credit for product improvements whether a given consumer wants them or not.

• There is a growing gap between government reporting of inflation, as measured by the CPI, and the perceptions of actual inflation held by the general public.  Anecdotal evidence and occasional surveys have indicated that the general public believes inflation is running well above official reporting, and that public perceptions tend to mirror the inflation experience that once was reflected in the government’s formal CPI reporting.

Perhaps inflation is inevitable given the current debt level – and it will predictably accelerate if the government keeps ignoring the fiscal problem and the Fed keeps printing money.  Like anemic economic growth and a shortage of jobs, however, inflation is a disturbing phenomenon that Americans are rightly worried about.

GOVERNMENT SERVICES – Far be it from us to suggest that overall government spending is insufficient, but there is some worrisome “robbing Peter to pay Paul” going on.  Thus, expenditures for welfare programs, employee benefits, and new initiatives are surging, while basic government services are being shortchanged to a degree that is hard to miss.  Some illustrative examples follow.

Federal level: There are reports that the nation’s transportation infrastructure has been allowed to deteriorate. Thus, the American Society of Civil Engineers recently projected an “investment gap” of $1.1T over the next few years, mostly for surface transportation. The cost of America’s crumbling roads and bridges, Michelle Caruso-Cabrera, CNBC, 1/15/13.

How about supporting national parks?  Even as Delaware politicians lobby to get a new national park created for the First State, a $12B deferred maintenance backlog is reported for existing parks.  National Parks Conservation Association, press release, 7/25/13.

. . . in today’s dollars, funding for national park operations is down 13%  from where it was only three years ago, and the construction budget has declined by nearly two-thirds over the last decade.  As a result, places like Yellowstone, Acadia, and Independence Hall have been forced to close visitor centers and campgrounds, shorten park hours and seasons, and eliminate ranger positions.

Then there is a disturbing shrinkage of the defense budget, which may force sharp cuts in US military capabilities.  Reviewing the situation in early 2012, we concluded that piling across the board defense spending cuts on previously planned cuts could endanger national security.  We also noted many opportunities for cuts in domestic spending programs. Cut defense spending with care, 1/23/12.

Congress did not agree on selective spending cuts to meet agreed reductions in overall spending, however, so sequestration (across the board cuts in “discretionary spending”) – supposedly only a failsafe mechanism – has been triggered. The effects on the armed services may be dire.  Hagel: Budget cuts could force Navy to sideline 3 [out of 11] aircraft carriers, Fox News, 7/31/13.

Speaking to Pentagon reporters, and indirectly to Congress, Hagel said that the full result of the sweeping budget cuts over the next 10 years could leave the nation with an ill-prepared, under-equipped military doomed to face more technologically advanced enemies. 

Meanwhile, the international threat level has risen, especially (but not exclusively) in the Middle East.  Let’s see: civil war in Syria (with the current regime being backed by Russia and Iran), chaos in Egypt, a resurgence of Al Qaeda in Iraq following US withdrawal, and Iran’s continuing drive to develop nuclear weapons. Like it or not, it may be difficult for our nation to avoid getting embroiled in any of these situations.

One might think US political leaders would suspend their differences long enough to boost military funding to a level recommended by Secretary Hagel et al., but the Democrats do not seem inclined to do so.  Knowing that Republicans want to boost military spending, they apparently intend to hold the defense budget hostage until the GOP abandons sequestration and/or swallows a big dose of tax increases. 

Thus, Senator Patty Murray (D-WA) effectively proposed termination of sequestration as a precondition for a $54B defense spending increase envisioned by House Republicans.  Murray presses for pre-August bipartisan budget talks, Paul Krawzak, Roll Call, 7/1/13.

More recently, the White House served notice that a House defense appropriations bill would only be accepted in the context of an overall spending deal “that supports our recovery and enables sufficient investments in education, infrastructure, innovation and national security for our economy to compete in the future.” White House issues veto threat of defense funding bill, Rick Maze, Navy Times, 7/22/13.

State level: Other states have bungled their fiscal and economic affairs as well, but let’s focus on California. 

The Golden State reportedly has a negative net worth of $127B, about half of which was racked up by “issuing general obligation bonds and then giving the money to local governments and school districts for public works projects.” And counting unfunded pension and healthcare liabilities for state employees, this figure would be “several hundred billion dollars” higher. State auditor: California’s net worth at negative $127.2 billion, Sacramento Bee, 3/28/13.

New reporting requirements are expected to boost the state’s estimated unfunded liability to $328B, and they could also impair the credit standing of Los Angeles, San Francisco, San Jose, Azusa, Inglewood, Stockton (which has already filed in bankruptcy), etc. California on the brink: Pension crisis about to get worse, Elizabeth MacDonald, Fox Business, 6/12/13.

California voters approved sales and income tax increases last November, notes the Sacramento Bee article, which Governor Brown says will balance the operating budget and allow debt to be gradually reduced.  But some well-heeled taxpayers may not be disposed to cooperate.  Massive revenue loss follows California tax hike vote, Ted Cronn,, 12/8/12.

State Controller John Chiang announced . . . that the state's revenue for November came in $806.8 million under projections. That's more than 10% under budget for the month. Whoops. Although Chiang's office did not comment on the whole "rich flight" issue, the breakdown of the trouble is an $842.5 million plunge in personal income taxes, $187.8 million decrease in corporate taxes, offset by an increase of $99 million in sales taxes.

In brief, California and its cities have been spending and making commitments that are beyond their means.  What’s more, a disproportionate share of the money has gone to feather the nests of government employees, while basic government services like police, education, and roads have been neglected.  This pattern will apparently continue with the latest round of tax increases.  California, unsaved, speeds toward a wall of debt, Steven Greenhut, Bloomberg, 1/16/13.

State Senate Republican Leader Bob Huff, writing in the Republican-leaning Flash Report, accused Brown of playing a shell game with the tax-increase funds, which were promised to public schools but are now being used to reward public employees. “Pay raises and lifting of the monthly personal leave day without pay for state employees certainly is a payback to the state unions who helped pass Prop 30,”said Huff.

Judging from the exodus of residents (“3.6 million more Americans have moved out of California than have moved in” over the past 20 years), the state’s misplaced priorities have not gone unnoticed. “Rich States, Poor States,” Arthur Laffer et al., American Legislative Exchange Council (ALEC). (download PDF)

Local level: Once one of the nation’s great cities, Detroit has been laid low by a combination of adverse economic trends (decline of complacent American car companies, with onerous labor contracts) and decades of municipal mismanagement. It is the largest city to declare bankruptcy in American history.  A summary of the current situation follows based on several sources.

Population has dwindled from 1.85 million in 1950 to less than 700,000 today – official unemployment rate is 16% (closer to the true employment rate?) - blocks of buildings have been abandoned because occupants could not afford to maintain them or pay assessed taxes – currently 78,000 abandoned and blighted houses in the city – 40% of the street lights don’t work – most city residents no longer rely on even basic services like police (response time to 911 calls is about an hour) or the fire department – only 7% of 8th graders score proficient in reading – city tax revenues inadequate to cover current obligations, including debt service and benefit payments to current and retired city employees – city has more than $18B in unfunded liabilities and its estimated deficit in June was $237M.

One might infer from the foregoing that the city’s borrowing capacity is entirely used up, but a previously approved ice hockey arena will reportedly be built.  The project is seen as creating jobs and contributing to renewal of the downtown area, and it will be financed by a $450M bond issue payable over 30 years.  Perhaps repayment is secured by revenues from the arena and/or state government guarantees, but in any case everyone seems to be assuming the bonds can be sold. New $444 million hockey arena is still a go in Detroit, Chris Isidore, CNN, 7/26/13.

The crucial issue in Detroit’s filing under Chapter 9 (municipal bankruptcy) of the federal bankruptcy law is whether the aggregate loss that creditors are facing (barring a federal or state bailout, neither of which currently seems likely) will be (1) apportioned between current and retired Detroit employees (the unfunded portion of their future pensions is at risk) and bondholders, or (2) borne solely by bondholders (up to 100% of the money owed to them).  If the answer turned out to be (2), this would encourage municipal workers everywhere to reject any proposed pension reductions and support municipal bankruptcy filings.  Interest rates on future state and local borrowing would presumably soar as lenders took this outcome into account. Facing up to America’s pension woes, David Skeel (Penn Law School professor), Wall Street Journal, 7/25/13 (no link available).

According to Wall Street Journal columnist Stephen Moore, the Detroit bankruptcy filing may be just the tip of the iceberg.  His list of 20 cities to watch includes Harrisburg, PA; Irvington, NJ; Oakland, CA; Philadelphia School District, PA; & Providence, RI.  Also, even Chicago and New York City are not necessarily “too big to fail.”  20 cities that may face bankruptcy after Detroit,, 8/8/13.

TO BE CONTINUED – Looks like we have run out of space and time again, with much left to talk about.  Tune in next week, when we will absolutely, positively complete this survey and offer some thoughts about the path forward.

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We always appreciate a good citation.  Thank you. – John Williams, shadowstats


8/12/13 – An economic reality check: part 1        Read Replies

Our March take on the economy was pessimistic.  The pickup in economic activity and jobs growth seemed relatively modest, with no apparent reason to expect further improvement.  Was this country in for a big crisis now (economy starts to perk up - inflationary surge - Federal Reserve tightens monetary policies and interest rates soar, aborting the recovery), we wondered, or an even bigger crisis later (economic stagnation – unsustainable deficits – roof caves in when lenders lose faith in government’s ability to meet its financial obligations)?  Threats survey,

In this regard, the outlook remains murky.  Compare (1) [Peter] Schiff: We’re heading for a crisis worse than 2007 [big surge in inflation – Fed slams on monetary brakes], Money Morning, 7/28/13., and (2) Fed balance sheet vs. stock market; Will QE cause inflation? [System flooded with idle cash, expect protracted economic malaise] Mike Shedlock,, 8/8/13.

But as for current economic results, which is what Americans pay attention to, the picture is clear.  Anemic economic growth - limited job opportunities – more inflation than is officially acknowledged - deteriorating level of basic government services - rising taxes.  The only questions are: Who is responsible, and what should be done about it?

ECONOMIC GROWTH – According to Department of Commerce, Bureau of Economic Analysis data, US Gross Domestic Product has been growing at an annual rate of less than 2% in recent years versus a long-term historical growth rate of about 3.5%.

1929-2012 avg.*


2002-2012 avg.


1929-2001 (by extrapolation)


1st. Qtr. 2013 (revised)


2nd Qtr. 2013 (advance estimate)





GDP data since 1929 were recently restated, notably by capitalizing R&D and other outlays for intangibles.  The adjustments increased reported GDP, e.g., by $560B for 2012, but supposedly did not have a major effect on year-to-year trends.  BEA release, 7/31/13.

The difference between a 3.5% growth rate (1929-2001) and a 1.4% growth rate (average for first two quarters of 2013) may seem minor, but would have a big impact over time.  Here is an illustrative example, showing the 10-year effect of three assumed growth rates. 

Current GDP

Growth rate

2023 GDP

GDP gain













·         Currently estimated economic growth rate for China.

(Side comment: There are serious questions as to whether a 7.5% growth rate for China is accurate and/or sustainable.  Nevertheless, this estimate is a prime element in projections that the Chinese economy will surpass the US economy within a relatively few years.)

Economists are big fans of economic growth, which serves to increase national wealth and thereby provide productive employment for a growing population, a rising standard of living, and more funding for government programs. 

Similarly, political leaders promise to promote economic growth, create jobs, and support the middle class that made this country great.  Witness these lines from the president’s remarks at Knox College (Galesburg, Illinois) on July 24.

The first cornerstone of a strong, growing middle class has to be, as I said before, an economy that generates more good jobs in durable, growing industries.  That's how this area was built.  That's how America prospered.  Because anybody who was willing to work, they could go out there and they could find themselves a job, and they could build a life for themselves and their family.
Now, over the past four years, for the first time since the 1990s, the number of American manufacturing jobs has actually gone up instead of down.  That's the good news.  But we can do more.  So I’m going to push new initiatives to help more manufacturers bring more jobs back to the United States. We’re going to continue to focus on strategies to make sure our tax code rewards companies that are not shipping jobs overseas, but creating jobs right here in the United States of America.

Yet current economic growth is only a bit faster than population growth.  The US resident population is projected to grow from 314M to 400M by 2050, which works out to a 0.638% annual growth rate. Census Bureau lowers U.S. growth forecast, mainly due to reduced immigration and births, D’Vera Cohn, Pew Research.

And all too often, productive business investment is being deterred by dubious policies, sclerotic decision-making, or destructive legal proceedings.  It is almost as though the “rule of lawyers” is being substituted for the “rule of law.” How America lost its way, Niall Ferguson, Wall Street Journal, 6 /13/13.

Nearly all development economists agree that good institutions—legislatures, courts, administrative agencies—are crucial. When poor countries improve their institutions, economic growth soon accelerates. But what about rich countries? If poor countries can get rich by improving their institutions, is it not possible that rich countries can get poor by allowing their institutions to degenerate? I want to suggest that it is.

The drag effect on business reflects the combined effect of legislation, regulations and litigation at the federal, state and local levels.  Heretofore, the results have been mitigated by the ability of businesses to choose where to locate new investments, e.g., in Texas versus California.  But the current push to regulate more and more activities at the federal level threatens to close that door – leaving investments in other countries as the only effective escape hatch.   Regulations: the stealth economic killer, Bob Beauprez,, 8/9/13.

Obama Administration has been promulgating regulation at unprecedented levels – 2013 Federal Register is on track to hit 78,989 pages (record of 81,405 pages was set in 2010) – 17 regulations classified as “economically significant” (compliance costs of $100M or more) have been issued so far this year.

Generally, the drag effect of government is obvious to the people who are directly affected but less apparent to the general public.  As Niall Ferguson observed in his previously cited column, it might have a salutary effect if everyone played the role of entrepreneur – if only once – by trying to start a business. “There is [something] uniquely educational about sitting at the desk where the buck stops, in a dreary office you've just rented, working day and night with a handful of employees just to break even.”

Here is a case, however, in which government drag is so obvious that one can’t miss it.  If and when completed, the Keystone Pipeline will transport Canadian crude oil (primarily produced from the Alberta tar sands) all the way to refineries along the Gulf Coast.  The economic effects would be highly favorable, in our opinion, and the environmental objections carry little weight.  Note that the oil will not remain in the ground if the pipeline is not built; it will be shipped to China instead. 

We earlier predicted that the president would give the go ahead for this hotly-debated project, which requires federal approval due to the international ramifications (in theory, the State Department might conclude that it would be in the nation’s best interests to keep buying oil from Venezuela), but demand “a major environmental win of some kind” in return that would give his political opponents heartburn.  An update on the Keystone Pipeline, 2/25/13

After nearly 5 years and over 15K pages of State Department studies, however, the project remains in administrative limbo.  It’s hard to see any excuse for the delay, or to square the handling of this matter with the president’s professed zeal to promote economic growth.  Unleashing the power of Keystone, Rep. Fred Upton (R-MI), Washington Times, 8/7/13.

It should be an easy decision for the Obama administration to embrace the project’s thousands of jobs and $7 billion infusion into the American economy, yet the president has resisted. Although the president famously vowed to “do whatever it takes” to create jobs, he seems to be doing all he can to avoid approving Keystone’s presidential permit. With the stroke of a pen, he could support the creation of thousands of private-sector jobs as well as advance our energy security by allowing nearly 1 million additional barrels of North American oil to flow to U.S. refineries each day.

For his part, the president has scoffed at the economic benefits of the Keystone Pipeline, arguably painting a picture that is seriously misleading.  Obama doubles down on low Keystone XL jobs creation estimate, Oil & Gas Journal, 8/6/13.

# The president: "They keep on talking about this—an oil pipeline coming down from Canada that's estimated to create about 50 permanent jobs—that's not a jobs plan."

# Karen Harbert, US Chamber of Commerce’s Institute for 21st Century Energy: “[The] president continues to ignore his own administration's analysis and demean the value of thousands of American jobs for those that badly need them.  There are many ways to create jobs, including allowing for energy development on the 85% of federal land that is currently under lock and key," she continued. "But we know that an easy way to start creating jobs is to approve the Keystone XL pipeline and put 42,000 Americans to work, according to the US Department of State."

JOBSHow many people lie awake at night, worrying about the rate of US economic growth, government regulation of business, or the National Debt?  But being unable to find a job, or scraping by in a part-time or low-skills position, can impact the person concerned – and his/her family and friends – in a direct and very personal way.  See, e.g., The Dinner Table, 2012 campaign video (30 seconds).

There is general agreement that faster economic growth would improve the jobs picture, but with stiffening international competition and ever-faster advances in technology the linkage is far from perfect.  Job loss killing middle class; Technology shapes the global economy, Bernard Condon & Paul Wiseman (AP), News Journal, 1/23/13.

Five years after the start of the Great Recession, millions of “middle-class jobs” have disappeared – and the jobs won’t be coming back.  What’s more, millions of additional jobs will vanish according to experts who study the labor market. Whole employment categories, from secretaries to travel agents, are starting to disappear.  And down the road, software will threaten the livelihoods of doctors, lawyers and other highly skilled professionals.  History shows that technology advances eventually create jobs elsewhere, but it’s hard to see where the new jobs will come from this time because of the pace at which information technology is upending whole industries and occupations.

Other job creation/retention strategies that have been suggested include: (A) hike the minimum wage, so lower level employees will earn a “living wage” and can boost the economy with their added spending; (B) retrain people for presumed jobs of the future, e.g., wind and solar energy; and (C) expand the social safety net for people who are not employable, to be paid for by raising taxes on high earners. 

In this vein, the president is advocating “a long-term American strategy, based on steady, persistent effort, to reverse the forces that have conspired against the middle class for decades.”  His pitch sounds pretty reasonable, too, until one starts thinking about the implications. Transcript of remarks at Knox College on July 24.

Question 1:  What will happen if the nation’s leaders stop worrying about “out-of-control government spending”?  In our opinion, the fiscal meltdown currently brewing is all too predictable – and decisive cuts in non-essential spending is the only way to stop it. 

Question 2: Who would pay for all the president’s proposed initiatives?  Here is a partial list: rebuild the transportation system, power grids and communication networks – connect all American students to high-speed internet – upgrade educational system to meet global competition - ensure college is affordable for every American who is willing to work for it – full speed ahead with GovCare – shore up retirement income.

Question 3: Where is the evidence that a government-run economy will produce better results than free enterprise with an appropriate (but not excessive) degree of government regulation?  All the evidence we have seen tends to support the opposite conclusion.  

Granted that the current employment picture is unsatisfactory, however, and indeed we think the president sugarcoated it in his Knox College remarks. “Over the past 40 months [since March 2010], our businesses have created 7.2 million new jobs.  This year, we’re off to our strongest private sector job growth since 1999.”

It’s not enough to look at the unemployment rate (peaked at 10% in 2009; fell to 7.4% in July 2013), as a big factor in this statistical improvement has been Americans who stopped looking for jobs. Also, many of the added jobs are part time (a trend encouraged by GovCare, which does not require employers to provide healthcare insurance for employees working less than 30 hours a week).  Less than half of adult Americans currently have a full-time job.  The great Obama depression, Judson Phillips, Washington Times, 8/3/12.

Adjusted for these factors, critics say, a realistic unemployment rate would be at least 14% and arguably a good bit higher.  Moreover, the magnitude of unemployment has been officially understated for years although the gap seems to be widening.  $6.1 trillion in stimulus later, economy not bigger, faster or stronger, John Ransom,, 8/10/13.

In particular, unemployment and/or underemployment is widespread for young adults.  A record number (some 21 million) of people in this age cohort are still living with their parents because they cannot afford to buy or rent their own living quarters and – as a result – are not getting on with their lives. Young Americans left out of Obama’s “jobs recovery,”, 8/2/13.

What lessons will millions of young men and women learn as they while away their time playing computer games in their parents' basements? And this is the generation we're counting [on] to shoulder the increasing entitlement costs for the nation's elderly. With $70 trillion in current liabilities, who's kidding whom?

OK, as we don’t agree with the president’s approach, what are our ideas?

Two years ago, SAFE recommended that Americans be encouraged to take responsibility for finding employment rather than expecting others to take care of them.  To this end, the minimum wage would be repealed or frozen at the current level, unemployment compensation would be of limited duration, and disability awards would not be granted as a form of long-term unemployment compensation.  A lower unemployment rate would probably result, and while the added jobs might not be glamorous or lucrative, the people hired would be getting their foot in the door and could hopefully progress.  (Also, the need for a continuing influx of immigrants to perform jobs that Americans don’t want to do might be obviated.) Jobs: do not let the perfect be the enemy of the good, 2/14/11.

Subsequently, during the run-up to the 2012 election, we compared the jobs plans of the president and the challenger – finding both wanting - and proposed our own approach.  SAFE’s job manifesto, 10/15/12. 

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.

TO BE CONTINUED – Having run out of space and time, we’ll cover other aspects of the current economic equation (inflation, eroding level of basic government services, and rising taxes) next week.  Then some answers will be suggested to the questions posed at the outset:

Who is responsible, and what should be done about it?

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You say "Perceptions of ‘how bad is it,’ and ‘who is to blame’ may prove crucial in the budget battle expected after Congress returns to Washington in September."  But conservatives are in a bind, because if they say things are bad, the progressives will use their words as a pretext to demand more “stimulus” for the economy. – SAFE director  

We cannot expect any improvement in US economic performance until 2016, because Socialism just doesn't work! - SAFE member


8/5/13 – Will Common Core standards enhance US education?

A recurring theme in this space has been that a free market beats central planning for making economic decisions, any day of the week. 

Private firms create productive jobs, not governments.  Energy sources should be chosen based on supply and demand, not theories about what is “best” for the planet.  Healthcare subsidies are pointless because they are offset by cost increases. 

And, of particular relevance to this week’s entry, control over education should be decentralized with parents enjoying a range of options as to where and how their children are educated.  See the Education page of this website.

But assuming our bias for decentralized decision-making is justified, couldn’t there be some exceptions?  After all, many human undertakings require highly structured thinking and action.  Ask non-experts to send a rocket to Mars, fight a war half way around the world, or map the human genome – and the project may fall flat.

Perhaps a hybrid approach is needed, in which experts use “smart design” to revamp economic systems and facilities.  The result, to borrow a line about the US Navy from The Caine Mutiny by Herman Wouk, could be “master plan[s] designed for geniuses for execution by idiots.”  But to pacify the rank and file, this isn’t wartime after all, they could be given a bit of leeway in running things.

As a test case, this week’s entry will review the current push to implement “Common Core” educational standards across the country, thereby remaking the US education system.  Our analysis follows in point, counterpoint, assessment style. 

POINT: How could one argue against providing “a consistent, clear understanding of what students are expected to learn” so that “teachers and parents know what they need to do to help”?  The CC standards “are designed to be robust and relevant to the real world” and to provide “the knowledge and skills that our young people need for success in college and careers.”  All to the end that American students will be “fully prepared for the future,” and “our communities will be best positioned to compete successfully in the global economy.”  Amen!, (Mission Statement). 

Far from being a federal power grab (see Frequently Asked Questions), the CC initiative is state-led.  Indeed, the two organizations providing oversight are the National Governors Association (NGA) and the Council of Chief State School Officers (CCSSO).  Currently, 45 of the 50 states (all except Alaska, Minnesota, Nebraska, Texas and Virginia) are shown as having adopted the standards.

Other supporters include Achieve, Inc, ACT, the College Board, the National Association of State Boards of Education, the Alliance for Excellent Education, the Hunt Institute, the National Parent Teacher Association, the State Higher Education Executive Officers, the American Association of School Administrators, and the Business Roundtable.


Teachers, parents, school administrators, state leaders, and experts from across the country provided input into the development of the CC standards.  Among the factors considered were (A) the “best and highest state standards in existence in the US,” (B) the expectations of “other high performing countries around the world,” and (C) “careful study of the research and literature available on what students need to know and be able to do to be successful in college and careers.”  The standards are described as “evidence-based . . . aligned with college and work expectations . . .  [including] rigorous content and skills . . .  realistic and practical for the classroom.”


Having CC standards versus varying standards, it is said, will give all students (wherever they may live) “the skills and knowledge necessary to collaborate with their peers” in the US and elsewhere.  Also, interstate collaboration will be facilitated re (1) “development of textbooks, digital media and other teaching materials,” (2) “development and implementation of common comprehensive assessment systems to measure student performance annually that will replace existing state testing systems,” and (3) “changes needed to help support educators and schools in teaching to the new standards.”


The CC standards (by grade level, K-12) apply for English language arts and mathematics.  For now, at least, the NGA and CCSSO are not sponsoring the development of common standards for science, world languages, or the arts.


• English language arts: the CC standards require certain critical content for all students, including: (i) classic myths and stories from around the world; (ii) America’s Founding Documents; (iii) foundational American literature; and (iv) Shakespeare. “The remaining crucial decisions about what content should be taught are left to state and local determination. In addition to content coverage, the [CC standards] require that students systematically acquire knowledge in literature and other disciplines through reading, writing, speaking, and listening.” There are illustrative texts, but no set reading list.

• Mathematics: the CC standards lay a solid foundation in: (i) whole numbers, (ii) addition, (iii) subtraction, (iv) multiplication, (v) division, (vi) fractions, and (vii) decimals. “Taken together, these elements support a student’s ability to learn and apply more demanding math concepts and procedures. The middle school and high school standards call on students to practice applying mathematical ways of thinking to real world issues and challenges; they prepare students to think and reason mathematically.”


Other noteworthy statements about the CC standards include the following:


(1) The federal government was NOT involved in their development. and will play no role in their implementation.  Unlike No Child Left Behind, the standards are completely voluntary.  


(2) “The standards establish what students need to learn, but they do not dictate how teachers should teach. Teachers will continue to devise lesson plans and tailor instruction to the individual needs of the students in their classrooms.” However, the standards will “[guide] educators toward curricula and teaching strategies that will give students a deep understanding of the subject and the skills they need to apply their knowledge.”  


(3) “The National Education Association (NEA), American Federation of Teachers (AFT), National Council of Teachers of Mathematics (NCTM), and National Council of Teachers of English (NCTE), among other organizations were instrumental in bringing together teachers to provide specific, constructive feedback on the standards.”


(4) The standards “will not prevent different levels of achievement among students [emphasis added], but they will ensure more consistent exposure to materials and learning experiences through curriculum, instruction, and teacher preparation among other supports for student learning.”


(5) There are no data collection requirements.  The standards simply “define expectations for what students should know and be able to do by the end of each grade,” “The means of assessing students and the data that results from those assessments are up to the discretion of each state.”  However, “two consortia of states” – the Partnership for Assessment of Readiness for College and Career (PARCC) and the Smarter Balanced Assessment Consortium (SBAC) – “are developing common assessments.”  Down the road, it is visualized that the state-led consortia on assessment will “allow for comparison across students, schools, districts, states and nations.” 

COUNTERPOINT: Enthusiasm for the CC standards is not universal, and some states that adopted them in 2010 are having second thoughts now – especially re development of testing procedures to demonstrate compliance.  Is Common Core failing the test?  Stephanie Simon, Politico, 7/23/13.

Georgia dropped out of the testing collaboration on Monday, saying it would create its own exams instead. Pennsylvania, Alabama, Oklahoma and Utah have already withdrawn. There are strong indications that Florida and Indiana will be next. *** The Michigan Legislature has effectively nixed the new tests by blocking spending on them, though the ban may be revisited next fall. New York is officially undecided but it’s already spending heavily on alternatives. *** And analysts expect more defections to come.

One explanation for this backlash is that the CC standards are strong medicine, which some educators are resisting because they will be so tough to meet.

[The retreat] could signal a return of the mindset that prevailed last decade, with some states dumbing down standardized tests so their schools would look successful *** “To the extent that we end up with 50 different exams and 50 different definitions of proficiency, we’re right back where we started,” said Mitchell Chester, commissioner of the Massachusetts Department of Elementary and Secondary Education and a firm supporter of the new exams.

Business leaders tend to support the CC standards as a necessary step in bringing US students up to snuff.  Common Core can make America competitive, John Engler (the Business Roundtable), Washington Times, 7/22/13.

US students are falling behind their international peers in reading, math and science. But there’s hope — the state and local adoption of the [CC standards] provide the best opportunity in a generation for understanding the gap, reversing this decline and putting all students on the right path. The [CC standards] have the support of America’s business leaders, and these standards should have the support of any American who wants to ensure our country and our children are ready to compete in the 21st century global marketplace.

Other observers predict that a “set tough standards and enforce them” approach won’t work – any more than previous educational fads, of which No Child Left Behind is only the latest– because educators will find ways to sabotage the effort.  Reality hits Sunshine State “accountability,” Neal McCluskey, Cato Institute, 7/23/13.

Once again, we have to visit our ol’ buddies, concentrated benefits and diffuse costs. Put simply, the people with the most at stake in a policy area will have the greatest motivation to be involved in the politics of that area, and in education those are the schooling employees whose very livelihoods come from the system. And being normal people like you or me, what they tend to ideally want is to get compensated as richly as possible while not being held accountable for their performance.

It has also been suggested that the CC standards are not so tough anyway.  Consider these examples cited by Karen Schroeder, an experienced teacher and educational consultant.  Common Core: Statist to the core,, 7 /19/13.

Dozens of standards that are far more rigorous than [the CC standards] are free and available on the internet. States have always had access to them. When one compares TIMSS math standards for fourth graders to those of Common Core for the same grade level, it becomes painfully obvious that [the CC standards] are not the rigorous standards promised. *** Most math skills required under TIMSS at fourth grade can be found under the CC standards for fifth grade.

• [The CC standards are] peppered with standards like this one for nine-year olds in fourth grade: “Construct viable arguments and critique the reasoning of others”. Most teachers would ask themselves: What is a viable argument appropriate for a nine-year-old child? What happens when a non-conformist refuses to critique a classmate/friend? What remediation will be provided? Will that remediation help the creative child learn to use non-conformity in a productive manner? How will this standard be assessed or tested for mastery?

Here are more examples from another source.  The Common Core: A poor choice for states, Joy Pullman, Heartland Institute, May 2013. (download PDF)

• . . . former U.S. Department of Education official and mathematician Ze’ev Wurman has said Core math standards would graduate students “below the admission requirement of most four-year state colleges.” He has particularly criticized that the Core pushes algebra back to grade 9, “contrary to the practice of the highest- achieving nations,” which begin algebra in grade 8.

• University of Arkansas professor and reading expert Sandra Stotsky served on the Core’s validation committee but, along with four other committee members, refused to sign it. One of her reasons: The standards writers refused to provide evidence that research supports the Core and that it is benchmarked to international tests. She says the Core’s “hard to follow,” “low-quality” English language arts standards constitute “simply empty skill sets.”

• California recently announced the new Common Core tests mean a shift away from fill-in-the- bubble tests and toward measuring “creative thinking.”  Last time the state did that, it literally meant tests asked students to doodle and conduct group discussions. This sort of testing and emphasis has not only been shown to particularly and permanently keep poor and minority students behind, it moves education from the pursuit of knowledge to social engineering.

While rote learning can certainly be overemphasized, there are indications that the CC standards go to the opposite extreme.  Common Core’s abstract disability; the latest educational fad won’t boost American competitiveness, David Craig, Washington Times, 7/12/13.

It won’t be enough to know how many miles away the moon is from Earth. The poor student will also have to explain how that figure is derived.

• According to the Maryland Common Core “Standards for Mathematical Practice,” first-graders are expected to “decontextualize — to abstract a given situation and represent it symbolically and manipulate the representing symbols as if they have a life of their own, without necessarily attending to their referents — and the ability to contextualize, to pause as needed during the manipulation process in order to probe into the referents for the symbols involved.” [What the heck does that mean, and will it really be useful in teaching seven-year-olds?]

Last but not least, the claim that the CC standards are not a federal initiative is false.  These standards have been strongly backed by the president and Secretary of Education Arne Duncan, and their adoption by most states in 2010 was procured by using federal funds as a bribe. Common Core: the “state-led” myth,, 5/2/13,

On February 22, [2010,] President Obama in a speech revealed his intent to tie all Title I funding to this same Common Core commitment, essentially cutting off nearly all federal education funding to states that opt out. A March, 2010, DOE report stated that this cut off would occur by 2015.

In March of 2010, two months after [“Race to the Top”] applications had been received committing states to the standards, the first draft of Common Core was finally released by NGA and CCSSO.

ASSESSMENT: Proponents of the CC standards (Side A) assert that these standards are needed to reverse the slippage in US educational standards. This view has been recapped already, along with the views of critics (Side B).  Now, being as objective about the matter as we can, it’s time to consider which side is right.     

We would begin by observing that some of Side A’s claims seem disingenuous. 

# The CC standards were not developed by the states, but rather commissioned by a handful of nonprofit entities (notably the Gates Foundation, see the college-ready education strategy overview on their website with a national and/or global policy bent.

# Don’t deny it, the federal government has strongly backed this initiative using federal education funds as a bargaining chip to encourage “voluntary” state adoption of the standards.

# If the standards do not involve new data collection and testing requirements, i.e., are simply meant to provide a useful reference point, why are “two state consortia” at work to develop “common assessments?”  It seems more likely that changes in data collection and testing were contemplated from the outset, even though execution was deferred.

There seems to be a tendency to dismiss CC standard critics instead of considering their substantive points.

# Numerous organizations and segments of the population are identified as supporters on the CC standards website.   Political leaders – school administrators – teachers – parents – educational policy – higher education – industry.    Seemingly no thinking person could be against the standards or have other ideas meriting consideration.

# And then, when critics do surface, Side A tends to characterize them as ill informed or obstructionist.  Here’s a case in point.

The CC standards in Delaware and related topics were discussed at a civic forum on July 30, organized by the Delaware Education Reform Coalition and the Caesar Rodney Institute, with about 100 people in attendance.  Comments about the standards were critical, but seemed generally objective and factual.  Delaware chatter, 7/31/13.

In a subsequent opinion column, a Delaware educator said “a small group of activists in Delaware” had “tried to rally support against the standards, claiming they take away local oversight.”  Delaware Chatter, 8/2/13.

Left unsaid was that the panelists did not simply challenge the proposed use of the CC standards in Delaware (which might be seen as obstructionist); they also suggested some positive and practical alternatives.

As Jim Hosley of the Caesar Rodney Institute explained, DE per pupil costs are high by national standards yet DE public school test scores are low (even in comparison to other states, never mind internationally).  We need to do much, much better!

Teachers are not permitted to fail students (not many of them anyway), the panelists pointed out, so the CC standards would inevitably be dumbed down to accommodate the situation.  Delaware- public schools will remain mediocre unless and until they feel the heat of real competition because parents/students have effective educational options.

Another idea for improving results is to ensure that more of the educational budget gets to the classroom. As SAFE member Jack Wells explained, speaking from the audience, too much of the money is going to support administrative bloat.  Many Delawareans might find his well-documented findings of interest.

It is far from apparent that the CC standards offer the potential for a step change improvement in educational results.

We have not studied the CC standards, let alone compared them to other educational standards, but Side B has identified some significant flaws.  See the Counterpoint examples above, e.g., the gem about first graders being expected to “decontextualize” and “contextualize.”

In any case, the adoption of standards does not determine educational results – as shown by the widely varying results at schools within states with statewide standards.  To change educational results, one must necessarily change how students are taught.  Heartland, op cit. (download PDF).

A series of data analyses from the left-leaning Brookings Institution found no link between high state standards and high student achievement. “Every state already has standards placing all districts and schools within its borders under a common regime. And despite that, every state has tremendous within-state variation in achievement,” says the latest such report.

CONCLUSION: The critics are spot on.  It’s time to give CC standards the boot and get the Feds out of the classroom.


7/29/13 – The next budget battle takes shape        Read Replies

With the members of Congress clearing the decks for another recess (aka “state work period”), positions are being staked out for the budget battle that will take place after they return in September.

The issues will include whether or not to (a) raise the debt ceiling, which currently stands at roundly $16.7 trillion; (b) authorize continuing government expenditures after fiscal year 2013 ends on September 30; and (c) provide funds for GovCare implementation.

Query: what would be the best strategy for stopping, or at least slowing, the big government express?

Context: According to a WSJ/NBC poll, 4 out of 5 Americans have a low opinion of the job Congress is doing.  And while people typically give their own representatives a higher score than Congress as a whole, 57% now say “they would opt to defeat and replace every single member of the Congress if given that choice.”  The president’s poll numbers are also lackluster. Disapproval of Congress hits all-time high, David Sherfinski, Washington Times, 7/24/13.















This is not to suggest a big turnover in Congress is brewing; whatever the polls say, most of the incumbents will win.  Thus, the Cook Political Report rates only 9 of the 435 House races as “tossups” for next year. 


Among the reasons for disappointment, “a plurality of Americans cited the capital’s partisanship and the inability of Congress to get things done.”  And “67% said Republicans emphasize a partisan approach at the expense of unity, compared with 48% who said that of Mr. Obama.”  Americans are split (44%/44%, with 12% not saying), however, as to which party they would prefer to control Congress.  Washington rancor fans disapproval of Obama, Congress, Wall Street Journal, 7/24/13 (no link available).

Don’t expect impartial media coverage.  A recent political cartoon in the (Wilmington, DE) News Journal labeled Congress “Intellectually, Financially and Morally Bankrupt,” and, for good measure, blamed the Detroit bankruptcy on the auto industry.  We responded in a letter to the editor,, and here’s a better cartoon on Detroit’s problems from NetRightDaily.

As for grass roots political activity, there is an important new player.  Instead of being disbanded after the 2012 elections, the president’s formidable campaign organization was converted into Organizing for Action (OFA) - a political action group of unprecedented size and strength.

The president addressed an OFA dinner (reportedly $50K per person) in March, painting a glowing picture of great opportunities, bipartisan cooperation on immigration reform (in the Senate), and “terrific conversations” about cybersecurity and NSA surveillance. Obama: “America in 2013 is poised . . . to succeed in ways that will make us the envy of the world,” Daniel Halper, Weekly Standard, 3/14/13.

OFA’s agenda includes “gun violence prevention,” “calling out climate [change] deniers,” and “telling the truth about Obamacare.”  The presidents will be rallying the troops again tonight at another “swanky hotel” dinner.  President Obama boosts Organizing for Action, the 3-million member grassroots group, Jennifer Harper, Washington Times, 7/22/13.

Hmm, wonder how long it took the IRS to conclude that OFA qualifies as a “social welfare” organization within the meaning of IRC section 501(c)(4) – such reviews have taken years in the case of many “tea party” groups.  But judging from the “statement of purpose” posted on the OAS website, the review must have gone smoothly.

Organizing for Action is a nonprofit organization established to support President Obama in achieving enactment of the national agenda Americans voted for on Election Day 2012. OFA will advocate for these policies throughout the country and will mobilize citizens of all parties and diverse points to speak out for speedy passage and effective implementation of this program, including gun violence prevention, sensible environmental policies to address climate change and immigration reform. In addition, OFA will encourage the formation of chapters that will be dedicated at the grassroots level to this program, but also committed to identifying and working progressive change on a range of issues at the state and local level. In carrying its work, OFA will operate as a "social welfare" organization within the meaning of section 501(c)(4) of the Internal Revenue Code.


As an example of how OFA operates, consider how Senator Mark Kirk (R-IL) was pressured to vote for the Senate immigration bill. Can Organizing for Action persuade wavering lawmakers? Matea Gold & Ruth Tam, Washington Post, 7/24/13.

In short, Republicans do not have a political edge – they are clearly the underdogs.  To hold their own in the coming engagement, they must choose a promising strategy, offer better solutions than their opponents, and be prepared for a very tough fight. 

Seek concessions for a debt increase: House Speaker John Boehner et al. have used the debt limit as a lever to force spending cuts.  This gambit worked after a fashion in 2011, but it was blamed for the contemporaneous S&P rating cut of Treasury debt and for the much reviled sequester that took effect after the two sides deadlocked on how to comply with the deficit reduction agreement (the GOP wanted spending cuts & revenue neutral tax reform; Democrats demanded a “balanced” plan that included tax increases).

Last week, the speaker repeated the mantra: “We’re not going to raise the debt ceiling without real cuts in spending. It’s as simple as that.” Boehner: Obama economic push a “big set-up” for higher taxes, Russell Berman, the Hill, 7/23/13.

For its part, the administration insists there will be no haggling about the debt limit – Congress set the limit, Congress needs to raise the limit, end of story.  Treasury Secretary Jack Lew’s 5/17/13 letter to Speaker Boehner (with copies to all members of Congress) was quite firm about this and a bit condescending.

It is important to note that increasing the debt limit does not increase spending or authorize new spending; rather, it simply permits the United States to continue to honor pre-existing commitments to our citizens, businesses, and investors here and around the world. These commitments were already approved by Congress, and honoring them is not optional.

Treasury is currently using bookkeeping maneuvers to keep the debt about $25M below the approved limit.  Treasury: Debt has been exactly $16,699,396,000,000.00 for 56 days, Terrence Jeffry, CNS News, 7/15/13.

The day of reckoning can be put off for a while in this fashion, but at some point (say in October),Treasury will serve notice that Congress must either raise the debt limit forthwith or take responsibility for the government’s default on its obligations.

One might think the administration could temporarily limit outlays to the government’s not inconsiderable level of receipts, but Side A may be more interested in blaming Side B than in averting problems.  Consider the fuss about the relatively minor spending cuts that resulted from the sequester earlier this year, although the tactic backfired because Side A overplayed its hand.  E-mail tells feds to make sequester as painful as possible, Stephen Dinan, Washington Times, 3/5/13.

In a fight over the debt limit, Republicans would probably be blamed if a “government shutdown” caused an interruption of expenditures that the general public cares about.  In truth, most Americans have limited concern about abstract issues like the level of the debt or the deficit so long as they aren’t being personally affected.

At a speech on July 25 in Jacksonville, Florida, the president seemed to be spoiling for a fight over the debt limit.

But right now, we’ve seen a group of Republicans in the House, in particular, who suggest they wouldn’t vote to pay the very bills that Congress has already racked up.  That harmed our recovery back in 2011.  It would severely harm it again.  It could plunge us back into financial crisis. 

In short, holding the line on the debt limit may be a good talking point for Republicans – can you imagine: the government owes nearly 17 trillion dollars already and our opponents want to keep right on borrowing – but it does not seem like a winning issue. They might do well to hang their hat on another peg.

Seek concessions for spending authority: Instead of relying on the debt limit, why not insist on specific spending cuts as a quid pro quo for extending the government’s appropriations authority (currently scheduled to expire on October 1)?

Such spending cuts could be embodied in an agreed budget for the coming fiscal year, as we suggested nearly three months ago after comparing the budget proposals of the House, the Senate, and the president.  A status report on the fiscal problem, 5/6/13.

The next step would seem to be agreeing on a budget for fiscal year 2014 (which will begin on October 1).  With less than five months left to get the job done, it is time for our nation’s political leaders to get to work. [Eight SAFE observations followed, including:  “It is now time for some serious work on the spending side of the equation, including entitlements, and more tax increases would represent an undesirable distraction.”]

Budget hawk David Walker has offered a somewhat similar vision (except he feels further tax increases are essential) – and cautioned that the political window of opportunity before attention is diverted by upcoming elections will not remain open much longer.  Why Obama must prevail for a “grand bargain,” David Walker, Reuters, 6/21/13.

We should . . . lift the debt ceiling through the 2014 election, and eventually replace it with statutory debt-to-GDP targets — and a constitutional amendment establishing a debt-to-GDP “credit card” limit. What makes good sense, however, is to link a grand bargain framework to the current negotiations over next year’s appropriations.

Instead of a public discussion of budget differences, however, there was only fruitless haggling about the procedural ground rules.   GOP pushes for pre-conference agreement on 2014 budget, David Drucker, Washington Examiner, 5/24/13.

Budget reconciliation before the fiscal year begins on October 1 now appears out of sight.  The principals are working on specific spending bills and planning for a “continuing resolution” to keep the government going.   DC fall preview: Shutdown, debt limit fight, Manu Raju & John Bresnahan, Politico, 6/11/13.

House Republicans and Senate Democrats remain more than $90 billion apart on 2014 discretionary spending, with prospects for a House-Senate conference on the budget dwindling daily. Obama has issued veto threats for two spending bills already approved by the House, and the Appropriations panels in both chambers know many of their bills might not ever reach the floor. The fiscal year ends on Sept. 30, but both sides are already preparing for a continuing resolution to fund the government into next year.

Little has changed in recent weeks, and the president is still threatening to veto House spending bills if, by some odd chance, they make it through the Senate – thereby maximizing the number of “victims” if a budget impasse should develop.  Accommodating failure, Washington Times, 7/24/13.

The president drew a line in the sand on Monday when he threatened to veto all House-passed appropriations bills because the House won’t spend enough. He singled out the transportation-funding bill for its parsimony with mass-transit subsidies, Amtrak and the ban on a federal contribution to California’s $70 billion (and counting) “high-speed” train to nowhere. *** Were the transportation-funding bill to become law . . . the Department of Transportation would stay open during a government shutdown.

It’s all very well to say Republicans should grow a spine, as the Washington Times editorial goes on to suggest, but a battle over overall spending levels would not be all that different – politically speaking – than a debt ceiling battle.  In either case, a government shutdown could backfire unless the GOP was seen as fighting for something that the public genuinely cares about. 

Defund GovCare implementation: We have previously rejected this idea as a pipe dream, even after the administration itself postponed implementation of an important part of the law.  Surprise: GovCare employer mandate postponed until 2015, 7/8/13

. . . GovCare is not going to be repealed, as the Republicans don’t control the Senate or the White House, so the only plausible scenario is that this law will be implemented – ex the employer mandate – before the 2014 mid-term elections.

Nothing seemed to change when the House voted to delay (A) the employer mandate (which the administration lacked legal authority to postpone), and (B) the individual mandate.  Surely these bills would be dead on arrival in the Democrat-controlled Senate.

There was some Democratic support in the House, however, and the president saw fit to comment.  House votes to delay individual Obamacare mandate, Mary Katharine Ham,, 7/17/13.

President Obama was none too happy about action in the House today, tweeting from @barackobama, “Instead of reforming #immigration, the House today is trying to keep millions of Americans from getting better health care at a lower cost.”

Some Senate Republicans have now pledged to block any legislation providing funds for GovCare implementation.  The aim would be to defeat a cloture vote, which under Senate rules would require 60 votes, so debate could not be cut short. For Senators Lee, Cruz, Paul, Rubio, et al. to succeed, they would need at least 41 senators on board.  Several of the 45 Republican senators are opposed, including Senators McCain and Coburn; Senate Minority Leader McConnell has reportedly not taken a position yet. Mike Lee pushing to block stopgap federal spending bill unless Obamacare funding is eliminated, Susan Ferrechio, Washington Examiner, 7/23/13.

Over sixty GOP House members have taken a similar position.  Republicans pen Obamacare letter to John Boehner, Jake Sherman & John Bresnahan, Politico, 7/25/13.

Is this effort a smart idea or are the legislators concerned starting a battle they can’t possibly win? Unsurprisingly, opinions on the subject vary.

#Senator Lee acknowledges that no one wants a shutdown, but if one resulted he says Democrats would be blamed for refusing to accept a delay in implementing a program that is not ready for show time.  Mike Lee pushing, op cit.

We are not for a government shutdown. We don’t want that, nor do we think Harry Reid would take the government into a shutdown posture just to defend a law that the president has already told us is not ready to be implemented.

#Senator Ted Cruz sees a wait and see strategy as ensuring defeat.  Cruz: Repeal Obamacare now or it will be here forever, Greg Richter,, 7/24/13.

"If we want to stop this train wreck from hitting hard-working American families, the time to do so is now," the freshman from Texas said Wednesday on Fox News Channel's "Special Report." President Barack Obama desperately wants the exchanges and subsidies in place by January, Cruz said, so the administration can "get people hooked on Obamacare so it can never be unwound."

#Senator Tom Coburn, no fan of GovCare, contends the issue was sealed by the outcome of the 2012 elections.  Coburn: Government shutdown over Obamacare would destroy the GOP, Jonathan Easley, The Hill, 7/26/13.

The worst thing is being dishonest with your base about what you can accomplish, ginning everybody up and then creating disappointment. It’s a terribly dangerous and not successful strategy.

#Defunding will never happen, says one writer at the Washington Examiner, and everyone knows it. Not enough votes in the Senate – House move would be suicidal – most of the implementation money is in the mandatory budget anyway, as the Democrats arranged when the GovCare bill was being written.  No, the GOP is not going to defund Obamacare, Byron York, Washington Examiner, 7/25/13.

. . . there's a difference between killing proposed legislation and stopping a law that is already in effect. And Republicans have run out of ways to stop Obamacare. The only way that will happen now is if the law proves to be a disaster that even its supporters abandon. Like everyone else, Republicans will just have to wait to see what happens.

#Another writer at the Examiner paints a different picture.  A defunding vote would fall short right now, but support could grow - latest Fox News poll shows majority support for GovCare repeal – no Republicans voted for passage of GovCare – knuckling under now would “risk confirming tea party critics who accuse [Republican leaders] of not standing for anything [except] protecting their positions and perks.”  Why won’t Republicans defund Obamacare?  Conn Carroll, Washington Examiner, 7/26/13.

In  a discussion at the SAFE board meeting on July 25, we concluded that a serious effort to defund GovCare implementation would be worth the risks.  Here’s why:   

# This is bad legislation, a step in the wrong direction, which would inflate healthcare costs and lead to de facto rationing of medical care.  Moreover, GovCare would leave tens of millions of American residents without healthcare insurance; demands for a “single payer” system would soon follow.  The GovCare muddle, 12/3/12.  

# If the public opinion polls about GovCare are of any value, Americans should be receptive to the foregoing arguments.  Perhaps they would feel Side B was trying to look after their interests for a change versus simply engaging in political posturing.

# Other strategies, e.g., arguing about whether or not to raise the debt ceiling, have no emotional punch – so whatever their intrinsic merit, they will not work.

A closing thought: If people want to accomplish anything in this world, there comes a time when they must make a commitment.  Cross the Rubicon – set sail for the new world - sign the Declaration of Independence – or let the world know (to borrow a line from Network) that “I’m mad as hell, and I’m not going to take it any more.”

With the American republic and free market system hanging in the balance, this might be a good time to speak up.  The future, dear readers, is in your hands.

*        *        *        This Blogs Replies        *        *        *

I agree that most Americans aren’t studying about the debt limit, but they are concerned about GovCare and they also think welfare handouts are out of control. A home health aide recently commented to me and my wife, for instance, that "these young girls get themselves pregnant and then think someone else should take care of them while they sit at home watching TV and living on food stamps." – SAFE member

The debt ceiling may not be an issue Americans pay attention to, but it should be. People should realize that IF they pay Federal income taxes their average share of the tax liability is currently running $242,000. [That’s $16.7 trillion divided by 69 million tax returns in the top 50% of returns, which pay almost 100% of the individual income tax collected.] We need to push the debt more. – SAFE director


7/22/13 – Distractions from the failings of government        Read a reply

How will smaller, more focused, less costly government ever be achieved if government action is constantly being urged to solve problems that don’t exist, have been greatly exaggerated, or should be addressed in other ways?

We believe the answer is “it won’t,” for which reason Americans need to get their priorities straight.  Just because government action is sometimes needed, that does not mean the government should attempt to run everything.  It would seem better for “we, the people” to retain some responsibility for running our own lives.  Ronald Reagan once put the point as follows (

We've been tempted to believe that society has become too complex to be managed by self-rule, that government by an elite group is superior to government for, by, and of the people. Well, if no one among us is capable of government himself, then who among us has the capacity to govern someone else?

As a case in point, consider the national outcry over the jury verdict that George Zimmerman was “not guilty” of murder, i.e., acted in self defense when he shot and killed Trayvon Martin. 

Some observers view the Zimmerman case as all about race.  They claim or imply that the defendant acted improperly and was allowed to get away with it, for which reason something must be done to provide “justice for Trayvon.”  Among the suggestions: (1) federal criminal charges against Zimmerman based on alleged racial animus, (2) new restrictions on ownership and carrying of firearms, and/or (3) reconsideration of the “stand your ground” laws that are on the books in Florida and elsewhere.

But the narrative of an innocent black teenager - on his way back from a convenience store, singled out by racial profiling, blown away by an armed neighborhood watch volunteer - never rang true.  Trayvon Martin started confrontation, Zimmerman lawyer says, Sari Horwitz, Washington Post, 3/26/12.

And at this point, following an exhaustive investigation and criminal trial, it is inexcusable to keep reverting to the original narrative while ignoring evidence – e.g., Zimmerman’s broken nose and injuries to the back of his head - that supports different conclusions.

Also noteworthy, although they were not introduced at trial, are (i) text messages on Martin’s cell phone that made him sound prone to violence, and (ii) evidence of previous criminal activity.

#Zimmerman’s attorneys: texts show Trayvon Martin “hostile” [on] day of shooting, Steve Almasy, CNN, 5/28/13.

The filing said the texts were mostly with "Witness 8," and the messages showed Martin and the friend were "hostile and angry with each other at various points throughout the day." Martin, 17, was talking on the phone with Witness 8 when he and Zimmerman met as Martin walked to the house of his father's fiancée after a trip to a nearby convenience store. *** Zimmerman's attorneys say the court should also consider text messages sent before that day, because they establish Martin's marijuana use and fights he had been involved in.

#How a Miami school crime cover-up policy led to Trayvon Martin’s death, Robert McCain, American Spectator, 7/15/13.

The February 2012 shooting death of 17-year-old Trayvon Martin might never have happened if school officials in Miami-Dade County had not instituted an unofficial policy of treating crimes as school disciplinary infractions.  Revelations that emerged from an internal affairs investigation explain why Martin was not arrested when caught at school with stolen jewelry in October 2011 or with marijuana in February 2012. Instead, the teenager was suspended from school, the last time just days before he was shot dead by George Zimmerman [while staying at the home of his father’s girlfriend in Sanford].

The innocent victim narrative lives on, however, as the payback proposals would make no sense without it.  Let’s consider each of these proposals in turn.

Federal charges – Under the 5th Amendment (made applicable to the states by the 14th Amendment), no person may “be subject for the same offense to be twice put in jeopardy of life or limb.”  The words could be clearer, e.g., what if the proposed penalty is incarceration rather than “life or limb,” but they are construed as prohibiting “double jeopardy.” 

If a defendant is acquitted in a criminal case, the result cannot be appealed because that would result in double jeopardy.  Similarly, a government may not – say after becoming aware of new evidence – bring a second criminal case based on the same offense.

Suppose, however, that the Department of Justice (DOJ) charges a defendant who has been acquitted in a state case with an alleged violation of federal law.  There is a well-known precedent for doing just that. The trials of Los Angeles police officers in connection with the beating of Rodney King, Doug Linder, 2001.

In 1991, LAPD officers captured a black suspect who was suspected of being “dusted” with PCP.  An amateur videotape suggested misconduct, and the officers were prosecuted for alleged use of excessive force.  The defendants won a change in venue, and an all-white jury in Simi Valley acquitted them.  Rioting in Los Angeles resulted in 54 deaths, hundreds of injuries, and over $1 billion in damage.  The DOJ brought civil rights charges, and this time the officers were tried in Los Angeles and convicted.

Could a similar approach be used in the Zimmerman case?  From a technical standpoint, probably so, and – without committing as to what decision will be made – the attorney general has stated that the DOJ is studying the matter.  Eric Holder says Justice will fight “stereotypes” that lead to violence, Susan Crabtree, Washington Examiner, 7/15/13.

Perhaps revealing the decision he would like to make, Holder has at least for now blocked a request to return Zimmerman’s handgun from the trial evidence.  Eric Holder steals George Zimmerman’s gun, Emily Miller, Washington Times, 7/18/13.

If the DOJ did bring civil rights charges, however, they might be tough to prove.  Previous investigation by the FBI (among others) found no evidence of racial animus on Zimmerman’s part or even racial profiling.  It was thought that Zimmerman might have considered Martin suspicious because the latter was wearing a hoodie in 90-degree weather.  Trayvon Martin’s family has little chance for recourse in court, Jerry Seper & Jeffrey Anderson, Washington Times, 7/15/13.

Never say die, and the DOJ has established a tip line that may possibly find new support for Zimmerman’s alleged racial animus.  DOJ wants your tips on Trayvon civil rights, Chelsea Schilling,, 7/20/13.

But at this point, it seems unlikely that the DOJ will decide to file civil rights charges and risk a highly embarrassing defeat.  Ten post-Zimmerman lessons, Mark Davis,, 7/19/13.

Holder and President Obama would love nothing more than to enjoy the heroism of a federal civil rights crucifixion, but even in their zealous fog, they know it would fail, and they do not want that humiliation.  Besides, they can throw out incendiary platitudes without the burden of actually prevailing in court.

Notice how the president has positioned himself on this topic, ostensibly promoting national healing and downplaying the likelihood of federal charges yet keeping the controversy alive.  His single-minded focus on the ordeal of Trayvon Martin’s family (what about the ordeal of the Zimmerman family, both legal and otherwise, e.g., death threats) and the perceptions of the African-American community could be seen as inappropriate for the elected leader of the nation.  Transcript of unscheduled appearance at White House press briefing, 7/19/13.

Thoughts and prayers for Trayvon Martin family – lot of pain around what happened here in the African-American community, His personal sense of identification with Trayvon Martin, who “could have been me 35 years ago.” 

Trial was OK, including instructions to the jury that “reasonable doubt was relevant” – that’s how our system works – but the president went on to cite “a history of racial disparities in the application of our criminal laws, everything from the death penalty to enforcement of our drug laws.”

The demonstrations and vigils and protests are understandable, but “if I see any violence, then I will remind folks that that dishonors what happened to Trayvon Martin and his family.”

Sense that “if a white male teen was involved in the same kind of scenario . . . both the outcome and the aftermath might have been different.”

And our African-American boys need to be given “the sense that their country cares about them and values them and is willing to invest in them.”

As to what the president indicated he would say if the demonstrations turned ugly, it should be noted that:

1. The prime aim of the demonstrations is not to promote racial understanding, it is to press for civil rights charges against George Zimmerman in hopes of reversing the result of the murder trial. Across the nation, vigils will call for “Justice of Trayvon,” Devin Kelly, LA Times, 7/20/13.

2. It has not reached the Rodney King case level by any means, but some violence has occurred already – and there could be more. Honoring Trayvon with beatings, muggings, burglary and arson, Tad Cronn,, 7/17/13.

What we've seen in the days following the Zimmerman verdict isn't even properly termed protests, though there has been some sign waving. Mostly, it's been just roving mobs of people -- not necessarily black people either -- with a sort of aimless generalized anger at civilization. They are like human grenades being rolled down a hill, their pins having been pulled and their targets selected by someone else.

3.  Some organizers have a track record of sowing unrest about other issues. Trayvon Martin protest leaders revealed, Aaron Klein,, 7/17/13.

Dream Defenders, the main group that has been agitating the protest movement surrounding the Trayvon Martin case, was spawned by activists employed by a who’s who of the race-hijacking radical left. From the socialist-oriented SEIU union to ACORN to Occupy to a litany of George Soros-funded organizations, the deep connections behind Dream Defenders raises questions about the motivation of an organization that claims to be a grassroots effort working to oppose racism.

So would a civil rights case truly lessen racial divisions?  A far more likely result would be to promote disrespect for the rule of law, which has already been assaulted repeatedly in this case.  Is this still America? Thomas Sowell,, 7/16 /13.

The only real heroes in this trial were the jurors. They showed that this is still America -- at least for now -- despite politicians who try to cheapen or corrupt the law, as if this were some banana republic. Some are already calling for a federal indictment of George Zimmerman, after he has been acquitted.


New restrictions on guns:  As previously discussed, SAFE is agnostic about new gun controls but not inalterably opposed to them.  Understand what is proposed – weigh the pros and cons – make a decision. Will another fiscal year start without a budget? 4/22/13

Policy choices cannot be made on a case-by-case basis.  The question is not what rule(s) would have produced the best outcome in the Zimmerman/Martin case, but rather what rule(s) would produce the best result if applied across the board. 

With all due respect, the suggestion that Martin’s death demonstrates the need for new gun controls is unconvincing.  One could equally well argue that the threat posed by young men like Martin demonstrates the need to carry weapons for self-defense.  Barack Obama: Honor Trayvon Martin with more gun controls,, 7/14/13.

And even though lives may be saved in some cases, there is plenty of evidence that tight restrictions on the ownership and carrying of guns do not save lives overall.  United States murder capital is a case study in bad public policy, Reno Varghese,, 7/17/13.

. . . Chicago has the strictest gun laws in the country, and one of the highest murder rates to show for it. Literally every move made by Chicago’s government has exacerbated the violence that plagues the city and one can only hope that finally the city leaders will understand that they themselves are the problem. Otherwise, America will be forced to subsidize a martial presence in Chicago’s worst neighborhoods in perpetuity.  

Some observers say the Chicago gun laws have been undermined by the importation of guns from other jurisdictions.   NBC: Chicago murder rate high because gun rights still exist elsewhere, Phil Hodges,, 2/4/13.

But even in countries with nationwide gun bans, such as the UK and Australia, gun violence remains a problem.  Why?  Law abiding citizens are disarmed, leaving an open field for criminals with illegal guns.  Two cautionary tales of gun control, Joyce Lee Malcolm, Wall Street Journal, 12/26/12.

Stand your ground laws:  A good deal has been said about Florida’s “stand your ground” law, but this law was not much of a factor in the Zimmerman case.  Why would it matter that the defendant had no legal duty to retreat when – pinned to the ground by a taller, younger and more athletic adversary – he was incapable of doing so?

No matter, the Department of Justice will reportedly look into the issue.  Eric Holder tells NAACP he will examine states’ “stand your ground laws,” Annie Yu, Washington Times, 7/16/13.

“It’s time to question laws that senselessly expand the concept of self-defense and sow dangerous conflict in our neighborhoods,” Mr. Holder said, winning repeated applause from the NAACP delegates. “These laws try to fix something that was never broken.”

Similarly, Senator Dick Durbin (D-IL) has scheduled a September hearing.  Senate Judiciary Committee to examine state “stand your ground” laws, Justin Sink, The Hill, 7/19/13.

"September’s hearing will examine the gun lobby’s and the American Legislative Exchange Council’s influence in creating and promoting these laws; the way in which the laws have changed the legal definition of self-defense; the extent to which the laws have encouraged unnecessary shooting confrontations; and the civil rights implications when racial profiling and 'stand your ground' laws mix, along with other issues," Durbin's office said in a statement.

And the president weighed in on SYG laws in his previously cited remarks at the 7/19/13 White House press briefing. Transcript, supra. 

. . . if we’re sending a message as a society in our communities that someone who is armed potentially has the right to use those firearms even if there’s a way for them to exit from a situation, is that really going to be contributing to the kind of peace and security and order that we’d like to see?

Fine, let’s consider the matter – although no quick changes appear likely.  Four reasons why “stand your ground” laws won’t be repealed, Sean Sullivan, Washington Post, 7/19/13.

One of the reasons SYG laws have come into vogue, we suspect, is to counter efforts being made to water down traditional self-defense concepts.  Consider the following examples:

#Proponents of strict gun controls seem to be persuaded that government action beats self defense, even if the police don’t happen to be on the scene at the crucial time. The liberal God delusion, Michael Medved, Daily Beast, 12/28/12.

Gun-rights enthusiasts insist that the best security for law-abiding citizens comes from placing formidable firearms into their hands; gun-control advocates believe we can protect the public far more effectively by taking guns away from as many Americans as possible. In other words, conservatives want to address the threat of gun violence by giving individuals more power while liberals seek to improve the situation by concentrating more power in the hands of the government.

#Robbery victims shooting attackers called “alarming trend,”, 2/12/13.

. . . two [Detroit] teenagers thought it would be a good idea to rob the 70 year old coach of a girl’s high school basketball teams at Martin Luther King Jr. Senior High School. The coach was escorting two of the girls to their cars in the school parking lot when the teens, 15 and 16 years of age, confronted the coach, grabbing him by a chain necklace he wore and sticking something in his chest that he assumed was a gun.  The girls ran away as the coach was being attacked.  The boys failed to realize that the coach is a reserve police officer who was armed at the time.  He managed to get his gun and shoot both teens.  The 16 year old died from his wounds and the 15 year old was taken to the hospital in serious condition.   The police are still reviewing the shootings, but all indications say that it was a clear case of self-defense.

#Meth addict accused in burglary sues 90-year-old homeowner [who he had] shot in the jaw, Fox News, 10/26/12.  (This one sounds unbelievable, but an attorney prepared Cutrufelli’s complaint, and a judge did not immediately order it dismissed.)

Leone [a 90-year-old veteran] said he was able to wriggle his hands loose before convincing Cutrufelli to let him use the bathroom. He then grabbed one of the five handguns from his bedroom and spotted Cutrufelli in his closet. Cutrufelli, in turn, allegedly fired his gun, striking Leone in the jaw. Leone then fired back before Cutrufelli wrestled his gun away and put the gun to Leone’s head and pulled the trigger — but no bullets remained in the gun.

Enough said about SYG laws, we think, at least for now.  Maybe our government leaders should get back to the real problems, like balancing the budget, reforming the tax system, and such.

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The president successfully played the race card several times so why not continue? What does he have to lose? The conservatives won’t support him anyway, and libs are all on board with this. – SAFE director 

Shelby Steele, a black man, writing in the WSJ says the anger of Jackson, Sharpton, et al., over Zimmerman's acquittal isn't about Trayvon Martin but about the fact the jury thumbed their noses at these supposed civil rights leaders.  He says they are irrelevant and are living off the fumes of the glory days of the movement in the 60's.  They are, of course, trying to make this a racial matter, yet one juror said race was never even mentioned in the jury’s hours of deliberation.  Now Sharpton is bleating about how he personally arranged for dozens of demonstrations against the verdict across America; proud of his handiwork. – SAFE director


7/15/13 – Reflections on a GOP survey         Read Replies

Let’s do something a bit different this week, and work though a survey/fundraising request being used by the National Republican Congressional Committee.  Setting priorities is inherently judgmental and several questions cannot properly be answered “yes” or “no,” so this hypothetical response to the NRCC survey will include some qualifications and explanations.

The goal is to test our own thinking by prioritizing the issues that are enumerated and evaluating the solutions suggested by the ensuing questions. If some good input for Republicans results, that’s fine, and this analysis will also be available for members of the other party if they are interested.

1. Please rank in order of importance (1-10) the issues you would like Speaker John Boehner to focus on in 2013.

Expand energy production

Eliminate excessive government red tape

Repeal Obamacare & lower healthcare costs

Cut spending

Reform the tax code

Exercise vigorous oversight of the administration

Keep national security strong and prepared

Secure the border & enforce our laws

Improve access to quality education

Make Congress more open & accountable

Ban taxpayer funding of abortions

Other (name the issue)

Our ranking of the top 10 issues is shown below, but we’d like to explain the underlying reasoning as well.

A. Cut spending – The goal should not be simply to reduce spending in the aggregate, which implies a more or less equal value for all government programs, but to eliminate wasteful programs and activities while adequately funding the programs that are truly needed.  Many opportunities for targeted savings exist.  See, e.g., the “Prime Cuts” list of Citizens Against Government Waste. 

This year’s version contains 557 recommendations that would save taxpayers $580.6 billion in the first year and $1.8 trillion over five years.

There are deep divisions in Congress as to how to comply with the sequester (basically across the board) cuts that went into effect earlier this year.  House, Senate pursue conflicting budget priorities,, 7 /9/13.

The GOP-controlled House and Democratic-led Senate are acting as if [they were] on different planets, with the Senate acting as though deep automatic spending cuts don't exist and the House promising even more punishing cuts to domestic programs while restoring cuts to the Pentagon.

The discussion would grow even more intense, no doubt, if Congress set out to balance the budget as opposed to reducing the deficit to a supposedly “sustainable” level.  SAFE letter to all members of Congress, 6/3/13.

B. Eliminate excessive government red tape – Not only is this goal vital, but it is also urgent.  Numerous job-destroying regulations are on the administration’s radar screen, and now is the time to block them. EPA set to unveil host of new regs, Julien Hatten, The Hill, 7/7/13.

Many existing regulations and policies should be rolled back as well.  For instance, the Endangered Species Act has resulted in the curtailment of logging operations.  Economic losses have resulted, and also a dangerous surge in forest fires. The war for economic and energy freedom is on, Marita Noon,, 7/7/13.

C. Reform tax code – Everyone agrees the tax code is long and complicated, but opinions vary as to how it should be reformed.  For all their merits, a flat tax or the FairTax would require that the existing system be scrapped.  It might be more practical to focus on a major overhaul of the current tax law, as exemplified by our SimpleTax proposal.  SAFE, Taxes page.

Many Americans would like to retain this, that or the other tax preference, but such demands must be resisted if tax reform is to amount to anything beyond the type of tinkering that has produced the current tax system.  Two congressional leaders should be commended for their efforts to get a meaningful reform effort started.  Chairman Max Baucus [Senate Finance], Dave Camp [House Ways and Means] hit the road to sell tax reform, Kelsey Snell, Politico, 7/8/13.

Tax reform should be revenue neutral in design (elimination of tax preferences offset by reducing tax rates); however, additional revenue could be expected due to the resulting boost to the economy.  The object should not be to make the tax system more progressive or reduce the number of taxpayers on the income tax rolls, but rather to make the system simpler, easier to comply with & administer, and economically neutral.  Some compromises may be needed to reach an agreement, of course, but please do not give away the store! A GOP game plan for tax reform, [former Senator] Phil Gramm, Wall Street Journal, 7/10/13 (link not available).

Before the debate begins . . . Republicans need to set out the principles that represent our values.  In my 24 years in the House and Senate, I never wrote a bill that represented a 100% statement of my values, but I always found it important to know where the North Star was as I tried to navigate through the swamp.

D. Repeal Obamacare & lower healthcare costs – If this could be done, it would head off a lot of future spending (and also reduce “red tape” and reform taxes).  But can the president’s signature bill really be blocked, when the US Supreme Court has cleared it (with a caveat on Medicaid) and the program is only months away from a full rollout?

Do what you can about Obamacare, e.g., by demanding a year’s delay of the individual mandate now the administration has itself delayed the employer mandate, but also work on other major opportunities such as restructuring Medicare, block granting Medicaid & food stamps, and eliminating corporate welfare programs. 

E.  Exercise vigorous oversight of the administration – There are many matters that need to be investigated, including Fast and Furious, the Benghazi attack & aftermath, IRS abuses, the AP phone records probe, and NSA surveillance.  Keep at it, but don’t spread your efforts too widely and wind up without any concrete results.  

F.  Keep national security strong and prepared – Like any government operation, the armed forces should not be exempt from budget discipline.  But maintenance of a strong military is essential to national security, particularly given present uncertainties in the international situation, and some cuts already made may need to be reconsidered.  Chuck Hagel warns Congress to stop defense budget cuts, Huffington Post, 7/10/13.

G. Secure the border & enforce our laws – For all its cost, length and complexity, the recently passed Senate bill would not stop illegal immigration.  Militarizing the US/Mexican border cannot solve this problem, and it’s hard to see the need for an array of new legal protections for those engaged in unlawful behavior.   Here are three steps that are needed: improve the legal immigration system, establish a robust guest worker program, and make the E-Verify program effective within three years (not 10 years or more).  Immigration reform, June 2013.

H. Expand energy production – The US economy is dependent on economical and reliable energy production.  Government has a legitimate role in regulating pollution and safety hazards, but it should not be involved in supporting any particular energy source.  Investment decisions should be left to the private sector, and to that end the government needs to rethink regulations or policies that are inhibiting energy investments. 

A prime example would be putting a stop to the administrative push to reduce carbon emissions.  The theorized link between these emissions and global temperatures remains unproven, the global warming trend has stopped in recent years, and the volume of US carbon emissions has been declining due to market forces.  Obama’s global-warming folly, Charles Krauthammer, Washington Post, 7/4/13.

Another important step would be clearance of the long-studied Keystone Pipeline so crude oil from western Canada can be safely and economically transported to Gulf Coast refineries.  A recent oil train disaster demonstrates the hazards of over reliance on surface transportation.  Keystone safety: Quebec tragedy underscores why we need the pipeline, Washington Times, 7/11/13.

Relaxation of drilling and exploration restrictions for areas (on shore and off) under federal control is also needed, which could not only boost domestic oil and gas production but generate welcome royalty and tax revenue for the federal and state governments.   Nice try: Obama released restrictive new energy plan, Kate Hicks,, 7/2/12.

I. Make Congress more open & accountable – This issue is important and deserves continuing attention.  Our biggest gripe has been attempts to ram through omnibus legislation with inadequate time for review and debate, notably the Affordable Care Act (Obamacare), Dodd-Frank (GovFinance), and now the immigration reform bill that was cobbled together in the Senate. 

Proposed changes in Senate rules to end the possibility of filibustering administrative appointments would be another step in the wrong direction. Harry Reid, Democrats threaten, again, to nuke filibuster, Washington Examiner, 7/11/13.

J. Improve access to quality education – While education is vital for the nation’s future, we believe this function is best managed at the local and state level with a minimum of federal involvement.    

The vision of national educational standards is a trap, more likely to foster uniform mediocrity than high achievement.  Far better to offer a range of options and give students and their parents some say in how things are done.  SAFE, Education page.

Let’s have a range of educational options for students to choose from: public schools, private schools (for those who want and can afford them), charter schools (public funded, but with some flexibility to experiment), voucher programs (expanding access to private schools), and home schooling.  Even if most students continue to attend public schools, a perceived need to compete for students will give the public schools an incentive to deliver better results.

The Common Core curriculum, reportedly adopted by 45 of the 50 states since 2009, would purport to prescribe not only the content of what is to be taught but also how students are supposed to learn.  Several states are already rethinking this program, which could result in a good deal of needless confusion.  Common Core’s abstraction distracts; the latest educational fad won’t boost American competitiveness, David Gray, Washington Times, 7/12/13.

2. Would you say that the current federal tax code is fair and easy to understand? No.

3.  Do you agree with the Republican position that lower tax rates promote economic growth and job creation? All other things being equal, yes, but taxes are needed to cover agreed government outlays and it’s not true that tax rate cuts will invariably produce more revenue.

4.  Do you believe that closing loopholes and lowering overall tax rates would help bring home jobs that have gone overseas in recent years? These actions are the essence of a much needed tax overhaul, but they will not necessarily bring back jobs that have gone overseas.

5.  Do you agree that the tax code should be simple enough to allow most Americans to file returns without the assistance of a lawyer or accountant? Yes. In fact, they probably shouldn’t even need TurboTax.

6. Do you believe that federal bureaucrats should have the power to issue major regulations without the approval of the people’s representatives in Congress? No, but let’s be honest.  Congress has been at fault in delegating too much power to regulate in the first place.  Thus, 20 thousand pages of regulations have reportedly been issued under Obamacare since 2010 and the applicable regulations are still being written.

7.  Do you share President Obama’s view that government can create economic growth by redistributing huge amounts of money through government programs and “stimulus” projects? If that is the president’s view, we do not share it.

8.  President Obama has said Washington DOES NOT have a spending problem.  Do you agree? No.

9.  Do you agree that spending cuts – not tax hikes – are the best way to pay down the debt? Spending cuts – not tax hikes – are the only effective way to reduce the deficit (and hopefully balance the budget).  No one in Washington is talking about repaying debt right now. 

10.  Do you agree that the debt limit should be used as an action-forcing mechanism to achieve real spending cuts? This is a blunt instrument that does not work very well.  If Republicans are serious, they need to find better strategies.   

11.  Do you support House Republicans’ landmark ban on earmarks? Not sure.  Has it really made any difference?  Consider all the “pork” that was inserted into the Superstorm Sandy relief bill. 

12.  Do you believe our $16 trillion [nearing $17 trillion] debt is a threat to our children and grandchildren? Yes, particularly since this figure is projected to grow substantially over the next decade under either the House or Senate budget.

13.  Do you agree that Members of Congress shouldn’t be paid if they fail to pass a budget?  In principle, yes, but the idea probably won’t work.  Consider that both houses have passed a budget for Fiscal 2014 – so the requirement has been technically met and all members can continue to be paid – yet Congress still has not agreed on a budget. 

14.  Do you support House Republicans’ reform efforts to save critical programs like Social Security and Medicare from bankruptcy – and protect seniors from benefit cuts?  The Medicare proposal reflected in the House budget is a step in the right direction, but it needs to be phased in more quickly.  We are not sure what Social Security reform efforts have been proposed recently, by either side, other than a technical adjustment to the cost of living adjustment procedure that would supposedly measure inflation more accurately.

15. Should Republicans continue to press the Obama administration to provide a full and complete accounting of its response to the terror attack in Benghazi? Yes.

16.  Should the administration toughen sanctions against Iran to prevent them from acquiring nuclear weapons? Sanctions will not stop the Iranian nuclear program, especially if they have to be negotiated with China and Russia.  Either the US will use military force or Iran will wind up with nuclear weapons.  We would support whatever decision is made, but it’s up to the president and Congress to level with the American people and propose a realistic course of action.

17.  Should captured foreign terrorists be given the same Constitutional rights as American citizens? No.

18.  Do you support Americans’ Second Amendment right to keep and bear arms? Yes.

19.  Should the federal government work closely with state and local officials to stop border violence and enforce federal immigration laws? Yes, but we also think it’s time to end the “war on drugs,” which has been the main cause of border violence in the first place.

20.  Do you support House Republicans’ efforts to post major legislation on-line at least three days before a vote? Yes, but it’s also important to stop cranking out monster bills that no one is likely to read within the three-day window.

21. Do you support House Republicans’ efforts to require all legislation to cite its authority in the Constitution? No, as this will degenerate into a perfunctory exercise.

22.  Do you favor the Keystone Pipeline as a means of creating jobs and reducing energy costs? Yes, for these reasons and also in the interests of good relations with Canada.  Note that the only reason for State Department review is the international ramifications of this project.

23. Should the federal government expand domestic energy production as a means of creating jobs and reducing energy costs? It’s not the federal government’s job to expand energy production.  The government should cut unnecessary “red tape” and let the private sector do the rest.

24. Has Obamacare driven up the cost of healthcare in your community? We don’t have hard evidence at this point, but anticipate that Obamacare will raise costs, reduce service levels, or both.

25. Do you believe the government should force every individual and family to purchase health[care] insurance or pay a tax? No.

26.  Do you support full repeal of Obamacare and all its tax hikes and burdensome mandates? Yes.

27.  Should House Republicans exert vigorous congressional oversight to expose the real costs of Obamacare? Yes.

28.  Do you agree that any legislation to replace Obamacare should be focused on lowering costs? The focus should be on empowering patients and their healthcare providers to evaluate cost/benefit tradeoffs.  Lower costs could be expected as a result.

29. Should Americans be permitted to shop for healthcare coverage across state lines – from coast to coast – regardless of which state they live in? Yes.

30. Should House Republicans continue to fight to stop taxpayer funding of elective abortions?  Party leaders should encourage House Republicans to vote based on their personal conviction and/or the views of their respective constituents. We don’t believe this is a winning issue at the national level.

31. Do you agree that parents should be able to use government vouchers to send their children to the school of their choice – public, private or parochial. Yes.  Presumably, “public” includes charter schools.

32. Do you support the work being done by Speaker John Boehner and Republicans in Congress to address your concerns, fight for your interest, and get our nation’s economy growing again?  To the extent that Republicans in Congress are working for smaller, more focused, less costly government, we appreciate their efforts.  However, as should be evident from the foregoing discussion, there is room for improvement on both sides of the aisle.

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No chance Congress cuts spending this year. I hear the farm bill that passed the House provides for even more spending than the Senate bill did. – CRI member

 In a follow-up letter to GOP leaders, we said our analysis “agrees with the indicated Republican position in some areas, disagrees in others, and generally stresses the importance of ‘walking the talk.’”  

My list below. I am following this path—fix things with God, then fix the executive & legislative branches. Then cut spending, reform the tax code, fix the economy (cheap oil & gas would be a kick start), streamline Government, THEN fix the border …. and the military.  So I am different! But we better get them all fixed soon, no matter what order! – Texas steel executive 

Ban taxpayer funding of abortions
Exercise vigorous oversight of the administration
Make Congress more open & accountable
Repeal Obamacare & lower healthcare costs
Cut spending
Reform the tax code
Expand energy production
Eliminate excessive government red tape
Secure the border & enforce our laws
Keep national security strong and prepared
Improve access to quality education
My addition: Pull our Military out of Afghanistan.


7/8/13 – Surprise: GovCare employer mandate postponed until 2015            Read a Reply

Judging from what was posted on the Department of Health & Human Services website last week, everything was going fine with the GovCare rollout.

# On target for opening the new health[care] insurance marketplace, HHS Secretary Kathleen Sebelius, 6/19/13.

When open enrollment in the new Health[care] Insurance Marketplace begins on October 1, millions of Americans will be able to shop for quality healthcare coverage that meets their needs and their budget.  Every health[care] insurance plan in the new Marketplace will offer needed benefits, from doctor visits to medications to hospitalizations. Consumers will be able to compare insurance options based on price, quality, and other features in plain language that makes sense. *** While there may be a bump here or there – which can be expected when you are creating a program of this magnitude – let there be no doubt: Every state will have a Marketplace up and running for open enrollment on October 1.

# The health[care] insurance marketplace is coming soon, a redesigned interface page.

A new way to get affordable coverage launches October 1. Answer a few questions to learn if you qualify for lower costs. Get important news and updates – sign up.

Then, out of the blue, two administration officials announced that the employer mandate under GovCare had been postponed for a year. Oops, what was going on? 

The announcements – Notices posted on July 2, one by Treasury and the other by the White House, characterized the decision as unremarkable and responsible.

#Continuing to implement the ACA [GovCare] in a careful, thoughtful manner, Mark Mazur, Assistant Secretary of Tax Policy, US Treasury Department, 7/2/13.

Businesses have expressed concerns re complexity of new employer and insurer reporting requirements and the need for more time to implement – most of them are already providing health[care] insurance to their employees - we’ll allow an additional year to comply and make every effort to streamline the requirements – due to the delay involved, it will be impractical to calculate “shared responsibility” payments for 2014 so these payments will not be collected until 2015.

#We’re listening to businesses about the healthcare law, Valerie Jarrett, a senior adviser to the president, 7/2/13 (6:00 PM EDT).

Today, most Americans get their health[care] insurance through their jobs and that will be the case moving forward. *** We will convene employers, insurers, and experts to propose a smarter system and, in the interim, suspend reporting for 2014. *** Since employer responsibility payments can only be assessed based on this new reporting, payments won’t be collected for 2014. *** If you own a business with more than 50 workers that already offers full-time workers affordable, quality coverage, you are fine – we’ll work with you to keep that coverage affordable.  And if you are a company with more than 50 employees but choose not to offer quality affordable coverage, we have provided as much flexibility and transition time as possible for you to move to providing affordable, quality coverage to your workers.

Although he did not make the announcement, the president reportedly made the decision “on Air Force One as he was returning from Africa on Tuesday.”  Obamacare goes wobbly, Donald Lambro, Washington Times, 7/5/13.

Reactions – Critics have slammed the delay in enforcing the employer mandate. Here is a sampling of what has been said, together with some observations.

# Pure politics – Democrats don’t want to implement this provision before the 2014 elections, lest it deter the hiring of full-time workers.  Obamacare’s employer mandate delayed to 2015, Tom Howell, Washington Times, 7/2/13.

Sen. John Barrasso, Wyoming Republican and a doctor, said the move was “a cynical political ploy to delay the coming train wreck associated with ‘Obamacare’ until after the 2014 elections.”

Maybe so, but a one-year delay might not have much effect because employers tend to make business decisions based on their perception of longer-term conditions. 

Furthermore, the hours of lower level workers are already being reduced.  The June jobs report reported an overall increase of 195,000 jobs, but well over 100% of them were part-time jobs.  Bureau of Labor Statistics, Employment situation summary, 7/5/13.

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) increased by 322,000 to 8.2  million in June. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

# Illegal – The GovCare legislation says the employer mandate starts as of 2014 and does not authorize a waiver, so the IRS cannot lawfully decide not to collect the applicable tax ($2K to $3K per uninsured employee, payable by employers with 50 or more employees that fail to provide the required insurance). White House violates law with Obamacare delay, Ken Klukowski,, 7/2/13.

But the IRS not enforcing Section 1513 is like a policeman who patrols a stretch of road who says for the next year, he won’t issue any speeding tickets. He has no authority to suspend the law, but if he chooses to violate his duty by failing to enforce the law, then to all the motorists on the road it’s as if the law does not exist.

Query, however, whether anyone can/will mount a legal challenge to the employer mandate delay. Based on the administration’s conduct to date, only the prospect of a resounding defeat would deter it. Delaying the employer mandate requires delaying all of Obamacare, Michael Cannon, Cato Institute, 7/3/13.

. . . the Obama administration has abused nearly every power it possesses–and asserted powers it clearly does not possess–to protect Obamacare. A partial list of abuses [is discussed.]   The Obama administration’s zeal to protect this never-popular law is so great, what won’t they do to protect it?

# Unworkable – The employer mandate cannot be postponed while implementing the individual mandate as the operation of the two mandates is inextricably linked. Delaying the employer mandate requires delaying all of Obamacare, Michael Cannon, supra.

In addition to penalizing employers that fail to offer acceptable coverage, Obamacare offers tax credits and subsidies to certain workers who don’t receive an offer of acceptable coverage from an employer. The law requires employers to report information to the IRS on their coverage offerings, both to determine whether the employer will be subject to penalties and whether its employees will be eligible for credits and subsidies. [The IRS has suspended this reporting for 2014, and without this information] the federal government simply cannot determine who will be eligible for credits and subsidies.

Another way to look at the situation is that while employers were relieved of the applicable tax in 2014, their failure to provide qualifying healthcare insurance could result in taxes on their employees – which “hardly seems fair.”  And so the Obamacare train wreck begins, Michael Tanner, Cato Institute, 7/3/13.

A further issue is the eligibility of employees to purchase healthcare insurance on an exchange, which requires a showing that their employers are not providing qualifying insurance coverage.  How can this requirement be satisfied in the absence of reporting from employers?  An employer mandate delay wreaks havoc with Obamacare, Philip Klein, Washington Examiner, 7/3/13.

. . . perhaps administration officials believe there’s a way to tweak the reporting requirements without affecting the process for determining exchange eligibility. But it isn’t yet clear how they plan on resolving this issue. And the exchanges are supposed to be up and running on Oct. 1.

Most likely these issues can be resolved by requiring some sort of interim reporting from employers, but it does seem to us that delaying employer mandate won’t accomplish much in terms of cutting government “red tape.”

The other side’s argument comes down to concentrating the available resources on a higher priority goal.  Obama was wise to delay employer insurance mandate, Peter Orzag,, 7/3/13.

Given the major challenges associated with getting the exchanges up and running, the anxiety that the employer mandate was creating in the business community, and the minimal harm from a delay itself, the administration was wise to postpone the mandate for a year — but only if it now redoubles its focus on successful implementation of the exchanges, which are absolutely crucial to the coverage effort.

# Devious – It has been suggested that the real goal may be to nudge employers into dropping their healthcare plans so their employees will buy insurance through the government-run and subsidized healthcare exchanges, even while denying any such intent.  Obama gets last laugh on health[care] law, Chris Stirewalt, FoxNews, 7/3/13.

One can expect plenty of workers to hear unhappy news this fall as human resources departments make announcements that rather than the usual “open enrollment,” there will be a workshop for how to sign up for the Obamacare “insurance exchange.”

The more Americans get on the healthcare dole, the more resistance there will be to any move to repeal GovCare.  Despite retreat, White House determined to start Obamacare money flow, Byron York, Washington Examiner, 7/4/13.

Obamacare is designed to increase the number of Americans who depend on the government to pay for health[care] insurance. It will expand the Medicaid rolls, and it will give subsidies to millions of individuals and families to purchase insurance on the exchanges. In all, the government will be transferring hundreds of billions of dollars to Americans for health[care] coverage.  The White House knows that once those payments begin, repealing Obamacare will no longer be an abstract question of removing legislation not yet in effect. Instead, it will be a very real matter of taking money away from people. It's very, very hard to do that.

Some observers read similar motives into an earlier decision to delay implementation of provisions designed to help small business firms (50 or less employees) arrange healthcare insurance coverage for their employees.  Obamacare’s small business health[care] insurance – is delay another tactic to remove employers from the market? Carolyn McClanahan,, 4/2/13

Small employers face another year of tough choices. In addition, there will be a fully operational individual exchange where their employees can go to purchase great health insurance and possibly qualify for premium tax credits to help pay for that health insurance. Why would small employers subject themselves to the headache? I bet because we do not have a fully operational SHOP, small employers will leave the market in droves.

Curiously, a June HHS statement about small business healthcare insurance said nothing about the SHOP delay. What every small business needs to know about healthcare, Secretary Kathleen Sebelius, Long Island Newsday, 6/20/13.

Starting in 2014, small business owners will have a whole new way to shop for insurance thanks to the new Health[care] Insurance Marketplace. The small employer section of the Marketplace, known as the Small Business Health[care] Options Program, or SHOP, will give employers with 50 or fewer workers some key advantages that simply don't exist today.

Now what – Critics have claimed that the employer mandate decision was primarily driven by politics.  It was also illegal, unworkable, and/or devious.  For shame!

At least three committees in the GOP-controlled House are reportedly asking questions and perhaps preparing to investigate.  Obama skips past Congress again with health[care] mandate delay, Steven Dennis & Matt Fuller, Roll Call, 7/5/13.

But having long proclaimed that the GovCare legislation is fatally flawed, Side B should not make too much fuss about a politically motivated delay in implementing one of the act’s key provisions.  The push to investigate is basically a waste of resources (and there are other things that clearly do need to be investigated, such as Fast and Furious, the Benghazi cover-up, and IRS abuses).

The GOP House leadership has made a more logical demand: the rest of GovCare should be pushed back as well. Thus, in a July 3 statement, House Speaker John Boehner et al. characterized the employer mandate delay as favoring “special interests and those with Washington lobbyists” while “the American people keep getting left behind.”  The statement went on to urge that GovCare be repealed, clearing the way to “start over with patient-centered reforms.”

But GovCare is not going to be repealed, as the Republicans don’t control either the Senate or the White House, so the only plausible scenario is the this law will be implemented – ex the employer mandate – before the 2014 mid-term elections.

Look for plenty of debate in coming months about effects of GovCare on healthcare insurance cost and coverage.  Here are some illustrative statements.


• White House website, “myths and facts,”

There's a lot of misinformation out there. For too long, too many hard working Americans paid the price for policies that handed free rein to insurance companies. President Obama’s health[care] reform law gives hard working families the security they deserve. The Affordable Care Act holds insurance companies accountable, lowers healthcare costs, gives Americans more freedom and control in their healthcare choices and improves the quality of care.

• Obama was wise to delay employer insurance mandate, Peter Orzag,, 7/3/13.

. . . the news on cost has been much better than expected. Medicare costs rose only 3.3 percent in nominal terms last fiscal year, and 4 million Medicare beneficiaries are enrolled this year in accountable care organizations, the groups of hospitals, doctors and other providers that coordinate to make treatment more efficient.

• Health[care] insurance premium increases vowed by companies for 2014, Jeffrey Young, Huffington Post, 3/22/13.

Big health[care] insurance companies are predicting huge premium increases next year for small employers and people who buy coverage on their own *** [part of these increases are due to GovCare requirements that healthcare insurance companies] provide better benefits including maternity care and prescription drugs, accept any customer regardless of pre-existing conditions, and not charge older people more than three times what younger people pay *** [GovCare] also will provide tax credits to small companies providing health[care] benefits to their workers and to individuals who earn [between one and four times] the federal poverty level, which is $11,490 this year for a single person *** these subsidies [may] actually lower the monthly health[care] insurance costs for many people compared to what they'd pay today *** the administration also expects intensified competition among health[care] insurance companies seeking to enroll people under Obamacare *** [GovCare] contains a plethora of provisions aiming to curb rising healthcare costs, such as tying Medicare payments for hospitals to improvements in efficiency and quality of care, but their effectiveness remains an open question.


• Obamacare’s “benefits” are gradually becoming apparent, Michael Tanner, Daily Caller, 5/1/13.

According to the Wall Street Journal, insurers are warning that premiums in the individual and small-group markets could double in the next few years. Already, they are well on their way. For example, California health[care] insurers are proposing increases for some customers of 20 percent or more: 26 percent by Blue Cross, 22 percent by Aetna, and 20 percent by Blue Shield. In Maryland, Care First, the state’s largest insurer, has proposed a 25 percent increase for next year. Younger and healthier Americans can expect to pay even more. According to a survey by the American Action Forum, healthy young people in the individual or small-group insurance markets can look forward to rate increases averaging as much as 169 percent.

• Obama to punish healthy eaters, Mike Adams,, 7/2/13.

According to an analysis just published by the Wall Street Journal, healthy people will pay double or triple their current health[care] insurance rates under Obamacare. Rates for those with chronic disease, however, will be reduced as all the healthy people subsidize their disease lifestyles.  *** This is the essence of socialized medicine: punish responsible citizens while rewarding those who refuse to take care of their health.

A concluding thought – We believe that healthcare costs are a function of supply and demand.  To the extent that GovCare creates more subsidies than currently exist, demand will increase and costs will go up.  Cost savings through greater efficiencies are certainly possible, but an increasing government role will make such gains less (not more) likely.

Income redistribution is implicit in the GovCare scheme, which envisions that the relatively young, healthy, and affluent should subsidize healthcare (through the premiums and/or taxes they pay) for others who are less fortunate.  The “invincibles” may not be inclined to cooperate, however, and they can minimize their contribution by paying a tax for noncompliance and foregoing health[care] insurance unless and until their health deteriorates. 

Even those who pay less for healthcare as the result of taxpayer subsidies may not wind up better off.  Remember that the resulting taxes (or inflation if the subsidies are financed with borrowings) will detract from the health of the US economy that supports us all.

One more time, let us acknowledge the truth of this adage: “there is no such thing as a free lunch.”

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My doctor is going after them! Texas steel executive [Dr. Hotze is challenging the constitutionality of the employer mandate.  He views the decision to delay implementation as vindication, and is scheduled to take a bow on Fox Business News (July 8, morning).  Others view the delay as lawless because the legislation does not authorize it, but share Dr. Hotze’s conviction that GovCare should be repealed.]


7/1/13 –  Sorry, but the economic basics still matter

Imagine a baseball team that aspired to a successful season but neglected to practice batting and fielding.  Sounds ridiculous, doesn’t it, because everyone knows these skills are needed to win games.

So how come many members of America’s ruling elite (professors, reporters, pundits, business managers, and politicians) underrate the importance of maintaining a free market system in which economic decisions will be based on supply and demand versus political considerations?

There are a host of reasons for not supporting such a system, including what people are taught (or not taught) in school, absorb from the mainstream media, or simply come to tolerate. It’s all too easy to rationalize the decline of the free market instead of challenging the growing ascendancy of government.

Some readers may recall Ronald Reagan saying: “The nine most terrifying words in the English language are ‘I’m from the government, and I’m here to help.’” 

The quip was meant to be humorous, but it’s getting uncomfortably close to a prediction these days as Americans complacently rationalize eroding economic results while accepting ever more government handouts (until the money runs out).

Here are some of the excuses for inaction: (1) this isn’t the 13 colonies any more; (2) only the government has an incentive to address certain big issues; and (3) the economic penalties, if any, will be trifling.

This entry reviews some illustrative examples, concluding that the free market system is an asset that must be preserved if this country wants to remain prosperous and a home for liberty.

1. Welcome to the 21st Century – OK, everyone knows that many government-directed economies fared badly in the past.  But that was before computers, the Internet, and all the other great tools government planners now have at their disposal. 

Notice how developing countries with centralized planning have been eating our economic lunch in recent decades.  We could learn a lot from China, for one, and will ignore their example at our peril. How the West was lost: fifty years of economic folly – and the stark choices ahead, Dambisa Moyo, Farrar, Strauss & Giroux (2011).

. . . there is a gripping foreword, in which a senior business executive summarizes a conference at which two of the speakers were the heads of a Western and a Chinese telephone company, respectively. The Western executive spoke at length of the technological plans of his company, drawing a lot of applause. The Chinese executive responded that "We can do everything he can . . . for 40 percent less," and then promptly sat down. Ouch!

But let’s not forget that in the 1930s, a surprising number of people saw the planned economies of Germany and the USSR as the wave of the future.  Their admiration was not vindicated by the course of events; it was the US economy that won World War II and the Cold War with the USSR that followed. 

Moyo does a better job of criticizing US errors than of suggesting improvements.  Indeed, it is unclear how or why her suggestions would cure the problems that are cited.

PROBLEMS: Excessive use of debt, subsidization of housing-related (nonproductive) investment, reckless granting of unfunded pension benefits resulting in underestimates of labor costs, overpayment of star athletes, CEOs and hedge fund managers, reckless squandering of technological edge, decline of the US educational system.

SUGGESTIONS: 2009 stimulus package representing a doubling down on the overuse of debt; high-speed rail; government-mandated renewable energy and "even nuclear energy" to reduce presumably harmful carbon emissions; a government takeover of the healthcare sector (might help, might hurt, why not try it:?); etc.

In a very different book, Mancur Olson theorized that (a) economies stagnate due to business and/or labor agreements that impede competition and innovation, and (b) such arrangements are typically facilitated by government regulators.  The overall economy suffers; the special interests come out ahead.  Although a majority of the population has cause to complain, effective opposition to the agreements is hard to arrange. The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities, Mancur Olson, Yale University Press (1982).

What about the possibility that consumers and the general public will react by organizing to protect their interests?  Olson persuasively argues that this does not happen because the perceived payoff for each person in a large aggregation of people is outweighed by the effort involved.  In other words, the usual rule of thumb is “let George do it.” 

As for seeking redress through the political process, voters typically will not invest the time and effort to understand the issues and where the candidates stand.  After all, how likely is it that one’s vote will decide the election?  Voters do pay attention to gaffes, talking points, sex scandals, etc., but that is primarily for the entertainment value.

We think Olson has the better of the argument about the merits of government-run economies.  But the “we must learn from China” thesis persists, as shown by some recent vice-presidential remarks.  Biden calls for “new world order” – with China in charge, Tad Cronn,, 4/8/13.

So, in translation from Bidenspeak to English, the Western-dominated financial system needs to be changed because China and Russia have their act together and we don't, and the best the Administration hopes for is that the United States is just one among many countries, with nobody better off than anyone else.

Reassessment of the Chinese economic miracle may be in order.  According to recent reports, excessive lending has spawned a wave of speculative investment that will likely result in huge losses, and the reported economic growth rate of nearly 8% per year is evaporating.  Fitch says China credit bubble unprecedented in modern world history, Ambrose Evans-Pritchard, UK Telegraph, 6/16/13.

Fitch: "There is no way they can grow out of their asset problems as they did in the past. We think this will be very different from the banking crisis in the late 1990s. With credit at 200pc of GDP, the numerator is growing twice as fast as the denominator. You can't grow out of that."

Furthermore, without meaning to counsel complacency, this country still enjoys some notable economic advantages over China et al. 10 reasons why America will continue to dominate the global economy for years, Steven Perlberg,, 6/22/13.

The US may very well be displaced as the global economic leader in the 21st Century, but if so it will not be because we failed to adopt a modern central planning approach, it will be because we abandoned the free market model that has served us so well.

2. Business is fixated on profit – If the aim of a business is to earn profits and its managers are compensated accordingly, goes this argument, long-term goals will be shortchanged.  The government must therefore intervene to keep things on track.

The goals in question might include undertaking fundamental research (no payoff likely within the typical business planning period), curbing business practices that harm the general public (e.g., pollution), or being fair to employees or customers (instead of trying to cheat them).

This line of argument has some validity, but can easily be extended too far. Before long the government will not simply be setting rules of the road, but also determining economic winners and losers. 

Take the claim that a buildup of carbon dioxide (CO2) in the atmosphere threatens undesirable, potentially catastrophic, global warming.  Ergo, people should use energy more frugally and/or switch to “renewable” energy sources such as wind turbines and solar panels – and it’s the government’s job to make them do so.  President’s speech on climate change at Georgetown University, 6/25/13.

• So the question is not whether we need to act.  The overwhelming judgment of science -- of chemistry and physics and millions of measurements -- has put all that to rest.  Ninety-seven percent of scientists, including, by the way, some who originally disputed the data, have now put that to rest.  They've acknowledged the planet is warming and human activity is contributing to it. *** We don’t have time for a meeting of the Flat Earth Society.

Today, about 40 percent of America’s carbon pollution comes from our power plants.  But here’s the thing:  Right now, there are no federal limits to the amount of carbon pollution that those plants can pump into our air.  None.  Zero.  We limit the amount of toxic chemicals like mercury and sulfur and arsenic in our air or our water, but power plants can still dump unlimited amounts of carbon pollution into the air for free.  That’s not right, that’s not safe, and it needs to stop. 

The president went on to propose numerous initiatives to combat global warming, all to be implemented by administrative action versus legislation.  (We’ll get into the specifics in a future entry.)  The prime reason for stretching existing legislation to the breaking point and relying on administrative action is the lack of support for these initiatives on Capitol Hill.  Obama takes aim at changing climate, David Jackson, (Wilmington, DE) News Journal, 6/26/13.

Almost every element of the president’s plan is based on administrative action, because Republicans – described as “major backers of the Keystone oil pipeline and the oil industry” – are not willing to back legislative action.

Note the assumption that the GOP’s objective must be to defend the special interests.  Why?  No one in their right mind could doubt the manmade global warming theory (MMGWT), which has supposedly been embraced by 97% of all scientists.

But science is not an exercise in consensus building, it is a search for truth, and quite a few generally accepted ideas (such as that the Sun orbits the Earth) have wound up being discarded.  Also, scientific opinion on MMGWT is far more evenly divided than the 97-3 ratio would suggest. 

As with any poll, the phrasing of questions is important.  For example, most scientists probably do agree that – all other things being equal – a buildup of CO2 in the atmosphere has a warming effect.  But that does not mean manmade carbon emissions since 1750 have become the global thermostat, mysteriously trumping the fluctuations in solar activity and other factors that caused average global temperatures to move up and down  through the ages. Indeed, three eminent scientists – William Cohen (American Physical Society), William Happer (Princeton), and Richard Lindzen (MIT) – have suggested just the opposite.  “Climate consensus” data need a more careful look, Wall Street Journal, 8/13/12.

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. Let us debate and deal with serious, real problems facing our society, not elaborately orchestrated, phony ones, like the trumped-up need to drastically curtail CO2 emissions.

Here is another interesting point.  The global warming trend has paused over the past 15 years – rather than accelerating as supporters of the MMGWT had predicted.  Global warming takes a vacation; promoters of climate hysteria admit planetary temperatures are stable, Washington Times, 1/17/13.

There has been no appreciable warming since 1998, as can be seen in the official forecast from the Met Office, the United Kingdom’s national weather service, which the agency released on Christmas Eve. Presumably, the British government’s climate scientists didn’t want anyone to notice they had lowered their forecast from previous years, with temperatures in 2020 predicted to be no warmer than they were in the late 1990s.

In short, this seems to be a case in which some politicians have been overly quick to propose relieving the private sector of responsibility for running a crucial sector of the economy.  Other examples come to mind too, notably the ever-growing government role in healthcare and financial services.

Granted that businesses are fixated on profits, this at least requires delivering goods and services that people need and are willing to buy.  Politicians are fixated on reaping political advantage, which is not any nobler than trying to earn a buck, without comparable safeguards to ensure accountability.

Once again, it seems that the case for abandoning the free market system cannot withstand close scrutiny.

3. There won’t be an economic penalty – Even if government action isn’t demonstrably essential, big government fans argue that it will do no harm.  The costs being pointed to by critics are probably exaggerated; why not opt to be safe rather than sorry? 

Indeed, as the president painted the picture in his climate change speech, it would be possible to bolster the economy while using American ingenuity to usher in renewable energy.

• Now, what you’ll hear from the special interests and their allies in Congress is that this will kill jobs and crush the economy, and basically end American free enterprise as we know it.  And the reason I know you'll hear those things is because that's what they said every time America sets clear rules and better standards for our air and our water and our children’s health.  And every time, they've been wrong.

• Today, we use more clean energy –- more renewables and natural gas -– which is supporting hundreds of thousands of good jobs.  We waste less energy, which saves you money at the pump and in your pocketbooks.  And guess what -- our economy is 60 percent bigger than it was 20 years ago, while our carbon emissions are roughly back to where they were 20 years ago.

The claim that renewable energy can pay its way by spawning well-paid “green” jobs is not new, other politicians have said the same thing.  However, such a conclusion is generally dependent on ignoring costs and/or exaggerating benefits. The false promise of green energy, Morriss et al., Cato Institute (2011).

The technical feasibility of a rapid transition to solar and wind power has been vastly exaggerated, while the cost estimates are correspondingly understated. *** There is no common definition of the green jobs that are promised, and forecasts are typically expressed on a gross basis (without subtracting jobs that would be eliminated, e.g., in the fossil fuel industries and in industrial operations that would leave the country as the result of higher US power costs.)  Some analysts would count jobs in regulatory compliance areas as a benefit, when they actually represent an economic cost.  Claims that green jobs will necessarily provide highly paid, agreeable employment are not credible. 

For example, a new rule for microwave ovens cites the estimated value of a reduction in carbon emissions to justify a big jump in the cost of these devices.  Carbon (and practically everything else) just got more expensive, David Kreutzer  and Katie Tubb, Heritage Foundation,  6/13/13.

The Department of Energy (DOE) finalized a rule at the end of May that mandates the amount of energy microwaves can use on standby mode starting in 2016. The DOE tries to legitimize the rule by saying that the alleged social cost of carbon (SCC) is more than it was in 2011—in fact, almost 50 percent more.

If the government is allowed to get away with claims like this, what’s to stop them from rationalizing just about anything they feel like doing?  And more broadly, here are two points to bear in mind about government regulations. 

• The law of diminishing returns applies.  Initial gains (in terms of pollution reduction, fuel efficiency, or what have you) tend to be relatively cheap; subsequent tightening of the standard will be progressively less effective and more costly.

• The cost of regulations adds up.  If the aggregate cost of US government regulations is nearly $2 trillion per year, as has been estimated, this burden is surely weighing down the economy in many ways, both direct and indirect.  Take the financial services industry, already heavily regulated before the crash of 2008, which is now getting even more attention.  And remember that the industry’s costs and/or impaired services will be passed on to others throughout the economy.  Staggering cost of regulations stifling the economy, Paul Strand, CNN, 9/7/11.

• One frustrated banker said it takes 20 percent more employees to deal with all the paperwork to comply with regulations than it does to work on loans. In fact, the financial industry will have to spend almost 318,000 hours of staffers' time to comply with just three new regulations in the Dodd-Frank Financial Reform bill.


• The Dodd-Frank bill financial regulation will ultimately encompass some 243 new formal rule-makings by 11 different federal agencies. Most every sector of finance will be hit by rules that will inhibit product innovation and availability of credit.

Similarly, there is little reason to believe the president’s current proposals could be implemented on the cheap.  Things that will cost more under Obama’s climate change plan, Amy Payne,,  6/26/13.

What President Obama’s climate change plan would do: increase the price of just about everything. Whether it’s regulating appliances or eliminating coal from the nation’s energy diet, Obama’s plan has the same effect: hiking the cost of living. Think through your day. Everything you buy, everything you eat, everything you wear… it was all produced using energy.

• Of course, it doesn’t help that you will also have less income. Forthcoming research from these Heritage experts shows that Obama’s anti-coal policies will cause a family of four to lose more than $1,000 in annual income.

Put it all together, and here is a conjecture about this country’s slowing rate of economic growth and chronic unemployment that sounds logical even though there is no way to rigorously prove it. 

Suppose, as some would argue, that our economy is not sputtering because the country’s free market system is outmoded in the 21st Century and cannot effectively deal with certain issues that must be addressed, but rather is being weighed down by high taxes and regulatory overload (in both cases, state as well as federal).

The antidote: implement SAFE’s agenda for smaller, more focused, less costly government.  Then, and only then, will there be a chance that America’s best days still lie ahead.


6/24/13 – Fixing a broken immigration system: another approach

Having concluded that immigration reform is needed (6/10/13) but rejected the pending Senate bill (6/17/13), SAFE will now offer its own suggestions. Our plan does not attempt to represent the views on either side of the aisle, but it might actually work. 

Purpose - What is the goal of reform?  We believe it should be to stop illegal immigration in a sensible and humane fashion.

Some observers say great strides have been made already and predict illegal immigration would slow to a trickle if legislation along the lines of S. 744 was enacted.  See, e.g., “The border security ruse,” Wall Street Journal, 6/20/13 (no link available).

According to a study by the Government Accountability Office, the number of illegal immigrants who escaped capture at the nine major crossing points from San Diego to El Paso fell an astonishing 86% between 2006 and 2011.  All the talk-show shouting about America under siege from immigrants streaming across the Rio Grande is fiction.

We are persuaded otherwise, for reasons previously discussed, and so – apparently – is a key sponsor of the Senate bill.  Senator Chuck Schumer recently conceded the porosity of the border in an exchange with Senator Jeff Sessions. Rise in illegal crossings roils immigration debate, Byron York, Washington Examiner, 6/17/13.

This argument that there are going to be 20 million new people in this country under this bill ignores the fact that there are going to be lots of millions ... in the country illegally if we don't have a bill.

Even with the bill, the Congressional Budget Office estimates that illegal immigration would continue at a substantial level.  Cost estimate for S. 744, CBO, 6/18/13. (download PDF).

CBO estimates that, under the bill, the net annual flow of unauthorized residents would decrease by about 25 percent relative to what would occur under current law, resulting in a reduction in the U.S. population (including a reduction in the number of children born in the United States) relative to that benchmark of 1.6 million in 2023 and 2.5 million in 2033.

Ergo, the Senate bill as it stands will not meet the goal – nor would it be saved by a “deal” that was announced with much fanfare last week to seek more GOP support by beefing up border security.  Some fundamental rethinking is needed – not just more window dressing. 

1. Relax about border security – What the words “secure the border” bring to mind are more miles of fence, “boots on the ground,” and drones overhead– effectively viewing unauthorized immigrants coming across the US-Mexican border in search of employment as an invasion.

For goodness sakes, that’s no way to look at things!  Barriers to invasion – such as the Great Wall of China or France’s Maginot Line – have rarely worked very well.  And these would-be immigrants aren’t coming here for the purpose of doing Americans harm anyway; most of them are seeking gainful employment.

True, there has been escalating violence along the border, but this is attributable to criminal gangs.  The drug trade is lucrative because enforcement efforts have driven up prices, and barring truly draconian measures it will continue.

It’s time to admit that “the war on drugs” has been a colossal failure and try some other approach, such as legalization (of marijuana at least) subject to government regulation and taxation.  If this is done, look for declining violence along the border (and in Mexico & points south), fewer criminal prosecutions and smaller prison populations.  War on drugs is worse than prohibition, John Stossel, Newsmax, 6/19/13.

This is not to advocate an open border policy, but there are more than enough checkpoints, fences, and border agents already.  The US currently spends about $18 billion per year on immigration enforcement agencies, more than for all other law enforcement agencies combined. Billions proposed for new border security. Where would the money go?  Christie Thompson,, 4/28/13.

Yet last week, the sponsors of the Senate bill (and also the White House) announced their support of a proposal by Senators Bob Corker (R-TN) and John Hoeven (R-ND) that would raise the security ante dramatically. Border security deal boosts immigration bill’s chances in Senate, Stephen Dinan, Washington Times, 6/20/13.

The proposal would require hiring 20,000 more Border Patrol agents and deploying them to the US-Mexico border, which more than doubles the 18,462 agents there as of January, and require another 350 miles of pedestrian fencing along with the 352 miles that exist.

The high spot cost estimate for these measures was $30+ billion over the next 10 years.  Wow, what ever happened to the fiscal problem?  Senator Chuck Schumer, for one, claimed the cost was paid for in that a just released Congressional Budget Office estimate said S. 744 would reduce the federal deficit by nearly $200 billion over the next decade.

Don’t bet the ranch on this estimate – there are too many assumptions involved to reach any definite conclusions re the fiscal effect – and it’s a bit rich that the CBO employed “dynamic scoring” for this particular analysis when they have consistently declined to do so in scoring tax legislation.  But even if the projected savings were rock solid, that would not justify spending (or should we say wasting) $30 billion for unnecessary facilities and personnel. 

Far from increasing the commitments for additional border security in the Senate bill, therefore, as the Corker-Hoeven Amendment contemplates, the commitments already made should be reconsidered.

2. Eliminate the job magnet – Department of Homeland Security Secretary Janet Napolitano claims the border is effectively secure now. If additional money were to be spent, therefore, it should go towards enforcing the law against hiring unauthorized immigrants. Napolitano: No need to bind amnesty to border security, Stephen Dinan, Washington Times, 2/13/13.

If Congress wants to increase enforcement, she said, it should come from the Interior Department [?], which could prevent businesses from hiring illegal immigrants. All sides agree that jobs are the magnet that draws most illegal immigrants to the country.

To this end, we would propose aggressive use of the E-Verify system – which the government currently provides on a voluntary, no charge basis.  Many employers are already using E-Verify to determine the employment eligibility of prospective employees.  DHS write-up,

Other observers have expressed misgivings about E-Verify, however, so let’s consider their arguments.

• Not our job - Some critics say it’s the government’s job to enforce the law against hiring unauthorized immigrants and bureaucrats should not be enabled to shift this burden to the private sector.  Employers are not immigration officers, Jeff Jacoby,, 6/16/13.

If the law can ban a company from hiring a competent and peaceable worker who happens to be in the country without appropriate documents, can it also ban a company from hiring a worker who happens to be bankrupt? Or who has unpaid speeding tickets? Or who was once arrested for smoking marijuana?

With all due respect, it seems legitimate for the government to ban the employment of unauthorized immigrants.  And once it has done so, private employers have a duty to observe the ban – at least to the extent of screening new hires - just as they comply with child labor or minimum wage laws.  Do the critics really want federal agents busting into workplaces in search of evidence that illegal immigrants are being employed?

Too expensive - Polls indicate widespread support for using E-Verify, what’s not to like about it?  But if respondents are told that employers (especially small businesses) would be charged some $100 per job applicant for use of the system, the support level drops markedly. Public opinion on immigration, Emily Elkins, Cato Institute, 6/5/13. (4:32 video).

OK, but why charge for using the E-Verify system when it has already been developed, is currently being made available without charge, and serves the government’s interests? 

Let the government continue providing access to E-Verify for free, and fund this program from the savings to be realized from ending the war on drugs and foregoing the additional border security measures that are currently under consideration.

• Intrusiveness – E-Verify stokes fear in some quarters that “big brother” may be taking over. Immigration bill’s national ID system raises fears of abuse, Audrey Hudson, Newsmax, 6/16/13.

-In order to verify an immigrant’s legal status, employers would be allowed to access the databases of drivers' licenses in individual states through an expanded network created by the Homeland Security Department, the New York Times reports. 

-Senators Chris Coons (D-DE) and Rand Paul (R-KY) were both reportedly concerned about this, even though all E-Verify reports is whether or not a prospective employee is eligible for employment.

And wouldn’t it be dreadful if biometric checks became part of the national ID – so that your identity and status could be quickly and conveniently verified, not only when you applied for a job but also to gain access to public buildings, open a bank account, buy a house, etc.  Biometric database of all adult Americans hidden in immigration reform, David Kravets,, 5/10/13.

The immigration reform measure the Senate began debating yesterday would create a national biometric database of virtually every adult in the U.S., in what privacy groups fear could be the first step to a ubiquitous national identification system.  Buried in the more than 800 pages of the bipartisan legislation is language mandating the creation of the innocuously-named “photo tool,” a massive federal database administered by the Department of Homeland Security and containing names, ages, Social Security numbers and photographs of everyone in the country with a driver’s license or other state-issued photo ID. *** For now, the legislation allows the database to be used solely for employment purposes. But historically such limitations don’t last.


At the risk of stepping on a few conservative toes, we would ask two questions.  (1) Why shouldn’t people be asked to identify themselves?  It’s done all the time.  (2) Why should machine-readable national ID cards with a photo be viewed as more intrusive than driver licenses, passports, and the like?  The degree of intrusiveness would depend on the data displayed, hopefully not including Social Security numbers, and when/why identification was required.


A more valid concern, in our opinion, is how well national ID cards would work in practice.  A feasibility test by DHS at the nation’s maritime facilities showed that “the matching frequently fails, [so] the cards have to be processed manually, defeating the purpose of a machine-based system.” Something from George Orwell; the government wants to keep your secrets on an ID card, Washington Times, 5/15/13.

OK, forget about national ID cards for the time being (no one has proposed to implement them anyway), but the arguments against the E-Verify program don’t seem to hold water – and by the way mainstreaming of this program is contemplated by S. 744 (and reportedly reinforced by the Corker-Hoeven amendment).

Ten years hence, before DHS can start issuing permanent visas (aka green cards) to aliens who have been granted registered provisional immigrant (RPI) status, thereby putting them on a track to citizenship, DHS must (among other things) have “implemented the mandatory employment verification system [E-Verify] required for use by all employers to prevent unauthorized workers from obtaining employment in the United States.” 

This requirement won’t apply, however, if the use of E-Verify has been barred by the courts or is being litigated.  And it stands to reason that a dilatory approach to making E-Verify a mandatory program will increase the odds of litigation being in process at the critical point in time.

Accordingly, we would propose a deadline for requiring all employers to start using E-Verify in screening job applicants – effective date of the legislation + 18 months (E + 18).  Senator Chuck Grassley (R-IA) proposed an amendment along these lines earlier, which the bill’s sponsors blocked.  Senate immigration gang frustrates GOP effort to bolster border enforcement, Alexander Bolton, The Hill, 5/16/13.

Use of the E-Verify system should be on a fee-free basis, as previously discussed, and DHS should be responsible for following up on E-Verify rejections of job applicants rather than forcing employers to assume this responsibility.

As of E + 36, and periodically thereafter, employers would be required to check their entire workforce with E-Verify.  This would give unauthorized immigrants who were present in this country when the legislation became effective ample time to apply for RPI status (which should enable them to pass the E-Verify check).

Would these measures end all illegal immigration?  Probably not, but they would greatly reduce the current incentives to enter or stay in the country illegally.  Improvement of the legal entry system, as discussed under the next heading, would also be helpful in this regard.

3. Expand opportunities for legal entry – There are many people outside this country who would like to seek employment in the United States, and it is generally perceived as in the national interest to let some of them do so.  The influx is seen as having two components: (i) highly educated and/or skilled immigrants with abilities that are in short supply, and (ii) workers ready, willing and anxious to fill jobs that Americans don’t wish to take.

The case for admitting high-end immigrants seems strong, the only potential concern being that employers might hire them in preference to qualified Americans.

Given the current unemployment problem in this country (as manifested by a relatively high unemployment rate, plus the lowest workforce participation rate since the Carter era), one might wonder about admitting low-end immigrants.  Where is Paul Krugman on immigration?  Jan Ting, (Wilmington, DE) News Journal, Delaware Chatter (6/22/13)

If famed economist Paul Krugman weighed in on this issue, suggests Professor Ting slyly, wouldn’t the Nobel laureate have to acknowledge that “allowing more poor immigrants into the US will increase economic inequality . . . make the plight of unemployed and underemployed Americans even worse than it is now . . . [and] doom the Affordable Care Act to failure and financial collapse.” 

True, the CBO estimates that S. 744 would result in overall fiscal gains of some $700 billion over the next two decades.  More people – more jobs – more taxes – Social Security retirement benefits down the road conveniently overlooked.  But one might think a proposal to encourage more unemployed Americans to find jobs by pruning overly generous welfare benefits would produce considerably larger fiscal gains.

This being said, we are willing to assume that the proposed caps on the various categories of immigrants and guest workers embodied in S. 744 reflect a reasonable answer to an imponderable question: what is the maximum number of immigrants and guest workers that should be allowed to come to this country per year?  If anything, some of these caps might need to be raised so as to leave no excuse for turning a blind eye to a continuing flow of illegal immigration.

Opportunities may also exist for minimizing the red tape associated with lawful entry.  For example, it is claimed that S. 744 as drafted would overcomplicate the hiring of workers under the HB-1 (temporary work visa, specialty occupation) program. Pay higher wages to most H-1B employees than to US workers – advertise the job for at least a month on a Department of Labor online database – offer the job to any “equally or better qualified” American who applies – etc.  Gang of 8 [bill] would make H-1B program unworkable, James Sherk,, 5/20/13.

We would urge the members of Congress to capitalize on such opportunities with the goal of making the legal entry programs simple and transparent.  If people understand the law and perceive it as fair, they are more likely to follow it.

4. Regularize status of unauthorized immigrants – In principle, it seems acceptable to grant registered provisional immigrant (RPI) status to unauthorized immigrants who are already here and put them on a path to eventual citizenship. 

Why does S. 744 require arrival by 12/31/11 to qualify for such treatment? The effective date of the bill (E+0 months) would be a more appropriate starting point.  However, unauthorized immigrants in the country as of E+0 should be required to register for RPI status – which would be duly reflected in the E-Verify system – before employers started screening existing workers as of E+36.

Critics may view the proposed legalization as tantamount to amnesty. OK, but 11+ million people cannot be rounded up and deported, so let’s be practical.  And forget about putting the path to citizenship of RPIs on hold until the border has been secured, E-Verify has been declared fully effective, etc., because such a sanction would never be enforced. 

As already discussed, the practical approach is to decide what control measures are needed (primarily mandating the use of E-Verify in our view) – set deadlines for action – and ensure the deadlines are met.

Another prerequisite for eliminating illegal immigration is to prevent future lawbreaking related to illegal entry, and other crimes whenever committed, from being condoned, ignored, waived, or endlessly litigated.  To this end, something needs to be done about the profusion of waivers or rights of appeal permitted by S. 744 for criminal offenses of unauthorized immigrants.  They make a mockery of the “toughest enforcement measures in US history” claims that have been made. Is the gang of eight really tough on immigrants with criminal records?  Byron York, Washington Examiner, 6/16/13.

[Among other things,] the legislation gives the secretary of Homeland Security authority to ignore an immigrant’s record and grant legal status no matter how many misdemeanor convictions the immigrant might have. “The secretary may waive [the misdemeanor requirement] on behalf of an alien for humanitarian purposes, to ensure family unity, or if such a waiver is otherwise in the public interest,” the bill says. It is within Janet Napolitano’s discretion to decide what is in the public interest.

Also, S. 744 would authorize subcontracting of the citizen preparation process – at government expense - to nongovernmental organizations that could operate without observing the restrictions on government employees who must act in a nonpartisan manner, e.g., the NGOs could encourage unauthorized immigrants to support a given political party (guess which one). 6 big problems with the immigration bill from someone who has actually read it, Betsy McCaughey (also an articulate and well-informed critic of GovCare),, 6/10/13. (video, 19:43). 

We believe the purpose of the citizen preparation provisions pointed out by McCaughey is nakedly political, and they should be vetted severely or deleted.

Tying up another loose end, the president’s administrative version of the Dream Act should be repealed.  If there are to be special accommodations for unauthorized immigrants brought in as children, they should be provided by Congress.

And here is one more thing.  It’s time for a federal law requiring reliable identification of voters at the polls, thereby ensuring that unauthorized immigrants do not begin voting unless and until they become citizens.  We find it truly shocking that the administration has not only not stepped up to this problem,  but also fought state efforts to do so.

IN SUMMARY: Relax about securing the border, streamline the legal entry system and ensure the caps are high enough, but set a deadline for making the E-Verify program fully effective and stop tolerating illegal behavior by unauthorized immigrants on a going forward basis. 

That’s an immigration reform plan we could live with.  If you agree, please pass it on.


6/17/13 – Fixing a broken immigration system: the proposal        Read a Reply

Last week’s entry concluded that the immigration system is in urgent need of repair.  That does not represent an endorsement for the proposed “reforms,” however, and the details of the Border Security, Economic Opportunity, and Immigration Modernization Act (S. 744) need to be thoughtfully considered.

It’s said that S. 744 is a bipartisan proposal, and technically that’s true.  Four Democratic senators (Michael Bennet, CO; Dick Durbin, IL; Robert Menendez, NJ; and Chuck Schumer, NY) and four Republican senators (Jeff Flake, AZ; Lindsey Graham, SC; John McCain, AZ; and Marco Rubio, FL) – aka “the gang of 8” – were responsible for drafting the bill and are now shepherding it through the Senate.   

Envisioning millions of new voters who would be inclined to vote for their party, Democrats are solidly in support of the proposal.  The debate has been mainly on the Republican side of the aisle. 

Proponents say S. 744 would represent an improvement over the status quo and is likely the best deal we can get.  Critics say it would work out like the 1986 amnesty bill, i.e., authorize the naturalization of millions of illegal immigrants without fixing the problem.

Our analysis and conclusions follow.

Background - After clearing the Judiciary Committee, S. 744 was taken up by the full Senate last week.  Senate Majority Leader Harry Reid has called for its passage by the July 4th recess.  Senate vote[s] to begin debate on comprehensive immigration reform bill, Alexis Levinson, Daily Caller, 6/11/13.

For the text of this 1,000+ pages opus and related documents, here’s the search page from the Library of Congress (Thomas). (select bill number, enter S-744, download PDF).

The bill is loaded with verbiage about securing the borders and ensuring compliance with US laws governing immigration. See, e.g., Section 2, Congressional findings.    It is also stated, however, that our nation was “founded, built and sustained by immigrants” and needs to establish “a coherent and just system for integrating those who seek to join American society.”

A “conservative plan” – It has been claimed that S. 744 would regularize the status of unauthorized residents in this country, without giving them any special breaks, and put a stop to illegal immigration.  Witness this video (1 minute), with Senator Marco Rubio and an off-screen narrator reciting poll-tested (no doubt) talking points (partial extract below).

Today we have de facto amnesty – conservative leaders have a plan – toughest enforcement measures in US history – no federal benefits or giveaways – illegal immigrants must pass background checks, prove they are gainfully employed, pay registration fee and a fine – support conservative immigration reform.

Facebook billionaire Mark Zuckerberg will reportedly provide “seven figures” funding to Americans For A Conservative Direction (the sponsor of this ad and several like it).  Mark Zuckerberg’s “conservative” pitch for immigration reform, Jon Terbush, The Week, 4/24/13.

Board members are Haley Barbour (former governor of Mississippi), Joel Kaplan (Vice President of US Public Policy at Facebook), and three GOP consultants. (We’d love to see the reaction if a company owned by the Koch Brothers created a VP of US Public Policy position.)  AFACD website,

The foregoing pitch is one-sided, if not outright deceptive. Here are some points that are ignored or minimized.

1. The bill does not provide for securing the border first.  As Senator Rubio has made clear in other statements, the status of illegal immigrants who are already in this country (and arrived before the end of 2011) would be addressed promptly.  In immigration reform, legalization comes first – it is not conditional, Byron York, Washington Examiner, 6/10/13.

In most of his public appeals for the Gang of Eight bill, Rubio has stressed its enforcement provisions, saying that border security must come before immigrants are granted legal permanent resident status. What he has not stressed so much is the fact that the bill would legalize the 11 million almost immediately, after they have passed background checks and paid some sort of fine. That would happen before any new security measures are completed, or even begun.

Some Republicans remember going along with a 1986 amnesty bill in reliance on assurances that the border would be secured afterwards.  This did not happen, and now the illegal immigrant problem is nearly four times as big as before.  Lessons of 1986 amnesty loom in immigration debate, Stephen Dinan, Washington Times, 6/10/13.

The eight senators who wrote this year’s bill say they have corrected the mistakes of [the 1986] law, which President Reagan signed and which granted citizenship rights to 3 million people, including many who may have obtained citizenship by fraud. But Sen. Chuck Grassley, an Iowa Republican who supported the 1986 bill but is leading the opposition this time, said he fears Congress is about to make the same mistakes again.

Observers inclined to agree with Grassley have cited an adage that arguably fits the situation.  Amnesty insanity: do the same thing and expect a better result, David Inserra,, 5/31/13.

Clearly, these three pieces of legislation [1986 amnesty bill, 2007 bill that was not enacted, and the current proposal] are incredibly similar— all three are amnesties at their core and reward those who broke U.S. laws with legal status; all three have called for additional security and enforcement; and all three have done and will do nothing to fix our broken immigration system.

2. Assurances the border would be secured later are problematic. Under the Senate bill, the Department of Homeland Security would be charged with developing a plan for securing the southern border with 90% effectiveness (9 out of 10 unauthorized entries stopped – the incidence of overstaying tourist visas does not seem to be mentioned). This plan (and also full implementation of the E-Verify system and biometric checks at ports of entry) would supposedly be implemented before provisional immigrant status determinations could start being upgraded to eventual citizenship.

Compliance and reporting would be up to DHS, however, which as discussed last week has been selective in the data it reports and tends to exaggerate the effectiveness of current border controls.  Even if a Southern Border Security Commission was appointed, as might occur under certain circumstances, the SBSC would make its recommendations and disband (not assume responsibility for border security.)

Perfection of “registered provisional immigrant” (RPI) status would be deferred for ten years, with certain exceptions, but could proceed thereafter even if 90% border effectiveness, etc. had still not been achieved due to (a) force majeure (developments beyond the government’s control), or (b) litigation (e.g., suits to protect alleged rights of illegal immigrants). 

In a June 4 “dear colleagues” letter, GOP Senators Ted Cruz (TX), Jeff Sessions (AL), Mike Lee (UT), and Chuck Grassley (IA) slammed the border security provisions (and other aspects) of S. 744 in no uncertain terms.

Under S. 744, legalization depends on a finding of satisfactory border security by a single, unelected bureaucrat who has stated publicly she believes the border is already secure.

• During markup, the [Senate Judiciary] Committee voted down every attempt to mandate meaningful control of our borders – including provisions already required by current law, and others included in the failed 2007 immigration bill.

• The bill also rolls back current law mandating a biometric entry-exit system at all ports of entry (air, land, sea) as required by six different statutes dating back to 1996, and as recommended by the 9/11 Commission.

3. Legal immigration improvements would be marginal.  The legal immigration system is a complex maze, which would-be immigrants and prospective employers must surely find confusing and frustrating.  Limits on the number of immigration visas, administered on a per country basis, have resulted in multiple-year wait times for family-sponsored and in some instances employment-based requests. Senate Judiciary Committee report on S. 744, pages 5-6.

S. 744 would set immigration visa quotas on a global basis, which sounds like a step in the right direction, and modify the guest worker program for seasonal workers, etc.  In both cases, however, the prescribed quotas would remain well below likely demand.  Also, there would be lots of “red tape” in the new system – ensuring continuing employment for both government officials and immigration lawyers.

In their “dear colleague” letter, Senator Cruz et al. say S. 744 would complicate the existing immigration system by “creating even more categories of visas and reducing transparency through a series of exceptions from visa caps.”  Senator Cruz offered an amendment in committee that would have doubled the annual green card cap (from 675K to 1,350K), but it was rejected. 

Also, according to one analyst, Section 4211 of the Senate bill would effectively gut the HB-1 (temporary work visa, specialty occupation) program.  Pay higher wages to most H-1B employees than to US workers – advertise the job for at least a month on a Department of Labor online database – offer the job to any “equally or better qualified” American who applies – etc.  Gang of 8 [bill] would make H-1B program unworkable, James Sherk,, 5/20/13.

Bottom line, it is hard to imagine that the proposed changes to the legal immigration system would eliminate existing incentives to break the rules and thereby result in the voluntary cessation of illegal immigration. 

4. Sanctions against illegal immigration would remain inadequate. Large-scale illegal immigration has continued year after year because the government was unwilling to commit the necessary resources and/or take the political heat for enforcing it.  If S. 744 was enacted, there is little reason to think this state of affairs would improve.

Only immigrants who arrived in this country before the end of 2011 would be eligible to apply for RPI status, so several hundred thousand illegal immigrants would remain in the pipeline (or else lie about their arrival date) when the new law became effective.

There would be no deadline for implementing the E-Verify system (which is designed to enable employers to identify and reject illegal immigrant applicants).  An amendment to require full E-Verify implementation within 18 months was rejected in committee.  Senate immigration gang frustrates GOP efforts to bolster border enforcement, Alexander Bolton, Politico, 5/16/13.

While E-Verify implementation is one of the conditions specified before the upgrading of RPI status determinations could begin, 10 years hence, this condition could be waived if the program was being challenged in court (as should be expected).  Rubio/McCain amnesty bill is the next Obamacare, John Hawkins (quoting Mark Krikorkian, Center for Immigration Studies),, 6/11/13.

The litigation over the 1986 bill didn’t end until just a few years ago. The ACLU has been quite clear that it intends to sue to stop mandatory e-verify and probably sue to stop a bunch of other things. If, for instance, mandatory use of electronic verification is still in the courts 10 years after the bill passes, it’s entirely possible the Secretary of Homeland Security can just give everybody Green Cards on her own — and there are hundreds of other examples of that kind of discretion.

Given the government’s apparent lack of interest in enforcing current immigration laws, as demonstrated by the creation of an administratively ordered Dream Act before the 2012 elections (Who needs Congress if the Executive Branch can make the laws? (Blog 7/28/12), assurances about future enforcement efforts do not carry much weight. Immigration bill is part of Democratic push for permanent majority, Michelle Malkin,, 6/11/13.

• Exactly one year ago this week, the president announced he would halt all deportations and start granting work permits to an estimated 2.1 million illegal aliens who entered the country as children.

• [Since then,] the feds have rubber-stamped applications at a whopping 99.5 percent approval rate. And fraudulent use of Social Security numbers is no problem for the so-called "DREAM"-ers. The feds reassured them last fall that they wouldn't have to disclose how many and which phony or stolen Social Security numbers they've used.

Government immigration enforcement agents report being frustrated in their efforts to deport illegal immigrants under current law – and they do not believe S. 744 would improve matters. ICE Union: Immigration problems go beyond border security, Stephen Dinan, Washington Times, 6/12/13.

“Any plan is doomed to fail that does not empower ICE agents to enforce laws enacted by Congress — and that does not put an end to the unlawful abuse of prosecutorial discretion by political appointees,” Mr. Crane [Chris Crane, president of the Immigration and Customs Enforcement union] said in the letter [to Senators John Cornyn and Marco Rubio], which was obtained by The Washington Times.


Mr. Crane said that the bill now on the Senate floor — known by its Senate designation as S.744 — actually places new restrictions on agents’ ability to go after illegal immigrants in the interior.


The path forward: Senator Ted Cruz recently addressed S. 744 in a powerful speech on the Senate floor.  He made two basic points: (A) the bill as it now stands would not cure the problem of illegal immigration, and (B) there is little chance it would pass in the House and become law. Accordingly, legislators interested in “common sense immigration reform” should support amendments that would make the proposal viable instead of viewing S. 744 as a “done deal” that cannot be substantially changed. (23 minutes, but worth the time).


We agree with Point A.  As already discussed, S. 744 puts legalization ahead of securing the border, provides no assurance the border would be secured later, might improve the legal immigration system but only modestly, and would not contribute to more stringent immigration law enforcement.  How could one expect, therefore, that this bill would cure the problem of illegal immigration?

As for Point B, we are not sure what is likely to happen in the House, particularly if the Senate passes S. 744 by a wide margin. 

It’s clear that Republicans are on the defensive about this issue.  They surely do not want to be blamed in future elections for blocking an immigration reform bill. And House Speaker John Boehner has signaled his intention to proceed with dispatch.  The result might well be an immigration bill arriving at the president’s desk before the end of the year.

Many House Republicans are unhappy about the way things are going, and they may press for a more intensive review.  Revolt among Republicans on immigration bill: 70 House members risk careers in planned showdown with leadership, Madeline Morgenstern, TheBlaze, 6/13/13.

The 70 members are petitioning for a special Republican conference meeting on the bill, a “highly unusual” move to go head-to-head with the speaker, according to Reps. Michele Bachmann (Minn.), Steve King (Iowa) and Louie Gohmert (Texas), who are serving as spokespersons for the group.  Bachmann, King and Gohmert told TheBlaze the group is invoking the Hastert Rule: requiring support from a majority of the majority to bring a bill forward.

Speaker Boehner has agreed to a special House conference on immigration in mid-July, but will he be in a listening mood?  Boehner also invited Senator Rubio to an inner circle meeting last week (presumably to pitch the Senate bill), and he is said to envision passage of a House immigration bill before the August recess.  Marco Rubio, John Boehner meet on immigration, John Sherman, Politico, 6/14/13.

As one tea party Republican noted on the Glenn Beck show, the outcome may depend on whether and how the American public weighs in on this issue. “[The] members of Congress don’t even know this fight’s going on,” she said, “so we need your viewers to melt the phone lines.”  [Representative] Michele Bachman: Far right “losing badly,” Tal Kopan, Politico, 6/14/13.

Recalculating: If the immigration system is broken, but S. 744 would not fix it, what should be done instead? Tune in next week for our suggestions.

*        *        *        This Blogs reply        *        *        *

Re: "Envisioning millions of new voters who would be inclined to vote for their party, Democrats are solidly in support of the proposal.  The debate has been mainly on the Republican side of the aisle." The immigration law has been perverted for decades to gain ballot box stuffers who are loyal to the left.  This game is corrosive, and it can be played out in other areas such as taxes & welfare benefits.  For a preview of what America will be like in 30 years, look at central areas of the biggest US cities. – SAFE director

Response: If you are right, the future will not be pretty.


6/10/13 – Fixing a broken immigration system: the goal

The R word does not appear in the title of the “gang of 8” bill (S-744, Border Security, Economic Opportunity, and Immigration Modernization Act,, which is currently making its way through the US Senate.  But the formal title is long and cumbersome, and the proposal has been commonly referred to as immigration reform.

To merit a “reform” label, S-744 should show solid promise of ameliorating the social and economic problems that have been created by allowing at least 11 million illegal immigrants to relocate to the United States with more on the way.  Proponents claim this requirement is satisfied; the bill’s detractors say major changes are needed. 

There are two key questions. (1) Should a “path to citizenship” (aka amnesty) be granted immediately, as is contemplated, or must the border be secured first? (2) Would the proposed changes add trillions of dollars to future deficits, or are claims to this effect based on a misunderstanding of the economic implications? 

Even assuming S-744 is well conceived, can it attract the necessary political support?  We think this bill will pass in the Senate, but quite possibly without enough Republican support to gain traction in the House.  Some observers question, moreover, whether Democrats really want to strike a deal versus preserving illegal immigration as an issue for future elections.

Here is how the president summed up the case for the Senate bill in his most recent weekly address.   Time to pass commonsense immigration reform, 6/8/13.

That’s what immigration reform looks like.  Smarter enforcement.  A pathway to earned citizenship.  Improvements to the legal immigration system.   They’re all commonsense steps.  They’ve got broad support – from Republicans and Democrats, CEOs and labor leaders, law enforcement and clergy.  So there is no reason that Congress can’t work together to send a bill to my desk by the end of the summer. 

This entry will focus on what the objectives of immigration reform should be, beginning with some basic information about illegal immigrants.  We’ll review and assess the Senate bill next week.

By the numbers – How many illegal immigrants are in this country?  The official figure is 11+ million, with a slight decline between 2010 and 20ll.  Number of illegal immigrants in US is stable: DHS, Reuters, 3/24/12.

Noting that the number of illegal immigrants was higher than thought before the 1986 amnesty, some observers have questioned the methodology for current estimates. See, e.g., “Just how many illegal aliens are in the United States?” David Gibson,, 8/27/09.

Washington arbitrarily estimates that every year since 1986, a half million illegal aliens take up residence in this country, either by over-staying their visa or by crossing into this country illegally. Additionally, they believe that the one million illegal aliens who did not qualify for the 1986 Amnesty (many were criminals), simply stayed anyway.  When you multiply a half million by 22 years, then add the additional million criminal aliens to the total, you have 12 million illegal aliens.

Perhaps, but the continuation that a realistic estimate would be “much closer to 60-70 million” lacks credibility at this point. Only 10 million illegal immigrants were counted in the 2010 census, despite a concerted (and controversial) effort to include them in the national headcount. Illegal immigrants factor into 2010 census results, congressional makeup, Fox News, 12/21/10. Although some undercounting probably occurred in the census, the 11+ million estimate appears to be in the ballpark.

According to the Department of Homeland Security, border security has been beefed up over the years – with a resultant reduction in the inflow of illegal immigrants.  Border security results, downloaded 6/10/13, DHS.

• Along the Southwest border, DHS has increased the number of boots on the ground from approximately 9,100 Border Patrol agents in 2001 to more than 18,500 today.  CBP now screens 100 percent of southbound rail shipments for illegal weapons, drugs, and cash, has expanded Unmanned Aircraft System (UAS) coverage to the entire Southwest border and completed 651 miles of fencing.

• Illegal immigration attempts, as measured by Border Patrol apprehensions, have decreased 53 percent in the past three years, and are less than one third of what they were at their peak.

Other sources say, however, that an improving US economy and the hope of arriving in time to benefit from the proposed immigration reset have caused a surge in unauthorized border crossings.  Illegal immigration still on the rise, Katie Pavlich,, 5/13/13.

Apprehensions in the Tucson Sector - the busiest section of the border - are down 1 percent so far this year to 64,514. But [in] the Rio Grande Valley in Texas, arrests are up 53 percent to 59,147. Apprehensions are used as an indicator of how many people are crossing into the United States.  Most of the recent growth in apprehensions is due to more Central Americans attempting to cross, unofficial data shows.

By the way, DHS only reports the number of apprehensions.  One might think other metrics should also be considered in evaluating the success of enforcement efforts. Managing illegal immigration to the United States; How effective is enforcement? Bryan Roberts et al., Council on Foreign Relations, May 2013.

U.S. enforcement has likely discouraged illegal entry. However, such basic questions as the apprehension rate for unauthorized crossers or the estimated number of successful illegal entries cannot be answered simply by counting arrest totals.

Based on the best information available, about one out of two would-be immigrants is still getting through.  An 85% effectiveness rate claimed by one DHS official in recent congressional testimony (responding to a question from Senator Tom Carper) seems highly improbable.  What is the real number of illegal border crossings?  Byron York, Washington Examiner, 5/6/13.

What changes are needed – OK, let’s say there are 11 million illegal immigrants – half a million new arrivals every year – and some degree of attrition.  The illegal immigrant population should grow over time, but perhaps not very rapidly.  Is this a problem, and if so why?

The uncertain status of illegal immigrants is not a comfortable situation for them.  Yes, they chose to bypass the legal immigration system (reportedly not easy to navigate), but it would be nice to see their status legalized so they can “come out of the shadows.” 

For the United States and its current citizens, some level of immigration seems desirable, but there is a limit to how many would-be immigrants can be admitted, find productive jobs, and be assimilated.  Also, the uncontrolled influx of people across our borders could mask the arrival of terrorists and criminals. 

Consider this example of the drawbacks of open immigration policies; it’s from a prosperous country that is generally considered well run. Stockholm riots leave Sweden’s dream of perfect society up in smoke, Colin Husby, UK Telegraph, 5/25/13.

This weekend, after six consecutive nights of rioting, Mr. Mohammed was not the only one questioning the Swedish social model's preference for the carrot over the stick. Many Swedes were left asking why a country that prides itself on a generous welfare state, liberal social attitudes and a welcoming attitude towards immigrants should ever have race riots in the first place.

One would hope new arrivals in this country are not coming here to take advantage of US welfare programs, but it may be hard (if not impossible) to treat them as second-class residents and deny coverage. Should US taxpayers be expected to pick up the resulting tab for healthcare benefits, food stamps, disability, and eventually retirement benefits? 

A leading conservative think tank has concluded that the proposed immigration overhaul would produce trillions of dollars in net future costs.  The fiscal cost of unlawful immigrants and amnesty to the US taxpayer, Robert Rector & Jason Richwine, Heritage Foundation, 5/6/13.

Over a lifetime, the former unlawful immigrants together would receive $9.4 trillion in government benefits and services and pay $3.1 trillion in taxes. They would generate a lifetime fiscal deficit (total benefits minus total taxes) of $6.3 trillion. (All figures are in constant 2010 dollars.) This should be considered a minimum estimate. It probably understates real future costs because it undercounts the number of unlawful immigrants and dependents who will actually receive amnesty and underestimates significantly the future growth in welfare and medical benefits.

Other analysts reject the Heritage view as one-sided, saying new arrivals can become productive members of society and have a positive economic impact. Fox News, 5/6/13.

• Economist Douglas Holtz-Eakin, former director of the Congressional Budget Office, said the Heritage study ignores key factors like the possibility of illegal immigrants moving up the economic ladder. "There's no upward mobility," he told "They're frozen" in low-paying jobs. 

Stephen Moore, an economist and Wall Street Journal writer, said many economists challenge the notion that immigrants are a net cost to the country. *** "You've got to look at both sides of the equation," Moore said. "Yes, the immigrants will use benefits, no question about that, but as they become more productive citizens and they come out of the shadows, a lot of economists -- myself included -- think they'll become more productive and they'll pay more taxes." He noted many immigrants are entrepreneurial, starting businesses that grow the economy. 

A sharp critique came from the Cato Institute, which has been supportive of an immigration overhaul.  Not only is the Heritage methodology “depressingly static,” says Alex Nowrasteh, but it posits the US would benefit if all the illegal immigrants that are here were forced to leave.  Wrong!  Based on an earlier study, (1) “immigration reform would increase US GDP by $1.5 trillion in the ten years after enactment, while (2) “the removal or exit of all unauthorized immigrants” would result in “a $2.6 trillion decrease in estimated GDP growth over the next decade.”   Heritage’s flawed immigration analysis, 5/7/13.

Chris Edwards of Cato characterizes the Heritage study as a useful discussion of the excessive ambit of the welfare state for the general population, immigrants and long-time residents alike.  Heritage immigration study and government spending,, 5/13/13.

The Heritage study is sparking a debate about what type of immigration reform the nation should have. But hopefully, it will also spur more discussion about the massive size of the American welfare state. Immigration is partly, or mainly, such a contentious issue because we have such a huge welfare state.

Another view is that Heritage is trying to lock the barn door after the horse has been stolen.  Under existing law, says Robert Lynch of the Center for American Progress, illegal immigrants and their children will be able to qualify for a large portion of the benefits included in Heritage’s $6.3 trillion net cost estimate whether their residency is legalized or not. Illegal aliens already eligible for retirement programs, says Heritage Foundation critic, Daily Caller, 5/29/13.

With all due respect to Heritage and the fine work they do, we agree with the other side.  The illegal immigrants now in the country are not going away, and it would be impractical (if not immoral) to deprive them – on a long-term basis – of benefits that their counterparts in the general population enjoy. 

The view suggested comes perilously close to viewing human beings (except for the social elite) as an economic liability, which is somewhat analogous to viewing population growth as a threat and being irrationally invested in alternative energy sources and reducing the human race’s ecological footprint.  For reasons previously suggested, we reject the sustainability concept. Don’t panic about sea level rise, point D (a hidden agenda?), Blog (8/27/12).  

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!

Far be it from SAFE to dismiss concerns about the cost of welfare benefits, but the proper way to address such concerns is to restructure the programs – as we have proposed repeatedly – rather than attempting to maintain a class of US residents who cannot access them.

Still, there is no blinking the fact that welfare benefits can have the effect of supporting immigrants who then turn around and commit horrifying acts.  Consider the Tsarnaev family, which received over $100,000 in taxpayer-funded assistance over a 10-year period.  Boston bombers received welfare benefits, Rachel Sheffield, Heritage, 5/2/13.

So what’s the secret for a Goldilocks immigration system – not too big or liberal, not too small or stingy, but just right?  We don’t claim to have a definitive answer, but that’s what this country should be looking for to replace the hybrid (stringent legal/ tolerated illegal) system that is currently in effect.

Would the Senate bill do the trick?  Tune in next week for a continuation of this discussion.


6/3/13 – SAFE’s latest letter to Congress

This week, SAFE is sending a letter to the 535 members of Congress urging them to get serious about the fiscal problem.  More about this message in a minute, but first let’s take a quick walk down memory lane.  As you’ll see, our group has had a pretty consistent message.

2008 - SAFE posted a hypothetical letter from “Fed-Up Taxpayers” complaining that the annual deficit had risen to some $400 billion and advocating a crackdown on wasteful government spending.  The pitch had a nice ring to it, we think, but it was too long (1,464 words) for a letter to Congress. A line in the sand on taxes, Blog 5/26/08.

We want wasteful programs terminated – not renamed, reorganized, or cut 5%. Ethanol fuel mandates and subsidies  – gone.  Agricultural subsidies – gone.  Export-Import Bank – gone.  Hundreds of federal grant programs that most taxpayers have never heard of – gone. And so forth.

2009 - Our one-page letter to Congress (posted but not sent) noted that the fiscal problem had worsened dramatically and suggested some common sense adjustments to practices that seemed to be coming into vogue. SAFE letter 7/13/09

• As the result of an economic recession, bailouts, and an unprecedented Congressional spending spree, the deficit for fiscal year 2009 is now estimated at $1.8 trillion [the actual result was $1.4T].  Deficits are projected to continue throughout the 10-year budget period.  And initiatives in healthcare and the energy sector are being pushed, which would boost government spending and jeopardize the budding economic recovery. 

• What should Congress do? (1) Get your priorities straight. Job one is not to gratify segments of the electorate; it is to get the government’s fiscal affairs under control. (2) Slow down the action. Major new programs should be seriously reviewed, with the consideration of all responsible points of view (including ours), not rushed through as fast as the legislation can be written. (3) Forget about raising taxes to pay for new spending programs, e.g., the healthcare bill.   There is just so much people are willing to pay in taxes, and whatever tax increases may wind up being imposed will be needed to balance the budget.

2011 – Encouraged by the 2010 election results, SAFE wrote to each of the 535 members of Congress urging decisive action to head off a disastrous fiscal meltdown.  The key steps (citing prior SAFE analyses for details): (A) cut total spending to not more than 20% of GDP; (B) overhaul the tax system; and (C) streamline regulations.  SAFE letter, 2/2/11.

2013 – The federal deficit has been shrinking of late – primarily due to an economic uptick, not actions of Congress – with a $642B shortfall now expected for the current fiscal year versus earlier estimates of close to $1T.  However, deficits are still projected as far as the eye can see. Tax timing, Fannie and Freddie cut federal deficit in half, Patrice Hill, Washington Times, 5/27/13.

“From the perspective of informed conservatives, the continually growing deficit is still a problem,” said Cullen Roche, founder of Orcam Financial Group. “Sure, the deficit might be shrinking, but that’s like the fat guy who is putting on 20 pounds a year, vows to lose weight and then celebrates next year when he only puts on 10 pounds. It’s the absolute size of government spending [and debt] relative to the economy that worries conservatives.”

Some decision makers in Washington may be inclined to say “what a relief, now we can spend some more money on XYZ,” but why not take advantage of a favorable trend and fix the fiscal problem? 

To this end, SAFE has posted an 8-point action plan to balance the budget – which come to think of sounds a lot like what we were saying in 2011.  The basic thrust is to cut wasteful discretionary spending, restructure entitlements, streamline the tax system (without overall increases), and rationalize regulations (both existing and proposed) so as to eliminate unnecessary economic drag.  A status report on the fiscal problem, Blog 5/6/13

A link to SAFE’s action plan is provided in our current letter to Congress, for those recipients who may be disposed to review it, but the focus is on the goal that the letter is attended to achieve – “balancing the budget within say three years and keeping it that way.” Here’s the link: Safe letter 6/3/13.  And the text of the letter appears at the end of this blog entry.

Will the members of Congress pay any attention to our letter?  We can offer no assurances about this, but “nothing ventured, nothing gained.”

If enough people started asking why the budget isn’t getting balanced, one might think the politicians would discover that it’s not so difficult to balance the budget after all.

Dear readers, you can help by forwarding the link to SAFE’s letter and/or calling members of Congress to express your views [].

Many thanks.

Secure America’s Future Economy

 June 3, 2013


[Individually addressed, e.g., Senator Tom Carper, Delaware]

SAFE is an all-volunteer, grassroots organization, with members in Delaware and over 20 other states, which has been advocating smaller, more focused, less costly government since 1996.

We are appalled by the relentless rise in government spending and debt, and can see little indication that Congress is trying to set things right.  Even the House budget plan projects deficits until 2023; the Senate budget plan (and likewise the president’s plan) is not designed to achieve budget balance at all.

House v. Senate budget plans, 2014-23, $ in trillions





2023 Total Debt





20.4 (79% of GDP)





24.4 (94% of GDP)

SAFE has proposed an 8-step strategy to address the fiscal problem. Blog page of our website, 5/6/13 entry.  What we would stress in this letter, however, is not the points in our plan as such but rather the goal the plan is aimed at – balancing the budget within say three years and keeping it that way.

Some may advocate reducing the deficit to a “sustainable” 3% of Gross Domestic Product, but a balanced budget policy would offer three advantages: (1) Reserve government borrowing capacity for true emergencies, e.g., a major war.  (2) Control borrowing costs, which over time threaten to crowd out desired programs.  Net interest expense, is currently running over $200 billion per year; it is projected to more than triple over the next 10 years. (3) Minimize the temptation for government leaders to make spending commitments now that will not be affordable later.

SAFE would welcome the opportunity to provide further input.  Please let us know how we can help.


A. H. Betley  Suzie Dickson Barry Dorsch
Edgar Fasig Daniel Kerrick Jerry Martin
Steve McClain Bill Morris John Nichols
rycK Stout Bill Whipple  


5/27/13 – Aging in Delaware (and elsewhere)            Read Replies

Growing older in Delaware is something many SAFE members know a thing or two about, so it caught our attention when the (Wilmington, DE) News Journal announced this Imagine Delaware forum (evening of May 20). Predictably there would be a deluge of coverage about retirement of the baby boomers and growth in the number of senior Delawareans, culminating with a report on the forum itself.

Aging can work out in many ways – like the earlier phases of life – and there is no surefire path to fulfillment and contentment.  What would the reporters, commentators and panelists focus on, and would the picture they painted be positive or negative? 

There was happy talk aplenty in the pre-forum buildup and at the forum about seniors who remain active (e.g., are taking dance classes) and have found ways to give back to the community (Governor Jack Markell notes, for example, that over 1,600 children in Delaware are being mentored by a “foster grandparent”).  However, the basic thrust was somber.  Who will take care of the growing number of old people, and how will the rest of us pay for it?  Delaware Chatter, (5/19-21/13).

It was useful to pose these questions, which lie at the heart of the fiscal problem SAFE spends so much time and energy talking about, but the suggested answers fell short.  The biggest issue was glossed over, namely the D word, and we thought unwarranted confidence was placed in government leaders and experts to make the “right” decisions. 

Demographics – The headline story on May 19 spoke of a tidal wave of baby boomer retirements in coming years.  Having been trailblazers all their lives, the boomers are now preparing to redefine “what it means to age in America.”  They will want to control their own destinies, be much more active than their predecessors, and live a long, long time.

In addition, seniors from Maryland, New Jersey, Pennsylvania, and elsewhere are moving to Delaware – reportedly “drawn by lower taxes and cheaper housing.” 

One-third of Delawareans will be 60 or older by 2030, a big change from the current age profile.  On a relative basis, that will mean a declining base of active workers supporting the needs of a growing number of retirees. 

Noting that the current 0-19 age cohort in Delaware is “much smaller” than the 45-64 age cohort, one forum panelist (Ed Ratledge, University of Delaware survey and demographic unit) suggested the need for “a very serious discussion” of the social and economic implications.  

Making ends meet - Will older Delawareans be able to sustain the lifestyle to which they aspire in retirement, or will many of them have trouble getting by? 

Realistically, many seniors will not have saved enough money on their own to ensure a comfortable retirement. Didn’t start early enough or save enough – investments and home value eroded during the financial crisis of 2008 and ensuing recession – drew down savings for other purposes.

Compounding the retirement savings problem, many private employers are replacing traditional pension (defined benefit) plans with defined contribution plans that retirees are likely to exhaust before the end of their lives.  And even if a retiree does have a traditional pension, it is probably not indexed for inflation unless he worked for the government.

The impact of inflation on retirees was pointed out in one of the News Journal stories (May 20).  Assuming a 3% per year inflation rate (and the rate may go far higher if the Federal Reserve messes up), an $80K per year lifestyle would be cut to the equivalent of $44K per year in 20 years for a retiree living on a fixed income.

If major medical expenses and/or long-term care become necessary, the financial picture will become that much darker.  Even for seniors who have personal insurance against these risks, the coverage is rarely if ever adequate.

No wonder a poll cited by the News Journal indicates that only 38% of non-retired Americans expect to have enough money for a comfortable retirement.  The poll also indicates that most Americans now contemplate working until the “normal” retirement age of 67, and some 22% expect to continue working part time after that. Gallup, 4/30/12.

What about government support programs to take up the slack, notably Social Security, Medicare and Medicaid?  They are a help, but the governments concerned will face growing difficulties in covering the commitments that have been made. 

Look for Social Security benefits to be pared back – higher retirement age, means testing of benefits, less generous indexing for inflation - due to fiscal stress on the federal government.

The outlook is even more troubled for Medicare and Medicaid.  Not only is the number of seniors growing, but also the cost of healthcare is open-ended.  Consider some facts reported by the News Journal (May 21 story).  Some 80% of older Americans have at least one chronic health condition, requiring long-term treatment, and up to half of them have two.  Many older seniors will wind up having Alzheimer’s, which is very expensive to treat.

Medicare is the federal government’s problem, but Medicaid (which covers medical care for the indigent, and also long-term care for anyone who can show their assets have been exhausted) is partially funded by the states. 

A funding gap of over $500 million is projected for Delaware’s Medicaid program by 2030.  No wonder Governor Jack Markell (one of the panelists at the forum) says the most pressing problem facing an aging Delaware is the healthcare delivery system and how the state will pay for it.   

Suggested solutions – It is far cheaper for seniors to stay in their own homes, perhaps with visiting caregiver support, than for them to be cared for in nursing homes.  This coincides with the desire of old folks to maintain their independence.

Seniors should plan ahead by moving to smaller homes (ideally one floor) and/or putting in first floor bedrooms, wheelchair access ramps, step-in bath enclosures, etc.  Of course, it would be cheaper to build these features into houses in the first place, but there is not enough market demand to cover the extra builder costs.  (A May 21 editorial suggests that the government should consider making such accessibility features mandatory.) 

Given the therapeutic value of exercise, communities should provide safe walkways and inviting recreation areas so seniors will feel motivated to get out and about.  New ways of transporting people will also be needed, presumably meaning shuttle service and such (although driverless cars might be another possibility).

Reimbursement for in-home health aids may be far cheaper than the alternatives.  Thus, healthcare insurance will pay a woman living alone for ambulance and emergency room service, yet it won’t cover $200 for an air conditioner to help her stay well.  This anomaly is being addressed in Oregon, said Governor Markell, and similar changes may be needed in Delaware.

Jennie Chin Hansen of the American Geriatric Society suggested that “telemedicine” could enable seniors with conditions like arthritis to stay in their homes longer, but the payment regulations need to be updated.

Whatever is done, many seniors will ultimately require some form of long-term care.  The possibility of other family members assuming this responsibility (a traditional solution) is dismissed as unfair and/or impractical.  “We must stop ducking the cost of long-term care,” editorial, May 20.

Today the bulk of long-term care is given by families, especially daughters.  This supposedly ‘free’ service comes at a great cost and tremendous personal sacrifice *** many of the baby boomers who will need long-term care will have no kinship network because of having been divorced, having never married or having no children.

The GovCare bill included an arrangement for long-term care called the CLASS Act.  The News Journal editorial endorsed the subsequent decision to abandon this scheme, as it was “poorly designed and unworkable,” but notes that a long-term care commission (LTCC) has been formed and will in due course propose some other solution. 

Maybe the LTCC’s proposal will be accepted, maybe not, but surely “experts can devise a system that keeps costs low and requires everyone to pay a small share like a real insurance system.”  All that is missing “is the leadership and the political will.”

Governor Markell is reportedly considering a proposal to help cover senior benefits by “means testing” the exemption of Social Security benefits and some of pension income from state income tax.

Many well to do seniors from Delaware spend over half of the year in sunnier climes and avoid Delaware income tax. If the means testing idea encouraged a few more to follow their example, it could prove counterproductive.  Would Delaware then attempt to tax the snow birds based on their remaining connections in Delaware?  Minnesota’s snowbird tax, Wall Street Journal, 1/31/13.

In its concluding editorial (May 21), the News Journal states that aging of the Delaware will  “one day . . . create a human and fiscal crisis,” which “will be worse if we choose not to notice what is coming.”  Various actions are suggested, most of which seem to involve government action of one sort or another.  For example, invidious references to seniors in the workplace should be outlawed to ensure that the seniors would not have to function in a hostile work environment.

There isn’t much need to worry about the big issues like fixing Medicare and Social Security, says the News Journal, because “local officials or the average person does not have much sway over which way those arguments go.”  Therefore, Delawareans should concern themselves with smaller issues that might actually make a difference.

Discussion – News Journal coverage of the forum failed to note that the cheapest way to solve the anticipated fiscal problem would be to speed the demise of ailing seniors.  Christopher Buckley wrote an amusing but thought-provoking novel in this vein a few years ago. Here’s our review again from the 11/12/07 blog entry.

Boomsday relates the exploits of a PR chick named Cassandra Devine, a rich young Congressman who becomes her boyfriend, and a PR strategist, in supporting Cassandra’s proposal to close the fiscal gap by providing tax incentives for aging baby boomers to undergo euthanasia (“transitioning”) at age 65 or, with lesser incentives, 70.


An absurd premise, granted, but how else can the interests of young people (the “Whatever Generation”) be protected?  The boomers are not going to give up their benefits voluntarily, all they want to do is live in their gated communities and play golf.


Cassandra offers this proposal to make a point, but the Congressman starts making deals with the Association of Baby Boomer Advocates (ABBA) and others. In no time, the transitioning threshold is 75 (eventually 85) and the incentives have been sweetened so much that Voluntary Transitioning threatens to aggravate the fiscal crisis instead of solving it.


The right to lifers and the White House are dead set against Voluntary Transitioning, but with ABBA backing the bill starts to gain momentum.  An independent commission is appointed to slow things down, and it comes through as expected.


No need to give away the rest of the wacky story. Suffice it to say that youth is at least partially served in the end.

All kidding aside, there are cost-benefit considerations in prolonging life.  It makes no sense to devote unlimited resources to keeping people alive after their lives are effectively over, and decisions as to what to do in specific cases can be and are made every day in hospitals around the country.

It’s hard to say how and under what circumstances the plug should be pulled, but one thing seems clear to us.  The patients, family members and attending physicians should make these calls.  Legislators, regulation writers, and government bureaucrats should absolutely, positively not get involved!

The practice of assisted suicide, euphemistically labeled “death with dignity,” is now legal in four states.  Vermont gov. signs first death-with-dignity law passed by legislature in US, PRNewswire, 5/20/13.

The Vermont law *** will provide criminal, civil and professional protections for physicians who prescribe medication to mentally competent, terminally ill patients that they can ingest to achieve a peaceful death.

What will happen after the federal government takes over the healthcare system (acting through proxies, i.e., insurance companies and regulated healthcare providers), pursuant to the GovCare legislation, and fiscal pressures get intense.  You guessed it, decisions will start being made as to the age appropriateness of expensive medical procedures, the proper levels of medication for the relief of pain, and the like. 

Examples of controlling healthcare expenditures by the de facto rationing of medical care abound in other countries, such as the UK.  NHS ageism “stopping elderly getting cancer treatment,” Stephen Adams, UK Telegraph, 12/20/12.

And there have been indications that similar practices are contemplated in this country, or at least that it is intended to divert healthcare dollars from seniors to lower age cohorts.  One of the intellectual architects for GovCare was Ezekiel Emanuel, a bioethicist brother of former Chief of Staff Rahm Emanuel who took a post in the Office of Management and Budget in 2009 and is now at the University of Pennsylvania.  Obamacare: Playing God is not what gov’t was meant to do, Cheryl Pass,, 12/8/12.

. . . who makes your healthcare decisions. You, your doctor, or some guy named Ezekiel Emanuel? *** According to Dr. Emanuel, the costs of healthcare are to be doled out based on the productivity of the citizens based on their age group. In short, the government will spend fewer dollars on the very young and those over 50, gradually reducing the amount as people age. His plan gives the most money to those 20 to 50 in order to protect the productivity and taxation of that age group.

In fairness, Dr. Emanuel is on record as opposing euthanasia.  His argument for limiting expenditures for senior care is based on the need to allocate limited resources, e.g., by deciding who should get flu shots in case of a pandemic.  Ezekiel Emanuel, Obama’s “Doctor Death”? Alex Koppelman, Salon, 8/6/09.

“Most people have the intuition to say, ‘Give it to my 19-year-old. I got to 65; I’ve lived a good life,’” Emanuel explained to the Washington Post in 2006. “We are not interested in purely the number of lives (saved), but also life-years.”


Suppose one bought into the News Journal comments that (1) “experts” can devise an ideal long-term care system, and (2) us ordinary folks shouldn’t worry about the problems with Medicare and Social Security, which will be handled just fine by federal government leaders and/or their advisers. 


With that kind of leave it to Big Brother approach, what would remain of the American republic in a few years?  Sorry, but we prefer to keep thinking for ourselves and would encourage everyone else to do the same.


*        *        *        This Blogs Replies        *        *        *

Great minds think alike. I do wish I was better at addition and subtraction. - SAFE member 

The “progressive solution” is Death Panels to get the oldies to check out earlier.  Amnesty for illegal immigrants and a hike in the inheritance tax are also favored.  - SAFE director


5/20/13 – Kabuki theater in DC             Read Replies

It’s all well and fine to advocate sound economic policies, but don’t count on such policies being followed if the body politic is ailing. See the Political System page of this website.

We have become increasingly concerned about Executive Branch overreach, which threatens to undermine the checks and balances provided for in the Constitution and could lead to a very different system of government than the founders intended. The imperial presidency returns, (6/25/12)

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. 

Recent developments have suggested the need for an update.  Although the Fast and Furious inquiry has faded into the background, it remains unresolved.  Fallout from the Benghazi attack, IRS targeting of conservative groups, and a subpoena of AP phone records are currently much discussed.

In each case, the basic questions are the same.  Who was responsible for XYZ?  Was misinformation provided after the fact?  Who should be held accountable?

And notwithstanding the response of then Secretary of Hillary Clinton to persistent questioning about the Benghazi attack – What difference, at this point, does it make? – the answers matter a lot.  In the words of her questioner, “dereliction of duty ultimately resulted in the death of four Americans” and she “shielded herself with a report by the Accountability Review Board and pinned the blame on unnamed State Department officials a few levels below her.”  How to prevent another Benghazi, Senator Ron Johnson (R-WI), Wall Street Journal, 5/15/13 (no link available). 

More generally, our political system won’t work if key players are allowed to dissemble or obfuscate when things go wrong.  As President Nixon’s downfall demonstrated, a cover-up may loom larger than the original errors and/or misconduct.

The responsibility, candor, and accountability questions have been asked about each of the aforesaid situations, but so far – as will be discussed – the responses have been pitiful. Nothing will change unless the public supports a demand for real answers.

A. Fast and Furious gun walking operation resulted in the death of many people in Mexico and at least two American law enforcement officers.  The purpose of this misguided operation has never been convincingly explained.  The Department of Justice refused to provide many documents requested by the House Oversight Committee.  After Attorney General Eric Holder was declared in contempt, the president asserted executive privilege to block the inquiry – that is where matters stood when our “imperial presidency” entry was posted in June 2012.

The demand for documents is now being litigated, and a federal judge has put this dispute between Congress and the Executive Branch – which would seemingly merit expedited consideration (it will never be resolved short of a decision by the US Supreme Court) – on the slow track to oblivion.   Judge orders mediation in Fast and Furious contempt case, Tal Kopan, Politico, 3/18/13.

Key questions: (1) Why and how did F&F spiral out of control? (2) What did the attorney general know about this operation, and when did he know it? (Some of Holder’s initial claims of lack of knowledge had to be “walked back” when documentary evidence surfaced to disprove them.) (3) Was there White House involvement, as would seem to follow from the assertion of executive privilege?

B. Benghazi attack on September 11, 2012 resulted in the death of the American ambassador and three other Americans.  For several weeks, the attack was attributed to Muslim outrage over an obscure anti-Mohammed video produced by a Coptic Christian in California.  In appearances on five TV talk shows on September 16, UN Ambassador Susan Rice characterized the attack as a “spontaneous demonstration” over the video that ended in violence.  The president and then Secretary of State Hillary Clinton later reprised this explanation on several occasions.

The video story continues to be supported as “the best information we had at the time,” but it has now been conceded that diplomatic and security facilities in Benghazi were overrun by a preplanned and organized terrorist attack.  US officials on the ground, notably head of mission (after the death of Ambassador Stevens) Gregory Hicks, so reported from the outset.  And the talking points supplied to Ambassador Rice for the TV appearances bore little resemblance to the document originally provided by the CIA. 

The president and his supporters were apparently reluctant to admit a terrorist attack had taken place, belying the campaign narrative of an improving international situation.  Even after the terrorist attack was conceded, its importance continued to be minimized.  Consider how the president painted the picture in the final presidential debate.  Foreign policy debate comes down to domestic issues, (10/29/12).

US position in the world strengthened by ending the war in Iraq, taking out Osama Bin Laden, and preparing to withdraw from Afghanistan in 2014. The terrorist attack in Benghazi on Sept. 11 was 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.

Investigation and reprisals?  The only person known to have paid for the Benghazi attack thus far is the video maker, who was arrested with great fanfare on parole violation charges.  Obama and the “official truth,” Caroline Glick,, 5/18/13.

Nakoula Basseley Nakoula has been sitting in a US federal prison in Texas since his photographed midnight arrest by half a dozen deputy sheriffs at his home in California for violating the terms of his parole. As many reporters have noted, the parole violation in question would not generally lead to anything more than a court hearing.

Several congressional hearings about Benghazi have taken place, and various documents (most recently e-mails re the rewriting of the talking points) have been provided.  The party line now will presumably be that the subject has been beaten to death, the White House has bent over backwards to provide information, and there is nothing more worth talking about.  White House releases Benghazi e-mails, Jake Tapper, CNN, 5/16/13.

The White House and its allies in Congress have made the case that any confusion and conflicting information in the early hours and days after the attacks stemmed from the "fog of war" -- not any deliberate effort to mislead the American people about the source of the attacks.  Obama has called Republican concentration on the talking points a political "side show."

But several questions do remain outstanding, and they strike us as of fundamental importance. 

• Before: (1) Who in the State Department denied Ambassador Stevens requests for additional security in Benghazi and why?  Hillary Clinton has denied involvement, but there is an e-mail bearing her name that indicates otherwise.  Even if she didn’t read the e-mail, it would seem that the secretary should have been consulted or at least made aware of a decision of this importance.

• During: (2) Who gave the order for a small security detail in Tripoli not to go to Benghazi and try to help? (3) Why was the counterterrorist response team not activated to review actions that might be taken? (4) How could anyone know, at the time, how long the attack would last – thereby enabling them to determine that US military assets should not be sent because they could not reach Benghazi in time to do any good?

• After: (5) Whose idea was it to attribute the Benghazi attack to a demonstration protesting the anti-Mohammed video, when no such demonstration had taken place and there had been no reports of such a demonstration by US personnel on the scene? (6) Why was this narrative repeated by top officials for several weeks afterwards?

C. IRS targeting of conservative groups was revealed by an IRS representative at a legal conference on May 10.  The practice was attributed to lower level employees in the Cincinnati office, who had been taken a shortcut in their work (reviewing applications by nonprofits for tax-exempt status)., 5/14/13.

An investigative report followed, which indicated that the practices in question dated back to 2010.  The audit had been undertaken due to complaints from various members of Congress during the 2012 election cycle.  So much for the claim that the upper echelon in the IRS didn’t know what was going on.  Inappropriate criteria were used to identify tax-exempt applications for review, Treasury Inspector General for Tax Administration, 5/14/13.

One day later, the president addressed the nation on TV.  He pronounced the IRS conduct “inexcusable” and announced that the acting head of the IRS had resigned.  “Given the controversy surrounding this audit, it’s important to institute new leadership that can help restore confidence going forward.”  Speech transcript, 5/15/13.

The implication seemed to be that this matter was a surprise to the president, but if so it should not have been.  Complaints by conservative groups were public knowledge by mid-2012 or earlier, and IRS targeting of conservatives may have been encouraged by Democrats.  The imperial presidency returns, (6/25/12)

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.

The next day, on being asked whether he had known about the IRS practices before they were officially reported, the president responded to a different question.  Obama names Werfel acting IRS commissioner, CBS News, 5/16/13.

"I can assure you that I certainly did not know anything about the [inspector general] report before the I.G. report had been leaked" to the press, Mr. Obama said at a press conference in the White House Rose Garden with [the] Turkish prime minister.

Some observers say the IRS practices are the most impactful of the brewing controversies because they so directly touch the lives of Americans.  This is no ordinary scandal, Peggy Noonan, Wall Street Journal, 5/17/13.

Everyone involved in this abuse of power should pay a price, because if they don't, the politicization of the IRS will continue—forever. If it is not stopped now, it will never stop. And if it isn't stopped, no one will ever respect or have even minimal faith in the revenue-gathering arm of the U.S. government again.

Concrete action has been taken in response to the IRS misconduct, however, namely the sacking of the acting IRS head (although he was reportedly slated to leave in June anyway).  No political leaders appear to be involved that the president would hesitate to throw under the wagon, and more personnel actions will likely follow before the controversy fades from the headlines.

Side B will reportedly do its best to exploit this opening.  Republicans expand IRS inquiry, with eye on White House, Jonathan Weisman & Jeremy Peters, New York Times, 5/17/13.

Republican charges range from clearly questionable actions to seemingly specious allegations, and they grow by the day. On Friday, lawmakers sought to tie the I.R.S. matter to the carrying out of President Obama’s healthcare law, which will rely heavily on the agency. Whether they succeed holds significant ramifications for Mr. Obama, who will soon know if he is dealing with a late spring thunderstorm that may soon blow over or a consuming squall that will leave lasting damage.

But there is no evidence of a cover-up to date, and our guess is that the IRS controversy will fizzle out pretty quickly.

D. AP phone records subpoena was obtained for the purpose of investigating information leaks that could endanger national security.  The precipitating incident was a leaked story about how an alleged Al Qaeda plot to detonate a bomb on a plane bound for the US had been foiled.  The subpoenas covered records for some 20 phone lines used by AP reporters and editors, including a line to the House cloakroom, for the period April/May 2012.  No monitoring of phone conversations has been reported, but the records could have been used to identify whom reporters were talking to, when, and for how long.  Eric Holder points finger at his deputy who secretly obtained journalists’ phone records, Daily Mail, 5/14/13.

The attorney general defended the subpoenas as justified by a grave national security risk.  He claimed to have recused himself from the matter and therefore to have no personal knowledge of the details, but when pressed on this point failed to offer any corroborating information.  Holder has memory loss at hearing about AP investigation, Jerry Seper, Washington Times, 5/15/13.

[He] described the leak . . . as a “very, very serious” matter that “put the American people at risk,” but he did not remember when he recused himself from the investigation into it, did not put his recusal in writing and never told the White House.

A further weakness of the recusal claim is that Department of Justice guidelines restrict authority to subpoena phone records to the Attorney General personally. Also, the records request was of unprecedented scope, there was no prior warning to AP such as would have enabled it to seek judicial review, and alternative ways to obtain the desired information were not explored.  Reporters Committee for the Freedom of the Press, letter to the attorney general, 5/14/13.

No matter, Holder remains defiant.  He saw fit to blast Rep. Darrell Issa at the hearing for “unacceptable and shameful” actions. Holder has memory loss, op cit, video clip. 

A few Republicans have called for Holder’s resignation, notably Reince Priebus.  RNC chairman calls for Holder’s resignation, Susan Ferrechio, Washington Examiner, 5/14/13.

Eric Holder, in permitting the Justice Department to issue secret subpoenas to spy on Associated Press reporters, has trampled on the First Amendment and failed in his sworn duty to uphold the Constitution. Because Attorney General Holder has so egregiously violated the public trust, the president should ask for his immediate resignation.

Some of the president’s fans agree that a new head for the Department of Justice might be expedient.  Douglas Brinkley: Obama may have to accept Holder’s resignation to get presidency on track, Jeff Poor, Daily Caller, 5/14/13.

The president has supported the AP subpoenas in general terms, however, and there is no indication that he is likely to abandon the attorney general.  Obama has “complete confidence” in AG Eric Holder, no apologies for monitoring of reporters, Brian Hughes, Washington Examiner, 5/16/13.

Such language reinforces unprecedented efforts by the White House to control protected information. The Obama administration has prosecuted twice as many whistle blowers as every other president combined.    

In effect, neither the attorney general nor his boss has taken full responsibility for the AP subpoenas. This leaves these questions: (1) Did Attorney General Holder really delegate this matter to a subordinate, or is the recusal claim a sham?  (2) Was the White House notified about how the national security threat was going to be handled, and if not, why not?  (3) Were the subpoenas outrageous, as the AP has claimed, or reasonable under the circumstances?  

*  *  *  *

Political hazards abound for both sides in pursuing the foregoing issues, although SAFE does not specialize in such matters so we will only note the hazards in passing.

The president faces the challenge of distancing himself from some atrocious decisions without making it seem like he was not minding the store.  His detached manner of talking about these matters could be interpreted as indifference. This is no ordinary scandal, Peggy Noonan, Wall Street Journal, 5/17/13.

Attorney General Eric Holder doesn't know what happened, exactly who did what. The president speaks in the passive voice. He attempts to act out indignation, but he always seems indignant at only one thing: that he's being questioned at all.

For their part, congressional Republicans need to avoid making it appear that they are out to bring the president (or Clinton or Holder either) down.  If that is perceived to be their intent, public sympathy will shift to the perceived victim(s).  House Republicans: We won’t repeat Lewinsky-era mistakes, Molly Hooper, The Hill, 5/17/13.

Good luck to both sides on their respective balancing acts, but we think the basic goal is simple:  Conduct a thorough investigation, determine the facts, and let the political chips fall where they may.

*            *            *            This Blogs Replies            *            *            *

The more you know, the scarier it get. – Retired finance executive 

Re IRS targeting of tea party groups, here’s the first hand experience of one of our good customers: - Texas steel manager 

Update: A report based on the White House visitor log suggests the president may have been privy to the IRS targeting before it began in 2010.


5/13/13 – Congress in action: Internet sales tax bill

It’s easy to think of legislative solutions to perceived problems that have fallen short of the mark.  Here are some recent examples: 

• The Patient Protection and Affordable Care Act (GovCare) is hurtling towards a rocky launch.  [Senator Max] Baucus warns of “huge train wreck” enacting ObamaCare programs, Sam Baker, The Hill, 4/17/13.

• The Dodd-Frank Wall Street Reform and Consumer Protection Act (GovFinance), which was supposed to ensure against a repeat of the financial crisis of 2008, is now seen as missing the “too big to fail” problem.  But never mind, as the proposed Brown-Vitter bill will make things right.  The battle over banks is about to be rejoined, Simon Johnson, News Journal, (4/30/13). 

Such outcomes stem, we think, from failing to do a thorough job of reviewing proposed legislation before it is enacted.  Consider SAFE’s comments on Dodd-Frank in 2010 (emphasis added). GovFinance: Too bad to fix, (5/10/10).


• . . . the push for a big financial overhaul bill (GovFinance) is premature.  Congress should (a) wait to see if the financial crisis is truly over, (b) mull the forthcoming (in December) findings of the Financial Crisis Inquiry Commission, and (c) get realistic about the improvements that can be made.


Issues not addressed (recap): future of Fannie Mae & Freddie Mac – tightening of lending requirements (down payments & credit checks) – unduly relaxed monetary policy of Federal Reserve – “too big to fail” problem.

And for the record, our views were communicated to the members of Congress from Delaware. (5/10/10)

The latest project, taking over the financial sector, seems to have little purpose beyond growing the government.  See our 5/3/10 and 5/10/10 blog entries for a detailed critique of the Restoring American Financial Stability Act.

This year has brought new challenges, including a massive immigration reform bill that does not seem ready for show time and the Internet tax bill (Marketplace Fairness Act) to be discussed in this entry. 

Our take: Although the MFA is aimed at a real problem, it offers a subpar solution.  Fixing the proposal now would be relatively easy; repairing it later would be a mess.  So Congress should invest the time and effort needed to get it right?

FREEDOM – Does the Internet “want to be free?”  It’s a great slogan so long as the focus is on the flow of information, although content providers may have a different view in some cases, and we hope the Internet will be kept as free of government regulation, taxation, and intrusion as possible.

Some would go further, apparently considering the Internet a “tax-free” zone.  An ill-advised Internet tax mandate; taking money from Americans is no way to do business, Senator Rand Paul, Washington Times, 4/19/13.

The misnamed Marketplace Fairness Act . . . is nothing more than a huge tax increase on the American people backed by lobbyists and some state governments. I must admit, I am disappointed that some in my party are backing this ill-advised bill.

We disagree with the “huge tax increase” charge.  Beginning as a pastime for techies, the Internet has gone mainstream – not just to access information and communicate, but also to order and pay for products and services.  One can hardly expect such a network to remain “tax-free” indefinitely, when the “revenue loss” to states on remote sales is reportedly running some $23 billion per year (about half of this total is due to catalog vs. online sales).

Remember that people don’t like to pay taxes.  They will go on-line to avoid taxes if this is conveniently possible.  And if a breach of the law is involved that’s considered OK so long as adverse consequences are unlikely. Only “suckers” pay taxes that are due in theory but are not enforced in practice, or at least that’s how Americans think.  Are you a tax cheat if you shop online tax-free?  CNBC, 5/5/13.

Buy anything on the Internet lately without paying sales tax? *** even if Internet retailers don't collect sales tax at the time of the purchase, you're required by law to pay it in 45 states and the District of Columbia *** [but] hardly anyone pays the tax, and there's not much states can do about it.

Here’s another argument for an absolute ban on taxing Internet transactions.  The Internet sales tax: Taxation without representation, Gary North, Tea Party Economist, 5/8/13.

• . . . a seller in one state sells a product to someone in another state, yet he is required to serve as an unpaid tax collector for a tax-collecting jurisdiction with which he has no contract. The sales contract is between the seller and the buyer. There is no sales contract between the seller and the taxing agency that has jurisdiction over the buyer.  


• This bill is not about tax fairness; it is about increasing taxes for the benefits of 45 state jurisdictions. It is a subsidy from the federal government to state governments that have sales taxes.

If state sales taxes were levied on out-of-state sellers, the suggested conclusion might follow, but the tax burden is actually borne by buyers residing in the taxing states. Nor is it proposed that the federal government subsidize state governments; that would imply giving them money out of the federal treasury.

So at the risk of alienating some conservatives, we can see no valid reason to consider Internet transactions absolutely exempt from taxation.  The issue should be dealt with on a facts and circumstances basis.

FAIRNESS – A physical store located in a sales tax jurisdiction must collect sales taxes at the applicable rate.  This puts them at a competitive disadvantage vs. on-line and catalog sellers who do not have to collect sales taxes.  Note that remote sellers with “physical presence” (facilities or employees) in a destination state are currently required to collect sales taxes in that state.  

Some merchants, e.g., Best Buy, are aware of people visiting their store, checking out products and prices, and then buying on line to get a lower price.  This practice has been dubbed “showrooming.”  Techopedia,

To the extent that a lower on-line price is based on lower costs or a willingness to shave margins, the local store has nothing to complain about.  Competition is what makes a free market work.

But if the price differential arises because local stores are collecting sales taxes while remote sellers are not, this does seem unfair.  When governments impose taxes, they should see to it that the taxes are imposed across the board on people in similar circumstances rather than taxing some persons while giving others a free ride.

Digging a bit deeper, however, there are indications that the Marketplace Fairness Act goes beyond leveling the playing field and puts remote sellers at a disadvantage versus local stores.  This wouldn’t be fair either, so the challenge is to strike an appropriate balance.

BALANCE – A physical store collects sales tax at the prescribed rate (including any local add-ons) for its location, but it is proposed that remote sales be taxed based on the location of purchasers.  This would potentially subject on-line or catalog sellers to the collection, reporting, and audit requirements of thousands of sales tax jurisdictions (not just states, but also local government areas within their borders) in the US. 

These jurisdictions have varying tax rates, occasional sales tax holidays, differing definitions (a candy bar is an exempt food item in some places; in others it is not), and a hodgepodge of reporting and audit procedures.  How are remote sellers (especially smaller firms) supposed to cope with all this?  In the view of some observers, the compliance burden would be overwhelming. What is the Orwellian translation for Market Fairness? Michael Schaus,, 5/9/13.

Imagine a bill that would require a mom-and-pop retailer to collect sales taxes for all 9,600 tax jurisdictions. Imagine a piece of legislation that would require garage sellers, and hobbyists to comply with a tax code hundreds or thousands of miles away. Imagine a new regulation that would allow the country’s largest retailers to adapt, while making life impossible for the new start up small businesses. Congratulations. You just imagined the “Marketplace Fairness Act.” George Orwell would be proud.

Certain large businesses – notably Amazon (which foresees being subject to sales taxes in more and more states due to its construction of distribution centers) and Walmart (the physical store champion) – have deemed it expedient to support the MFA legislation.  Perhaps the idea is to kill off smaller competitors?  Why corporations love big government: The Internet sales tax, Mark Horne,, 5/8/13.

The name “Marketplace Fairness Act” is simply false advertising. Compliance costs will be “fairer” to some companies more than others—it will favor the large over the small and the established over the startup.

The Marketplace Fairness Act passed by the Senate  (S. 743, provides continued sales tax exemption for firms with total remote sales of less than $1 million per year.  Critics say a higher exemption would be appropriate, however, and this figure is not indexed for inflation.

Another helpful provision in the MFA is that states taxing remote sales must make “a single entity within the State responsible for all State and local sales and use tax administration, return processing, and audits for remote sales sourced to the State.” 

However, the definition of “state” has been expanded. Backroom Internet tax ambush; Harry Reid makes sure Indian tribes can also tax Web merchants, Wall Street Journal, 5/6/13.

The original [Senator Mike] Enzi bill . . . also empowered the District of Columbia, Puerto Rico, Guam, American Samoa, the Virgin and Marianas Islands and any other territory or possession" of the United States to force distant e-sellers to collect taxes.  Then, somewhere in a Senate backroom, Mr. Reid rewrote the definition of "state" again. In Mr. Reid's version of the bill approved by the Senate, "any tribal organization" will also qualify for a license to audit, which can really amount to a license to kill small business. *** So Senators who have been promising no more than a maximum of 50 state auditors have passed a bill that allows more than 600 of them to descend on a U.S. business.

In addition, Senator Enzi has reportedly been less than clear as to whether cities, counties, etc. would actually be barred from going after tax revenues that they claim to be due.  Backroom Internet tax ambush, supra. 

Another interesting point is how the MFA should be viewed by states without a sales tax – including Delaware, “the home of tax free shopping.” 

Senators of this handful of states generally opposed the MFA on grounds that it would burden firms that make remote sales in other jurisdictions.  And Senator Ron Wyden (D-OR) added that the bill would discriminate against US firms with remote sales across state lines vs. foreign firms with remote sales in the US. (It does seem a bit extreme that firms around the world should be responsible for collecting and remitting US sales taxes, but we were unable to confirm Wyden’s point from the MFA text.)  States to open debate on charging national sales tax on online purchases, Susan Ferrechio, Washington Examiner, 4/20/13.

"They ought to rename this bill 'Shop Mexico,' or 'Shop Canada,' " Wyden said. "This bill gives a huge advantage to the foreign retailer over the American retailer, because it doesn't apply to the foreign retailer."

Delaware’s two senators praised the MFA, however, on grounds that it would draw more out-of-state residents to Delaware physical stores.  Carper, Coons say online sales tax may bring shoppers to Del., Nicole Gaudiano, Raju Cheblum, News Journal, (4/27/13).

“I want more people from other states . . . to come and buy things in my state,” said [Senator Tom] Carper in a speech on the Senate floor.  “If they can buy things over the Internet and not pay a sales tax, then why should they come to Delaware?”

All things considered, the time has probably come for internet tax legislation.  Marketplace Fairness Act introduced; Expanding state Internet sales tax authority with some simplifications, Joseph Henchman, Tax Foundation, 2/28/13.

Every year since 1992, advocates of expanded state sales tax authority have said that this year will be the year that they win. Past methods have included defiance and passing unconstitutional state laws, so the approach of hammering out a trade that would result in a simpler system is a welcome one. The sponsors continue to express a willingness to improve the bill. I hope it's a sincere one, as a few more improvements would be welcomed! I'm on record as predicting such a bill will pass inside of three years, but I'd like it to be a good one.

PROCESS – The trajectory of the MFA to date provides some clues as to why Congress often stumbles in crafting the legislation that it churns out.

The members of Congress (and constituents they represent) are notably conflicted on this bill.  Is it taxation without representation or an overdue vindication of states’ rights?  Is it closing a tax loophole or imposing a major new tax?  Will it protect traditional retailers or hasten their decline? 

Given the intense controversy about these abstract principles, details of the proposal have gotten short shrift.  Thus, Senate Majority Harry Reid knew that the head of the Senate Finance Committee (Max Baucus) was not keen on the MFA and thought it needed work.  He therefore saw fit to bring the bill directly to the floor, with limited time for debate and amendments.  Senate votes 74-20 to move forward with online sales bill, Ramsey Cox, The Hill, 4/22/13.

“This bill is not ready for debate on the Senate floor,” [Senator] Baucus said. “It forces our small businesses to be tax collectors for other states.  And who is policing all of this? The bill as written today, has no audit or enforcement protection.”

In the House, the MFA is slated to be reviewed by the House Judiciary Committee. Chairman Bob Goodlatte (R-VA) has promised a thorough review of the nuts and bolts issues.

“I understand the concerns of retailers on this issue, Mr. Goodlatte said in a recent statement, before going on to caution that “I do not believe legislation like the Marketplace Fairness Act is sufficiently simplified yet. “While it attempts to make tax collection simpler, it still has a long way to go. There is still not uniformity on definitions and tax rates, so businesses would still be forced to wade through potentially (thousands) of tax rates and a host of different tax codes and definitions,” he said.

In the end, the MFA will probably be approved without major changes from the Senate bill.   Internet sales tax faces a tougher sell in the House, after passing Senate, Tim Devaney, Washington Times, 5/6/13.

But before Congress takes final action, we would urge that some previously noted points be addressed.

• Senator Wyden’s concern about the continued exemption of foreign sellers should be settled one way or the other.

• Indian tribes should be cut out of the administrative action (sorry, Senator Reid).

• The $1 million annual exemption should be indexed for inflation.

• The suggestions in Joseph Henchman’s memo ( should be thoughtfully considered, notably a single blended sales tax rate for each state in order to reduce the compliance burden.

And let’s hope similar care will be taken in considering other proposed legislation, because Congress needs to do a whole lot better than it has been doing lately.


5/6/13 – A status report on the fiscal problem            Read  Replies

INTRODUCTION - The US Treasury currently expects to reduce federal debt in the second quarter by $35 billion.  Although the second quarter is typically the strongest of the year (due to the April 15 income tax filing date), this result is still good news.

Three months ago, the federal government forecast envisioned borrowing an additional $103B in the second quarter.  The improved outlook is attributed to “higher receipts, lower outlays, and changes in cash balance assumptions.”  US expects first cut in debt since 2007, Michael Mackenzie,, 4/30/13.

The second quarter debt reduction represents only a brief respite. A $223B debt increase is foreseen in the third quarter, and the president’s recently submitted budget proposal shows a $973B deficit (26% of total outlays) for fiscal year 2013.  (Other sources indicate the full year deficit will be a bit lower.)

But one does get the sense that congressional pressure to control spending and higher tax revenues (due to the “fiscal cliff” deal in January and a modest economic uptick) are finally becoming evident in the Treasury’s numbers.

Now the challenge is to maintain the momentum that has been so painfully been achieved.  This entry will propose a fiscal goal, recap the three budget plans that are on the table, and offer some thoughts about the path forward.

A BALANCED BUDGET - Yes, you read that right!  The goal should not be to reduce the deficit to some supposedly sustainable level, e.g., 3% of Gross Domestic Product, it should be to balance the budget and keep it that way.  And here is why.

First, massive government borrowing may be necessary during true emergencies, e.g., a major war.  If borrowing is habitual, this option will not be fully available when it is most needed. 

Just “a little borrowing” won’t hurt, it is suggested, but remember the tendency to underestimate future deficits. Thus, the February 2008 outlook for fiscal year 2013 was a $29B surplus.  This changed to a $533B deficit in 2009, given the onset of a major recession, and a deficit of around $900B is now expected.

Second, interest rates are being restrained by highly stimulative monetary policies.  As a result, the government’s interest expense is running about $220B per year, a mere 1.8 percent of the roundly $12 trillion of debt in public hands.

The president’s budget projects interest expense nearly quadrupling by 2023 as debt grows while interest rates return to more normal levels. And this assumes a steady inflation rate of 2.2 percent, which seems overly optimistic. 

If an inflationary spike developed as economic activity speeded up, the Federal Reserve might keep the printing presses going or slam on the monetary brakes and abort the recovery.  Either way, projected budget deficits would soar.   The Fed’s tightening pipe dream, Peter Schiff,, 3/2/13.

Third, borrowing to help fund government operations anaesthetizes the public to the costs involved, thereby promoting a higher level of spending without the need to propose tax increases.  But the cost of debt must be paid, whether in the form of interest charges (sticking future generations with the tab) or inflation (primarily penalizing the middle class).  Candid acknowledgement of this fact would contribute to a more informed discussion of what levels of government spending should be supported. 

The foregoing points are adapted from “Let’s focus on basic budget issue,” SAFE letter, Delaware State News, (4/18/13).

BOTTOM LINE – Here is a recap of the three competing budget plans:

Fiscal year









House plan - $ in billions 




























Senate plan - $ in billions




























President’s plan - $ in billions




























The House plan shows achievement of budget balance (indeed a $7B surplus) by 2023.  While this end result seems commendable, we believe the timing should be speeded up.  Assuming the deficit could be cut to $69B by 2016, why couldn’t the budget be balanced in 2017 and thereafter?

Both the Senate plan and President’s plan call for roundly $5 trillion more outlays over the next 10 years than the House plan; about $1T of this amount would be funded by tax increases and $4T would be borrowed.  The premise seems to be that the government will keep running deficits indefinitely – never mind balancing the budget, what a boring idea!

Rejecting this premise does not end the discussion of course.  There may well be reasons why (i) the relatively modest spending growth that is projected in the House plan is not acceptable, and (ii) taxes should not be raised fast enough to cover the faster spending levels that are projected in the other plans. 

Nor is an either/or decision necessarily called for.  Given the substantial differences between the budget plans, one might plausibly infer that the best plan would combine elements of all three.  Indeed, some observers envision a “grand bargain” in which both sides give ground in return for concessions by the other side.  See, e.g., “Some movement offers hope for federal budget deal,” former Senator Ted Kaufman, (Wilmington, DE) News Journal,  (3/17/13).

Senate Democrats unveiled a budget proposal “for the first time in four years” (although it “does nothing on entitlements”) as an alternative to the House GOP proposal (which “looks like a perfunctory effort to overturn the election results”) – there are “definite signs of support among at least some Republicans for budget proposals that will include increased revenues through tax reform and reductions in the long-term costs of defense, Medicare and Social Security,” while “all but the most liberal Democrats seem willing to explore ways to reduce the costs of Medicare”  - everyone understands that the voters “sent a clear message in the last election to get on with it” – “the same kind of bipartisan effort that led to budget surpluses in the 1990s can succeed again.”

Personally, we are skeptical that the fiscal problem can or should be solved at one stroke.  Instead of attempting to negotiate a 10-year plan that could always be changed later, e.g., by reneging on agreed spending cuts once the associated tax increases were in place, it may be better to focus on making progress in the here and now.   We can’t keep spending like this, (3/5/13).

. . . it is unclear how the sequester will turn out.  But we think the Republicans did the right thing by refusing to accept a watered-down substitute.  Never mind looking for grand bargains over the next four years, because the progress in cutting spending – if there is any – will be made inch by inch.

The next step would seem to be agreeing on a budget for fiscal year 2014 (which will begin on October 1). With less than five months left to get the job done, it is time for our nation’s political leaders to get to work.

THE PATH FORWARD – Americans will offer many suggestions to the principals in the great budget standoff, and here are ours:

1. While future tax increases cannot necessarily be ruled out, the “fiscal cliff” deal provided more than enough tax increases for the time being, while doing next to nothing to reduce government outlays.  Budget war grinds on, SAFE newsletter 68 (winter 2012).

It is now time for some serious work on the spending side of the equation, including entitlements, and more tax increases would represent an undesirable distraction. 

Also, tax increases (however accomplished) would (a) have a drag effect on the economy (cutting into the resulting revenue pick up), and (b) undermine support for a badly needed overhaul of the tax system.  See point 7, infra.

2. Restructuring of entitlement programs will take substantial time and discussion, and it’s OK to tackle them over the course of several years instead of trying to solve all of the problems simultaneously.  A good place to start might be federal programs designed to provide generalized low-income assistance (aka welfare).

There are scores of federal programs in this category, which collectively cost hundreds of billions of dollars per year, and the availability of “free” federal funds has given the states an incentive to promote maximum participation.  Thus, to cite but one example, nearly 50 million Americans (about 1 out of 7) are participating in the Supplemental Nutritional Assistance Program at a cost of $85B last year.  Some food stamp history and where to now, Blog  4/29/13.

It may be possible to eliminate some of the programs in this category, but we would think the basic answer is to replace all of the federal welfare programs with a federal block grant, which states could spend as they saw fit.  Under such an arrangement, there would be more incentive to spend welfare dollars prudently – meeting genuine needs without fostering widespread and perpetual dependency.

3. It’s probably too late to repeal the Affordable Care Act (aka Obamacare), given the politics involved, but this new entitlement program was poorly designed and its implementation will cause sharp increases in healthcare insurance premiums and other widespread problems.  Obamacare’s “benefits” are gradually becoming apparent, Michael Tanner, Daily Caller, 5/1/13.

Medicaid and Medicare were in bad shape already, and they also need to be fixed.  Our general position is that Medicare should provide a private insurance option for future retirees, while Medicaid should be block granted and turned over to the states.  See the Healthcare page of this website ( for discussion.

4. Social Security retirement benefits will grow inexorably due to demographic trends.  Structural problems that are destroying America, John Hawkins,, 5/4/13.

[Previously,] there were lots of workers paying in and comparatively few retirees, but as more and more Baby Boomers retire, workers are going to be forced to pay extravagant taxes that they will never get back in benefits to support the people who are already in the program.  *** In 2010, there were 40 million Americans 65 and older. By 2020, that number is projected to be 55 million; by 2030, 72 million.

And disability benefits have grown faster than retirement benefits.  They now account for nearly 1/5 of total Social Security outlays, with some 14 million Americans on the roll.  Many recipients have physical issues that are hard to evaluate, such as high blood pressure, back pain, or mental issues.  The prevalence of disability awards runs high in certain locations, e.g., economic backwater areas like Hale County, Alabama (where nearly 1 in 4 working age adults are on disability).  And over one million children are classified as disabled.    Unfit for work; the startling rise of disability in America, Chana Joffe-Walt,, 3/25/13.

Finally, let’s all agree there is no money in the Social Security trust funds, which could be “drawn down” to keep Social Security going for another 20 years or so.  Although this claim continues to be made – see, e.g., “Why do we think Social Security, Medicare is at risk?”, Lawrence Seidman (UD economist), (Wilmington, DE) News Journal, 5/1/13 – it is devoid of economic substance.

There are no easy answers to the explosion of disability awards, but at a minimum the approval process and/or criteria for awards should be tightened up.  A case could also be made for reviewing the justification for existing awards; such an effort in the UK had dramatic results in terms of reducing the number of people on the dole.  Disability the new welfare? Jonah Goldberg,, 4/3/13.

Ad hoc adjustments could be made to keep retirement income payout in line with the dedicated tax revenue, e.g., raising the retirement age, adjusting the cost-of-living adjustment (COLA) calculation for retirement benefits, and/or imposing payroll taxes on more of the income of high earners.  Perhaps this is the route Congress will choose; it would certainly beat doing nothing. 

Another option that should be considered, we believe, is giving younger workers a personal account option.  See the Social Security page of this website for discussion of the reasons for and advantages of this approach.

5. Although the biggest potential savings are in entitlement programs, there is lots of waste in the “discretionary” sector of the budget.  Across-the-board cuts that treat all government programs as of equal value have limited utility, but targeted cuts to eliminate wasteful programs or activities could achieve major savings without crippling programs that are worthwhile.

A useful reference in identifying savings opportunities might be the Prime Cuts database of Citizens Against Government Waste.

This year’s version contains 557 recommendations that would save taxpayers $580.6 billion in the first year and $1.8 trillion over five years. *** No area of government spending is spared. For example, the document proposes eliminating the Market Access Program (MAP), which aims to help agricultural producers promote U.S. products overseas. However, MAP is a really a corporate welfare program that funnels millions of dollars to large, profitable corporations. Eliminating MAP would save taxpayers $1 billion over five years.

6.  Beware of costly new initiatives, such as high-speed rail projects or the president’s proposal for universal preschool access.  Although investments can spur economic growth, they should be funded by the private sector without government intervention.  Prompt and unconditional clearance of the Keystone Pipeline would send a good signal. 

7. The potential benefits of overhauling the tax system are well known, and were demonstrated by the results of the Tax Reform Act of 1986.  Romney, Obama, & Simpson-Bowles: How do the tax reform plans stack up?  William McBride, Tax Foundation, 9/6/12.

Real tax reform would produce a tax code that is simple and treats all taxpayers equally. It would also treat all consumption equally, whether that consumption occurs now or, as a result of saving, later. This would best be accomplished by lowering tax rates on saving and investment to match the current zero tax rate on consumption.

Such an undertaking is fraught with political difficulties.  Nevertheless, the heads of the two tax-writing committees of Congress are considering taking a stab at it.  Can lame ducks Baucus, Camp achieve a tax overhaul?  David Drucker, Roll Call. 4/23/13.

That’s music to our ears.  SAFE has repeatedly urged Congress to get cracking on a tax overhaul, which could give a boost to the economy without increasing (and in the longer run reducing) the deficit.  See, e.g., our 5/8/12 letter to selected members of the House and Senate.

If a tax overhaul became a device to raise revenue, this would make it very difficult to overcome special interest resistance.  Accordingly, the effort should be designed to be revenue neutral, i.e., tax preferences eliminated would be offset by tax rate cuts.

We would also recommend a presumption against existing tax preferences, which would shift the burden of proof to defenders of the status quo.  SAFE SimpleTax proposal,

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.  Note: the flat tax or Fairtax would also eliminate them. 

8. Rationalize government regulations, both existing and proposed, which can impose a heavy and generally underappreciated burden on the health of the economy.  Environmental, healthcare, and financial regulations are of particular importance.

This is not to say government regulations are not needed and useful in many instances, but there should be a judicious balancing of the costs (to the private sector as well as the government) and the benefits.  This point is often overlooked by legislators.  See, e.g., “Former FDIC Chairman Isaac: Dodd-Frank is ‘worst financial legislation I’ve ever seen’”,, 4/14/13.

"It's way too complex, and it didn't get at the root causes of the crisis. It really didn't. It doesn't improve the supervision of banks," Isaac said. The law's complexity makes supervision more difficult and inefficient, and its restrictions are a drag on the economy, he said.

Regulators are also prone to focus single-mindedly on their mission, while underestimating the resulting economic costs. EPA rules over all; the agency gets an assist from its groupies, Washington Times, 4/2/13.

On Friday, the agency announced its proposed “Tier 3” standards for vehicle-tailpipe emissions that would reduce “smog-forming volatile organic compounds and nitrogen oxides by 80 percent, establish a 70 percent tighter particulate matter standard, and reduce fuel-vapor emissions to near zero.” *** The agency claims that when the new standards are finalized, additional refining necessary to remove emissions from fuel will add less than a penny to its price and only about $130 to the purchase price of new vehicles by 2025. Oil industry experts left to play catch-up estimate the increased cost would likely range from 6 to 9 cents a gallon and mandate billions for refinery upgrades.

SAFE founder Bill Morris likens avoiding or rolling back needless government restrictions to harvesting “low hanging fruit.”  In other words, the task is of obvious value and it should not be all that difficult. Letter to Delaware State News, 2/25/13.

For further discussion, see “Regulatory common sense requires eternal vigilance” and “Dear EPA: shape up or ship out,” (11/22 & 29/10).

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Candidly, they don't need ideas. They need courage! David WalkerWe agree that courage is a prerequisite for action, but it’s still necessary to be headed in the right direction.

Budget projections beyond 2 or 3 years are meaningless. GovCare implementation in 2014 will inflate outlays, and I see zero indication that Congress will cut spending. SAFE director


4/29/13 – Some food stamps history and where to now

The Supplemental Nutritional Assistance Program (aka food stamps) expanded greatly between 1969 and 2000, albeit with two periods of retrenchment, and it has exploded since then.  The great Bush-Obama food stamp expansion, Veronique de Rugy, Washington Examiner, 6/28/12.  Chart from


This entry will tackle three questions.  (A) How did the current situation develop?  (B) Is SNAP on a sustainable path? (C) If the answer to B is “no,” what should be done?

A. History – Except where other sources are noted, the following account is based on “A short history of SNAP,” US Dept. of Agriculture,

The first food stamp program was launched in 1939.  Americans on relief could buy orange food stamps equal to their normal food expenditures and receive a 50% bonus in the form of blue food stamps that could be used to purchase surplus food items.

Although this program originated during the liberal New Deal, conservatives saw it as a constructive business-government partnership.  Agricultural prices would tank if all that surplus food was put on the market, but why let the food go to waste?  Food stamps: As American as apple pie, Rachel Moran, Miller Center, 2/2/12.

Things were quite different in 1943, and the food stamps program was terminated (really!) on grounds that "the conditions that brought the program into being - unmarketable food surpluses and widespread unemployment - no longer existed." 

There was renewed interest in food stamps after the war, and a pilot program was authorized during the Eisenhower era.  This program was implemented in several geographic areas under Kennedy, and went national during the Johnson Administration. It was estimated when the Food Stamp Act of 1964 was enacted that participation in the program would eventually reach 4 million, at a cost of $360 million annually.  

Of historical interest, here is a taped conversation of President Lyndon Johnson and Senator George Smathers in which Johnson rails about the “inept” (and worse) congressional handling of the food stamps bill and other legislation of interest.  Evidently, things were not going fast enough to suit him.

Seven years later, President Nixon wanted to change the food stamp program (then up to 10 million participants) by distributing cash versus stamps exchangeable only for food.  We are not sure what the rationale was, but Nixon may have viewed the “cash out” as a sweetener for welfare reforms, e.g., more stringent work requirements. In any case, farmers opposed the idea and so did the Secretary of Agriculture. Taped conversation: Nixon, domestic policy adviser John Ehrlichman, and budget director George Shultz, 2/22/71 (first segment).

In 1982, President Ronald Reagan proposed that the federal government, already responsible for Medicare, should assume full responsibility for Medicaid as well.  Meanwhile, welfare and food stamps would be block granted with the states taking over these programs.  State of the Union Address, 1/26/82.

Committee after committee of this Congress has heard witness after witness describe many of these [entitlement] programs as poorly administered and rife with waste and fraud. Virtually every American who shops in a local supermarket is aware of the daily abuses that take place in the food stamp program, which has grown by 16,000 percent in the last 15 years. Another example is Medicare and Medicaid, programs with worthy goals but whose costs have increased from 11.2 billion to almost 60 billion, more than five times as much, in just 10 years.

Congress did not block grant food stamps, but the program was tightened up during the Reagan years.  For example, a gross income eligibility test was added to the net income test for most households.  Plan participation dipped from over 20 million people to about 17 million, while program expenditures leveled off at about $12 billion per year.

Liberalization of the food stamps program resumed under President George H.W. Bush and continued through most of President Bill Clinton’s first term.  Then, during a general overhaul of the welfare system in 1996, the food stamp program was cut again.  Notable changes included a work requirement for food stamps under certain circumstances and denial of coverage for most illegal aliens. Participation fell from about 27 million people in 1995 to about 17 million people in 2001, with an outright reduction in expenditures.

The food stamps program has grown rapidly since 2001.  Unfavorable economic conditions played a role, but the primary reason was changes in legislative and administrative policies.  Among other things: (A) a transition from stamps to electronic benefit transfers was completed; (B) the program was renamed the Supplemental Nutrition Assistance Program (SNAP), reportedly “to fight stigma;” (C) the denial of benefits to illegal aliens was partially reversed; (D) available benefits were enhanced; and (E) application procedures were simplified, e.g., by allowing states to take benefit applications by telephone (aka “telephonic signature process”).

By 2012, nearly 50 million Americans (about 1 in 7) were receiving food stamps and   annual SNAP expenditures hit $85 billion.  It’s interesting to compare these numbers to the 1964 estimates, which in hindsight were far from the mark.

B. Diagnosis – The food stamp growth trend is alarming, we think, and bear in mind that SNAP is only one of several federal welfare programs. 

A recent Congressional Research Service report (apparently not available on line) cites federal expenditures of some $740 billion per year on 83 programs classified in the welfare (low income assistance) category.  Including state contributions to these programs, the total government welfare budget exceeds $1 trillion per year. Welfare spending now largest budget item, Daniel Halpern, Daily Standard, 10/18/12.

And while people cannot live on food stamps alone, the multiplicity of welfare programs that are available enables a growing number of people to get along without working or at least working very hard.  Can you live on food stamps?  Mona Charen,, 4/27/07.

It doesn't count hot breakfasts and lunches at school (which push high-calorie, high-fat diets on kids) . . . the Earned Income Tax Credit by which the working poor get cash back from the federal government . . . housing subsidies, Medicaid or the Supplemental Security Income program, which can free up funds for food . . . WIC program, the Special Supplemental Nutrition Program for Women, Infants and Children.

There are built-in support groups for food stamps in addition to the recipients, namely the government administrators and the suppliers of the goods and services the benefits pay for.  Poverty professionals and the crony capitalists who love them, Bill Frezza, Forbes, 4/16/13.

• . . . I couldn’t locate a definitive study enumerating the number of federal, state, and government-funded private employees whose livelihood depends on administering the ever expanding stream of tax dollars flowing to the poor.

• . . . agricultural interests are still among the biggest advocates for [the food stamp and foreign food aid] programs, but other industries are learning that they too can make a buck by promoting America’s war on poverty.

• One in six Americans now use the Electronic Benefit Transfer (EBT) cards that replaced the old printed coupons to purchase everything from groceries to fast food. Three card processing contractors, J.P. Morgan, Affiliated Computer Services, and eFunds make money every time they swipe. With $85 billion in swipes last year, the numbers add up.

Here is some evidence of the support for continuing growth of SNAP, involving both government and private action.

• Alabama nightclub raises eyebrows with “Food Stamp Friday” party, Alex Pappas, Daily Caller, 3/30/12.   “According to the flashy, postcard-size flier advertising the party, there will be “free shots at the door.” The announcement’s artwork mimics an Electronic Benefit Transfer card, the debit card used by Americans to redeem their SNAP benefits.”

• The availability of SNAP benefits is advertised by the federal government. Farm bill misses crucial food stamps reform [work requirements], Emily Moore, Heritage Foundation, 7/25/12.

The U.S. Department of Agri