Tuesday, November 17, 2009

How can you call the federal stimulus a boondoggle?

It's not quite up to the standards of Depression-era court-packing, but the Obama administration is getting creative about  the number of congressional districts it claims to have bailed out with manna rained down from heaven fearless leader.
Just how big is the stimulus package? Well for one, it has doubled the size of the House of Representatives, according to recovery.gov, which says that funds were distributed to 440 congressional districts that do not exist.

According to data retrieved from recovery.gov, nearly $6.4 billion was used to “create or save” just under 30,000 jobs in these phantom congressional districts–almost $225,000 per job. The web site operates on an $84 million budget and is tasked with monitoring the distribution of the $787 billion stimulus package passed by Congress–which, for the record, counts 435 members–in early 2009.

Among the jurisdictions rescued from economic malaise are, we're told, New Mexico's 22nd Congressional District, and its 40th, 4th, 13th, 16th, 9th, 6th and 25th. That's quite a trick for a state that sends only three seat-warmers to the House of Representatives (but just wait until rattlesnakes win the franchise!).

This comes on the heel of earlier reports that the government's claims of having saved and created scads of new jobs in these tough times through free and easy spending might be just a bit overblown -- or even "wildly exaggerated" if you believe the Boston Globe. Looking at just one state, the Globe reported:
The federal stimulus report for Massachusetts has so many errors, missing data, or estimates instead of actual job counts that it may be impossible to accurately tally how many people have been employed by the massive infusion of federal money. Massachusetts is expected to receive an estimated $1 billion more in stimulus contracts, grants, and loans.

Among the "jobs created" were cost-of-living raises given to 150 existing staffers at the Head Start program. Each lucky raise recipient was counted as a new job created by stimulus money.

And extend those 150 new jobs across 440 newly created congressional districts, and you're talking good times all around!

Well, it's good to know that our tax dollars -- and those of our grandchildren -- aren't being completely wasted.

Labels: ,

Thursday, October 1, 2009

So you can't spend your way back to prosperity?

"Stimulus Spending Doesn't Work," a simply titled piece in the Wall Street Journal by prominent economist Robert J. Barro and Charles J. Redlick, is rightly getting lots of play. If I'm reading the somewhat dense economic-speak correctly, the column says the evidence from past massive government spending -- primarily military expenditures during the world wars, the Korean War and the Vietnam War -- shows that ripping through the federal checkbook actually shrinks the GDP relative to expenditures. Taxpayers can hope for a dollar-for-dollar return on the expenditures only when unemployment rises to double digits.

For annual data that start in 1939 or earlier (and, thereby, include World War II), the defense-spending multiplier that applies at the average unemployment rate of 5.6% is in a range of 0.6-0.7. A multiplier less than one means that, overall, other components of GDP fell when defense spending rose. Empirically, our research shows that most of the fall was in private investment, with personal consumer expenditure changing little.

Our research also shows that greater weakness in the economy raises the estimated multiplier: It increases by around 0.1 for each two percentage points by which the unemployment rate exceeds its long-run median of 5.6%. Thus the estimated multiplier reaches 1.0 when the unemployment rate gets to about 12%.

Barro and Redlick's piece, and the research on which it's based, have powerful implications for the massive "stimulus" bill the federal government passed earlier this year, which was intended to spend our way back to prosperity. If the Journal OpEd is right, the stimulus bill is not just running up deficits and expanding the money supply to the point that it devalues money, it's making the long-term economic situation worse.

Barro doesn't stand alone on this point. The Congressional Budget Office quietly and drily raised similar concerns in March in A Preliminary Analysis of the President's Budget and an Update of CBO's Budget and Economic Outlook. In a section helpfully labeled, "Estimated Macroeconomic Impacts of the American Recovery and Reinvestment Act of 2009, Fourth Quarters of Calendar Years 2009 to 2019," the CBO predicted a bump for the economy through 2012, with the "stimulus" spending shrinking GDP starting in 2015 -- and that was using optimistic assumptions about the multiplier. The CBO explained its reasoning in a separate letter (PDF) to Rep. Charles Grassley, saying:

In contrast to its positive near-term macroeconomic effects, the legislation will reduce output slightly in the long run, CBO estimates. The principal channel for that effect, which would also arise from other proposals to provide short-term economic stimulus by increasing government spending or reducing revenues, is that the law will result in an increase in government debt. To the extent that people hold their wealth as government bonds rather than in a form that can be used to finance private investment, the increased debt will tend to reduce the stock of productive private capital. In economic parlance, the debt will “crowd out” private investment.

So even a Keynesian-style multiplier gets you a brief short-term gain with long-term suffering. If that multiplier is mythical (or negative), as Barro and Redlick suggest, you just get the suffering.

At this point, the last apparent unalloyed enthusiast for stimulus spending appears to be Paul Krugman, who has pretty much been reduced to ad hominem attacks on any economist who disagrees with him, and faith-based veneration for the moldering economic ideas of John Maynard Keynes.

Labels: ,

Saturday, September 12, 2009

Tea Party turnout (and it's not astroturf!)

Nice write-up from the Associated Press about the 9/12 protest against big government and excessive federal spending. It's actually respectful of the much bally-hooed event and the grassroots rage that's driving the demonstration.

Turn-out estimates are vague, but obviously substantial, to judge by the statements "Tens of thousands of protesters fed up with government spending marched to the U.S. Capitol on Saturday ..." and "The line of protesters clogged several blocks near capitol, according to the D.C. Homeland Security and Emergency Management Agency." I take that to mean "a whole lot of people showed up." If I remember right, the D.C. authorities have stopped releasing crowd-size guesstimates in order to avoid ruffling feathers, so we'll just have to work with the post-protest claims and counter-claims by supporters and opponents.

Perhaps the most important paragraph in the piece is the following:
Many protesters said they paid their own way to the event — an ethic they believe should be applied to the government. They say unchecked spending on things like a government-run health insurance option could increase inflation and lead to economic ruin.
That not only underlines a major motivation for the protest, it undercuts charges that the day is an exercise in "astroturfing."

It sounds like the event is staying reasonably on-topic, with opposition to expanding the role and expense of the state.

Nice take here from the Washington Post:
The groups behind the protests include a broad array of self-described libertarians, independents and other factions, who have emerged as a force largely independent of GOP leaders in Washington. Some of that is by design: Leading activists among the conservative groups say they remain suspicious of a party that endorsed runaway deficits, a Wall Street bailout and other Bush-era policies they found objectionable.
The media seems to have moved beyond the claim that this is some sort of fake protest, to growing concern that the peasants really are revolting without any insiders at their head.

Labels: ,

Tuesday, August 4, 2009

Government may be getting just a little more unpopular

Even though I found arguments that former President George W. Bush "stole" the 2000 election to be unconvincing, I was gladdened to hear people who usually hold coercive power in excessively high regard use the word "illegitimate" when referring to the head of state. I'm equally encouraged to see reports that tax revenues are drying up and that members of Congress are being greeted at home by angry protesters. Anything that erodes the cult of government is a good thing.

And tax revenues do, indeed, appear to be drying up. According to the Associated Press, the federal government is seeing its biggest decline in revenue since 1932. Overall receipts are expected to drop 18% this year -- a number that squares with Congressional Budget Office projections.

Other figures in an Associated Press analysis underscore the recession's impact: Individual income tax receipts are down 22 percent from a year ago. Corporate income taxes are down 57 percent. Social Security tax receipts could drop for only the second time since 1940, and Medicare taxes are on pace to drop for only the third time ever.

Internal Revenue Service figures (XLS) reveal that tax receipts have declined during past recessions, but to a relatively minor degree. This year's cash crunch is historically impressive..

But reviewing those IRS figures reveals more interesting information -- in particular, how much less the federal government used to cost us all within living memory. Using current dollars -- that is, figures adjusted to represent 2009 purchasing power so that we're comparing apples and apples -- it's easy to see that the assemblage of czars and apparatchiks in D.C. has become a much more expensive indulgence than in the past. In 1960, gross federal tax revenues were about $91.8 billion; in 2008, gross federal tax revenues stood at $2.7 trillion.

Gross Federal
Tax Revenues, 1960-2008
figures in current dollars

And yet the federal government has been so effective at finding ways to spend that extra cash that it's poised to rack up a $1.8 trillion deficit this year alone, with a total deficit of $9.1 trillion forecast for 2010-2019 (according to the Congressional Budget Office). It seems that, no matter how much the government collects, there's never enough to pay for all of the things that politicians want to do for, with or to their constituents.

You can insert the government ever-more deeply into people's lives when you keep expanding your resources by such an enormous measure, with everything that implies for the size and power of the state relative to the autonomy of the individual. Wiretaps, marijuana and immigration raids, "smart" ID cards and extensive databases don't come cheaply -- but there's been more than enough cash to pay the bills for many decades.

Of course, lots of people like the loss of liberty that comes with a government that has a seemingly endless stream of funding -- and still spends more than it takes in. But not everybody hankers after the suffocating embrace of the all-powerful state. That's why so many members of Congress are going home this month, only to run headlong into vigorous protests against proposals to expand the federal government's already enormous role in the regulation and provision of health care.

Yes, Rep. Llloyd Doggett insists that the crowd that shouted him down was a nasty "mob" dispatched by libertarians and Republicans. Well, isn't public opposition always a "mob" in the eyes of comfortable officials?

And political organizations wish they had the ability to make enthusiastic protesters show up at a whim; In reality, the best they can do is to help coordinate passion that already exists at the grassroots. Those protesters may have received a little literature and a few emails from some groups' twenty-something outreach types, but they showed up because they're ticked off.

It's too much to hope that we're seeing the end of the metastasizing state -- expansive government still has too many supporters and resources to dry up and blow away.

But we are seeing further erosion of the credibility and legitimacy of coercive institutions and officials who are discovering new resistance to their efforts to run the world.

Labels: , ,

Friday, July 17, 2009

The latest prescription for your ills

So, let's see if I have this right. In a few years, the federal government might send people to wrestle you to the ground for a forced vasectomy, run up massive costs in the process of performing the procedure, and deny you access to private insurance to get yourself unsnipped? Does that about summarize the situation?

Don't know what I'm talking about?

Well, according to David Freddoso in The Washington Examiner, it turns out that John Holdren, President Barack Obama's Director of the Office of Science and Technology Policy, co-authored (with once trendy doom-and-gloomer Paul Ehrlich) the book Ecoscience back in 1977. In the book, written when the words "population bomb" played roughly the same scary role that "global warming" does these days, he discussed, in variously approving or ethically neutral terms, policies such as forced abortions, forced contraception, forcing women to give up children for adoptions and adding "sterilants" to drinking water.
Several coercive proposals deserve discussion, mainly because some countries may ultimately have to resort to them unless current trends in birth rates are rapidly reversed by other means. Some involuntary measures could be less repressive or discriminatory, in fact, than some of the socioeconomic measures suggested.
[R]esponsible parenthood ought to be encouraged and illegitimate childbearing could be strongly discouraged. One way to carry out this disapproval might be to insist that all illegitimate babies be put up for adoption -- especially those born to minors, who generally are not capable of caring properly for a child alone...It would even be possible to require pregnant single women to marry or have abortions, perhaps as an alternative to placement for adoption, depending on the society.
Note, this was over 30 years ago, when different concerns captured the public attention. Holdren's opinions may well have changed since then. But he was an adult at the time, and was somehow capable of dismissing moral and ethical objections to coercion in the name of necessity.

The cost issue comes in courtesy of the Congressional Budget Office. Douglas Elmendorf, director of the Congressional Budget Office, told the Senate Budget Committee:
"We do not see the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount. On the contrary, the legislation significantly expands the federal responsibility for health-care costs."
Specifically, according to preliminary estimates (PDF) published July 14:
On a preliminary basis, CBO and the JCT staff estimate that the proposal’s provisions affecting health insurance coverage would result in a net increase in federal deficits of $1,042 billion for fiscal years 2010 through 2019. That estimate primarily reflects $438 billion in additional federal outlays for Medicaid and $773 billion in federal subsidies that would be provided to purchase coverage through the new insurance exchanges.
Taken togather, the congressional testimony and the preliminary estimate demonstrate that massive new costs are involved in the government health scheme, and that no significant cost-control measures have been developed. That suggests we're likely to see the sort of sky-rocketing expenditures that have been associated with Medicare in the past, at a time when the federal government is already drowning in red ink.

As for not being able to use private insurance to get that uber-expensive snip-job reversed, well, according to Investors Business Daily, the health care proposal does, indeed allow people to keep private coverage they like, just as promised. But plans won't be able to sign up new customers after a cut-off date, effectively letting private coverage die by attrition.

It turns out we were right: The provision would indeed outlaw individual private coverage. Under the Orwellian header of "Protecting The Choice To Keep Current Coverage," the "Limitation On New Enrollment" section of the bill clearly states:

"Except as provided in this paragraph, the individual health insurance issuer offering such coverage does not enroll any individual in such coverage if the first effective date of coverage is on or after the first day" of the year the legislation becomes law.

So we can all keep our coverage, just as promised — with, of course, exceptions: Those who currently have private individual coverage won't be able to change it. Nor will those who leave a company to work for themselves be free to buy individual plans from private carriers.

That means everybody would eventually have to migrate to the "public option" by necessity.

Now, Obamatons counter that the bill doesn't actually ban private insurance. A Daily Kossack says, "the bill is directed at making reforms that have nothing to do with a public health insurance plan, and plans that enroll people after it becomes law have to comply with those reforms."

That sounds to me like pretty much the IBD interpretation, with a bit of spin added. You still will be able to get privately offered insurance afterthe cut-off date, but it won't be the old plan you were happy with, but a new one tailored to government specifications -- rather than as a competitive product in a diverse marketplace -- that just happens to be offered with a private label.

As Heritage's Conn Carroll says:

[A]ll health insurance plans must confirm to a slew of new regulations, including community rating and guaranteed issue. These will all drive up the cost of health insurance. Furthermore, all these new regs would not apply just to individual insurance plans, but to all insurance plans. So the House bill will also drive up the cost of your existing employer coverage. Until, of course, it becomes too expensive and they just dump you into the government plan.

So remember, if you get tackled to the ground, clamp one hand over your crotch, and the other over your wallet.

Labels: ,

Wednesday, June 17, 2009

But who will pay the bills?

Uh oh ...
According to US Treasury data issued Monday, Beijing owned 763.5 billion dollars in US securities in April, down from 767.9 billion dollars in March.

It was the first month since June 2008 that Beijing failed to purchase more US T-bills.

It's a good thing the government can just make more money out of thin air. What could be the harm in that?

Labels: ,

Tuesday, June 16, 2009

Shut it all down

Here in Arizona, you know we're about to miss a great opportunity:
Gov. Jan Brewer wants her agency chiefs to figure out what state services will continue -- and which will not - if there is no budget when the new fiscal year begins July 1.
The article goes on to assure readers that the state will maintain "essential" services, no matter the outcome of budget negotiations. Presumably, said essential services involve the funding of a contract on former Governor Janet Napolitano.

But wouldn't it be great of we just shut the damned state government down, whole hog? We could spin off state properties as independent businesses, or sell them off to private-sector operators.

Really, how often do we get this close to such a liberty-enhancing opportunity?


Tuesday, May 19, 2009

U.S. suffers a bigger government than Canada?

Really, really interesting comparison in the Washington Post of how Canada and the U.S. stack up in terms of size of government, expenditures, taxes and the like. Basically, Canada has been cutting government expenditures and taxes over the past few years, even as spending and taxes rise in the United States. For instance, government spending as a percentage of GDP has dropped in Canada from 53% to 40%, while the same measure has risen in the U.S. to 39% and is poised to go higher.

Also, if President Obama follows through on his plan to raise taxes, Canada and the U.S will have the same top average tax rate at 46%.

Overall, Canada and the U.S. are closing in on the same numbers. The difference is that Canada has been trending toward smaller government, while the U.S. has been trending toward a larger state. The lines are in the process of crossing.

Oh, and by cutting government spending, Canada has managed to balance its federal budget every year since 1998. The U.S. ...

Labels: ,

Wednesday, March 25, 2009

Won't somebody please give Obama the Hannan treatment?

British Conservative Member of the European Parliament Daniel Hannan tears into Prime Minister Gordon Brown in a way we could only wish U.S. presidents would hear from time to time.

Labels: ,

Friday, February 27, 2009

Nationalizing charities?

Over at Reason's Hit & Run, Jacob Sullum has already pointed out an interesting facet of President Obama's tax changes, but I think it's worth highlighting. From The Washington Times:
Democrats and Republicans poured cold water on President Obama's budget plan to cut down on wealthy taxpayers' charitable giving tax deductions, the second of his ambitious cost-savings plans to earn lawmakers' scorn, and underscoring the legislative minefield he is entering. ...

Roberton Williams, senior fellow at the Tax Policy Center, said it's impossible to calculate the exact effects of all the tax changes, but said the overall result is clear - less philanthropic giving.

"This will lead people to give less to charities if they behave the way they've behaved in the past," he said. "We've already seen a drop in giving as a result of the economic collapse. On top of that, this will just reduce the amount of giving."

Asked about that, Office of Management and Budget Director Peter Orszag said Mr. Obama took care of that by giving charities government money to make up part of the difference.

"Contained in the recovery act, there's $100 million to support nonprofits and charities as we get through this period of economic difficulty," he said.
Not that I'm a huge fan of social engineering through the tax code, with a deduction for this, that and the other righteous cause to encourage us all to do supposedly good deeds. But isn't this a move toward cutting a major part of civil society -- private charitable organizations -- off from their sources of independent support and making them dependent on the good will of government officials?

Oh, and I'm sure the tax dollars will be directed by politicians to precisely the same recipients that each and every one of us would have chosen of our own free will ...

It's plausibly deniable, of course, since private individuals could keep giving at old rates and private organizations could refuse government money, but the overall effect will be to strengthen the power of the state without ever twisting an arm -- outside the oh-so-gentle enforcement of the tax code, of course.

Labels: , ,

Arizona Taxpayer Tea Party--Friday, February 27

For all you Arizonans in the Valley of the Sun:

It's a tax and spending protest!

Join the Arizona chapter of Americans for Prosperity (AFP), allied pro-taxpayer organizations, and hundreds of taxpayer activists for an Arizona Taxpayer Tea Party, this Friday, February 27, at noon at the Tempe Beach Park to protest (and stop!) the tax increases proposed by big-spending politicians at the federal, state, and local levels. Wally the (Empty) Taxpayer Wallet will also be in attendance.

The meetup for the Tea Party is at 11:45 a.m. at the Tempe Beach Park, on the south side of the lake, west of the Mill Avenue Bridge. A parking lot is available next to the park, on Rio Salado Parkway.

Labels: , ,

Wednesday, February 25, 2009

Here's to you, Joe 'Reinvestment Guy' Biden

President Barack "Hopenchange" Obama tells us that he's "tasked Vice President Biden to oversee the American Recovery and Reinvestment Act." So let's look at that fine public official who will be administering the expenditure of a gazillion dollars in funds that the government doesn't actually have, but will have to borrow or print, with the rest of us on the hook for the bill.

God help us.

Labels: ,

'Total lack of understanding of basic economics'

That's a quote from free-market pundit (and practitioner) Peter Schiff's rebuttal to the president's state-of-the-union address. In particular, Schiff takes on Obama's emphasis on prosperity-through-credit, as if running up the credit cards is the key to a healthy economy.

Schiff's prescription:
This is not a time to be talking about these grandiose ideas and things the government should be doing for the country. What we need is for the government to shrink; we need government to get out of the way. They've done enough damage.
Schiff, the president of Euro Pacific Capital, is best known for accurately predicting the onset of the current financial mess.

Labels: ,

Friday, February 20, 2009

Our legacy to the kids

The national spending spree, by which the U.S. government will seek to get the country out of a slump caused by too much spending and debt by running up the credit cards and letting the kids and grandkids worry about the bills, is now law. It's a truly remarkable effort, not just because of the questionable economics behind the whole idea of stimulus spending, but because of the troubling ethical implications of trying to buy our way out of today's problems by binding the Americans of tomorrow to foot the bill for our idiocy. By doing so, it spends not just money, but the liberty of generations to come.

Respected economist Robert Barro calls the massive spending bill "probably the worst bill that has been put forward since the 1930s." Hundreds of economists, including three Nobel Laureates, joined Barro in denouncing the bill and calling instead for lower taxes and reduced government spending. Many of them say the spending spree is a doomed effort (PDF) to prop up a bubble economy that bad government policies created to begin with.

But even if (unlikely) there's some small degree of truth to Keynesian fantasy that prosperity can be purchased through a ritual involving throwing stacks of cash out the window, the money we've just committed to throwing out the window doesn't exist. The cash will have to be borrowed from people who expect a return on the investment. With interest, the cost of the final $789 billion stimulus bill rises to over a trillion dollars. And if, as is likely, the new spending programs created in the bill prove as hard to kill as government boondoggles of the past, the cost rises, according to the Congressional Budget Office (PDF), to include $820 billion in planned deficits, $1.7 trillion in additional deficits for the extended spending, plus $745 billion in interest costs. Total cost: In the neighborhood of $3.27 trillion. And that's on top of the existing national debt.

Do you have children? Do you have grandchildren? Cute buggers, aren't they? Let them enjoy themselves now, because they're going to have to work hard to pay off that bill.

That means higher taxes for years to come. That means an intrusive tax collection apparatus to service the endless demands of interest and principal payments. That means constrained choices and a big hole in the nation's wealth dedicated to paying bills the politicians ran up long years in the past.

It means life with a big, fat monkey on your back, placed their by your irresponsible parents.

If they choose to accept the burden.

I don't think they should. I've written before that I think those of us disgusted by the government's efforts to bind us into debt slavery should make it clear that we won't accept the obligation to pay of that sea of red ink. That goes double for my three-year-old son and all the other children living and yet to be born who had no say in this act of insanity.

My son can't be compelled to pay off my credit card bills or his mother's student loans; he certainly has no obligation to shoulder the cost of bad choices made by government officials for whom he never voted.

The "stimulus" bill signed this week is an assault on the liberty and prosperity of our children. When they grow old enough to respond, they should treat that assault with all the contempt it deserves, and shrug off the burden they've been handed.

And if that shrug hobbles the U.S. government's future efforts at financial creativity? Well. I guess I'd call that a feature, not a bug.

Labels: ,

Tuesday, February 10, 2009

Cato Institute's video challenge to the 'stimulus' boondoggle

Yes, I know the Senate passed that abomination masquerading as a "stimulus" package. Nevertheless, it's worth seeing Cato's latest take on the lousy economics behind the package and the crippling debt it immorally passes to future generations.


Thursday, February 5, 2009

We're not paying for that stimulus scam

I'm not the only one asking Americans to put lenders on warning that if they feed the U.S. government's nasty spending habit, they're on their own -- we won't pay them back. There's a new Website devoted to the same message: Repudiate The Debt. The site's slogan is, "you didn't rack up that bill -- the politicians in Washington did."

The new group s also represented on Facebook, where it already has 285 members as of this today.

C'mon, folks. We can screw up the federal government's credit rating and cut off the flow of cash if we really try.


Monday, February 2, 2009

Fiscal responsibility in Arizona? How in Hell did that happen?

I'm not talking about the federal government, of course. Restrained spending at the federal level is a pipe dream -- something to be imagined only after a night out with Michael Phelps. But Arizona ... Janet Napolitano is barely out the door and suddenly our state government is trying to live within its means.
With the $1.6 billion budget deficit now erased, the governor and legislative leaders are warning that more cuts may be needed.

"Additional fixes are very likely to be required for the fiscal year 2009 budget, and even more difficult decisions remain as we confront the realities of a $3.4 billion deficit for fiscal year 2010," Gov. Jan Brewer said in a statement issued minutes after the Legislature finalized budget cuts early Saturday.

Brewer made the action official when she signed the six-bill package later that morning. They were the first bills she's signed in her 10-day tenure, and they contained some of the biggest cuts the state has seen: nearly $300 million to education, more than $90 million in various welfare and social-service programs, and $22 million in prisons.
The usual suspects are bleating about the budget cuts, particularly the reduced funds to the state indoctrination camps ... err ... government-run schools. OK, plenty of people have favorite programs -- things they'd really like to spend money on. But here's a question: With revenues plummeting, after years of unrealistic hikes in state spending, where do you plan to get the cash? Even if you don't believe in small government, "big three" (individual income tax, corporate income tax and transaction privilege, severance and use tax) net tax collections were $454,684,879 in November 2008 (PDF), down from $541,856,026 in November 2007 (PDF), which was down from $574,128,464 in November 2006 (PDF).

Meanwhile, budgets have been out of control, with red ink threatening to drown the state.

It doesn't matter how important you think any given program is if the money to pay for it doesn't fucking exist. You are either going to make deep cuts, or we're going to take sharp objects away from you and send you off with the finger paints.

And the fact is, the cuts haven't yet gone deep enough.

After a multi-year spending spree, relearning self-control is hard. Hard or not, we have to do it, because we have no choice.


Wednesday, January 28, 2009

Screw the stimulus -- let's scare off the lenders

Barring divine intervention by a team of heavenly economists, President Barack Obama's massive spending spree ... err ... stimulus package, will pass into law. That probably can't be stopped. But the money to be spent isn't yet in government hands; it will almost certainly have to be borrowed -- probably from overseas. That threatens to bind generations to come to paying off the bills run up today. Unless, that is, enough Americans dissuade lenders by announcing ahead of time that they plan to repudiate the debt the government intends to incur.

To be successful, such repudiation will have to be open and massive. And it will be most convincing if it's voiced loudest by young Americans -- those who have the potential to assume political power in the future. Millions of twenty-somethings saying, when they're in Congress 20 or 30 years from now, they won't honor hundreds of billions of dollars of treasury securities issued by today's profligate politicians, just may raise serious doubts among the world's lenders.

There's good reason to take such drastic action to kneecap the stimulus package after it passes. Harvard University economist Robert J. Barro points out that massive government spending in the past -- particularly, during World War II -- actually did economic harm.

[T]he war lowered components of GDP aside from military purchases. The main declines were in private investment, nonmilitary parts of government purchases, and net exports -- personal consumer expenditure changed little. Wartime production siphoned off resources from other economic uses -- there was a dampener, rather than a multiplier.

Barro suggests that peacetime spending would be even more damaging than that during war, since people might perceive it as long-term policy and permanently adjust their own habits.

If he's right, the stimulus plan not only places us, our children and our grandchildren under the onerous burden of paying off massive debt -- it does so with the knowledge that the debt the government took on actually hurt us.

This really isn't surprising. As Professor John Cochrane of the University of Chicago puts it:

First, if money is not going to be printed, it has to come from somewhere. If the government borrows a dollar from you, that is a dollar that you do not spend, or that you do not lend to a company to spend on new investment. Every dollar of increased government spending must correspond to one less dollar of private spending. Jobs created by stimulus spending are offset by jobs lost from the decline in private spending. We can build roads instead of factories, but fiscal stimulus can’t help us to build more of both. This is just accounting, and does not need a complex argument about “crowding out.”

And Barro and Cochrane aren't alone. Roughly 200 prominent economists have signed a newspaper advertisement (PDF) sponsored by the Cato Institute that rejects the idea of massive government spending as a solution to economic troubles. Running in The New York Times and The Washington Post, the ad says, in part:

More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s. More government spending did not solve Japan’s “lost decade” in the 1990s. As such, it is a triumph of hope over experience to believe that more government spending will help the U.S. today. To improve the economy, policymakers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth.

Despite such sentiments among many economists, the stimulus plan is certain to be passed by Congress and signed by President Obama.

Which means the last chance to head off "stimulus" boondoggle is to make sure the money isn't there to be spent. And since our debt-ridden government has no money of its own to flush away, and will have to borrow the cash, scaring off potential lenders is the best bet.

So, come on America. Say it in print, on the radio, on TV, on blogs and in advertisements. Say it loud and say it proud: If the world is dumb enough to loan more money to the U.S. government, don't expect it to be paid back. The Americans who will be making decisions in the decades to come won't be bound by the folly of the current crop of office-holders.

If enough of us say it, the world will listen, and cut off the tap.

If that doesn't stop the spending spree, nothing will.

Labels: ,

So, high food prices are stimulating?

Ummm ... What the fuck? From the Wall Street Journal:
... dairy and beef cattle producers butted heads over talk that the government might buy up dairy cattle for slaughter to drive up depressed milk prices.
So the government plans to spend money to destroy animals in order to make food more expensive for the people who will have to pay back the money that's been spent. Do I have that right?

Yes, I know this has been done before. It was a stupid idea then, too.

Labels: ,

Tuesday, January 27, 2009

Well, I guess a lot of economists do oppose the 'stimulus' spending spree

Yes, yes. We all heard that Paul "I won a Nobel Prize, y'know" Krugman has denounced anybody who opposes President Obama's fiscally irresponsible, budget-busting "stimulus" plan as a "dishonest flack" who should be ignored. But what Krugman glosses over is that those flacks include among their ranks hundreds of prominent economists with credentials of more current vintage than his own. The Cato Institute is running the following advertisement in major newspapers around the country. The ad says "More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s." It adds, "To improve the economy, policymakers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth."

Oh, and, in case you're counting, three of the signatories are Nobel Laureates.

Labels: ,

Saturday, January 17, 2009

Here's why we need that massive stimulus bill

Don't let the nay-sayers stop our political leaders from dumping money down a giant hole!

In The Know: Should The Government Stop Dumping Money Into A Giant Hole?


Thursday, January 8, 2009

Just sign this blank check here

Am I imagining things, or is Barack Obama just rolling up his entire wish list of pie-in-the-sky programs for his entire term in office into one proposal and calling it by a grandiose name?

I mean, you have stuff like this in The American Recovery and Reinvestment Plan (PDF):
To improve the quality of our health care while lowering its cost, we will make the immediate investments necessary to ensure that within five years, all of America’s medical records are computerized.
Ummm ... So paying for my wife's practice's new electronic medical records system is vital for stimulating the economy? Really?

I mean, it would be nice if you all were kind enough to pick up the tab to modernize her business, but I don't see how that's a pressing economic issue.

What about this?
It means expanding broadband lines across America, so that a small business in a rural town can connect and compete with their counterparts anywhere in the world.
Aren't there a few companies already making their bread and butter doing that? Why does the government have to tap the taxpayers to run DSL down my dirt road?

I mean, with spending proposals like that, what's the point of even adding "That also means an economic recovery plan that is free from earmarks and pet projects." Who needs to add pet projects when Obama already plans to spend money on giving everybody a new doghouse (with a wind generator on top)?


Wednesday, January 7, 2009

New New Deal a dangerous (and expensive) idea

What's the price for ending the recession? How about trillion-dollar-plus deficits -- and a longer recession? Add in a bigger government and less freedom, and the incoming president's grand economic plans start sounding a little ... frightening.

President-Elect Barack Obama cautions that his economic plans will probably have the United States running "trillion-dollar deficits for years to come." Before the ink has dried on news reports of his mind-boggling concession, the Congressional Budget Office raises a red flag (PDF) and warns that the next resident of the White House is being unreasonably optimistic -- the tidal wave of red ink about to engulf the federal budget is bigger than anticipated even before taking into account Obama's plans for a "new New Deal."

It's all right, the president-to-be's partisans tell us. That vast new spending is necessary and will pull us out of recession just the way the FDR-era programs on which it's modeled saved us from the Great Depression.

Don't count on it. Plenty of experts think emulating the New Deal is a recipe for economic disaster.

Recently, Salon's David Sirota declared doubt about the wisdom of the New Deal to be "abject insanity." If it's insane to criticize 1930s-era economic policies, then it's a madness shared by a good many scholars. As Jonathan Bean, a historian at Southern Illinois University, points out at The Independent Institute's blog, The Beacon, a 1995 survey of economists and historians published in the Journal of Economic History found "[h]alf of the economists and a third of historians agreed, in whole or in part, that the New Deal prolonged the Great Depression."

Credible economists continue to research the issue and conclude that Franklin Delano Roosevelt's policies did, in fact, prolong the Great Depression and deepen the misery of the era. Two UCLA economists, Harold L. Cole and Lee E. Ohanian, studied FDR's economic policies for a 2004 paper (PDF) published by the Federal Reserve Bank of Minneapolis. They concluded that "New Deal policies are an important contributing factor to the persistence of the Great Depression." Labor and industrial policy, in particular, "accounts for about half of the continuation of the Great Depression between 1934 and 1939."

Among FDR's mistakes, The Beacon's Bean points out, was demonizing everybody who disagreed with him so they hunkered down and held off making investments until he was out of office. Even John Maynard Keynes "repeatedly criticized FDR for discouraging private business investment with his taxes, regulations and overheated rhetoric (the White House charged that opponents were 'Big Business Fascists')."

FDR's rhetoric was a bit rich, considering that his own National Recovery Administration boasted "The Fascist Principles are very similar to those we have been evolving here in America."

So there is good reason to be skeptical of claims that a new New Deal is just the medicine that America needs. That's especially true since this particular prescription may be the most expensive one ever written for the country. President-Elect Obama talks of trillion-dollar deficits, but the CBO says (PDF) the deficit for 2009 is already on track to be $1.2 trillion, before the new chief executive's "stimulus" package is even considered.

CBO projects that the deficit this year will total $1.2 trillion, or 8.3 percent of GDP. Enactment of an economic stimulus package would add to that deficit. In CBO’s baseline, the deficit for 2010 falls to 4.9 percent of GDP, still high by historical standards.

A deficit that's 8.3 percent of the economy? That's simply unthinkable. That money has to come from somewhere, and the only source is the private sector, since that's where wealth is created. The money can be taxed, it can be borrowed or it can come from inflating the money supply and devaluing existing dollars -- in all cases, wealth is taken from the hands of private citizens so it can be spent by politicians and bureaucrats. The end result is a public flurry of checks cut by government officials, but nobody sees the checks that aren't being cut by millions of businesses and consumers who now have less to spend.

We're talking about a huge transfer of wealth and power. The New Deal made government much more powerful than it had ever been before, with terrible consequences for personal freedom. I'm not talking about the abstract value of free enterprise; I mean people thrown in jail because they had the nerve to set their own prices for their products.

Even if we don't get such intrusive regulation under a new New Deal, federal budgets so vast that the government is borrowing over eight percent of the economy inevitably means that individual decision-making will be displaced by state planning. While running up a national credit card that you and I will ultimately have to pay off, the government will purchase enormous power and influence over our lives.

The hangover from this spending spree won't just mean huge bills, it will mean huge changes in the balance of power between the people and the state. Bankrupt though the goverrnment will be, it will own things we never thought it would own, and it will have inserted itself into areas that we never thought appropriate.

That's what happened during the first New Deal, and it will happen again if those policies are repeated in any significant way.

If history is any guide, Barack Obama's proposed economic policies may actually prolong our economic woes. And they'll leave us with an unacceptably high tab in terms of both money and liberty.

Labels: ,

Tuesday, January 6, 2009

For the record, it's not my debt either

From the fine Arizonans at Freedom's Phoenix:


Thursday, December 18, 2008

The new president's stimulating faith in economic witchcraft

Could somebody tell me who convinced Mr. Spare Change You Can Believe In that running up the credit cards is a brilliant way to resolve our economic difficulties? He knows that the balance has to be paid, right?

If we piss away $850 billion now on digging and filling holes, organic faerie-dust-powered cars and free-range IRS offices, and the inevitable pork frenzy, the supposed recovery is going to come with a hefty monthly payment plan.

That's especially true on top of the "hey, I've got six months to live" spending plan the feds have been on in recent days, which put "taxpayers more than $1 trillion in the hole even before the astronomical costs of the economic bailout were taken into account, according to an annual report released Monday by the White House."

As you and I could probably guess (but it's a revelation to government policy makers) stimulus spending is no panacea anyway. To spend money, you have to tax it, borrow it or create it out of thin air -- and all of those approaches take purchasing power out of the pockets of the private sector. The general result is that stimulus spending stimulates nothing but government, leaving the economy worse than ever.


Friday, December 12, 2008

The imperial bailout

Well, I guess last night's Senate vote on the auto industry bailout was just for form's sake. Senators last night rejected (on a procedural vote) bipartisan schemes to subsidize some of the more uncompetitive manufacturers in the country and their ossified union allies. But when legislators vote the "wrong way," there's always an imperial president to don purple robes and pick up the slack through the powers of his executive branch minions.
White House spokeswoman Dana Perino said the administration would consider tapping the $700 billion government pool -- known as the Troubled Asset Relief Plan, or TARP -- that was created ahead of the November election to calm turmoil in financial markets.

"Under normal economic conditions, we would prefer that markets determine the ultimate fate of private firms," Mr. Perino said. "However, given the current weakened state of the U.S. economy, we will consider other options if necessary -- including use of the TARP program to prevent a collapse of troubled auto makers." Ms. Perino added, "A precipitous collapse of this industry would have a severe impact on our economy, and it would be irresponsible to further weaken and destabilize our economy at this time."

Separately, Treasury spokeswoman Brookly McLaughlin said, "Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry."

So the Bush administration will go ahead and do on its own what Congress declined to authorize until such time as lawmakers change their minds and votes?

Ummm ... Why bother to convene Congress anymore?

Labels: ,

Wednesday, November 19, 2008

Would you believe government injects politics into science?

Government is an institution driven by pork-barrel politics and ideological battles, so it should come as no surprise that taxpayer-funded science can be every bit as much a political football as taxpayer-funded art, bridges to nowhere, or multi-billion-dollar payouts to well-connected banks. Indeed, The Chilling Effect: How Do Researchers React to Conflict, a recent paper by Joanna Kempner, a Rutgers University sociologist, finds that high-profile debates over the propriety of research topics, even when they don't ultimately affect funding, can cause researchers to self-censor the wording of grants and even to drop entire topics of inquiry.

Government funding of research is often touted as a means for keeping science free of profit-driven bias or favoritism toward a private funding body. All too often, though, the biases and debates that engulf institutions subject to regular elections and fueled by tax money go unconsidered.

In particular, controversies can ensue when people object to their taxes going to fund ideas and projects they find offensive or immoral. We've seen this happen in the past with provocative art and hotly debated areas of medicine, such as abortion; it stands to reason that similar battles would erupt over scientific research.

Kempner emphasizes that most attempts to study the impact of politics on science have examined outright suppression of research by government agencies. In this case, she was interested in finding out what would cause scientists themselves to retreat from areas of inquiry. She points out:

[M]any scientists self-censor rather than publish findings contrary to disciplinary or ideological boundaries. They may avoid controversial areas of research altogether, rather than face burdensome regulatory requirements. Some advocacy groups may also intimidate scientists. Animal rights activists, for example, have successfully dissuaded some scientists from using certain kinds of animal models in research.

For this study, she examined whether political controversy could have the same muzzling effect as regulatory hurdles and intimidation. She started with a proposed 2004 amendment to a funding bill for the National Institutes of Health that would rescind the funding for grants primarily concerned with sexual behavior. The NIH successfully defended the grants against the congressional challenge, and funding remained unchanged.

But there was fallout from the controversy. Responses among scientists to the attempted cut-off of federal funding for provocative research topics have implications for whether research continues in some areas and how that research is done.

About half of the scientists interviewed and/or surveyed reported that they now remove “red flag” words (for example, “AIDS” and “homosexual”) from the titles and abstracts of their grant applications. About one-fourth of the respondents no longer included controversial topics (for example, “abortion” and “emergency contraception”) in their research agendas, and four researchers had made major career changes as a result of the controversy. Finally, about 10% of respondents said that their experience had strengthened their commitment to see their research completed and its results published although even many of these scientists also engaged in some self-censorship.

The most common response is to game the system by simply rewording proposals in less-provocative ways. Clearly, though, some research isn't being pursued at all for fear of political battles. The report found, "[r]esearch topics avoided as a result of the controversy included: the sexual health and/or orientation of adolescents; abortion; emergency contraception; condom use; anal sex; childhood sexual abuse; homosexuality; and the use of various harm reduction strategies."

In an amazing example of institutional inertia, the most logical response seems to have been automatically ruled out by many scientists who "explained that, in general, they preferred to submit an NIH grant that they believed was politically viable (an act that might require self-censoring) rather than to seek alternative funding from a nongovernmental source."

That stubborn unwillingness to try something new is, perhaps, hardest to understand. The best way to escape political battles, it would seem, is to escape political institutions by looking for funding from sources friendly to a preferred line of inquiry.

Indeed, while the British Medical Journal found, just a few years ago, that "government or public funding" was behind 60% of highly ranked clinical medicine articles published between 1994 and 2003, that ratio has been moving in the direction of private funding. Importantly, "65 of the 77 most-cited randomized, controlled trials (considered the gold standard of research) received funding from industry with the proportion increasing over time. Eighteen of the 32 most-cited trials published after 1999 were funded by industry, with no other sources of funding listed."

Admittedly, the research in the BMJ study isn't entirely comparable to the NIH research grants, but it's clear that nongovernmental funding is not only available for research, it's growing in importance and seems to have the greatest impact.

Oh, and the quality of industry-supported research is often better than other research, according to a report in the International Journal of Obesity. Perhaps, we can speculate, because less energy is wasted in battles and gaming the system.

So it should be a simple step for researchers who want to do science rather than play politics to look for willing sources of support rather than try to sneak grant proposals through under the radar or drop whole areas of research. Why the resistance?

Governments will always be politically charged institutions, forever debating every dollar spent and each project subsidized. Researchers will have to either learn to seek support elsewhere, or else grow accustomed to in-fighting and self-censorship.

Labels: ,

Monday, November 17, 2008

Interesting timing on that insider trading charge

Mark Cuban, celebrity businessman of "Dancing with the Stars" fame, the Dallas Mavericks and several movie roles, has been charged with insider trading. Says Wired:
The complaint claims that in 2004 Cuban learned of a private offering of Mamma.com (now known as Copernic) that would decrease the value of his 600,000 shares. It says he then sold off his stake and as a result, reportedly saved $750,000.
Coincidentally, I'm sure, Cuban recently bankrolled the site, BailoutSleuth.com, which is tasked with tracking the distribution of the federal government's $700 billion boondoggle ... err ... bailout.

Not that I'm making any accusations, but ... Interesting timing, that.

Labels: ,

Saturday, November 15, 2008

Five-trillion-dollar frenzy

Remember when we were just bitching about a $700 billion bailout to favored banks in the financial industry? Well, break out your spare zeros. Forbes reports that the total is much, much higher -- and still growing.

For all the fury over Treasury Secretary Henry Paulson's $700 billion emergency economic relief fund, it seems downright puny when compared to the running total of the government's response to the credit crisis.

According to CreditSights, a research firm in New York and London, the U.S. government has put itself on the hook for some $5 trillion, so far, in an attempt to arrest a collapse of the financial system.

Honestly, I'm starting to wonder if, having gotten away with mind-numbing outrages for decades, most of our political class is so jaded that they're doing all of this on a dare. "Hey guys! Let's throw a few hundred billion more at my brother-in-law and see if that starts a revolution. Nancy! I bet you my private island that they sit still for it."

I wonder what would happen if we marched on D.C., decorated the lampposts with the politicos who couldn't catch the last flight, and then defaulted on all that debt.


Monday, November 10, 2008

Good money after bad

Well, it's a good thing the seat-of-the-pants economic policy being worked out in D.C. through bipartisan cooperation is having such excellent results. After all, if you're going to throw around hundreds of billions of dollars of other people--

What's that? You say the money is doing no good and the feds are ordering up more?
Troubled insurer American International Group got a reworked $152.5 billion deal from the federal government Monday, as the Federal Reserve and Treasury Department made significant changes to the terms of the company's original bailout.

The Fed announced that it will reduce AIG's original $85 billion bridge loan to $60 billion, cut the interest rate by 5.5 percentage points and extend the borrowing period to five years from two years.

In addition, the Treasury will use its special authority under last month's $700 billion bailout law - the so-called Troubled Asset Relief Program - to purchase $40 billion in preferred stock.
It seems that even after an infusion of taxpayer cash, AIG is still tottering or, as the news report put it, "having difficulty paying back its original bridge loan."

So, what's the prognosis for the new patch-work fix to a company that seems to have outlived its allotted free-market lifespan? Mmmm ... Not so good.

Andrew Barile, an insurance consultant at Andrew Barile Consulting Corp., said the bailout will help ease AIG's need to continue to post more collateral. But he said the company will continue to have trouble selling off its subsidiaries. In the current environment, other smaller companies may rather pluck talent away from AIG than assume its unwanted companies.

"People also underestimate the time it takes to sell off assets of an insurance company, which takes months and months," said Barile.

It's nice to know that there's continuity in Washington, D.C., even after a hard-fought election campaign. Continuity of massively expensive and apparently ineffective policy, that is.

Meanwhile, the auto industry is next in line for its turn at the trough. I'm sure that will work out much better.

Labels: , ,

Tuesday, August 19, 2008

Pick xenophobe A or xenophobe B

Arizona Senator Tom O'Halleran is a tired old hack with a miserable "Needs Improvement" (update: his latest rating is an even worse "Champion of Big Government") score on spending issues from Americans for Prosperity who cast his vote for the latest red-ink-soaked state budget that threatens to put taxpayers on the hook to cover a looming $1.5 billion deficit. So what's his primary opponent Steve Pierce challenging him over?

Who will be meaner to brown people, of course. My wife being a registered Republican, I have mailers from both candidates touting their tough-tough-toughness on border issues. That's all these mailers address.

Too bad I support immigration -- even illegal immigration.

Yes, Pierce does -- oh yeah -- say he's a bit more conservative on spending. But then in the next breath he promises to throw more dollars at government schools.

Which leaves primary voters choosing between two candidates who are campaigning on their dislike of Mexicans.

The Democratic candidate, Pat Chancerelle, doesn't seem to hate Mexicans, and she probably wouldn't be any worse on spending than O'Halleran -- but she'll need to take time off from starring in the latest Mummy movie to compete for the office. And as a candidate she ... oh ... well ... I'm sure she's a very nice person.

I can't find a Libertarian candidate, or I'd park my vote there on general principle.

With so much at stake, isn't it nice to know what issues excite the candidates?

Labels: , ,

Thursday, July 10, 2008

Don't expect Obama and McCain to recognize fiscal reality

Steve Chapman of the Chicago Tribune takes note of the two leading presidential candidates' promises to impose fiscal discipline on the federal budget -- and blows wet raspberrys at their empty rhetoric.

The latest proof came when McCain unveiled his economic plan, in which he vows to eliminate the deficit in four years. His plan to balance the budget is simple: He plans to balance the budget. Exactly which programs he will trim to reach that goal are anyone's guess.

For someone with a reputation as a fearless foe of congressional earmarks and pork-barrel waste, McCain is amazingly timid in taking on the rest of the budget. About his only specific proposal is a one-year freeze in those discretionary programs that don't involve defense or veterans.

McCain doesn't say how much that would save, but it wouldn't be a lot. Those expenditures amount to only 17 percent of all federal outlays. Eighty-three percent of the budget would keep on growing. After a year, so would the other 17 percent. ...

When it comes to spending, though, Obama is even worse. The National Taxpayers Union Foundation added up all the promises made by the two candidates and found that McCain's would cost taxpayers an extra $68 billion a year. Obama's add up to $344 billion a year.

The Illinois senator's pledge to get tough on unnecessary expenditures is as solid as cotton candy. Among his vows is to "slash earmarks to no greater than what they were in 2001," but earmarks make up less than 2 percent of the budget. Trying to restore fiscal discipline by cutting earmarks is like trying to lose weight by adopting an exercise program for your left index finger.
As Chapman mentions, the National Taxpayers Union has tallied up both candidates' promises -- and found them poised to break the bank. Details on John McCain are here (PDF) and on Barack Obama are here (PDF).

The NTU estimates that Senator McCain voted for $8.8 billion in increased spending in the most recent Congress, while Senator Obama gave his thumbs-up to $40.5 billion of additional demands on the taxpayers.

How to pay for this spending binge?

It's popular now to call for higher taxes -- a "fair share" -- on "the rich" (whoever they are). But high-income earners are already paying a staggering share of the nation's tax burden. According to the IRS (XLS format), the top 1% of income earners paid over 39% of the total income tax burden in 2005, while taking in about 21% of adjusted gross income.

And the share has been going up. In 1986, the top 1% paid about 26% of income taxes; in 1996 it was 32% of income taxes. The latest figures are expected to put top earners' share at over 40% for the first time.

By contrast, the bottom 50% of income earners paid 3% of income taxes in 2005, down from a bit over 6% in 1986.

Importantly, almost a third of people filing tax returns pay no taxes at all.

Now, I'm not a fan of taxes and I think that keeping the tax burden low is a good thing (although it should be low for everybody), so long as expenditures match. But, when half of the population pays little or nothing for government services, it's exceedingly easy for them to demand ever-more goodies from politicians, because those demands are essentially free. And it's all too easy for them to pass the actual costs on to "the rich," a constituency wealthy in terms of taxable cash and assets, but poor in votes to offer politicians as a counter to demands to soak anybody who achieves a bit of financial success.

And the numbers show that those costs have been passed on increasingly over the past twenty years, while much of the population has seen its tax burden drop even as its demands for goodies increase. Whatever your definition of "fair share," high-earners have been paying more of it every year.

So new calls to make "the rich" pay a "fair share" of taxes, as if they haven't been paying a huge and growing portion already, look like blatant efforts to buy votes by handing bribes to a large part of the population and making a minority foot the bill.

Unfortunately, there's little in those numbers to provide incentives for professional politicians like Barack Obama and John McCain to face up to fiscal reality and propose realistic plans to balance the budget by cutting spending -- that is, by cutting the flow of free goodies. In fact, doing so would probably be political suicide.

Chapman is certainly right that "[t]here is a fiscal asteroid on course to pulverize us, and no one is coming to the rescue." I have to say, I can't conceive of a scenario under which anybody will.

Labels: ,

Monday, July 7, 2008

Budget scam keeps Arizona in bad shape

Arizona's newspapers are portraying the new state budget as some kind of painful compromise that gave Governor Napolitano much of her legislative agenda without breaking the bank.


As House Minority Whip Steve Gallardo (D-Phoenix) commented, "I like being in the majority."

The budget that passed was awash in red ink and gave the legislative shop-aholics everything they wanted. There was no compromise.

In an OpEd distributed by the Arizona Federation of Taxpayers, Tom Jenney put it nicely.

For the Big Spenders in both parties, who wish to expand the size and influence of government, the FY 2009 budget is a major victory. It actually increases spending commitments by over $700 million--during a recession, and in a supposedly conservative state. State government spending now takes up 7.01 percent of the state’s economy—the biggest portion since 1980—and is set to get even bigger.   
For state universities alone, the budget included $1 billion-plus in borrowing. Does that sound like an exercise in austerity? More to the point, is that the sort of money the state government should be laying out when the goal is to close a $2 billion deficit?

Worse, the budget hides education expenditures through an illegal trick that has school districts borrowing against the future to cover their expenses -- a violation of the requirements of Proposition 301, passed by voters in 2000.

Why tighten your belt when you can just spend what you want and lie about it?

Well, actually, there may be good reasons for the state government to tighten its belt -- such as the fact that it's taking in less tax revenue this year than last. As of April 2008 (PDF), net collections for the "Big Three" -- individual income tax, corporate income tax, and transaction privilege, severance and use taxes -- were $6,697,335,002. In April 2007 (PDF) they were $7,250,856,133. If you take in less money, but you spend more money ...

Well I gues that makes you an Arizona legislator who "delivered on the pain promised by lawmakers and the governor," according to the Arizona Republic.

Or maybe it just makes you a huge part of the problem.


Wednesday, June 18, 2008

Can Arizona lawmakers spend their way to good times?

The Arizona Republic reports that state lawmakers, including House Speaker Jim Weiers and Rep. Michele Reagan, chairwoman of the House Commerce Committee, have cooked up a "stimulus" scheme aimed at spending massive amounts of taxpayer money on selected projects (and benefiting connected businesses), all in the name of creating jobs and bringing back good economic times.
Reagan, with Weiers' backing, corralled several projects that have been floating around Capitol corridors this year. She believes that, taken together, they can revive the state's moribund economy.

Skeptics, however, question the wisdom of viewing construction jobs as an economic life preserver.

The elements of the still-shifting package are:

• Financing for an entertainment district that developer Dale Jensen would like to create south of downtown Phoenix's baseball stadium and basketball arena. The Legislature would be asked to return to the developer the sales tax paid on the construction expenditures for the district.

• Permission for Pima County officials to seek voter approval for a tourism and sports authority, with taxing power. If approved, the authority would build a new baseball stadium to shore up Tucson's ability to retain spring-training teams from Major League Baseball.

• Expansion of tax credits for research and development, aimed at start-up firms. The amount of credit would be pegged to the level of investment in R&D. Reagan, a longtime proponent of such plans, said such activity is what spurs new jobs and industries.

• Creation of tax credits for companies that manufacture solar components or for solar companies that locate their headquarters in Arizona. Backers, such as the Greater Phoenix Economic Council, say the state lacks the incentives needed to compete with other states that are trying to attract solar companies.

Initial discussions included a university-construction plan in the package, but supporters now say that would be better addressed through budget negotiations.

The university plan would include the completion of the downtown Phoenix medical campus, repair of aging campus buildings statewide and construction of new buildings. The money would come by bonding against state lottery dollars.

It's hard to believe that politicians still believe -- or think that we believe -- that diverting money to well-connected political cronies can actually stimulate the economy. On the assumption that Reagan, Weiers and company are sincere, let's review what Donald J. Boudreaux, chairman of the economics department at George Mason University, wrote in the Christian Science Monitor back in January in criticism of federal stimulus plans.

[S]timulus, however, is futile. Government cannot create genuine spending power; the most it can do is to transfer it from Smith to Jones. If the Treasury sends a stimulus check to Jones, the money comes from taxes, from borrowing, or is newly created.

If it comes from taxes, the value of Jones's stimulus check is offset by the greater taxes paid by Smith, who will then have fewer dollars to spend or invest. If Uncle Sam borrows to pay for the stimulus checks, this borrowing takes money out of the private sector. Any dollars borrowed – whether from foreigners or fellow Americans – for purposes of stimulus would have been spent or invested in other ways were they not loaned to the government.

To put it another way: Robbing Peter to subsidize Paul doesn't actually create more jobs, it just shifts them from where they would have been naturally to where politicians divert the cash -- while padding the pockets of targeted beneficiaries.

There are positive steps that legislators can take, if they're so inclined. Prof. Boudreaux's advice was intended for federal officials, but Arizona lawmakers will find helpful words of wisdom too.

Cutting taxes is, of course, a good thing, but it's important to know why. The goal would not be to increase consumer spending. Instead, it would be to raise the returns on investment and work.

By letting investors and workers keep more of the fruits of their risk-taking, creativity, and efforts, the economy will enjoy more risk-taking, creativity, and effort. Businesses that would otherwise not be started would be created. Likewise with machinery and training that increases worker productivity. Investors worldwide would flock to take advantage of these lower tax rates, further increasing productive investments.

Cutting government spending would result in more of the economy's resources being used by wealth-creating businesses rather than being siphoned away to special-interest groups and boondoggles such as bridges-to-nowhere and Woodstock museums.

"Boondoggles." That's what you call big-dollar projects funded by politicians with taxpayer money that the market would never have produced on its own. There's a reason these schemes get financed by governments instead of politicians -- they're not productive, profitable investments. That points out the reality that projects funded by stimulus plans aren't just diversions of funds from Point A to Point B, they're an inferior use of the money and a net loss to the economy.

The "stimulus" bill won't just fail to help Arizona's economy; it could actually hurt.


Tuesday, June 17, 2008

Arizona taxpayers may fund theme park boondoggle

Via an email from Tom Jenney of the Arizona Federation of Taxpayers comes a warning about SB1450, a bill that would subsidize the construction of a theme park -- and leave Arizona taxpayers on the hook for the cost:

Dear Arizona Taxpayer:

Right now, members of the Arizona Senate are considering whether or not to award a private company the privilege of issuing $750 million in tax-free bonds, so that it can build a rock music theme park in Eloy.

If the project turns out to be a flop, and if tourists fail to come to Eloy in sufficient numbers, the state could have to pay back creditors, or it could jeopardize its bond rating, making it more expensive in the future to borrow money for traditional projects, such as road construction.

But the economic downsides of the Decades Theme Park deal are not nearly as important as the question of principle at stake: whether or not the government should not be handing out special privileges to chosen companies. The answer to that question is clearly, “NO.” The government should not be in the business of picking winners and losers in business.

Like so many bills, SB1450 doesn't explicitly say who it's intended to benefit. Instead, it allows the creation of a "regional attraction district" by "a city with a population of more than ten thousand but less than twenty thousand persons that is located in a county with a population of more than two hundred fifty thousand persons but less than three hundred fifty thousand persons." That's pretty carefully crafted for a targeted beneficiary. Once established, the regional attraction district will have "all of the rights, powers and immunities of municipal corporations."

Writing about the theme park scam in the Tucson Citizen, Byron Schlomach, director of the Center for Economic Prosperity at the Goldwater Institute, said:
In a nutshell, this private business would be financed as if it were a municipality, county or the state, getting all the tax benefits that come along with that. Needless to say, most businesses in Arizona don't get these sorts of benefits.

The adoption of this proposal would allow the state to favor one business by lowering its investment costs and not doing so for other businesses. Arizona's constitution has several provisions to prevent these types of deals. The Goldwater Institute has filed a lawsuit against the city of Phoenix to prevent it from offering a sweetheart deal to a mall developer.

This project also does present a risk for all Arizona taxpayers.

If Decades' owners default on their "government" bonds, Arizona's legitimate government bond ratings could suffer. All of these creative financing schemes for private businesses that cities around the state continue to offer beg one question: If we are so desperate to help businesses open in Arizona, why don't we lower costs for everyone? If costs are too high, then cutting business taxes is the way to address the problem.

Since the state senate is considering this scam right now, it's a good time for my Arizona-based readers to contact their senators with the message that theme parks really should sink or swim on their own merits, using their owners' money.

Labels: , ,

Wednesday, June 11, 2008

Do you want to be bankrupt or bankrupter?

The other day, I mentioned that both Barack Obama and John McCain "favor higher government spending," without going into the details of what that means. Specifically, the National Taxpayers Union, which tallies the cost of candidates' policy proposals, says that Obama's promises would increase annual federal spending by a whopping $343.9 billion. McCain's promises would cost taxpayers an extra $68.5 billion each year.

Even more troubling, the annual costs of each candidate's proposed policies have been rising as the campaign progresses and the promises fly fast and furious.

Details for Barack Obama here (PDF) and for John McCain here (PDF).

Leave aside, for the moment, the supposed pluses and minuses of any one or more of the entries on these policy wish lists. Where, after eight years of near-record federal spending -- the most profligate government spree since the days of LBJ -- is the money for these added expenditures supposed to come from?

Labels: ,

Monday, May 19, 2008

Federal government aims to bankrupt us all

USA Today came out with a troubling (but not unexpected) story stating that the federal government is way over its head in red ink -- so deep in debt that if you divvied it up among the population, the tab would be "nearly $500,000 per household."

D.C.'s estimated $57.3 trillion in liabilities (State and local debt raise the total to $61.7 trillion) comes courtesy primarily of those oh-so-popular entitlement programs that keep the population sucking at the government tit and voting for more. Medicare alone has an unfunded liability of $30.4 trillion.

For 2007 alone, liabilities soared by $2.5 trillion. That's just a tad higher than the official deficit of $162 billion.

The reason for the discrepancy: Accounting standards require corporations and state governments to count new financial obligations, even if the payments will be made later. The federal government doesn't follow that rule. Instead of counting lifetime benefits for programs such as Social Security, the government counts the cost of benefits for the current year.

The deteriorating condition of these programs doesn't show up in the government's bottom line, but the information is released elsewhere — in Medicare's annual report, for example.

So the $57.3 trillion figure comes from the apparently unprecedented tactic of applying generally accepted accounting standards to the federal books -- an approach strongly favored by the Institute for Truth in Accounting.

The USA Today report echoes what former U.S. Comptroller General David Walker has been saying for years. From U.S. News and World Report:

The problem is where we're headed in the $44 trillion-plus in unfunded obligations for Social Security and Medicare that's growing $2 trillion plus a year.... Cash is key. We are already negative cash flow for Medicare. We're going to go negative cash flow for Social Security within the next 10 years...though Social Security is not the real problem. It's healthcare that's going to bankrupt the country.

Walker went into more detail on 60 Minutes:

Walker prescribes a combination of spending caps and tax hikes to combat the pending fiscal apocalypse. The caps make sense to me, but the tax hikes are premised on the assumption that Congress and the White House won't simply piss away extra revenue, leaving taxpayers poorer and the fiscal situation worse than ever.

My solution? Liquidate the federal government and its assets, pay off the past-due bills, and start over again with something much smaller, less ambitious and significantly less expensive.

Labels: ,