Free Markets, Free People

How screwed are we?

I have to admit, I sometimes get tired of being the voice of doom. Sadly, our political class–Republicans and Democrats alike–seems determined to follow the worst policy options available. So, doom slouches closer. The proximate doom they’re fiddling with this time is the approaching debt limit. Now, I yield to no man in my hatred for ever-increasing government spending, but this debt-limit battle is pointless.  We will increase the debt limit. We have no choice.

Here’s the current situation:

OMB estimates federal revenues for 2011 will hit $2.17 trillion. Granny, our servicemen, and other such untouchables — by which I take him to mean Social Security, Medicare, national defense, and debt-service payments — will add up to $2.21 trillion, meaning that even if we cut the rest of the federal budget to $0.00 — no Medicaid, no food stamps, no Air Force One — revenues still would not cover these untouchables, according to OMB estimates…

Our deficit is about 40 percent of spending this year; continued recovery, if the estimates hold, will do some of the work for the 2013 regime, but even under current forecasts that are arguably too rosy, we’ll still be running a 26 percent deficit in 2013.

Even if we eliminate every penny of spending this year except for Social Security, Medicare, and Defense, we still can’t cover this year’s spending.  And next year’s spending projects an economic recovery will save us, and reduce the deficit to 26% of spending. Absent such a recovery, next year we’ll be back to another 40% deficit.

And the politicians of both parties are nowhere near to making the appropriate cuts in the budget in years farther out than that.  The biggest deficit reduction package currently on the table is for $4 trillion over the next 10 years. Which sounds impressive, until you remember that the actual projected budget deficit over the next 10 years is $13 trillion. So, we’re still $9 trillion short of closing the budget deficit for the next 10 years.

But, wait! It gets better!  This $13 trillion figure assumes that interest rates will remain stable where the currently are. If interest rates for treasuries go up by 1%, that wil add 1.3 trillion to the deficit over the same period.  As the moment, the Office of Management and the Budget (OMB) projections are for a stable average interest rate of 2.5%. Of course, the current 20-year average is closer to 5.5%, so a return even to normal interest rates will add up to $3.9 trillion to the deficit.

But the magic doesn’t stop yet! OMB forecasts growth rates of between 4%-4.5% from 2014 to 2014. The average trend rate of growth is between 2.5%-3% however. So, if we don’t get the strong growth the OMB is predicting over the next three years, and the following years, we’ll need to add another $3 trillion or so to the deficit over the next decade.  And, frankly, if you believe Goldman Sachs today, a return to trend rates of growth seems..unlikely, as they’ve lowered 2Q GDP growth to 1.5% from 2.5% and 3Q to 2.5% from 3.25%.  They also forecast unemployment at end of 2012 to be 8.75%.

So, the best case scenario is that we’ll add $9 trillion to the deficit over the next decade. A return to historical growth and interest rates–even if we assume the $4 trillion of budget cuts will actually happen–means a 10-year deficit of $16 trillion. Essentially, we will more than double the National Debt, pushing the debt to GDP ratio to about 160% by 2021.

And that’s the good news.

The bad news is that, in the current debate over the debt ceiling, everyone involved seems determined to play chicken with a default–even if only a selective default–of US treasury obligations.

Tim Pawlenty even suggested that a technical default might be exactly what Washington needs to send a wake-up call to the politicians about how serious the situation is. Others, like Michelle Bachmann, and a not inconsequential number of Tea Party caucus members are steadfastly against raising the debt ceiling for any reason at all.

This is insanity.

Any sort of default, even a selective default that would suspend interest payments only to securities held by the government, while paying all private bondholders in full, will have completely unpredictable results. The least predictable result, however, would be business as usual. A technical default–i.e., delaying interest payments for a few days–or selective default, or any other kind of default is…well…a default. It is a failure to make interest payments.

The most obvious possible result of any sort of default will be to eliminate the US Treasury’s AAA rating, and push interest rates up sharply. If we’re lucky, we’d be talking about a yield of 9%-10%…and an additional $5 trillion added to the deficit (running total in 2021: $21 trillion added to the national debt).

And, again, that’s a best case scenario. Because it assumes that everyone will be willing to hold their T-Notes through all of this.  If any major overseas institution or government–say, China–decides to unload their holdings, it could be the start of a flight from treasuries that will destroy the US Dollar in the FOREX, vastly increase the price of imported goods, like, say, oil, and spark uncontrollable hyperinflation in the US. The life savings of every person and institution would be wiped out.

Naturally, yields on interest-bearing instruments would then pull back on the stick and climb for the skies. Not that it’d matter much at that point, since the currency would merely be ornately engraved pieces of durable paper.  Suitable for burning in the Franklin Stoves with which we will be heating our homes, in the absence of oil.

Flirting with default is extraordinarily reckless. I don’t even have the words to begin to describe how badly any sort of default might go.

The thing is, we don’t know–we can’t know–what the results of a technical or selective default might be.  It might be the judgement of worldwide investors that there are no better alternatives to US-denominated securities, so they’ll just have to ride out a technical default, and accept their interest payments coming a few days late. It might be their judgement that unloading their US-denominated securities and losing a little money is better than the risk of losing everything through a currency collapse. It might be a lot of things, and we have no way of knowing which of those things might come to pass.

As Tim Pawlenty says, a default might be a wake up call.  From an exploding phone filled with napalm and plutonium.

Whatever political points might be at stake, is it worth this level of risk?

The safe path here is a simple $500 billion debt limit increase. That’ll give us 6 months to figure things out, and try to discover some way to get our fiscal picture under control, and avoid a default. Government spending is out of control, but a default is really not the best way to impose fiscal discipline.

~

Dale Franks
Twitter: @DaleFranks

Tweet about this on TwitterShare on FacebookShare on Google+Share on TumblrShare on StumbleUponShare on RedditPin on PinterestEmail this to someone

52 Responses to How screwed are we?

  • Dale,

    If not now then when?  As bad as a non-agreement by 2 Aug would be (and I largely agree with everything you just posted about how bad it would be), is kicking the can down the road any better?  We are facing a debt crisis of literally unprecedented porportions (only approached during the end of WWII and that situation was very different).  Obama (and to be fair all Potus of both parties) have shown they are unwilling to raise taxes without raising spending usually about 1.5 extra spend to gained by taxations (whatever you may feel about the merits of taxation).  That’s neglecting the economic damage of new taxes which could be significant. 

    Bottom line is if the current trend continues (and the Debt/GDP ratio…which is what matters) has exploded since Obama got into office…it was manageable until then….then within five years (being very optimistic) we will be faced with a situation where we will no longer be able to borrow more money without borrowing money to service the debt we already have!

    That’s when the wheels come off.

    Seems to me that it’s better to lance the boil now as painful as that will be (and I agree it will be painful) while we can still pay our creditors on our own terms (more or less) rather than waiting for our creditors to pull the rug out and make us pay them back on their times (I am looking at China too) which will certainly happen the moment we need to borrow money just to borrow money.  That’s when we see true armaggeddon day and the end of ALL entitlement programs (not to mention hyperinflation).

    -Polaris

  • Shorter Dale (if I may):

    — People on the left say that there’s no problem if we merely need to raise taxes on a few people

    —- People on the right say that there’s no problem if we merely cut spending on a few programs

    Both sides are wrong: we’re pretty much f*cked no matter what we do.

    It occurs to me that the American people are like those folks that one reads about from time to time who win a huge lotto payout and are flat broke five years later.  “How could anybody blow through that much money???” we wonder.  “How could anybody be that stupid????”

    The answer, I think, is that when one is rich THROUGH NO EFFORT OF HIS OWN, he lacks an understanding of how to handle money or of its value.  It seems that he’s got an inexhaustible supply (like a teenager with a credit card), so casually spending hundreds or thousands of dollars on any whim doesn’t seem to be a problem: “There’s plenty more where that came from!”

    Americans since World War II “hit the lotto” in that they were born into a country that was fabulously wealthy through no effort of their own: the US practically ROLLED in wealth*.  So, it was easy to spend billions on this program or that because it was inconceivable that the money would ever run out.  People warned from time to time that it eventually would; even lefties sounded the alarm when Republicans were in the White House.  Thanks to the wild spending spree of the past several years, however, eventually has arrived.  Like the lotto winner, we’ve blown through that huge pile of cash, and now it’s a question of having enough to pay the necessary bills.  Something has to give because we can’t count on getting more money, but what do we cut?  And how do we cut it?  Who has to suffer?

    —–

    (*) Does nobody ever stop to wonder WHY the US became so rich in the roughly 150 years from our founding to the start of World War II?  I suggest that there’s a certain amount of foolish jingoism: “We’re rich because we’re Americans!  And Americans are just, like, you know… rich.”

    Perhaps it’s already been done, but maybe somebody can write a book: An Inquiry into the Nature and Causes of the Wealth of America.

    • —- People on the right say that there’s no problem if we merely cut spending on a few programs

      I’m a people on the right, and I say no such thing.  Dunno of anybody who does.  Straw-man?

      • I was trying to be fair to the left (I know, I know: what was I thinking?) and, upon reflection, I don’t think it’s that much of a strawman.  Is it not the GOP’s basic position that we can get out of this fix by cutting some spending?  They certainly don’t want to raise taxes (a rare case of good sense from them), and even Paul Ryan’s plan would have us running deficits for years to come as we SLOWLY work toward achieving a balanced budget about the time most of us will be worm food.  The closest they come to calling for SERIOUS spending cuts is proposing that we adopt a balanced budget law / amendment, but I doubt that most of them are serious about that.  Talk about FORCING them to make hard choices!

        Frankly, it seems to me a no-brainer to call for rolling back spending to ’06 or even ’08 levels; it shouild be an easy sell.  I doubt that they’ll try for fear of MORE commercials showing them throwing grandma off a cliff.

        I have to take my hat off to the dems on this: they read the tea leaves correctly.  They knew that, once spending levels are increased, it’s damned near impossible to pull them back down.

        • Is it not the GOP’s basic position that we can get out of this fix by cutting some spending?
          No.  It is the position of this conservative, and most others I’ve read or heard, that ALL spending should be reviewed.
          AND we need to GROW the flucking economy…which nets greater revenues.  That seems a very clear proposal, but you never hear about it.

          • Raspierre - It is the position of this conservative, and most others I’ve read or heard, that ALL spending should be reviewed.

            I agree.  I would even go so far as to say that “review” isn’t necessary for many government programs / departments: Education, HHS, HUD, VA, DHS, DoE, DEA, BATF, and NASA* would go through a structured but fairly quick shut down, transferring those few functions that they OUGHT to do to other departments or much smaller agencies.

            Unfortunately, many of the GOP members in Congress AND the potential presidential candidates are not “conservatives”.

            —-

            (*) As proud as I am of the past achievements of NASA, I believe that Ike made a mistake when he formed it.  Space flight should have been a military project, perhaps jointly between the Air Force and the Navy.

        • I like much in Ryan’s plan. I noted, as you did, it takes until 2025 or 2028(?) for Ryan’s plan to balance the budget. Would that not cause further problems down the road if economic growth were to resume then perhaps falter again in the early 2020’s? Of course at the current rate it doesn’t look like we’ll see economic growth much beyond 2-2.5% for the indefinite future.
          Assuming the GOP regains the Senate and WH in 2013 would they really want it? Depending on the policies offered and balance in the Senate, amongst other unknowns (another Katrina level disaster? Or the Italians follow the Greeks and Irish into a meltdown!), I do not envy the occupant of the oval office and/or the majority party in Congress.
           

    • An Inquiry into the Nature and Causes of the Wealth of America.
      As you know, it has been done, and with a lot less limited scope.  Published in the same year as the Declaration.  Makes you say, “Hmmm….”
      And it works everywhere it is tried, as even Marx recognized.

  • I wonder if that new Consumer Protection Agency can protect us from politicians who spend too much money.

    • More likely to protect us from crazy tea baggers who crazily support the crazy idea that government is too big and shouldn’t try to protect us from everything.

    • No.  Our only protection is to be very actively involved, and to say “NO” and mean it.

  • Have you ever heard it said that an alcoholic MUST hit bottom before they’re ready for recovery?
    Well, we’re the alcoholic, and we’re looking square at “the bottom”.
    We have been living beyond our means, spending borrowed money with no thought as to how we would pay it back, and making promises we KNEW we could not keep.
    It’s simple math: we can’t make it add up. We HAVE to give up many of the wonderful luxuries to which we have become accustomed (e.g., retirement at 65 with ten to fifteen “golden years”, etc.). We HAVE to stop subsidizing half the population with food stamps, welfare, free health care, and free housing. We HAVE to move forward with a military re-trenchment, pulling troops back from Europe and Asia — bases we can no longer afford. We HAVE to remove absurd environmental regulations that are choking the life-blood out of the energy and mining sectors in the U.S. — to continue to import oil at exorbitant prices so we can pose as “environmentally sensitive” is the height of stupidity and vanity.
    Yeah, this is going to hurt…a lot. There is no other way. If default doesn’t happen today, it will happen soon for one simple reason: it is mathematically impossible to pay back what we currently owe, much less what we would need to borrow to redeem all the pie-in-the-sky promises that too many Americans have come to believe. The absolute best to hope for is for us to continue to pay interest on the debt, beholden forevermore to whoever owns our debt — and that’s assuming, as noted here, that interest rates remain relatively low.
     

    • That’s a pretty good mental model for those of us convinced that the meltdown is inevitable. A pretty substantial majority of our people must get past the soothing rhetoric of those who have ultimate faith in government to fix everything, and connect to the reality that the blue social model is doomed.

      The real risk is this. Hitting bottom isn’t enough. If you don’t understand *why* you hit bottom, you don’t know what to do when you get there.

      Imagine a group of alcoholics who realized that their lives and health were being ruined, but they didn’t believe it was the alcohol doing it. They had been told all their lives that alcohol was good for them. That is was healthy and improved their self-esteem, or whatever.

      So, completely convinced of that fiction, when they hit bottom they start hunting for something, anything to blame it on. Maybe it’s the fault of their beds – they lay down feeling great and wake up with a hangover. Maybe the pain relievers they take for the hangover are responsible for their liver problems. Etc.

      I’m afraid that we have a large portion of our society, including virtually all of what some like to call the ruling class (politicians, media, academia) that will have that mental dynamic when we hit bottom. They’ll blame anything they can think up, and especially the clueless media and academic types will use fancy rhetoric to obscure basic reality. They’ve spent their entire lives denying reality, from the tens of millions killed by communism to the tragedies of inner cities in Detroit, Philadelphia, Chicago, DC, all of which have been run by Democrats pursuing the blue social model for decades. As our resident imbecilic political scientist showed us earlier in the week, facts mean absolutely nothing to them. They are mentally incapable of assimilating facts contrary to their faith in leftism.

      They will find a willing audience in a couple of generations conditioned to the blue social model. The total numbers might be a big enough fraction of our citizenry that they firmly block the actions that eventually must be taken to dismantle the blue social model and effect a recovery from the meltdown.

      My basic fear not that there will be a meltdown, because I believe  it’s inevitable and the only variables are time and severity. My most basic fear about our quandry is that the response by a majority of our people will be to blame that meltdown on all the wrong things and prevent the actions that would allow us to recover from it. The best case that results is a long, sliding stagnation. The worst case is deprivation and civil violence on a scale not seen here in 150 years.

      • So, completely convinced of that fiction, when they hit bottom they start hunting for something, anything to blame it on.

        Actually, as I figure you know, it is SOMEBODY to blame it on.  And, very often, they have people in their lives who sustain that delusion.
        Unfortunately, the similarities are legion and profound.
        There may need to be a parting of the ways, as those of us not deluded simply refuse to be co-dependents.

      • Billy HollisMy most basic fear about our quandry is that the response by a majority of our people will be to blame that meltdown on all the wrong things and prevent the actions that would allow us to recover from it. The best case that results is a long, sliding stagnation. The worst case is deprivation and civil violence on a scale not seen here in 150 years.

        I’m afraid that I agree: if things get bad as I believe that they will – probably sooner rather than later – I wonder when the American version of the pint-sized, paper-hanging loudmouth with the funny moustache will show up.  And who will he tell us we’ve got to (ahem) eliminate to solve our problems?  For Hitler, it was the Jews and other non-Aryans.  For Stalin, it was the yeoman farmers.  The Khmer Rouge blamed “intellectuals”.  If worst comes to worst, who will their American counterpart suggest that we slaughter?  And don’t tell me that Americans don’t do that sort of thing.  The Indians will be happy to tell you differently.  I add that we’ve showed that there’s a cadre of Americans who will do anything if you put them in uniform and tell them that what they do is “for the good of the people”: anybody who will volunteer for a job that has him crotch-grabbing people, including children and grandmothers, would have no problem herding those same people into a “shower”.

  • If I borrowed more money than I could pay back in my lifetime would you give a AAA credit rating?  No.  The US credit rating, for lack of a better word, is bullshit.  A default would change the status quo and it needs to be changed.  I know it is a crappy way to do it but carrying on like DC currently is, in my opinion, is the worse option.
    Don’t raise the debt limit.  The government needs to learn to live within its means.

    • A slight demurral…the PEOPLE need to MAKE government live within its means…AND make the government MUCH less aggressive about what it “means”.

  • We don’t need to raise the debt ceiling to prevent default.
     
    As with McQ’s earlier post we don’t even have to curtail social security or critical defense spending either.  It would down most other things, but there’s enough cash coming in to pay our debt and thensome.  And if that’s wrong and we need to add more debt just to make our debt payments on other debt, something is horribly wrong and it won’t take long before we self-destruct anyway.
     
    As for the consequences of a default?  I say we’ve been living above our means anyway with both private and public credit propping up and an economy that doesn’t do enough of its own stuff to justify its level of prosperity.  We’re due for an adjustment (to put it mildly).  Something that would have helped correct that problem to a new equilibrium point.  A point where domestic labor is cheaper and outside goods are more expensive.  Our standard of living needs to take a step down.
     
    Putting off that adjustment has put us on a path to be at a point far below what should be our new equilibrium point should be.  The longer we put it off the worse we will be when it finally goes and the longer it will take to swing back to the new equilibrium.

  • The safe path here is a simple $500 billion debt limit increase. That’ll give us 6 months to figure things out, and try to discover some way to get our fiscal picture under control, and avoid a default. Government spending is out of control, but a default is really not the best way to impose fiscal discipline.

     
    6 months from now both sides will be even more intractable and dug in because of the election.
    If there needs to be tax reform then do it reform taxes from top to bottom.  Eliminate loopholes, eliminate waste and fraud in the federal budget,  enact a federal hiring freeze,   In the mean time cut spending!  Cut spending!  Then cut it some more.

    • There is no better solution to the problem than having it be the premier issue come election time. 

      For better or for worse, the die will be cast and the American people will be allowed some semblance of a clear choice in the matter. 

      Higher taxes and more regulation v.s. less spending and more growth.

  • Here’s the thing….I think that default is akin to terrorists setting off a nuke/dirty bomb in a major American city: it’s basically the only way a large segment of our population will ever wake up to the true extent of the problem.

  • Default would enlarge the problem so much that the US (and global economy) would face crisis, even collapse.   The solution is part political – to get a deal both sides have to give something up.   Tax increases on the wealthiest would keep rates below Reagan era rates, and add some revenue.   Spending cuts are needed, and Democrats have to be prepared to sacrifice some past sacred cows, even embracing entitlement reform.   These two, along with a sound approach to growing the economy can turn things around slowly.  I think Boehner and Obama were close to taking that path, it’s too bad if the issue gets punted (they won’t really allow default because deep down the leadership of both parties know how bad that would be, I can’t imagine they’d be insane enough to go that route).
    The problem is that spending cuts hurt job creation and the economy.  Tax increases do so to a lesser extent (since that money often would otherwise go to buying foreign consumer items or paying down private debt).  So both of these actually risk harming the economy — massive spending cuts could slow the economy considerably.  To me once the debt ceiling issue is revolved and both parties recognize that the “tax less spend more” approach of the last thirty years has to be turned around, the real issue would be to create a productive economy.   We’ve been producing less and consuming more for three decades.  That was never sustainable.  The path to a sustainable, healthy economy will take awhile, there is no quick fix.

    • Of course it never occurs to you that some large fraction of the 1/2 of Americans currently NOT paying for the government SHOULD pay for it.
      Heaven fore-fend….

      We’ve been producing less and consuming more for three decades.  That was never sustainable.

      What an idiot…and easily researched…falsehood.  Well, there were so many in your post.
      Damn.

      • Then do the work.   You can’t because they aren’t false.  The current account went into deficit in 1981 and got progressively worse (with a brief respite around 1990 when it got back in balance).  It got to unsustainable amounts of 7% of GDP in by 2007.  Private debt soured faster than government debt.  No, Rags, the facts aren’t on your side — in my own work I have a series of slides and graphs I show students to show how my generation has partied for 30 years, leaving them with the bill.  I’m confident they’ll fix it – though likely not in a way you’ll approve of!

        • I wrote a long fisking of your bullshit, Erp, but it got evaporated somehow, which pisses me off, so I’ll give you the Reader’s Digest version.
          First, you are such an economic boob (or so disingenuous) that you are now conflating “production and consumption” with “spending and debt”.  They are different sets, idiot.
          Second, on a theoretical level, you cannot support your “producing less, consuming more = unsustainable” idiocy.  You just don’t understand the law of comparative advantage, which says you CAN produce less and consume more.
          Third, factually, the US produces something like 20-25% of all that is “produced”.  We are the most productive people on earth, when we are employed productively.
          Fourth, your “ethic” has caused a radical shift AWAY from production to consumption (i.e., eaters of wealth who create no wealth) in the form of government employees and the unemployed.
          Fifth, you students who view your impressive “graphs and slides” are laughing at  you for the idiot you are.  There is no crisis caused by a “tax less spend more” problem, as a GRAPH of Federal revenues SHOWS.  Federal tax rates have little impact on Federal revenues (except to tend to drive them down by damaging the economy).  The Laffer Curve is intuitively sound, idiot.
          There is as “spending and spending and spending” problem.  This is demonstrated in VARIOUS states around the nation, all of them acting independently of Federal tax policy, setting their own taxes.
          Moron.

          • Yeah, you wrote things to support your argument but it “disappeared.”
            You give no facts, you make up a number of “something like 20-25%” but you don’t substantiate it, so it’s meaningless.
            I told you about the current account deficit growing, how private and public debt has grown.  Do you understand what the current account means?  Oh well, since you can’t substantiate your position it’s clear you have fantasy-driven understandings of reality, rags.  You want to believe the world fits your ideology, but it doesn’t.   Note how the debt grow from 30% of GDP in 1981 to about 60% of GDP by 1990, mostly due to tax cuts.   Even with oil price drops, that hyper stimulus of the economy (massive deficits and lower oil costs) didn’t help the government balance the books.  The 80s were an illusion of prosperity built on debt.  Your ideology has failed.   At least the next generation is learning how they got screwed and I’m confident they will fix it.  (And I see you still cite Laffer — it was funny how he was juxtaoposed with Austrian economist Peter Schiff — who says our problem is we’re producing less and consuming too much — who saw this crisis coming while Laffer laughed him off.  Laffer is not a big league economist).

          • Shorter (and more truthful Erp)…
            Handwave.
            Ad hominem.
            Studiously ignore facts, real-life models, and economic law.
            Classic Erp.

          • US manufacturing share 23.6
            US GDP share 29.5
            Those numbers have fallen, because, as we know, Obama made it worse.

    • …[government] spending cuts hurt job creation and the economy.

      Government doesn’t create real jobs or add value to the economy.
      Government only takes from the actual producers to pay the non-producers.

      Tax increases do so to a lesser extent (since that money often would otherwise go to buying foreign consumer items or paying down private debt).

      Or hiring people who would otherwise get unemployment, welfare, or a government job.  And, paying down private debt means not paying interest on that debt, thus making it more likely to have surplus cash in the future to spend on things of value, instead of interest.
      But you completely gloss over the ethics here.  To you, spending is just spending, it doesn’t matter if the people who produce the wealth get to decide how to use the value they created, or if the people who took the wealth by force (and produced nothing themselves) squander a portion on bureaucracy, cronyism, and graft, then eventually a fraction on goods and services which are handed out to more non-producers (or under-producers) as a reward for idleness.
      You’re wrong about the government spurring economic growth, but, even worse, you don’t care how you achieve your short term goals of wealth redistribution.  To you, the ends justify the means, and damn all consideration of ethics or long-term consequences.

      • I disagree with you on ethics because I operate from different assumptions.  Therefore, I’m focusing on pragmatics.  I do care about ethics and long term consequences; my ethics are different than yours, and I think you are wrong about the long term consequences.

        • I operate from different assumptions.

          Operative word: ass, as in “pulled it out of my…”.

        • “I do care about ethics . . .”

          On this you will get some condsiderable argument!  I doubt if there is a single person commenting on this blog today who believes you give one hoot for ethics, being as how you have none!

          ” . . and I think you are wrong about the long term consequences.”

          So, elaborate.  How is he wrong?  What else do you have to say except “NEENER NEENER NEENER!!!”

        • I disagree with you on ethics because I operate from different assumptions.

          I believe that each individual owns his or her own life.  You don’t.  That’s why you resort to pragmatism, to try to disguise the wretchedness of your moral values.
          You don’t care whether a person worked hard to create value.  You ignore their personal life story, point to a meaningless comparison of income levels, and arrogantly offer your solution of plundering and redistribution, as though you’re moving game pieces around on a board which bear no relationship to the lives of the human beings involved.

          • The idea of ownership of ones life is semantic non-sense.  You live, you are yourself, there is no “ownership” context, no human life is owned (except in slavery, which we agree is wrong).  I do care if people work hard, I teach that ethic and tell students they have to take responsibility for their lives if they want to be productive and happy.  People who see themselves victims of forces beyond their control lead miserable lives.  The problem is your world view is fundamentally over simplistic.  You don’t understand the nature of power in social relationships, you have this strange view that when government is involved that’s bad, but non governmental uses of power are OK.   Thus you ignore the way the powerful can manipulate the system, exploit others, limit freedom, all using economic and structural power.   That’s what meant children had to work in the early industrial revolution while average workers had no choice but to starve or work 80 hour weeks just to feed ones’ family — while the owners of the factory were getting rich.
            The reason your ideology will never catch on with more than a small cadre is that it is not credible.  It is immensely over-simplistic, it’s ethical claims are easily torn apart by real world examples.  Your approach would only work in fantasy, the real world has already falsified it.   Now, my goal is not redistribution but rather liberation (like my blog post last month about liberation being the only legitimate goal of social welfare programs).  The idea is that people need opportunity to take control of their own lives and have the confidence, self-esteem, and willingness to accept responsibility for the life they create rather than be dependent on government or other people.   Again, that’s the only way for people to have a happy life — show me someone who blames others for their lot in life, who feels a victim of forces beyond his control, and who doesn’t claim responsibility for his or her position in life and future, then I will show you a person who is at base not happy and content.

          • The idea of ownership of ones life is semantic non-sense.  You live, you are yourself, there is no “ownership” context, no human life is owned (except in slavery, which we agree is wrong)

            I’m perplexed that you have so much trouble with the concept.  It’s such an integral part of the subject of individual rights, you must certainly have encountered it many times before.  A source on wiki credits John Locke with the origin (“every man has a Property in his own Person”), but I’m sure the idea occurred to plenty of human beings who witnessed slavery and feudalism and decided such things were wrong.
            Ownership is the moral authority to do what you want with something.  If you pay an artist for a painting she created, you can hang it on your wall, sell it, toss it in the garbage, or light fire to it.  I don’t get to do that because I don’t own the painting.
            It’s nonsensical to claim that you don’t own your own life (note the “your own” in “your own life”, it’s the one and only life which is your own, which you own), but that you own your car or the shirt on your back.  (Notice the “your” in “your back”, it’s the back which belongs to you.)  The fact that you own your life means you, not others, get to decide what you do with your life.  And, while people might argue over ownership of a car or a shirt, each sincerely thinking it belongs to him, there is no question that Scott Erb owns Scott Erb.  Nobody else can say, “Wait a minute, that’s my nutty professor.  I bought him last week at the flea market.” “So, do you have a receipt?” (It strikes me as funnier to imagine that conversation with British voices.)
            Slavery is wrong because the slave owns his life, so enslaving him is stealing what rightfully belongs to him (his freedom).  You can buy part of his life, the hours he devotes to working for you, but that is only ethical with his consent, for a mutually agreed upon wage.

            I do care if people work hard…

            How do you care?  You look at a chart of income disparity and conclude that the people who have more income should have more of that taken away from them.  It doesn’t matter if the person with more income works hard and the person with less is lazy.  All you see are numbers on a chart.  The personal life stories of the taxpayer are of no account to you.

            You don’t understand the nature of power in social relationships, you have this strange view that when government is involved that’s bad, but non governmental uses of power are OK.

            Strawman.  When people use aggressive force or fraud, it’s bad.  That’s true if they are government or the civilian form of thug.  Nancy Pelosi and Bernie Madoff are both guilty of using fraud to steal on a massive scale.  The difference is that Madoff stole a fraction of a percent that Pelosi stole, and the fact that she’s still walking around free.
            The ethical principles which I espouse are used by decent people around the world, people who respect the rights of others.  That’s about as real world as it gets.
            You can claim that it doesn’t “work” but then you’re begging the question: work for whom?  If it works for me and for the people with whom I do business, why do I care if some guy in Maine decides that it doesn’t “work” for the dropout single mother on the other side of the tracks from him?  That she has problems getting by in an honest, free exchange doesn’t mean that I should start sticking a gun in the face of my neighbor so I can send her a check and rescue her.

  • The answer is simple; credit default swaps. Failing that, surely those creative financial geniuses on Wall St. and in Washington can find another way to solve the problem. They have the track record to prove it. One more Ponzi scheme can’t hurt, right?

  • Obama Kicking Can Down Road

  • And by the way, Elliot, that’s my ethic — liberation, freedom and opportunity.   At base I think we share a lot of the same goals and values, but I think you totally misunderstand the nature of reality.  In fact, I find the way you grasp such an obviously over-simplistic view appalling.   I’ve seen that on the left too — faith in an ideology or a philosophy almost always leads to people interpreting reality through a prism of the beliefs they’ve chosen to grasp, being unwilling to hold their own world view up for critical analysis.   I don’t expect you to do it here (there’s the pride factor), but someday, on your own, re-evaluate the core assumptions you have about power and the way reality works.  Look at other theories, look at the real world and how it operates, avoiding the temptation just to interpret things through your ideology.   I think you realize there are holes — that explains how quick you are to insult, it’s a defense.   Open your mind.  Neither left nor right give a good answer, “isms” are always over simplified.  There is a universal goal of liberation, freedom and responsibility for ones’ life.  We can yell at each other behind conflicting “isms”, often secure in a setting (like a friendly blog) that guarantees those who disagree will be ridiculed and often driven away.   But that’s a waste — real growth comes from critical self-reflection.

  • Elliot, there is no correlation between hard work and extremely high incomes.  The idea that someone who earns $1 million (or much more) works proportionally harder than someone who labors in a factory for $20 K is on its face non-sense.  Again, you also totally ignore the impact of structural and economic force.  You subjectively and arbitrarily define “aggressive” force in a way that fits your ideological whims.  That’s not rational, it’s purely arbitrary.
     
    The idea that you’d have to apply the concept of ownership to oneself is a sign of a commodification of life, starting with British liberalism.  That’s a cultural construct, saying more about the culture than about anything in reality.  I do not need to use the concept of “ownership” to assert my rights, it’s superfluous.  Ultimately, these are questions that have no clear answer.  That’s why we have democracy, and that’s why you don’t get to answer it for everyone else.   You have your particular beliefs.  I see your views as completely wrong.  Humans are interconnected in social relationships, and as such radical individualism is an illusion, a fantasy.  Unless you want to leave society completely, not use its benefits at all, not engage in trade with other members, you have no choice but submit to the rules that society has constructed (or potentially go to jail).  You can demand people follow your ideological whim, but they have no reason to, especially if your view of ethics appears inherently arbitrary and unethical.
     
    Democracy (now understood in terms of Democratic Republics protecting individual rights even as we recognize society is interconnected and mutually constitutive) is the best way we’ve ever constructed to settle those disputes.  You offer no alternative because of arrogance.  You believe you somehow have figured out “the right way” and anything else is “wrong.”  You fancy it “principled” not to compromise, when really it’s a delusion.  You’re not smart enough to figure out for sure the nature of reality, neither am I.   Your theories are vast simplifications of reality resting on unfalsifiable assumptions and arbitrary beliefs.  Nobody elses are much better.  That’s why at this point in human development there is no system better (unless you can posit one) to settle these core disputes.   Posting an anti-system is a cop out because: a) it’s not going to happen; and b) it won’t settle the disputes (or it will relegate them to force, revolution and warfare).

  • “Elliot, there is no correlation between hard work and extremely high incomes.  The idea that someone who earns $1 million (or much more) works proportionally harder than someone who labors in a factory for $20 K is on its face non-sense.”
    and THERE, Asshole, is your problem – you don’t get to define ‘work’ and you don’t get to define what people will pay for ‘work’.
    Warren Buffet may not go out into the woods with an axe and fell 2000 foot of board lumber a day, but he’s educated himself and experienced life and he ‘works’ in a different way than a guy who swings an axe.  Each does ‘work’, and the market decides the value of their ‘work’.
    Christ if people payed you for the ‘work’ you do based on the woodsman vs Buffet scenario you wouldn’t have the coinage to own a PC and connect to the internet to annoy us with your asininity.
     
    “Ultimately, these are questions that have no clear answer.  That’s why we have democracy, and that’s why you don’t get to answer it for everyone else.”
    You think your ‘work’ is valuable?   You think you should be well compensated for it?
     
    Well, we on the central QandO committee took a vote, and it’s not, and you shouldn’t be well compensated for it.  See how that works when other people with an ideology different from yours are the ones deciding on things that affect you instead of the real world market doing it?
     
    Get the picture?
    I know the answer, no, you don’t.
     
    “Democracy (now understood in terms of Democratic Republics protecting individual rights even as we recognize society is interconnected and mutually constitutive) is the best way we’ve ever constructed to settle those disputes.  You offer no alternative because of arrogance.  You believe you somehow have figured out “the right way” and anything else is “wrong.”  You fancy it “principled” not to compromise, when really it’s a delusion.  You’re not smart enough to figure out for sure the nature of reality, neither am I.   Your theories are vast simplifications of reality resting on unfalsifiable assumptions and arbitrary beliefs.  Nobody elses are much better.  That’s why at this point in human development there is no system better (unless you can posit one) to settle these core disputes.   Posting an anti-system is a cop out because: a) it’s not going to happen; and b) it won’t settle the disputes (or it will relegate them to force, revolution and warfare). ”
     
    Damn.   Shorter version – “no one can know individually, but the collective knows all” – what a crap filled compost pile you have for beliefs.

    • Erb is pushing the Marxist labor theory of value.  In that astoundingly stupid, over-simplified theory, the dumb idiot who lugs boulders from one side of a field to another on his shoulder has done more work than the inventor who sits at desk in an air-conditioned lab, drawing diagrams and sending plans to others to build things.  But nobody’s life is bettered by rocks being in a different location, no matter how much sweat and muscle, no matter how much pain and effort.  The inventor, on the other hand, may create devices which save lives, make other people more efficient, or just increase the pleasure.
      I’ve known quite a number of people who are wealthy.  All of them worked their asses off creating a business or being outstanding salespeople, or they sacrificed and patiently invested.  Or, their parents or grandparents did.  Either way, that wealth was the result of hard work (not generally brute physical labor, but long hours), talent, ingenuity, leadership.  Human beings aren’t oxen or lions or wolves.  They rely on their intellect, their reason, to survive.  So, why would anyone value the attributes of a beast of burden over the cleverness of man?
      Apparently, such things are beyond Scott’s grasp, so he sees them as “arbitrary”.  Or, at best he pretends that he does in a cynical ploy to subvert the discussion.

      I do not need to use the concept of “ownership” to assert my rights, it’s superfluous.

      Being “superfluous” is not the same thing as “semantic non-sense”.  Sure, you may be able to use a different line of reasoning to come to the conclusion that all individuals have the rights of life, liberty, and property.  But starting from the axiom of self-ownership is such an elegant argument for these rights, I don’t see why you’d rather go out of your way.  Unless, of course, you want a different conclusion, i.e., that our lives are ultimately the property of the state, that our production, our efforts, our very blood is beholden to the grand design of our rulers.
      Democracy and freedom are two completely different things.  Replacing a monarchy or dictatorship with democracy often coincides with greater individual freedom.  But it can also lead to the Third Reich, Hamas, Hugo Chavez, or, closer to home, Ponzi schemes driving the economies of “free” people to ruination.
      It is, after all, simply replacing the judgement of the individual about what’s best for her with the whim of the mob or the title holder who cons a majority to put him in office then serves the interests of himself and his cronies, at the expense of that person who could have made much more intelligent and wise decisions if left alone.  It’s putting moral questions up on the auction block to be at the mercy of the whims of voters who have the political attention span and the judgement of a hyperactive four-year old.  Instead of spreading out the decisions to the millions, it’s concentrating them into the hands of a few fallible and most often corrupted rulers.

      • The best part, he declares all this from within the safety and security of an environment secured for him by the work and lives of numerous others.
         
        Literally standing on the shoulders of giants to proclaim the giants are wrong, confused, and ignorant.

  • No, Eliot, I am not pushing a labor theory of value.   I’m just pointing out that your claim on saying I don’t value work if I don’t value differences in income is totally meaningless.  A labor theory of value is just as absurd as a belief that what ever the market generates is just.  Both are absurd and arbitrary notions of value.
    I’m certainly not saying the “mob” can decide “what’s best for you.” But you can’t tell the rest of society what the proper role of government is, and somehow say that you can make all your own decisions if it affects other people.   That’s what you seem to want, but as long as you are interacting with society you have to play by some rules that you don’t get to make.  Only a child would say “I can only make decisions for me and no one else can.”  That’s only true if you’re not part of a larger community, whose actions impact others.
    Your biggest falsehood is to try to claim governance is a “mob” telling people what’s right for them.  No, it’s a society figuring out stable rules of behavior that should apply to everyone to reflect societal values and interests.   If you try to say “I get to do whatever I want because you can’t make decisions for me,” then you’re out of touch with reality.  The only way you can ethically claim that is to leave that society completely and have nothing to do with it.
    Lookers last comment applies to you, Elliot.   It’s easy to be an anarchist in the comfort of a society that functions with stable governance and rule of law.  Then you can imagine that if government disappeared everything would be the same but you’d just have more money.   It’s an illusion.  You can declare that from the safety and security of an environment secured for you by the work and lives of numerous others, as Looker says.  You think you’re individually responsible, but all individuals are standing on the “shoulders of giants” and as such you are proclaiming the giants wrong, confused and ignorant.   Thanks, looker, you summed up Elliot’s position nicely!
    Also, don’t fall into the trap of a dichotomy of collective vs. individual.   It’s both — and democracy is focused on making sure that collective goods are pursued and protected while protecting and asserting individual rights.  If anyone says ‘it’s one or the other,’ they are showing limited understanding of social reality.

    • “Thanks, looker, you summed up Elliot’s position nicely!”
       
      I was referring sir, to YOU, and the cockamamie ideas you spout about people not having inherent rights completely apart from whatever society they happen to be part of.
       
      I doubt Elliot is simple enough to think that even in a less organized society there would still not be some form of organization.  That’s you setting up fields of strawmen for you to best in mental combat.

    • “It’s both — and democracy is focused on making sure that collective goods are pursued and protected while protecting and asserting individual rights”
       
      No, fool, democracy is 5 wolves and 3 sheep voting on what to have for lunch.  The Athenian democracies did some highly, by today’s standards, immoral and questionable things.  Mob rule is democracy.
       
      Why the hell do you think the giants who founded this country gave us a Representative Republic and NOT a democracy.  But little moles like you are out there busily undermining that foundation with your pretensions that democracies are always focused on making sure the ‘collective good’ is pursued wile yet protecting individual rights.  Bull Shit.   It’s mob rule, nothing more, nothing less.
       
      I perceive little difference in mob rule and anarchy except the period in which it takes to accomplish your goals.  The difference being the anarchical whims of the mob may have formulation because they, for example, took time to vote to enslave the minority population, rather than the anarchist who may have rounded up the first 3 passer’s by at random and enslaved them.
       
      Slavery is so much better under democracy, no?
      Twit.

  • A labor theory of value is just as absurd as a belief that what ever the market generates is just.  Both are absurd and arbitrary notions of value.

    I read the description of the Marxist theory then I read your arguments and I find no difference.
    You say “what ever the market generates is just” but that’s not precisely what’s being posited.  The outcomes of the free market are not unjust, because no one has unjustly taken from another.  Note the word “free” as the crucial qualifier of “market” (otherwise, “the market” could be one of crony capitalism, a black market in stolen goods, etc.).  The free exchange of values through mutual, consensual arrangements are anything but arbitrary.
    Now, taking taxes by force because some bureaucrat wants to take credit for helping the poor or building sexy fast trains, or the bureaucrat decides that “incentivizing” the use of squiggly bulbs over round ones accomplishes something he thinks is important—that, is arbitrary in the extreme.
    Arbitrary and capricious is the result of following the policies you advocate.

    But you can’t tell the rest of society what the proper role of government is…

    If other people are demanding that I pay for something and presuming to act on my behalf, I have every right to tell those people how it should be done.  And, if they don’t agree with me, then they can return my money and quit using my name.
    When you deprive me of choice, as with taxes and regulations, you are dictating to me how I should live my life (in whole or in part), so it’s absurd to claim that by disagreeing with you about something which I deem is a negative for me, that I’m somehow dictating to you if I want no part of your scheme.

    …somehow say that you can make all your own decisions if it affects other people.   That’s what you seem to want…

    Emphasis mine.  That’s your strawman.  My rights extend to my neighbor’s nose.  If I’m harming others by violating their rights, I’ve crossed the line.  I most certainly do not argue that I get to make all the decisions if it means crossing that line.
    But so long as I stay on my side of the line, I have the moral right to make all my own decisions.  That’s what freedom is.

    …as long as you are interacting with [other people] you have to play by some rules that you don’t get to make.

    Absolutely.  Nor do you get to make the rules.  Except you do want to make rules: federal medical insurance mandates, extreme restrictions on industry out of an irrational fear of environmental catastrophes, plundering more and more from wealthy people to even out lines on a graph, etc..  I recognize that I have no authority to make rules for how you obtain medical care, what kind of light bulb you use or car you drive, or how much money you earn through honest work or how much your parents can bequeath to you.
    I recognize the rules for interacting with other people are determined by how the interactions involve the rights of the individuals, not to be decided by dictators or mob whims.  I can’t just walk out of a grocery store with a cart of food without paying the asking price for it.  And, the grocer can’t charge me to pay for food that he gives to poor people, without my consent.
    Somehow, you think that having “official” titles changes those rules.  It doesn’t.  Taxes are theft, because they are no different than plain robbery, when you strip away the false justifications.

    Your biggest falsehood is to try to claim governance is a “mob” telling people what’s right for them.  No, it’s a society figuring out…

    “Society” is the sum of all individuals, so unless you have 100% agreement, it’s a lie to grant attributes of an individual to “society”, as in “society decides”, “society figures out”.  That’s a lie.  What really happens is that a subset of rulers makes decisions then gives speeches about “the will of the people”.  They calculate their speeches to pander to the largest mob possible, to convince those people that the decisions of the rulers are actually the decisions of the mob.  But so long as you have dissent, it’s false to claim that these decisions are universal, to say that “the people” or “society” decided something.

    …reflect societal values and interests.

    Another example.  There is no singular interest for “society” when there is dissent.  There are competing interests and when you decree that you’re serving the “interests of society” you’re disregarding the interests of the dissenters and pretending the decision is unanimous.

    If you try to say “I get to do whatever I want because you can’t make decisions for me,” then you’re out of touch with reality.

    Strawman.  I don’t get to do “whatever I want”.  I only get to do what I want so long as I don’t harm others.  You keep dropping these vital qualifiers in a lame attempt to portray freedom as unrestrained chaos, in which libertarians want to rape and pillage with no restraint.  It’s exactly the opposite.  Libertarians condemn government for allowing the privileged who have or who can indirect wield government power to proverbially rape and pillage, violating the rights of individuals.

    The only way you can ethically claim that is to leave that society completely and have nothing to do with it.

    It’s the old love it or leave it canard.  In a word: bullsquat.
    There is absolutely no problem with a group of people having interactions with one another without resorting to force.  The fact that you decide to use force to impose your blueprint on the rest of us does not behoove us to leave if we don’t agree with you.  If you’re the one backing the use of force, then ethically it should be you who leaves, or just stops using force.

    It’s easy to be an anarchist in the comfort of a society that functions with stable governance and rule of law.  Then you can imagine that if government disappeared everything would be the same but you’d just have more money.

    I’m not an anarchist.  I have too much invested to go that route at my age.  From reading on-line the stories of people who have made great sacrifices to get off as many government lists as they can, I’d say that their being anarchists under the government and rule of law is anything but easy.  Nor do I see them predicting that without government, life would be a cakewalk.  What I do see is: “I’ll take my chances.”
    I harbor no illusions that government is ever going to whither away or that perfect free market order will spring forth from a collapse.  So all your yammering about “fantasy” or “faith” is based upon ignorant assumptions.
    All I am arguing is that forcing other human beings to do what they never agreed to is ethically wrong.  I don’t offer solutions for how your corner of Maine would manage without Washington or Augusta managing your affairs.  Those are your problems to solve, not mine.  I’m not insisting on imposing a blueprint on everyone else, creating a system by which to rule others.
    I’m simply saying that ruling others by force is wrong and those who do so should stop.

  • “That’ll give us 6 months to figure things out…”

     
    That’s just pathetic.  You people still think this is going to get worked out before it blows up.
     
    Make the most of your audience, while you have it, because you’re irrelevant and you just don’t know it yet.

  • Elliot, I’ll let you have the last word above as I am too busy to give this the attention it deserves right now.   Suffice it to say I favor decentralization of power to state and local units, and in fact believe (and have discussed it in my blog) that we’re witness to the beginning of the end of the modern bureaucratic state.  I think your ethical arguments are off base, as I do not have a purely individualist ontology, but that argument can be for another day.

    • I favor decentralization of power to state and local units…

      You keep making that claim, but you champion the FEDERAL health care law (ObamaPelosiCare).  You also cheered Obama going to war against Libya.
      Time after time, you back the candidates and legislation which further centralizes power.
      You’re a skunk pretending to be a cat.

    • Scottie

      Can you stop directing us to your blog.  You use this site over and over for free advertising for it.  If we were interested in your blog we would have found it by now and have gone there instead of here.  

      Now on to other matters.
      I still havent gotten our response on my proposed bet with winner donating money to the other’s charity or else you setting the stakes.
      Also since you are so interested in raising taxes on other people are you willing to put your money where your mouth is and write a check (over and above what you pay in taxes) to the treasury using  YOUR OWN MONEY to help pay down the debt?  If so, then what is stopping you?