Free Markets, Free People

Economy


CBO Says Federal Budget On Unsustainable Path (Is Anyone Surprised?)

I‘m not sure how often everyone has to be told, but here’s the warning again, just as Democrats attempt to pile another trillion plus dollars in federal health care spending (and debt). From the CBO Director’s blog:

Under current law, the federal budget is on an unsustainable path, because federal debt will continue to grow much faster than the economy over the long run. Although great uncertainty surrounds long-term fiscal projections, rising costs for health care and the aging of the population will cause federal spending to increase rapidly under any plausible scenario for current law. Unless revenues increase just as rapidly, the rise in spending will produce growing budget deficits. Large budget deficits would reduce national saving, leading to more borrowing from abroad and less domestic investment, which in turn would depress economic growth in the United States. Over time, accumulating debt would cause substantial harm to the economy.

I’m not sure how it can be said any more clearly and more succinctly.

The choices, as laid out in the paragraph above are fairly simple – cut federal spending dramatically or raise taxes (revenues) dramatically to meet the spending or your going to do “substantial harm to the economy”. Of course we also know that raising taxes dramatically would have the same effect. That leaves one option and, as is clear with the health care reform proposals, that’s nowhere near the table, is it?

Yet that’s the formula:

Keeping deficits and debt from reaching these levels would require increasing revenues significantly as a share of GDP, decreasing projected spending sharply, or some combination of the two.

CBO offers the following graph to illustrate the point of letting the status quo remain in place. Note that the second line coming off the actual/projected line – that’s the “extended baseline scenario” where absolutely nothing is changed and the budget, as projected, is executed. Disregard the first line for the moment.

slide2

What is important is to understand this:

The current recession and policy responses have little effect on long-term projections of noninterest spending and revenues. But CBO estimates that in fiscal years 2009 and 2010, the federal government will record its largest budget deficits as a share of GDP since shortly after World War II. As a result of those deficits, federal debt held by the public will soar from 41 percent of GDP at the end of fiscal year 2008 to 60 percent at the end of fiscal year 2010. This higher debt results in permanently higher spending to pay interest on that debt. Federal interest payments already amount to more than 1 percent of GDP; unless current law changes, that share would rise to 2.5 percent by 2020.

Now you’ve heard that, in various forms for years. But what does that mean to you personally – how does one put that in terms that mean anything to a taxpayer?

Well Jim Glass at scrivner.net has done that for us:

The national debt incurs interest that is paid with taxes. The interest rate on US debt is projected be about 6% annually in the long run, according to the Social Security Administration’s actuaries and other such governmental budget projectors. Six percent of one trillion dollars is $60 billion.

There are 80 million payers of income tax in the US. (If that seems low for a population of 300 million remember that 47% of all “tax units”, 70 million potential taxpayers, pay no income tax or receive refundable tax credits from the government.)

Now $60 billion divided by 80 million taxpayers equals $750 per taxpayer — so each trillion dollars of the national debt costs the average taxpayer $750 per year, every year that the debt is carried, forever.

So for every trillion in debt the federal government puts us, we owe $750 per tax payer in interest alone.

Jim extends his example to what the chart above depicts:

As of the end of last year the government’s outstanding explicit and implicit debt was $64 trillion. Add another year’s interest on that, plus this year’s $1.8 trillion deficit, and we will be well over $66 trillion at the end of this year. Which creates an explicit and implict annual interest liability to just carry the debt of more than $49,000 per taxpayer.

Yet we have Joe Biden claiming we have to spend money to avoid bankruptcy – and there are people out there who believe him.  As Jim points out:

As of today most of that is implicit (for unfunded Medicare liabilities, etc.) but every year from now on (as more seniors retire and start collecting Medicare, etc) more of the debt will shift from being implicit to explicit, requiring cash tax collections to pay for it.

And the same entity which has put the country in this shape running a health care system, now wants the rest of it with the stated goal of cutting costs.

If you’re gullible enough, given the facts above, to fall for that, I have to question your critical thinking abilities. In fact, you might want to consider the chart above again and pay attention to the top line coming off the actual/projected line – that’s likely what our debt will look like if you hand over health care to the federal government.

It is very close to fish or cut bait time for the people of the US – we have got to realize, very quickly, that in fact,  we are on the verge of bankruptcy and what that buffoon Biden says is just abject, unthinking nonsense.

Either cut government spending – drastically – or go under. Those are your choices.

~McQ


Democrats Unveil Their “Affordable” Health Care Plan

And yes, that’s right, just because Democrats put “affordable” in the title doesn’t mean it is anything close to being affordable (unless another trillion in spending is something you find affordable). In fact, you can almost count on the opposite being true.

Another vitally important point to keep in mind is that trillion we’re batting around like we’re talking about spending ten bucks, is a government estimate. Anyone remember the government estimate about the cost of Medicare and how that turned out?

The Democrats are claiming the CBO “scored” this bill and it came up under the “affordable” column.  But the RNC says the CBO didn’t actually score the language in the bill:

In the second paragraph of CBO’s letter, it says, “”It is important to note, however, that those estimates are based on specifications provided by the tri-committee group rather than an analysis of the language released today.” So they scored what Democrats asked them to score. Not the actual bill.

Yes, in this infernal rush to get a bill out, we obviously couldn’t be patient enough to have the CBO score what the bill actually said vs. what the committees declared the bill would say. And we all know how honest our Congress is about such things, don’t we? Last but not least, the politics of the thing. Here’s a graph to show you how the planned appropriation of your money will take place:

houseDemHC Note carefully when the costs will actually begin to kick in. Yes, when Obama is safely in his second term and hopefully, at least as the Democrats reason, still with a Democrat majority Congress (since both the 2010 and 2012 Congressional elections shouldn’t be effected). Note the slope of the curve after that. Philip Klein, who put the chart together, explains:

It’s important to keep in mind that the most costly aspects of the legislation involve providing subsidies to individuals to purchase health care ($773 billion) and to expand Medicaid ($438 billion), but it takes several years for those provisions to kick in. As you can see from the chart below, that means that the costs start out relatively modest but ramp up over time. In the first three years of the plan the cost of the subsidies and Medicaid expansion is just $8 billion; in the first five years, it’s $202 billion; but in the last five years, it’s $979 billion. Put another way, 17 percent of the spending comes in the first five years, while 83 percent comes in the second five years. What this means is that the American people see $1 trillion over 10 years and they think that means the bill would cost about $100 billion a year — but the reality is more than double that. In the final year of the CBO estimates, 2019, the spending hits $230 billion.

Another important note – at the end of 10 years, that line on the graph isn’t going to drop to zero. It’s going to continue to climb. That’s “affordable?” If so, Democrats have given new meaning to the word.  And all of it to be paid for by taxing the rich.

Yes, in the midst of an economic crisis, the con artists in Washington are at it again.  They’ve co-opted “affordable” to sell their snake oil, ignored the impact of such a bill in a weak economy but carefully weighed the politics of it, and have decided that funding it on the back of “the rich” won’t have any adverse consequences when it comes to the economy and its health.

You can see this train wreck coming from miles and miles away, can’t you?

~McQ


“Recovery Act” A Bust, But Not Because Economic Distress “Misread”

The vaunted stimulus which President Obama claims is doing exactly what it was supposed to do is seen by a majority of others as a complete bust.

Why? Mort Zuckerman lays some of it out:

About 40% of U.S. workers believe the recession will continue for another full year, and their pessimism is justified. As paychecks shrink and disappear, consumers are more hesitant to spend and won’t lead the economy out of the doldrums quickly enough.

It may have made him unpopular in parts of the Obama administration, but Vice President Joe Biden was right when he said a week ago that the administration misread how bad the economy was and how effective the stimulus would be. It was supposed to be about jobs but it wasn’t. The Recovery Act was a single piece of legislation but it included thousands of funding schemes for tens of thousands of projects, and those programs are stuck in the bureaucracy as the government releases the funds with typical inefficiency.

As I and many others pointed out when it was being passed, the stimulus package was nothing more than a collection of porky earmarks on an unprecedented level. It was a lefty wet-dream come true – full access to the treasury and the power to do whatever they wanted. Democrats finally had the power to reward themselves and their constituencies and they took full advantage of it.

This wasn’t a “misreading” of the economy as Joe Biden likes to claim, but a misappropriation of funds to fulfill political dreams and promises that had been denied them for years.

Zuckerman wants to wave off the problems with execution to the “typical inefficiency” of government (but I bet he’s all for the government expanding its role in health care), but this recovery act isn’t just about government inefficiency or bureaucracy. It’s about where the Recovery Act’s money is aimed – and it isn’t aimed at creating jobs.

That’s why, despite the dire claim that if the Recovery Act wasn’t passed, unemployment would rise above 8%, unemployment continued to rise, unabated, to 9.5%. And it will climb higher. It was never targeted at creating (or even saving) jobs. Nor was it targeted toward stimulating the economy (by getting money out in the economy and circulating).

It was a 787 billion dollar payoff/payback pork bill – something both Obama and the Democrats denied but which was obvious to anyone who took the time to look into the provisions of the bill itself.

And now we’re supposed to believe that the economy was worse than they thought and they simply “misread” it.

Nonsense.

For those of you paying attention, this is all a prelude to claiming a second “stimulus” is necessary, after having misappropriated almost a trillion of your dollars previously to pay off their political debt.

The answer, of course, is “no”.

They’ve already proven they can’t be trusted to address the problem at hand without succumbing to the lure of political payoffs. And, in fact, they gave those political payoffs higher priority than the economic distress we are suffering. They should not be given the opportunity to misappropriate anymore of your money to repeat the process.

Because they will.

~McQ


The Recession is Racist (Updated)

Just thought you should know:

While unemployment rose steadily for white New Yorkers from the first quarter of 2008 through the first three months of this year, the number of unemployed blacks in the city rose four times as fast, according to a report to be released on Monday by the city comptroller’s office. By the end of March, there were about 80,000 more unemployed blacks than whites, according to the report, even though there are roughly 1.5 million more whites than blacks here.

Across the nation, the surge in unemployment has cut across all demographic lines, and the gap between blacks and whites has risen, but at a much slower rate than in New York.

Economists said they were not certain why so many more blacks were losing their jobs in New York, especially when a large share of the layoffs in the city have been in fields where they are not well represented, like finance and professional services. But in those sectors, the economists suggested that blacks may have had less seniority when layoffs occurred. And black workers hold an outsize share of the jobs in retailing and other service industries that have been shrinking as consumers curtail their spending.

Hmm, so maybe it’s just NYC that’s racist?

“Low-wage workers and workers who lack skills are really getting hit hard,” he said. “These are the workers who are sort of fungible. They lose their jobs very quickly, particularly in retail, the people who move boxes and do unskilled work. There are large numbers of African-Americans in that sector.”

Manufacturing, which has shed more jobs than any other sector of the city’s economy, had become a mainstay for black workers, Mr. Jones said. Government jobs had also become a prime source of solid, stable work for many blacks in the city, he added. But lately there have been cutbacks there, too, as falling tax revenue has forced the paring back of budgets.

So it’s those who hire unskilled workers who are racist? This theme is confusing.

Still, Mr. Parrott’s analysis painted a stark picture of how uneven the effects have been for whites, blacks and members of other minorities. His figures show that whites gained about 130,000 jobs in the year that ended April 30 over the previous 12 months, but blacks, Hispanics and Asians all lost jobs during that period. Employment fell by about 17,000 jobs for blacks, 26,000 jobs for Hispanics and 18,000 for Asians and other ethnic groups, the data show.

“That’s a black-and-white employment picture,” Mr. Parrott said. “It’s like night and day over the 12 months. “There’s a real racial shift taking place in the city’s labor market in the past year.”

Okay, I’ve got it now. It’s white New Yorkers who are racist. Or maybe its the high-skilled labor market that’s racist? Again, I’m not sure.

But the article seems to imply pretty strongly that racism is at the bottom of this problem. Otherwise, why not mention how many of the unemployed are men, or of prime-age, or well-educated? Heck, why not mention that of the 108,000 [139,100 newly] unemployed workers in NYC [over the 12 month period between April 2008 and 2009], 61,000 [92,000] (or a little more than 56% [66%]) are white (which really makes you wonder where the 130,000 jobs figure came from)?* Obviously, the story is intended to tell us that somebody is being racist, and that’s why the “black-white gap in joblessness” is being discussed at all.

Welcome to post-racial Obamaland. If you don’t know whose fault it is, then it’s probably yours, racist.

UPDATE: Those numbers (in the sentence marked above with the *) were really bothering me. I went back and looked at the Bureau of Labor Statistics figures for New York City’s unemployment and discovered that the NYT article is way off. The number of jobs lost between April 2008 and April 2009 was 139,100, of which (according to the article) 17,000 were lost by blacks, 26,000 were lost by Hispanics, and 18,000 were lost by Asians and other races. Somehow or another, Mr. Parrott, who the article cites for the numbers, came up with 130,000 jobs gained by whites in this period. Of course, that makes absolutely no sense because, if it were true, then there would have been an increase in employment during that period, and the unemployment rate would have fallen, not skyrocketed. Instead, 139,100 people became unemployed, only 47,000 of whom were non-white. Ergo, instead of whites gaining 130,000 jobs, they lost 92,000.

There are other problems with the article as well, some of which you can discover by reading the NYT (in fact, the stories are written by the same person). For example, the story above cites low-wage, manufacturing and government workers as hardest hit, but last month the picture was just the opposite (emphasis added):

In the private work force, the weakness in May was concentrated in the fields of communications media, advertising and other information services, as well as in finance and education, according to James Brown, an analyst with the state’s Labor Department.

Those losses offset employment gains in tourism-related businesses and construction, Mr. Brown said. He said that aggressive price-cutting by hotels had kept tourists visiting and saved jobs. Construction benefited from the flow of federal stimulus funds, he added.

The latest numbers, Mr. Brown said, illustrate that New York’s economy is still contracting, despite recent fluctuations in the city’s unemployment rate, which was 8 percent in April.

“Although the unemployment rate actually dipped slightly in three of the last five months, the trend is still strongly upward,” he said. “Despite some positive notes, the city’s job market is still weak and the weakest areas — financial activities and professional and business services — will not resume growth until after the national economy improves.”

I’m sure there’s other stuff that’s wrong as well, but it doesn’t change the fact that you are a racist.


What’s Our Future? Bigger Government And Higher Taxes

At least that’s what Robert Samuelson sees for us. I can’t really dispute his numbers either:

For the past half-century, federal spending has averaged about 20 percent of GDP, federal taxes about 18 percent of GDP and the budget deficit 2 percent of GDP. The CBO’s projection for 2020 — which assumes the economy has returned to “full employment” — puts spending at 26 percent of GDP, taxes at a bit less than 19 percent of GDP and a deficit above 7 percent of GDP. Future spending and deficit figures continue to grow.

What this means is that balancing the budget in 2020 would require a tax increase of almost 50 percent from the last half-century’s average. Remember, that average was 18 percent of GDP. To get from there to 26 percent of GDP (spending in 2020) would require an additional 8 percentage points. In today’s dollars, that would be about $1.1 trillion, a 44 percent annual tax increase. Even these figures may be optimistic, because CBO’s projections for defense and “nondefense discretionary” spending may be unrealistically low. This last category covers much of what government does: environmental regulation, aid to education, highway construction, law enforcement, homeland security.

Now, this should come as no surprise, really, to anyone with a passing knowledge of accounting. When you increase spending without increasing revenue, you end up with a deficit. And what we’ve seen the government doing for decades is exactly that.  Now it’s in the midst of piling up massive deficits and planning huge increases in government.

And it’s not all the politicians fault. After all the average American keeps returning the same fiscally irresponsible people to the same place where they can continue doing what they’ve been doing for decades – spending us into bankruptcy.

Because, as Samuelson notes, Americans like the benefits even if they don’t like the taxes. So the formula has been a little different for each party but the result has been precisely the same:

Republicans want to cut taxes without cutting spending. Democrats want to increase spending without increasing taxes, except on the rich. The differences between the parties are shades of gray. Hardly anyone asks the hard questions of who doesn’t need benefits, which programs are expendable and what taxes might cover remaining deficits.

In fact, much harder questions are routinely ignored, such as “why is government getting into _________ at all?” To me that is the key question that is never asked. Name your program and tell me when anyone asks why government is involving themselves in such things?

It all comes back to the fundamental question which, over the centuries, has seen the answer change radically – “What is the basic function of legitimate government?”

Few are going to be able to argue successfully that the answer in 1781 was the same as it is today, are they? And you don’t really have to be an economist to understand what this direction we seem to be intent upon taking means for our future.  It should also be clear by now that those who’ve have gotten us into this mess have little incentive to change their ways and certainly no stomach for the sort of work it would entail:

There is little appetite for any of this, and so we face the consequences of much bigger government. Certainly higher taxes for future Americans. Probably a less robust economy. The CBO notes that elevated deficits would penalize saving, investment and income, while unprecedented tax burdens could “slow the growth of the economy, making the [government's] spending burden harder to bear.” To such warnings, Americans’ collective response is: Go away.

Enjoy.

You can go back to sleep now.

~McQ


Presidential Reality Check (Update)

Keith Hennesey does a fair job of fisking President Obama’s Washington Post editorial in which Obama tries to put a happy face on what his administration has done thus far to combat the recession. Hennesy included a chart by Don Marron that graphically takes Obama to task on one of his favorite claims, namely:

Nearly six months ago, my administration took office amid the most severe economic downturn since the Great Depression.

Marron’s chart:

image1

Now Obama’s claim is certainly close to being true, but by 1/10th of a percent, it isn’t quite there. And, it could be argued, the past 6 months of this administration’s policies has moved it closer to being what he claims than it was when he took office.

But when he talks about the gloom and doom of the “most severe economic downturn since the Great Depression”, remember this chart. He and the Democrats are and have been using that claim as a means of justifying all sorts of deficit spending. It is also the means to justify health care reform (claim: health care spending is going to “bankrupt us”) and cap-and-trade (claim: the route to fiscal health is “green jobs” and “green industry”).

The point here is to understand how overplayed the “most severe economic downturn since the Great Depression” really is. Yeah, it’s a nasty one, but in comparison to the Great Depression it simply doesn’t compare. In fact, it isn’t even close.

UPDATE: Here’s a perfect example of an exaggerated and, naturally, unfalsifiable claim by a politician.

~McQ


Pontiff Pontificates On Economics … Badly

When it comes to economics, the Pope should stick to poping. While it’s not uncommon for the papacy to issue decrees and opinions vaguely in line with common socialist principles (e.g. love thy neighbor, etc.), it is somewhat rare for the Pope to outright call for one-world government:

Pope Benedict XVI on Tuesday called for a radical rethinking of the global economy, criticizing a growing divide between rich and poor and urging the establishment of a “world political authority” to oversee the economy and work for the “common good.”

He criticized the current economic system, “where the pernicious effects of sin are evident,” and urged financiers in particular to “rediscover the genuinely ethical foundation of their activity.”

He also called for “greater social responsibility” on the part of business. “Once profit becomes the exclusive goal, if it is produced by improper means and without the common good as its ultimate end, it risks destroying wealth and creating poverty,” Benedict wrote in his new encyclical, which the Vatican released on Tuesday.

I wonder what happened to leave to Caesar what is Caesar’s and to God what is God’s? Or how about that whole concept of “free will”; you know the very basis and foundation of our religious “faith” (which, of course, can only come from choice and not from force)? That seems to be under indictment with Pope Benedict’s latest encyclical.

Leaving aside world governance for the moment, the Pope really goes off the rails when he gets into economic policy. For example, at one point he decries “globalization” and “outsourcing” as little more than the rich preying on the poor:

Indeed, sometimes Benedict sounds like an old-school European socialist, lamenting the decline of the social welfare state and praising the “importance” of labor unions to protect workers. Without stable work, he notes, people lose hope and tend not to get married and have children.

But he also wrote that “The so-called outsourcing of production can weaken the company’s sense of responsibility towards the stakeholders — namely the workers, the suppliers, the consumers, the natural environment and broader society — in favor of the shareholders.”

In short, managers should run their companies for the benefit of those who whine about the common good rather than for those who actually paid for the company (i.e. the shareholders). I’m guessing this is the “squeaky wheel” part of the sermon.

Yet, while outsourcing is deemed “bad”, the Pope also laments that poor countries aren’t better taken care of by richer ones. Towards that end

Benedict also called for a reform of the United Nations so that there could be a unified “global political body” that allowed the less powerful of the earth to have a voice, and he called on rich nations to help less fortunate ones.

“In the search for solutions to the current economic crisis, development aid for poor countries must be considered a valid means of creating wealth for all,” he wrote.

Except for the fact that “development aid” is not wealth. Wealth is created through productivity, not handouts. Indeed, the surest and simplest way to aid development in poor countries to give them jobs … a.k.a “outsourcing.” Doesn’t that whole give a man a fish/teach a man to fish thing ring any bells, your Holiness? Moreover, the more things like outsourcing happen, then the greater wealth there is in the world, and the more work/wealth/happiness there is for everyone to enjoy. Again, I’m pretty sure that was something about loaves and fishes in the Bible that would help illustrate this point.

So much for Papal infallibility.

Just to be clear, I say all of this as a practicing Catholic who is raising his own children in the same tradition. I have great respect for the Pontif when it comes to matters of the spirit. I just wish he’d leave the day-to-day management to the rest of us.


Today’s Employment Situation

First of all, let’s compare the current situation with employment with what the Obama Adnministration told us would happen if we didn’t pass the stimulus package.  As has been obvious for some time now the stimulus is not–as we repeatedly predicted–substantially impacting the employment situation.

stimulus-vs-unemployment-june-dots

Unemployment: Promised v. Actual

Instead, employment has risen by more than 3%.

Now, today’s surprise was not that there were a net 467,000 jobs lost last month, but that the employment rate went up by only 0.1%.  The answer to that mystery is found in the employment data from the BLS, which shows that the civilian labor force declined by 358,000 people last month.

The Bureau of labor Statistics uses a neat bit of sleight-of-hand when calculating the unemployment rate.  If you are not in the workforce, you aren’t counted as unemployed.  You disappear from the numbers.

There are a number of ways to leave the labor force.  You can retire.  You can become injured or disabled.  Or, you can simply become so discouraged that you stop looking for a job.

For the latter category, that means you may still not have enough money to house and clothe your family.  and you might still really want to work.  But there are no jobs for you, and if you stop actively looking for work, then you drop out of the labor force.

Granted, there’s no other way to really count the labor force, but this does help explain why the employment rate remained much more restrained vis a vis the actual number of net job losses.  The number of people not in the labor force increased from 80,371,000 in May to 80,729,000 in June.  That nearly equals the number of job losses, so the unemployment rate comes out nearly even.


CBO, Entitlments, Health Care Reform and the Deficit

One more time into the breach. The CBO has issued a warning to Congress about entitlement spending. Again. Here’s a key paragraph:

Almost all of the projected growth in federal spending other than interest payments on the debt comes from growth in spending on the three largest entitlement programs–Medicare, Medicaid, and Social Security.

Most of you know that Medicare and Medicaid have an unfunded future liability of 36 trillion dollars. That’s about 3 times the annual total GDP of the US economy. And they are the very same type of “public option” program – i.e. government insurance – that the left says is so very necessary and crucial to real “health care reform”.

In other words, the left’s argument is that adding at least 47 million (presently uninsured), plus the possibility of adding 119 million who are shifted to the public option from private insurance (private insurance, btw, doesn’t have any effect on the deficit whatsoever since we, the private sector, are paying for it) will somehow make the deficit picture better?

I’m obviously missing something here.

With the public option, we’re adding a new entitlement (47 million who presently supposedly can’t afford insurance, meaning taxpayers will subsidize theirs). Assuming it is set up originally to be paid for by premiums, at some point, like Medicare and Medicaid, and every other government entitlement program I can think of, it will pay out more than it takes in. How can it not? It is a stated “non-profit” program and it will include subsidies. At some point, another revenue stream is going to be necessary as it burns through the premiums with its payouts.

Well, say the proponents of government involvement in your health care, we’re going to save money by doing preventive health care. Yes, preventive care is the key to lower costs because a healthier population is one which visits the doctor less. While that may seem to be at least partially true (you’d think a healthier population would, logically, visit the doctor less) the part that is apparently missed when touting this popular panacea is the cost of making the population healthier (and the fact that the assumption of less visits isn’t necessarily true) doesn’t cost less – it costs more:

If health care providers can prevent or delay conditions like heart disease and diabetes, the logic goes, the nation won’t have to pay for so many expensive hospital procedures.

The problem, as lawmakers are discovering to their frustration, is that the logic is wrong. Preventive care — at least the sort delivered by doctors — doesn’t save money, experts say. It costs money.

That’s old news to the analysts at the Congressional Budget Office, who have told senators on the Health, Education, Labor and Pensions Committee that it cannot score most preventive-care proposals as saving money.

So with that myth blown to hell, we’re now looking at a government plan which will add cost to the deficit by subsidizing the insurance of 47 million and (most likely) many more, plus a plan to use a more costly form of medicine as its primary means of giving care.

But, back to the entitlement report – or warning. The CBO says that unless entitlements are drastically reformed (that means Medicare, Medicaid and to a lesser extent, Social Security) we’re in deep deficit doodoo:

The most frightening findings in this report are the deficit and debt projections. In this year and next year, the yearly budget shortfall, or deficit, will be the largest post-war deficits on record–exceeding 11 percent of the economy or gross domestic product (GDP)–and by 2080 it will reach 17.8 percent of GDP.

The national debt, which is the sum of all past deficits, will escalate even faster. Since 1962, debt has averaged 36 percent of GDP, but it will reach 60 percent, nearly double the average, by next year and will exceed 100 percent of the economy by 2042. Put another way, in about 30 years, for every $1 each American citizen and business earns or produces, the government will be an equivalent $1 in debt. By 2083, debt figures will surpass an astounding 306 percent of GDP.

The report also finds high overall growth in the government as a share of the economy and of taxpayers’ wallets that provides an additional area of concern. While total government spending has hovered around 20 percent of the economy since the 1960s, it has jumped by a quarter to 25 percent in 2009 alone and will exceed 32 percent by 2083. Taxes, which have averaged at 18.3 percent of GDP, will reach unprecedented levels of 26 percent by 2083. Never in American history have spending and tax levels been that high.

Here’s the important point to be made – these projections do not include cap-and-trade or health care reform.

Got that? We’re looking at the “highest spending and tax levels” in our history without either of those huge tax and spend programs now being considered included in the numbers above. Total government spending, as a percent of GDP is now at an unprecedented 25%. And they’re trying to add more while this president, who is right in the middle of it, tells us we can’t keep this deficit spending up forever.

Fair warning.

~McQ


Krugman Endorses “Carbon Tariff”

Paul Krugman came out today for “border adjustments” (tariffs) on goods from countries who aren’t participating in economy killing CO2 emissions control taxation.

His argument:

If you only impose restrictions on greenhouse gas emissions from domestic sources, you give consumers no incentive to avoid purchasing products that cause emissions in other countries; as a result, you have an inefficient outcome even from a world point of view. So border adjustments here are entirely legitimate in terms of basic economics.

Actually they’re “entirely legitimate” if you swallow the premise Krugman is pushing here, namely that CO2 is a “pollutant” and its restriction is a “legitimate” reason for imposing taxes on both your own economy and the goods coming from another economy which doesn’t agree with the premise. And, of course, this ignores the probable reaction countries hit with this tariff might have.

Krugman then attempts to justify such a “border adjustment” by claiming such a move is probably legal under “international law”:

The WTO has looked at the issue, and suggests that carbon tariffs may be viewed the same way as border adjustments associated with value-added taxes. It has long been accepted that a VAT is essentially a sales tax — a tax on consumers — which for administrative reasons is collected from producers. Because it’s essentially a tax on consumers, it’s legal, and also economically efficient, to collect it on imported goods as well as domestic production; it’s a matter of leveling the playing field, not protectionism.

And the same would be true of carbon tariffs.

What he sort of dances around when he claims this will “level the playing field” is all products, regardless of their origin, will see dramatically increased pricing. The point of the tax is to hopefully steer consumers to domestically produced products which are produced under government approved conditions rather than those from countries like China and India which aren’t playing the game the US wants them to play. Not only will the consumer here be asked to pay for the CO2 offsets imposed on domestic industry, but they will have to pay for offsets for foreign producers as well when the VAT cost is passed on in the price of the goods.

The thinking, obviously, is that if prices are the same, US consumers will buy US goods instead of, say, Chinese goods. The problem, of course, is much of what we consume isn’t made here anymore. So the result would be the US consumer would end up paying higher prices for goods produced in China with no change in behavior by China.

Additionally, China will view this as a protectionist measure, whether the WTO thinks it is “legal” or not. China will simply claim that the US, as a rich country and large “polluter”, should be doing more than they are doing in terms of emissions control, and impose its own “WTO legal” VAT in response. Same with any other country targeted by the US for a tariff.

This is, frankly, an invitation to a trade war. Krugman can wrap his protectionist argument in whatever legality he’d like, but the fact remains most countries effected will view it as an attempt to limit trade and react accordingly. And, of course, by Krugman’s own admission, it is you who will be paying the tariff cost for China and India if this is ever passed into law.

~McQ

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