Free Markets, Free People
Yeah, you know where this is headed. Story:
Forecasters call the heat wave gripping the central U.S. "unrelenting," and say residents should not expect any relief soon.
Heat advisories and warnings are in place in 17 states, from Texas to Michigan, as temperatures and humidity combine to make being outside uncomfortable for millions.
Across the country, this month’s summer’s searing heat has tied or broken high temperature records nearly 900 times, reports CBS News correspondent Cynthia Bowers.
What I want to know is when are the meteorologists going to stop calling all the extreme weather we’ve experienced over the past decade "unusual?" To me, this is starting to look like the new normal. Droughts, heat waves, wildfires, 500 year floods every five years or so — what we used to call unusual is what I now expect. But then I’m one of those heretical, devil worshiping believers in climate change.
Where the Midwest gets a lot of its rain during summers is from tropical storms and hurricanes in the Gulf. And of course “climate change”, aka global warming, tells us that the increased heat caused by increased CO2 will cause increased and more violent hurricanes.
Yet, here we are, well into hurricane season and still looking for our “A” hurricane.
Yup, it really doesn’t matter what happens where, someone, somehow is going to try to make it into a “climate change” event. But, as Stephen D at Booman Tribune notes, he’s a “believer” so connected dots isn’t particularly important when that’s the case.
Yes there are still people in this world that just don’t get it. The irony, of course, is their target:
A Spanish lawyer has formally accused Barack Obama of crimes against humanity for ordering the assassination of Osama bin Laden.
Apparently “lawfare” was how this should have been prosecuted:
Daniel Fiol lodged a written complaint at the International Criminal Court accusing the US president of breaching the Geneva Convention.
In his written complaint, the Majorca-based lawyer said bin Laden should have been "pursued, arrested, tried and convicted" on behalf of "the victims of some terrible and appalling atrocities". The killing of bin Laden was even worse as it took place in foreign territory, Pakistan, without the permission of that government, he said.
So here we are with another “ war criminal president” on our hands. How does it feel, lefties, to have your agent for “hope and change” accused of being a “war criminal?”
About once a year, I like to shake things up a bit, visually. The nice thing about WordPress is that such shake-ups to the template are relatively easy to do. Last year’s version began to strike me as too dark and outdated. So, I decided it was time for a change.
The theme this year is the Constitution, with the Preamble as the blog header photo. For colors, everything went completely grayscale and much lighter, except for the post titles and the drop caps, which now are a brighter blue and red, respectively. Site navigation was moved from the header to the top of the sidebar, which has not only switched sides, but has gotten a bit narrower, giving us some extra room in the content column.
Fonts are essentially the same, with Georgia as the header font and Verdana as the body font. With the wider content pane, I expanded the horizontal spacing of the body font making it a bit easier to read, without actually changing the font size. If you, as one commenter noted in a previous post, think it’s too akin to reading a children’s book, well, sorry. I think it makes the body text far more readable for a larger number of people.
If you really hate it, then just wait a while. It’ll change again.
In this podcast, Bruce, Michael, and Dale discuss the fight over the debt limit.
The direct link to the podcast can be found here.
As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2010, they can be accessed through the RSS Archive Feed.
A commenter to my previous post writes: “Tax increases on the wealthiest would keep rates below Reagan era rates, and add some revenue.”
No, they won’t. Not even close. Here’s why:
Now, this chart counts all tax revenues. Income taxes, corporate taxes, excises, tariffs, etc. All of them. It includes the low income taxes of the 1930s, the 90% top tax brackets of the 40s and 50s, the Kennedy and Reagan rate cuts of the 60s and 80s…it’s all there.
And what do we notice about this model? Well, a couple of things. First, the highest tax receipts as a percentage of GDP was 20.9%. That was in 1944. In 1945, the percentage was just north of 20%. I think I have a pretty solid–and obvious–explanation of why tax receipts jumped so high in those two years. Sadly, the Nazis are gone and the Japanese seem rather less interested in the Greater Southeast Asia Co-Prosperity Sphere project than they did back then, so a global conventional war seems out of the picture at the moment. Darn our luck!
But the other thing we notice when we look at this chart is that despite top marginal tax rates varying between 28% and 90% since 1945, tax revenues as a percentage of GDP seem to be locked in at about 18%. There is, in fact, only one explanation for the variations–minor as they are–in the revenue percentage since 1945, and that is economic expansion. Irrespective of the statutory tax rates, the single, overriding factor in increases or decreases in the revenue percentage has been economic growth. The percentage rises when the economy expands, and dips when it contracts.
As a practical matter, this chart shows us a very obvious, but little-understood phenomenon, namely, that 18% or thereabouts is the rate at which the electorate consents to be taxed. Think about that for a minute. Dwight D. Eisenhower presided over a system of steeply graduated tax rates with a top marginal tax rate of 90%. He got 18% of GDP in revenue. Ronald Reagan slashed tax rates, simplified the structure into three brackets, indexed for inflation, with a top marginal tax rate of 28%…and got 18% of GDP in revenue.
In the past couple of weeks, three different progrssive policy think tanks have released deficit reduction plans, all of which contained substantial tax increases, and which projected revenues as a percentage of GDP rising to over 23%.
Not. Gonna. Happen.
We know it won’t happen, because the American people have told us repeatedly, over the past 60 years, exactly how much revenue they’re willing to pay in taxes. You can jack around with tax rates all you want and you’ll get 18%. Unless you grow the economy. When the jobs are plentiful and the money is rolling in, the American people get a bit more generous. They’ll give you 19%. Maybe, if things are really going swell, 20%. But if the economy isn’t rolling hard, you’re gonna get your 18%–or less. Assuming you can lift 23% of GDP in tax revenues is just a fantasy.
Because here’s the thing: You can’t force people to make money. If they can make the same take-home pay working 35 hours per week under the new tax regime as they made in 40 hours per week under the old one, they’ll just work 35 hours per week. The more you penalize income, the less desirable additional income becomes. It’s almost as if people respond to incentives!
Bonus question 1: If the government collects about 18% in GDP irrespective of the statutory tax rates, what is the electorate telling you the desired statutory tax rate is?
Bonus question 2: If the main factor in increasing tax revenues is economic growth, would economic growth likely be greater or smaller under a regime of lower taxes?
Discuss among yourselves.
That’s the “out of thin air” statistic President Obama tossed out at a presser yesterday.
President Obama on Friday kept up the pressure on Republicans to agree to revenue increases in a deal to raise the debt ceiling, claiming 80 percent of the public supports Democrats’ demand for tax increases.
"The American people are sold," Obama said. "The problem is members of Congress are dug in ideologically."
Throughout the press conference, Obama blasted Republicans for ignoring what he said is the will of the American people by rejecting tax increases that would balance out spending cuts in a debt package.
This is typical Obama – when he doesn’t get his way, he claims things which aren’t true and shoots at the other side with things like the Congress is “dug in ideologically”. In fact the Republicans who won Congress are merely doing what they said they’d do. But the point is that Obama uses his bully pulpit to, well, bully instead of talking like a statesman and and pushing for a compromise solution. There is no one more “dug in” ideologically than the man accusing others of this supposed “sin”.
Oh, and as for the stat? According to Gallup, Mr. Obama if fudging it:
Americans’ preferences for deficit reduction clearly favor spending cuts to tax increases, but most Americans favor a mix of the two approaches. Twenty percent favor an approach that relies only on spending cuts and 4% favor an approach that uses tax increases alone.
- Only/Mostly with spending cuts: 50%
- Only/Mostly with tax increases: 11%
And, there’s more:
Two months ago, The Hill conducted its own poll that showed opposition to tax hikes at 45%, with only 13% favoring an even split between tax hikes and spending cuts to solve the deficit problem, with another 11% supporting a 2/1 split for spending cuts to tax hikes, and 15% for a 3/1 split. Even under the most liberal (pun intended) definition of “balanced,” only 39% in that poll opted for the idea.
So there certainly isn’t any 80% clamoring for tax increases. In fact almost half want to see a huge reliance on spending cuts with few wanting it done with tax increases. As we’ve noted here before, once the spending cuts are made – actually made, done and done – then it may be time to talk about tax increases. Maybe. But until the spending cuts have actually, positively been made, the “need” for increased taxes aren’t at all going to be something the American people are “sold” on.
Meanwhile in another sector of fantasyland, we have Representative Sheila Jackson Lee with a completely different take on the matter:
"I do not understand what I think is the maligning and maliciousness [toward] this president,” said Jackson Lee, a member of the Congressional Black Caucus. “Why is he different? And in my community, that is the question that we raise. In the minority community that is question that is being raised. Why is this president being treated so disrespectfully? Why has the debt limit been raised 60 times? Why did the leader of the Senate continually talk about his job is to bring the president down to make sure he is unelected?”
Obviously Ms. Jackson Lee was in hibernation during the 8 years of the Bush administration when the word “incompetent” was almost used routinely with his name. Of course the point Jackson Lee is making and something we’ve seen used time and again by the left when they are out of credible ammo is the race card.
"I am particularly sensitive to the fact that only this president — only this one, only this one — has received the kind of attacks and disagreement and inability to work, only this one," said Jackson Lee from the House floor.
"Read between the lines," she continued. "What is different about this president that should put him in a position that he should not receive the same kind of respectful treatment of when it is necessary to raise the debt limit in order to pay our bills, something required by both statute and the 14th amendment?"
Reading between the lines I only see cluelessness and the usual leftist tactics.
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.
With these debt ceiling negotiations underway, it is useful to remind ourselves, especially with an election year looming, how we got in this spot that has Moody’s threatening to downgrade our bonds based on the possibility of default on the debt.
On spending, it is important to recall how extraordinary the blowout of the last three years has been. We’ve seen nothing like it since World War II. Nothing close. The nearby chart tracks federal outlays as a share of GDP since 1960. The early peaks coincide with the rise of the Great Society, the recession of 1974-75, and then a high of 23.5% with the recession of 1982 and the Reagan defense buildup.
From there, spending declines, most rapidly during the 1990s as defense outlays fell to 3% of GDP in 2000 from its Reagan peak of 6.2% in 1986. The early George W. Bush years saw spending bounce up to a plateau of roughly 20% of GDP, but no more than 20.7% as recently as 2008.
Then came the Obama blowout, in league with Nancy Pelosi’s Congress. With the recession as a rationale, Democrats consciously blew up the national balance sheet, lifting federal outlays to 25% in 2009, the highest level since 1945. (Even in 1946, with millions still in the military, spending was only 24.8% of GDP. In 1947 it fell to 14.8%.) Though the recession ended in June 2009, spending in 2010 stayed high at nearly 24%, and this year it is heading back toward 25%.
This is the main reason that federal debt held by the public as a share of GDP has climbed from 40.3% in 2008, to 53.5% in 2009, 62.2% in 2010 and an estimated 72% this year, and is expected to keep rising in the future. These are heights not seen since the Korean War, and many analysts think U.S. debt will soon hit 90% or 100% of GDP.
Here’s the WSJ chart talked about above:
In terms of percentage of the GDP, only WWII compares to the outlays we’ve seen in the past 3 years. And not only did the Democratic Congress and Obama “consciously blow up” the debt, they never offered a budget as required by law. This was just money thrown to the wind with the hope it would land somewhere where it might help. To call what they did a “plan” is to give real plans a bad name.
Now, suddenly, Obama is “serious” about this stuff, making demands that a fix be found, etc. Where the heck was he when this money was going out faster than little Timmy Geithner could print it? So let’s be clear, as Obama likes to say:
Congress is responsible for the way so much of this spending was wasted, resulting in little job creation and the slowest economic recovery since the 1930s. But in the U.S. political system, Presidents are supposed to be the fiscal adults. When they abdicate, the teenagers invite over their special interest friends and blow the inheritance.
The President is now claiming to have found fiscal virtue, but notice how hard he has fought House Republicans as they’ve sought to abate the spending boom. First he used the threat of a government shutdown to whittle the fiscal 2011 spending cuts down to very little. Then he invited Paul Ryan to sit in the front row for a speech while he called his House budget un-American.
How does one take this President seriously given this litany?
Easy answer – you don’t. I mean, look at this:
Now Mr. Obama is using the debt-ceiling debate as a battering ram not to control spending but to command a tax increase. We’re told the White House list of immediate budget savings, the ones that matter most because they are enforceable by the current Congress, are negligible. His offer for immediate domestic nondefense discretionary cuts: $2 billion.
As for Mr. Obama’s proposed entitlement cuts, they are all nibbling around the edges of programs that are growing far faster than inflation. He’s offering few reforms that would make a difference in the long run. Oh, and ObamaCare is untouchable, despite its $1 trillion in new spending over the next several years, growing even faster after that.
And this goes to the point of my previous post. When you look at how we got here and who is responsible (yeah, he didn’t inherit this – this is all his) it is hard to find any grounds for confidence that the same people have any idea or desire to change their ways. And yet they’re going to try to convince the American people that Obama should keep his job and Nancy Pelosi should be returned to the House speakership (with a sweeping victory putting a Democratic majority back in the House).
It’s enough to make a grown man cry.
Rick Perry (Governor of Texas) and Nikki Haley (Governor of South Carolina) have a piece in the Washington Post in which they offer a solution to that problem we’re now experiencing:
We oppose an increase in the federal debt limit unless three common-sense conditions are met: substantial cuts in spending; enforceable spending caps to put the country on a path to a balanced budget; and congressional passage of a balanced-budget amendment to the U.S. Constitution. That amendment should include a requirement for a congressional supermajority to approve any increases in taxes.
We can quibble about the particulars but in general I’m in agreement. That said, I have little hope that a balanced budget amendment will ever pass or that a congressional supermajority will become a requirement for tax increases. But the basic premise – cuts in spending, enforceable spending caps and difficulty in passing new taxes would indeed help begin to bring the national government under some semblance of control.
Here’s the crux of the problem with the Federal government:
Washington’s ability to continuously vote itself more fiscal breathing room may help Congress — at least in the short term — avoid making the kinds of tough decisions made by states, businesses and families. But ignoring economic realities will lead to even more painful choices down the road and increases the potential for a financial collapse that could permanently cost America its role as the world’s leading economic power.
Unfortunately, the system in Washington makes it easier for elected officials to bury their heads in the sand, avoid responsibility and make the easiest choice of all: borrow more, plunge our nation deeper into debt and allow this generation to punt the tough decisions to our children and grandchildren.
Such moves may be good politics, since they mean officials don’t have to say no to anyone, but as a matter of policy they are indefensible.
That “reality” and the trump of politics over statesmanship are the reason we’re in this deep hole and most of us don’t expect to see anything serious about correcting it come out of Washington. After all, those that have to alter the reality inside the beltway are the same ones who have put us in this position in the first place (and I mean as a group going back decades). The proverbial fox guarding the hen house situation. That’s why it is difficult not to be cynical and skeptical about “solutions” – even this political show we see going on over the debt ceiling.
Perry and Haley are touting a pledge they’ve signed called the “Cap, Cut and Balance” pledge:
The only way to get the federal government to end this indefensible practice is to draw a line and finally hold Washington accountable. The pledge we’ve signed represents an important step in this process.
It calls for the kinds of budget cuts Washington needs now and for a hard cap on all future spending. And it finally moves us to a mandatory balanced budget that will end the era of national debt, raging deficits and failed “stimulus” programs that have negatively affected so many aspects of American life.
Americans must continue to stand up for the principles that served as the foundation for our nation’s unparalleled successes. The principles of a limited federal government and responsible fiscal leadership have sustained us during tough times, and they can lead us out of this period of sluggish economic growth.
Yeah, pledges are nice and sure it makes us feel better and focuses us on the problem. However, we’ve heard political pledges from politicians for years which have essentially promised to fix the problem in Washington. And here we are.
That’s not to say that Perry and Haley aren’t right. They are. It’s to say we’ve heard all this before, we’ve seen pledges come and go, and we’ve seen solutions offered that were perfectly reasonable that have never seen the light of legislative day.
We seem to have a class of politicians who seem to find it difficult to deal in the reality the rest of the country deals with every day – spending within our means, meeting budgets, and being responsible. I’d like to say I knew how to fix that, but after half a century of watching these nincompoops at work and how they’re seemingly rewarded for doing exactly what we’re now lamenting, I’m not sure the system can be fixed.
My cynical take on the day.
I was gobsmacked by this quote in a POLITICO story about Obama’s walkout from a debt ceiling negotiation:
On exiting the room, Obama said that “this confirms the totality of what the American people already believe” about Washington, according to a Democratic official familiar with the negotiations, and that officials are “too focused on positioning and political posturing” to make difficult choices.
That line could be the summary of the Obama presidency to this point. Think Afghanistan for instance. Remember this:
The withdrawal has created deep divisions in Washington. The defence secretary, Robert Gates, argued for a modest reduction – at one point as low as 2,000 – citing the advice of US commanders in Afghanistan that they need to protect gains made during the winter against the Taliban.
But senior White House staff, conscious that the president has an election to fight next year, argued in favour of a reduction that would send a signal to the US public that an end to the war is in sight.
The “difficult choice” would have been to keep the troops in place and reinforce the success they’ve been having. Instead, we got the “positioning and political posturing” decision made to hopefully enhance Obama’s re-election chances.
Certainly, there is political posturing going on all over the place by both parties, but when the GOP actually sticks to its guns (no new tax increases) while playing hardball, how does that “confirms the totality of what the American people already believe?” I don’t think he understands which side of that statement he’s actually on.
Ed Morrissey makes another point:
One of the easiest ways to identify an amateurish negotiator is the issuance of obviously empty threats. Yesterday, Barack Obama issued one of the emptiest political threat in modern American history when he stomped out of the debt-ceiling negotiations yesterday in a fit of pique:
“Eric, don’t call my bluff. I’m going to the American people with this.”
Really? Then Obama will be in for a very rude awakening when he finally meets the American people:
The people have been taking it to Barack Obama since the midterm elections. Maybe he should do less stomping and a lot more listening.
But listening isn’t one of his forte’s. Instead he likes to play games like this. I’m sure some sycophant will soon call what he did “gutsy”. Bottom line, the GOP has to hope he actually follows thorough on his threat because he is obviously not at all tuned into the American people who, as the links point out, have been stating their opinion for quite some time.
Obviously Obama thinks he can pull his campaign trail wool over the American public’s eyes one more time. But my reading is that public is in no mood for his oratorical mendacity. The swooning crowds of yore are no more. For 2 plus years Americans have been able to watch and assess this guy based on his actions, not his words. And if the “generic Republican” poll is any indication, they’re wanting change as badly now as they did when Obama was swept into office.
So – hang tough GOP, the polls say the American people are with you. Don’t fall for the political theater and cave to non-existent pressure. He’s the one the with problem. Make sure you remember that.