Free Markets, Free People
In case all this contraception talk has distracted you (as it surely was intended to do), you need to know that the deficit continues to grow and is on pace to go over a trillion dollars for the 4th year in a row:
The federal government set a new monthly record deficit of $232 billion in February and has notched a total of $581 billion in the first five months of the fiscal year, according to the Treasury Department’s official count released Monday.
February’s record is $8 billion more than the previous monthly record, set in February 2011, and came chiefly because of a drop in individual income tax receipts.
The overall deficit remains on pace to top $1 trillion this year for the fourth year in a row — but is down slightly from its pace last year …
Sorry to intrude with such boring reality.
Now back to “slutgate”.
Representative Paul Ryan characterized the Obama budget as not a fiscal plan but “a political plan designed to help the President’s reelection.” Getting into the details seems to validate Ryan’s point.
He also pointed out that the debt crisis is the most predictable crisis imaginable and the president has "punted" again with this budget. Said Ryan, “Instead of an America built to last we get an America drowning in debt.”
The White House claims the Obama budget saves 4 trillion over and above the Budget Control Act. But in fact, the Obama budget rides the base line and throws more taxing and spending on top of it (while claiming to save 4 trillion). Analysis of the budget shows, at best, a savings of 300 billion over 10 years.
As for an “America Built To Last”, Obama approaches that in a very odd way. He goes after businesses and investors:
1. The top income rate would be raised to 39.6 percent vs. 35 percent today.
2. Under the “Buffett rule,” no household making over $1 million annually would pay less than 30 percent of their income in taxes.
3. Between now the end of a second Obama term, Obama proposes $707 billion in “net deficit reduction proposals.” Of that amount, only 16 percent is spending cuts.
4. The majority of small business profits would be taxed at 39.6 percent vs. 35 percent today.
5. The capital gains rate would rise to 25.0 percent (including the Obamacare surtax and deduction phase out) from 15 percent today.
6. The double-tax on corporate profits (including dividends) would increase to 64 percent based on the statutory corporate tax rate (58 percent using the effective tax rate), easily the highest among advanced economies.
7. The double tax on corporate profits (including capital gains) would increase to 51 percent (44 percent using the effective tax rate), also among the highest among advanced economies.
Those details alone are a basis for declaring his budget “dead on arrival” at Congress. These new taxes would take the tax revenue as a share of GDP to 20.1 percent in 2022. The historical average is 18 percent. In a time of deep recession, when government should be proposing economic, tax, labor and trade policies to create jobs and move the economy in a positive direction, Obama’s budget proposes to do exactly the opposite. The attack on small business, as well as corporations, points to a president out of touch with the problems of the economy. He claims to save 4 trillion on debt with these policies but in fact, his budget proposals add 6.7 trillion to the debt over the next 10 years and the debt-to-GDP ratio is predicted to be 74.2 percent this year and 76.5 percent in 2022.
And here’s the bottom line truth about policies such as Obama is pursuing:
Corporate taxes are paid by consumers in higher prices and by workers in lower wages – so much for the promise not to increase taxes on those making less than $250,000. Every good tax economist knows this, but the president chooses to ignore reality and demagogue the issue.
Given that, how does the White House justify such policies? Well, it simply makes up a rosy forecast for the future, that’s how. 3.4 percent in 2015, 4.1 percent in 2017 and 3.9 percent in 2018. As James Pethokoukis points out:
The U.S. economy has only seen a run like that three times in the past four decades.
Yet we’re supposed to believe that we’ll come roaring out of one of the longest and deepest recessions since the Great Depression with taxes focused mostly on business at a higher than historical rate? Not likely.
Meanwhile we’re being told by the President’s Chief of Staff that it is all the Republican’s fault that we don’t have a budget out of the Senate. Mistakenly claiming that it takes 60 votes to pass a budget, he points to the Republican Senators as the obstructionists.
Of course, on budget matters, it only takes a simple majority. And there are 53 Democratic Senators. If you recall, the Senate minority leader, Republican Mitch McConnell introduced and got votes on two budgets last year – the Ryan budget, voted down by Democrats and President Obama’s budget which was voted down 97-0. Harry Reid, however, has introduced no budget in over 1,000 days.
And the gimmicks:
At issue is how the government projects spending and deficits going forward. Of the $4 trillion in deficit reduction claimed by the White House, $3 trillion would come from a combination of tax increases and spending cuts. Another $900 billion would come from domestic spending caps agreed to with Republicans last year to resolve the impasse over raising the nation’s statutory borrowing limit.
But if Congress and the president did nothing, spending would actually fall by $2 trillion under current law. That is because automatic cuts to defense and nondefense programs totaling $1.2 trillion are already set to go in force in 2013. The Obama budget assumes those cuts will not happen. The president also assumes that sharp cuts to reimbursement rates for doctors treating Medicare patients will never be enforced, but the budget does not detail how those scheduled cuts will be prevented.
Republicans say that effectively negates $522 billion over 10 years, since Congress will have to figure out how to pay for the so-called Medicare doc fix.
Republicans also protest that Mr. Obama is "saving" nearly $1 trillion by not spending over the coming decade what the United States has spent each year on wars in Iraq and Afghanistan.
So the Obama savings are built on assuming the “Doc Fix” won’t be made and that war spending will remain at the current level (even with the withdrawal from Iraq and the coming withdrawal from Afghanistan) for 10 years – something obviously not the case. He’s built his 4 trillion in “savings” on 1 trillion in tax increases, 2 trillion on spending cuts already enacted into law (sequestration), 1 trillion assuming war spending will remain level for 10 years. Meanwhile most of his spending cuts come from where? The military, of course.
Finally, remember this?
“This is big,” wrote White House director of new media Macon Phillips in a February 23, 2009 blog post, ”the President today promised that by the end of his first term, he will cut in half the massive federal deficit we’ve inherited. And we’ll do it in a new way: honestly and candidly.”
Indeed, President Obama did make that promise that day, saying, “today I’m pledging to cut the deficit we inherited in half by the end of my first term in office. This will not be easy. It will require us to make difficult decisions and face challenges we’ve long neglected. But I refuse to leave our children with a debt that they cannot repay — and that means taking responsibility right now, in this administration, for getting our spending under control.”
This budget does none of the above. In fact, it’s not even close. There are no “difficult decisions” included. There are now “challenges” faced. As Rep. Ryan said, Obama has again “punted”.
This is indeed the most predictable crisis imaginable and again, the man who claimed he would do what is necessary to fix the problem has once again kicked the can down the road.
Speaking of the record compiled under the Obama administration, the CBO provides plenty of ammo for the GOP:
The Congressional Budget Office on Tuesday predicted the deficit will rise to $1.08 trillion in 2012.
The office also projected the jobless rate would rise to 8.9 percent by the end of 2012, and to 9.2 percent in 2013.
That’s because it has revised its previous estimate as the GDP growth numbers for last year were revised down.
Additionally, and reading between the lines, it also means that the administration and Congress has yet to even begin to get a handle on the main problem – spending.
Of course part of that stands to reason when you take into consideration the Democratic controlled Senate hasn’t passed a budget in over 1,000 days.
The Hill, ever the master of understatement, gives you a peek at what should be obvious:
A rising deficit and unemployment rate would hamper President Obama’s reelection effort, which in recent weeks has seemed to be on stronger footing.
“Hamper"?” It should put it in the crapper. Or so you would think. But then there’s the GOP primary going on, huh?
CBO Director Doug Elmendorf told reporters that Congress will have to make important choices this year regarding the supercommittee trigger and tax policy that will have huge effects on the deficit.
While unable to recommend choices, Elmendorf said that addressing the deficit sooner rather than later is easier.
The deficit was $1.4 trillion in 2009, $1.3 trillion in 2010 and $1.3 trillion in 2011. The largest deficit recorded before that was $458 billion in 2008.
Well, of course addressing the deficit sooner rather than later is a lot easier. Haven’t we been saying that for years? Decades?
Anyone think it will be addressed in this next year? Consider what the CBO recommends:
The deficit will be much higher if Congress takes several actions that many expect.
If the Bush tax rates are extended, for example, the deficit would rise.
It would rise if Congress patches the Alternative Minimum Tax, which lawmakers have routinely done to prevent higher taxes from being imposed on middle class taxpayers.
It would also rise if Congress continues to pass the “doc fix” that prevents a cut to Medicare payments to doctors, something that Congress has done on a near-annual basis.
Finally, if Congress does not follow through on cuts mandated by the failure of the supercommittee, the deficit will grow. Lawmakers are already talking about canceling scheduled cuts to the Pentagon’s budget.
So, let’s see – raise taxes, lower taxes, subsidize and cut spending. Or is that last one, cut projected spending?
The “doc fix”, unless passed, will see Doctors leave Medicare in droves. I certainly would if I were in their shoes. Any guesses how that turns out?
And while the Democrats only want the “rich” to pay higher taxes, if the current tax rates (also known as the “Bush tax cut”) are allowed to revert to their prior percentages, taxes will increase 30% on everyone by 2014. Catch 22?
The amount of money the federal government takes out of the U.S. economy in taxes will increase by more than 30 percent between 2012 and 2014, according to the Budget and Economic Outlook published today by the CBO.
At the same time, according to CBO, the economy will remain sluggish, partly because of higher taxes.
You don’t say? Stupid if you do, damned if you don’t? Nice position we’ve gotten ourselves in, no?
And finally, sequestration will “cut” 10% across the board, to include defense which has already taken that sort of a cut. Dangerous.
However, for the rest of the government, I expect the usual accounting tricks with no real cuts in spending if sequestration is enacted.
As for taxes increasing, the increase is fairly dramatic at a time the economy can’t absorb such increases:
The anticipated percentage increase in federal tax revenue is not only large when calculated in dollar terms but also when calculated as a share of GDP. The jump from 15.4 percent of GDP in fiscal 2011 to 20.0 percent of GDP in fiscal 2014 equals an increase of 29.8 percent. The jump from 16.3 percent in fiscal 2012 to 20.0 percent in fiscal 2014 equals an increase over two years of 22.7 percent.
Federal tax revenues have averaged “about 18 percent of GDP for the past 40 years,” according to CBO. So, in the next two years federal tax revenues will rise from a level that is below the modern historical average to a level that is above it.
Again I’m reduced to saying “what a freakin’ mess”. When I say over and over again, “we’ve been ill served by our political class for decades”, it is this to which I point.
Yes, all of this and the never mentioned additional 200 plus trillion in unfunded future mandated liabilities that have been amassed.
This out of control.
Obviously what I’m about to list isn’t going to make or break us as a nation in terms of monetary outlay. Each taken individually is but a drop in the sea of $16 trillion dollar debt we now float in. But the fact remains that each is an indicator of why we’re in that deep of a hole. Each points to another area where government has no business, especially spending taxpayer, or more likely borrowed money. Or it points to an expenditure not made on its reasoned merits, but on bureaucratic inertia, lack of control or monitoring or any of a great number of reasons the payment shouldn’t have been made. Doug Bandow provides us with the list.
Now, on with the show:
~The U.S. Agency for International Development (U.S. AID) spent $30 million to spur mango production and sales in Pakistan—and failed utterly.
Yup, mango production … in Pakistan.
~The Air Force spent $14 million to switch three radar stations to wind power; poor planning forced cancellation of one turbine and consideration of the same for the other two.
Because we all know windpower is proven and reliable.
~The Federal Aviation Administration devoted $6 million to subsidize air service at small, underused airports.
Market smarket … we’ll just create one. Until the money runs out, of course.
~A federal grant for $765,828 went to—I am not making this up, to quote Dave Barry—bring an International House of Pancakes franchise to Washington, D.C.
Because bringing IHOPs to DC is a primary function of the United States government and worthy of every dollar spent.
~The Department for Housing and Urban Development (HUD) provided a $484,000 grant to build a “Mellow Mushroom Pizza Bakers” restaurant in Texas.
Because it is not the market’s job to decide what restaurants should exist in a certain area, it’s the job of government.
~Another HUD grant, this one for $1 million, went to a foreign architectural firm to move its headquarters from Santa Monica to Los Angeles.
Because we knew you’d want us to do it. You need to move? Tough cookies.
~NIH gave the University of Kentucky $175,587 to study the impact of cocaine on the sex drive of Japanese quail.
Because we’re sure Japanese quail are the next target of drug dealers. Or something. But this is important … important enough to up the debt over and don’t you forget it.
~The Federal Highway Administration (FHA) gave $916,567 to underwrite horse-drawn carriage exhibits and survey shipwrecks in Wisconsin.
Because, well, we couldn’t think of anything else to do with the money.
~The Oregon Cheese Guild received $50,400 to promote cheese.
Because obviously the Oregon Cheese Guild wouldn’t be able to promote cheese without this.
~Uncle Sam spent $111,000 to send brewery experts to conduct classes in China.
Because the folks making Tsing Tao obviously couldn’t handle that.
~The ever busy NSF devoted $300,000 to developing a dance program to illustrate the origins of matter.
Because without it … oh nevermind.
And my personal favorite:
~Washington helpfully gave almost $18 million in foreign aid to China—money effectively borrowed from China.
The circle is complete. Borrowing money to give money back to the entity from which we borrowed it while still owing the balance.
Your government at work. Be sure to read the rest of the top 100 wastes of money that Sen. Tom Coburn has helpfully put together. And remember. They’re the top 100. There are plenty more than just didn’t make the cut.
If you wonder why there is this focus on the left on taxing the ‘rich’, part of it can be found here:
President Barack Obama asked Congress for another $1.2 trillion in government borrowing authority, the third and final request under an August deal with lawmakers that averted a U.S. default.
The president’s notification to congressional leaders yesterday starts a 15-day countdown for lawmakers to consider and vote on a joint resolution disapproving of the increase.
An “August” deal and we’re already on the “third and final request”? August for heaven sake. 5 months. Does that at all demonstrate how absolutely unconcerned this administration is with out-of-control spending? Does it help explain the class-warfare, anti-Wall Street, shift-the-blame campaign in which the President has been engaged?
We’ve already exceeded the national yearly GDP with our debt under Obama and now he’s going for more.
Well, except at DoD. There’s he’s slashing muscle and bone on the one hand while proposing a pay-hike for other federal employees on the other.
The debt ceiling increase is to meet commitments already made by the government. The Treasury Department has been relying on accounting maneuvers, similar to the ones employed during the year’s earlier dispute, to ensure that the previous $15.194 trillion limit wasn’t breached.
Since the budget law was approved, the debt limit has been raised twice, by a total of $900 billion. In the latest request, the limit would rise to $16.394 trillion, which the Treasury Department estimates will fund the government until late 2012.
We are so ill served by our current crop of politicians that it almost defies description. We’re past the generational theft of our grandchildren’s money and are working on that of our great-grandchildren.
This is simply inexcusable, yet like an alcoholic or drug addict it seems our politicians can’t help but do whatever is necessary to obtain their next fix of borrowed money. Meanwhile the credit rating for the country has been downgraded and is at risk for further downgrade. And the economic drag on the economy in general this sort of a debt load carries continues to increase.
You want a national tragedy … here it is. You want a national nightmare … its playing out right in front of you and there doesn’t seem like anyone is able to stop it.
But most rational people understand that at some point it has to stop … it has to come to an end. And when it does, this recession will look like child’s play, all thanks to the selfish short-sightedness of our political class. Oh, and yes, the gutless votes who keep rewarding this sort of behavior because it benefits them.
At the risk of sounding like some sort of extremist fanatic, the end is near. And it isn’t going to be a pretty end either.
Mark Steyn makes an interesting—indeed, vitally important—point about government spending. The Left is always keen on telling us that we are under-taxed, or that the "rich" aren’t paying their fair share, or some such nonsense. We’ve argues long and hard here that what we face is not a revenue problem, but a spending problem. Mr. Steyn pithily sums up an important bit of evidence for that assertion.
The total combined wealth of the Forbes 400 richest Americans is $1.5 trillion. So, if you confiscated the lot, it would barely cover one Obama debt-ceiling increase.
That’s really the problem in a nutshell. This week, the President asked for a $1.2 trillion debt increase. We could pay for it, I suppose, by confiscating all the wealth of the Forbes 400, and have a nice $300 billion left over…but there won’t be too many people left that we can soak to cover the next debt ceiling increase. Also, as a point of academic interest, President Obama’s debt ceiling increase is $200 billion more than the entire national debt was in 1980.
To the extent we do have a revenue problem, perhaps it’s not that the rich pay too little, but rather that the poor do. 47% of American’s don’t pay any income tax at all. Which means that the "soak the rich" argument can really be boiled down to the 47% of Americans that don’t pay income taxes think the remaining 53% aren’t paying their fair share.
Well, someone isn’t, at any rate.
At the deepest levels within our governing structures, we are committed to living beyond our means on a scale no civilization has ever done. Our most enlightened citizens think it’s rather vulgar and boorish to obsess about debt. The urbane, educated, Western progressive would rather "save the planet," a cause which offers the grandiose narcissism that, say, reforming Medicare lacks.
And reforming Social Security, while we’re at it. Which we aren’t. And which, combined, will eat up the entire Federal budget in the not-too-distant future.
Something that can’t go on forever, won’t. It’d be great to have a first-class military, generous Medicare and Social Security benefits. Along with all the rest of the coddling state that supports in the grand manner to which we’ve become accustomed. But the future won’t allow us to be that generous. You see, we’re heading to a $16.5 trillion national debt, because, instead of being prudent with our money in order to meet all those future obligations, we blew it.
We spent money we didn’t have to build carrier groups and JDAMs, No Child left Behind and Medicare Part D. At the current rate, the federal government will, sometime this century, consist of a single department that does nothing but collect taxes and issue Social Security checks, because there won’t be one red cent left over for Defense, Justice, State, Commerce, Agriculture, or Treasury. And, we probably won’t be able to afford even that.
Mainly, because we won’t be able to produce much of anything.
Last January, the BBC’s Brian Milligan inaugurated the New Year by driving an electric Mini from London to Edinburgh, taking advantage of the many government-subsidized charge posts en route. It took him four days, which works out to an average speed of 6 mph — or longer than it would have taken on a stagecoach in the mid-19th century. This was hailed as a great triumph by the environmentalists. I mean, c’mon, what’s the hurry?
What indeed? In September, the 10th anniversary of a murderous strike at the heart of America’s most glittering city was commemorated at a building site: The Empire State Building was finished in 18 months during the Depression, but in the 21st century the global superpower cannot put up two replacement skyscrapers within a decade.
The 9/11 memorial museum was supposed to open on the 11th anniversary, this coming September. On Thursday, Mayor Michael Bloomberg announced there is "no chance of it being open on time." No big deal. What’s one more endlessly delayed, inefficient, over-bureaucratized construction project in a sclerotic republic?
This is—as hard as it may be to believe—the same country that, in 1940, had an army smaller than Rumania, and by 1945, had the military power to, had we wanted, rule the globe. Now, we’re the country that can’t replace the World Trade Center in 10 years. This is not emblematic of a can-do country with the willingness to attack and solve problems with a vengeance.
But the president thinks that if we can only tax millionaires more, we can fix this place up quick.
Seriously. We have a 15 trillion dollar national debt. Ever wonder how we got there?
Yesterday, although the paper warped it into a completely stupid rant on race, the NY Times told us that government workers are losing their jobs. Why? Because revenue is down and budgets are tight. But there are other reasons as well.
Montcalm County recently received a $900 Arctic Blast Sno-Cone machine.
The West Michigan Shoreline Regional Development Commission (WMSRDC) is a federal- and state-designated agency responsible for managing and administrating the homeland security program in Montcalm County and 12 other counties.
The WMSRDC recently purchased and transferred homeland security equipment to these counties — including 13 snow cone machines at a total cost of $11,700.
The machines were funded by a grant from the Michigan Homeland Security Program. The request for a snow cone machine came from another county, but all 13 counties received them.
Your first question has to be “why wasn’t a request to “Homeland Security” for a Sno-Cone machine summarily turned down with a warning that such requests were inappropriate? Especially in tight fiscal times? Well the simple answer to that is because Homeland Security isn’t dealing with its own money. It’s dealing with your money. And because of that apparently nothing is inappropriate, tight fiscal times or not.
Note the job description of the WMSRDC I’ve emphasized. And what is the reason for a Sno-Cone machine? Well here’s the reason given why it was “necessary”:
MCES Director David Feldpausch said the machine could be useful at the scene of a large fire or during very hot weather.
“I don’t like the term snow cone machine, because it sounds horrible,” Feldpausch said. “When you look at it as an ice shaving machine and its purpose, it makes a little more sense. I assume it will get used in Montcalm County a lot more in the summertime by the Fire Corps.”
Of course he doesn’t like the term “snow cone machine”. It doesn’t just sound terrible, it sounds inappropriate and wasteful. And it is both of those things. Oh sure, it might be nice to have. But a “necessity”? A bucket of ice and some water could serve the same purpose.
And of course there’s the matter of a single $900 request being turned into a $12,000 dollar expense when some bureaucrat decided all of the counties, even the 12 who never asked for one, get a Sno-Cone machine.
Now I know this comes from a completely different bucket of money, but any idea of what percentage of an employee’s salary this would pay if layoffs are being contemplated in the area? Is this the best and most appropriate use of Homeland Security money? Does anyone even review this stuff?
Profligate spending is the symptom of an out-of-control government. While $12k spending is but a mere speck on a drop in the bucket of money spent by government each year, it is indicative of how we got into the debt mess which we now find ourselves and is ever getting worse. Multiply these sorts of transactions by the millions and you understand how we have gotten where we are.
There is no necessity for shaved ice at a fire. Note the word. Necessity. There are plenty of much less costly alternatives. Like bagged ice and water. And this is for a contingency (“large fire”, summertime) for an event which may or may not happen.
The reason I highlight things like this is because the are better understood by people than complex and much more costly examples which are essentially the same but harder to wrap your head around. This is relatable. This shows clearly how wasteful government can be with a fairly low cost example that people can readily identify with.
Its like showing a picture of luxury food which is able to be purchased with EBT cards (Food Stamp Cards). You naturally know “this ain’t right”. You sort of go with the idea of helping the less able, but you bristle at being taken advantage of. Well the above example “ain’t right” and certainly an example of taking advantage of the taxpayer, but typical of literally millions of government purchases over the years.
Result. Well just take a gander at the national debt clock if you need a reminder.
Where has this man been? Or perhaps the most salient question is what planet has he been hiding on? This is what he said in Hawaii to a gathering of CEOs at APEC about why we’re apparently in the mess we’re in:
“We’ve been a little bit lazy over the last couple of decades. We’ve kind of taken for granted — ‘Well, people would want to come here’ — and we aren’t out there hungry, selling America and trying to attract new businesses into America.”
Yes friends, the blame-shifter-in-chief says it is we lazy Americans who’ve taken everything for granted these last few decades that are responsible for the economic downturn we are experiencing now.
Never mind the fact that this administration has openly warred on business. Never mind we have the highest corporate taxes in the world. Never mind that government intrusion and regulation have only gotten worse. Never mind that government has actively sought to block businesses which could make a world of difference in both jobs and competitiveness. For instance:
– blocking oil and gas exploration in the Gulf even after safety and spill prevention procedures were upgraded
– trying to keep one of our major manufacturers, Boeing, from opening a new plant (jobs) in one of our few major industries (aerospace) by attempting to block non-union labor from working in a right-to-work state.
– delaying the Keystone XL pipe line (again, thousands of high paying jobs) for political reasons (delayed until after the election).
Etc. Not to mention the government policy and enforcement of that policy (Community Reinvestment Act) that led to the housing bubble and financial melt down.
It isn’t about a lazy America. It’s about an over-reaching, intrusive government whose level of intrusion and market distortion have only gotten worse “over the last couple of decades”.
And here’s a clue Mr. Obama – we lazy Americans didn’t run up a $14 trillion dollar debt. You pandering politicians did. And that debt load is also killing our competitiveness and has led to a downgrade of the country’s credit rating — on your watch.
Yeah, blame it on others, Mr. Obama — but thinking Americans, Americans who’ve actually run something and done something, know the score. Hopefully they’ll put you in a new position in November of 2012, where your primary responsibility will be getting with your wife and picking out wallpaper for your presidential library.
Where on earth has he been?
Most intuitively know you can’t borrow your way out of debt, so it seems like a silly question on its face. But the theory is that government spending creates a simulative effect that gets the economy going and pays back the deficit spending in increased tax revenues. $14 trillion of debt argues strongly that the second part of that equation has never worked.
The current administration and any number of economists still believe that’s the answer to the debt crisis now and argue that deficit spending will indeed get us out of the economic doldrums we’re in. William Gross at PIMCO tells you why that’s not going to work:
Structural growth problems in developed economies cannot be solved by a magic penny or a magic trillion dollar bill, for that matter. If (1) globalization is precluding the hiring of domestic labor due to cheaper alternatives in developing countries, then rock-bottom yields can do little to change the minds of corporate decision makers. If (2) technological innovation is destroying retail book and record stores, as well as theaters and retail shopping centers nationwide due to online retailers, then what do low cap rates matter to Macy’s or Walmart in terms of future store expansion? If (3) U.S. and Euroland boomers are beginning to retire or at least plan more seriously for retirement, why will lower interest rates cause them to spend more? As a matter of fact, savers will have to save more just to replicate their expected retirement income from bank CDs or Treasuries that used to yield 5% and now offer something close to nothing.
My original question – “Can you solve a debt crisis by creating more debt?” – must continue to be answered in the negative, because that debt – low yielding as it is – is not creating growth. Instead, we are seeing: minimal job creation, historically low investment, consumption turning into savings and GDP growth at less than New Normal levels.
Not good news, but certainly the reality of the situation. Deficit spending has been the panacea that has been attempted by government whenever there has been an economic downturn. Some will argue it has been effective in the past and some will argue otherwise. But if you read through the 3 points Gross makes, even if you are a believer in deficit spending in times of economic downturn, you have to realize that there are other reasons – important reasons – that argue such intervention will be both expensive and basically useless.
We are in the middle of a global economy resetting itself. Technology is one of the major drivers and its expansion is tearing apart traditional institutions in the favor of new ones that unfortunately don’t depend as heavily on workers.
Much of the public assumes we’ll return to the Old Normal. But one has to wonder, as Gross points out, whether we’re not going to stay at the New Normal for quite some time as economies adjust. And while it will be a short term negative, the Boomer retirements will actually end up being a good thing in the upcoming decades as there will be fewer workers competing for fewer jobs.
But what should be clear to all, without serious adjustments and changes, the welfare state, as we know it today, is over. Economies can’t support it anymore. That’s what you see going on in Europe today – its death throes. And it isn’t a pretty picture.
So? So increased government spending isn’t the answer. And the answer to Gross’s question, as he says, is “no”.
The next question is how do we get that across to the administration (and party) which seems to remain convinced that spending like a drunken sailor on shore leave in Hong Kong is the key to turning the economy around and to electoral salvation?
I know, you’re wondering, how does Obama plan to pay for his $450 billion plus job plan, right. Because in the speech he made the claim this was all going to be “paid for”, remember.
White House Office of Management and Budget Director Jack Lew outlined President Barack Obama’s plan to pay for his $447 billion jobs plan — mostly through tax increases.
Lew said itemized tax deductions and exemptions for those making more than $200,000, and families earning more than $250,000 would be cut — raising about $400 billion to pay for Obama’s jobs plan over 10 years.
A change to bring more hedge fund earnings under normal tax rules as opposed to carried interest rates would raise another $18 billion.
The new tax rules would not take effect until January 2013, Lew said. Obama is not offering any spending cuts to pay for the jobs plan.
The rest of the total would be raised by cutting subsidies for the oil and gas industries to bring in another $40 billion, and change the depreciation rules for corporate jets. All told, Obama would cut $467 billion to pay for his plan.
Lew added that the White House doesn’t anticipate that raising some taxes on high income earners would result in the loss of jobs.
Gotta love it. No politics in this. Nothing happens until January 2013 (how convenient). And the changes will pay for his spending now in 10 years. Wow, where have we heard that before? More debt boosting smoke and mirrors. More of the same old tired agenda.
And of course, we all know that no future Congress is obligated to any of this. And you wonder why there are those of us out here shouting about paying for something now vs the future?
Also, it is a litany of those interests and demographics which reside on the Obama “enemies list”. The rich and the fossil fuel industry. It is the usual class warfare politics. To sell this Obama has to attempt to demonize the rich and the oil companies – even more than he’s done so already. As everyone knows, I’m all for ending subsidies for everyone, but what Obama calls subsides in this case are tax breaks all businesses in all sectors take. They’re not direct subsidies at all (regardless of what the press or the White House choose to call them). This is selective taxation of the type that is meant to be punitive.
So here’s the money part of the great plan. It is absolutely nothing the Republicans have supported before. It should be Dead On Arrival. Obviously, knowing the Republicans won’t support such a funding mechanism, President Obama is not at all interested in a compromise jobs bill. Or bi-partisanship. He’s put a completely unpalatable poison pill in the bill and will now try to paint the GOP as intransigent obstructionists.
And, given the fact that taking those tax breaks away from the oil and gas industry will cost them an extra $40 billion it’s hard not to believe it won’t cost jobs. Note Lew didn’t address that point concerning the removal of the tax break. He’s only claiming that in regards to the so-called “rich”.
Business as usual. Tax and spend. And as usual it is spend now an collect later. Somehow we never get around to the spending cuts, do we? $14 trillion dollars of debt say “no”.