Questions and Observations

Free Markets, Free People

Entitlements: The Siren’s song

The cultural corruption of entitlements should, by now, be well known. But it also is just as well known that our current system incentivizes the “Santa Claus” form of government vs. that of the night watchman. The end state is inevitable. It isn’t a matter of “if” but “when”.

“The more government takes in taxes, the less incentive people have to work. What coal miner or assembly-line worker jumps at the offer of overtime when he knows Uncle Sam is going to take sixty percent or more of his extra pay? Any system that penalizes success and accomplishment is wrong. Any system that discourages work, discourages productivity, discourages economic progress, is wrong.” – Ronald Reagan

You’d think that would be self-evident. Apparently it’s not. And if you doubt that, watch what happens next year as our “leaders” try to figure out how to get us to pay their way out of the mess they’ve made (and for which we’ve never, ever held them accountable).

~McQ

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Shadenfreude alert

All I could do when I read this was laugh.  And laugh.  And laugh:

The Danish government has said it intends to abolish a tax on foods which are high in saturated fats.

The measure, introduced a little over a year ago, was believed to be the world’s first so-called “fat tax”.

Foods containing more than 2.3% saturated fat – including dairy produce, meat and processed foods – were subject to the surcharge.

But authorities said the tax had inflated food prices and put Danish jobs at risk.

Gee, Econ 101 strikes again.

Go figure.

~McQ

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Bryan Pick’s Suggestions for the GOP

Perhaps it comes as a surprise to some of our readers, but we are not a Republican or Conservative blog. We are a libertarian, or more precisely a Neo-libertarian blog. As it happens, this puts us far closer to the conservative end of the spectrum than the liberal end in most things, so I can see, what with our constant nagging about President Obama’s policy foolishness over the last four years, why many readers would think of us as conservatives. But we aren’t really.

Maybe that’s why Bryan’s suggestions seemed so off-putting to the conservatives who regular read us here. Oh, and the fact that Bryan, while he’s had posting privileges here for, well, a long time, doesn’t post all that much anymore. I wish he posted more, but apparently, he has a life. But he’s still got his name on the masthead.  See? It’s over there on the sidebar, on the left.

It’s gonna stay there.

The thing is, if you’re a conservative—especially a social conservative, you just need to accept that pretty much all of us support gay marriage, are at least squishy on abortion law, etc., etc., so you’re not going to find this a congenial place, for the most part, on social issues.

So much for old business.

Now onto the the posts Bryan contributed over the last few days. As It happens, I have some thoughts on his ideas myself.

Immigration is a sticky issue. I think that Milton Friedman was right in that you cannot have both unrestricted immigration and a welfare state. If you try to have both, you will inevitably bankrupt the system completely. Which, now that I think about it, is at least a self-solving problem.

But that solution itself would cause…difficulty, so it’s best to avoid it.

In a perfect world, we wouldn’t have a very expansive welfare state and what of we did have would be off-limits to immigrants. That isn’t the situation we have, however, which makes unrestricted immigration difficult to deal with.

It’s even more troubling when you realize that we have a set of challenges that make any immigration difficult to deal with at the present time.

There has been a distinct cultural shift in the way we deal with immigrants, in terms of our willingness to assimilate them into the American culture. For instance, when I was a child, immigrant children were expected to learn English, and conform to mainstream American culture. Essentially, immigrants were told—often in no uncertain terms—that we didn’t care how they did things in Kaplokistan, they were in America and they would do things our way. The message, from every level of society, was that if their original country was such a great place, they’d still be there. The result was that the children of immigrants were quite keen to assimilate, and mostly did so.

But we don’t do that any more. We’re now ever so sensitive to their cultural concerns, that we don’t try to assimilate them at all. We fear offending their delicate cultural sensitivities. As a result, the assimilation takes place at a much slower rate.

For example, here in southern California, we provide official voting ballots in somewhere around 100 different languages. Let me just state something that should be obvious: If you cannot vote in the English language, you shouldn’t be voting. Or, dare I say it, even be a citizen. If you can’t even be troubled to learn the dominant language of our popular culture, how in the world can you grasp the essentials of our political culture and principles?

This is compounded by the fact that today’s immigrants come from a vastly different political culture than those of a century ago. Today’s immigrants come from countries with an explicitly socialist political culture, which is decidedly not the case of immigrants who came to the US prior to the 1920s. Prior to that time, most immigrants came from monarchies with an intensely class-based structure, no middle class to speak of, and no possibility for social mobility. They come from countries where their social status was determined by the class they were born in, and they came here to escape both grinding poverty, and a class structure that made escaping that poverty extraordinarily difficult.

Today’s immigrants, thanks to the USSR’s pervasive influence in the 3rd world in the 50s-70s, have grown up with a socialist political world-view. They will naturally be prone to gravitate to the Democratic Party. Certainly, some portion will come here to escape socialism, but most probably don’t think too deeply about politics, and simply accept the socialist view of activist government they’ve been taught all their lives. When they get here, they find a political party that also accepts that political world-view, so naturally they gravitate towards it. Prior to the 1920’s, they would not have.

So I don’t think you can point to unrestricted immigration in the 19th century and draw too many parallels to how such a policy might work today. Both the original political culture of the immigrant, and the American political culture they find on arrival here, are completely different than they were a century ago.

And, of course, I also think about how California has fared with the massive immigration, a great portion of it illegal, of the last 30 years.  The Central Valley has deteriorated almost to 3rd World status, with a permanent underclass of Mexican laborers who have essentially become modern-day helots, rampant property crime, deteriorating public services, and terrible poverty.

What lessons do we learn from all that?

I honestly don’t know how to approach entitlement reform. Maybe Bryan’s suggestion has merit, but I simply don’t know. We’ve told every person in the country that they have a defined-benefits pension, and, though people my age and younger don’t really believe Social Security will be there for us, We’ve spent all our working lives paying into it. We certainly feel we’re owed something for it.  We had a Deal. You can’t just break the Deal.

And here is the real, non-obvious reason why you can’t break that Deal: We don’t have a stable currency. As a result, we simply cannot safely save for retirement.

Let me explain.

When the US was on the gold standard, you could simply stuff money into your mattress. In fact, a lot of people did. And the reason they could was that their money retained its purchasing power. Every dollar bill was a receipt for your real money. Every banknote said, "The US Treasury will pay the bearer X dollars." If you took a dollar bill into the Federal Reserve Bank of New York, slapped it on the counter, and said give me my money, a servitor would take your dollar, nip back to the vault, and return with a little bag containing 1/35oz of gold, or 1/16oz of silver. Today, your dollar bill is a receipt for nothing. It’s worth whatever the US government says it’s worth at any given time.

And, especially since 1973, it’s been worth less and less every year. Since 1970, the price of housing has risen 1050%. A savings account at a bank doesn’t pay an interest rate that keeps up with inflation. So, with a fiat currency that is constantly debased, that leaves very few savings options.

Essentially, to make a return greater than inflation, the county has been forced into the stock market for investment.  But what happens if the market crashes? You lose a large portion of your saved investment. If you have several years to make it up, well, good. But what if it happens when you’re close to retirement? Well, you say, of course, you have to find safer investments like tax-free munies or something. And you should allocate your portfolio wisely, etc., etc.

But most people don’t want to do that. And they don’t want to learn all sorts of investment arcana. They want to save, do so safely, and not have inflation eat away all of their savings. Social Security does that, from their point of view, and it doesn’t make them live in fear that some unforeseen market event will eat up their hard-won savings.

That’s why so many people are opposed to Social Security privatization. They’re afraid of market investment, and are especially so seeing the roller-coaster rise the market’s been on since 2000.

But they have no safe option for saving that keeps pace with inflation.

Not having a stable currency forces people into riskier and harder-to-understand investments, and people don’t want to mortgage their future to investments that are risky and hard to understand.

Social Security was easy to understand, and it at least gave the illusion of security, no matter what the reality was.

A reliable, stable currency would make entitlement reform a lot easier, because it would vastly reduce the fear of inflation eating away at their retirement.

Social issues are the hot button with a significant portion of the GOP. I’m not entirely sure that if the GOP abandons social issues they’d be able to attract enough people from the Democrats to make up a viable political party, by which I mean one that has a shot at winning nationally. I don’t think that the Democrats have enough of a fiscally conservative, socially liberal electoral base to attract to the new, socially agnostic GOP.

The reality is, though, that when it comes to politics, the culture is determinative on the outcomes of social issues.

It doesn’t get much play, but, as it happens, according to polls—which as we know from the last election are pretty accurate—a slight majority of the electorate is actually pro-life. You wouldn’t know it from watching the news, but somehow, over the last decade, pro-choice has become the minority opinion in the country. Presumably, if that trend continues—and there’s no guarantee it will—Roe v. Wade will be overturned. Maybe. I mean, just because people are generally pro-life, it doesn’t mean that women don’t want to have abortion as an option. Just in case. Maybe it doesn’t get overturned at all, but abortion becomes culturally objectionable and we’ll get a lot less of it.

If Roe is overturned, then, abortion will become a state issue. Or, perhaps we’ll keep Roe, and just tighten down on abortions: limit them to the 1st trimester, and give exceptions for rape, incest, and the life of the mother, implement stricter parental controls, and that sort of thing. If it is overturned, states like California and New York will make it unambiguously legal. Some states will restrict it. Some will ban it completely.

Maybe that’s the answer for social issues. Leave them to the states, and people will gravitate to the states where the social milieu is more congenial to them. But that will be difficult to do now that we’ve cast all social issues in terms of rights.

I think that was a mistake, but here we are.

The gay marriage people say they have a right to marry. OK. Then why don’t polygamists have a right to do so as well? Once you’ve cast an argument in terms of rights, you’ve started wielding a hammer, not a scalpel, to solve your social problems. If gays have a right to marry, then why doesn’t another group of consenting adults have that right? How do you draw that line in terms of rights?

We forced the Mormon religion to de-legitimize polygamy in order for Utah to become a state. If adults have the right to order their relationships as they choose, then how was that legitimate? How is it legitimate, in terms of rights, to forbid close relatives to marry?

Rights are a pretty blunt instrument.

But how does letting gays get married somehow damage marriage as an institution? I guess I don’t understand that. I get that marriage is important, and I get why it’s important. But, it’s not so important, I guess, that we want to make divorce difficult. Which is, after all, why more than half of marriages end in it. Oh, and by the way, aren’t something like half of the kids born today, born out of wedlock?

Something’s going on with marriage today, and it’s mainly not good, but it doesn’t seem to have much to do with gay people.

Here’s a couple of realities to think about, though:

  • We’re about 30 or 40 years behind Europe in turning into a post-Christian culture. You wanna know the culture your grandkids will grow up in? Look at the Netherlands or Britain.
  • With Obama’s re-election, there’s an excellent chance that 1 or two conservative justices will be replaced by Obama. That means Roe v. Wade will probably be around for another 20 years, and who knows what the culture will think about it then?

Ultimately, the place to fight social issues doesn’t seem to be in politics, though. If you want to win on social issues, you have to to win the culture. If you can’t get a cultural consensus, you will never get a political one.

That seems to me to imply that conservatives should be battling not in Washington, DC, but in Hollywood, and in the Media, and in their local schools and colleges. The Left has made a largely successful march through the country’s cultural institutions, taken them over, and are shaping it to their liking. Conservatives have spent the last 4 decades unsuccessfully trying to take over the Supreme Court. Meanwhile, the Left has turned education into a 16-year commie indoctrination course, topped off by Continuing Education in socialism from TV, news media, and movies.

Maybe conservatives should be thinking about how to win the culture. If they do that, the politics will ineluctably follow. The reverse, however, is simply not true.

~
Dale Franks
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Simple Math

Let’s take a minute and look at some simple math about the Federal Budget. Just as a mental exercise to keep some things in mind as we approach the fiscal cliff.

The 2012 Federal budget—a word I use very advisedly, since there wasn’t an actual, you know, budget—as enacted, spent a total of $3.59 trillion.  Of that amount, total mandatory spending was $2.252 trillion. Discretionary spending, i.e., those things in the federal budget that can be arbitrarily changed without changing federal law, was $1.338 trillion. So, 63% of expenditures is mandatory spending which can’t be touched without changing Federal law.

On the revenue side, when you tote up all the taxes, excises, fees, etc., the Federal government collected $2.469 trillion. So, in 2012, once mandatory entitlements were covered, there was a grand total of $217 billion to fund the entirety of the remaining Federal government. The result was a deficit of $1.1 trillion.

So, to boil it down to the simplest terms, our current revenue is just enough to cover our mandatory spending, and about 1/3 of the defense budget. Everything else is funded solely through deficit spending.

When the Bush-era tax rates are raised in January, we will finally stick it to those rich SOBs and get the money they owe us. That will provide a massive influx of tax revenue in the amount of…uh…$42 billion in 2013. By the Democrats’ estimate. Which means the deficit will be slashed from $1.1 trillion to $1.058 trillion.

Ta da!

Every little bit helps, I guess.

Assuming the economy grows, and revenue keeps pace with the increases in mandatory spending. Which I’m not sure I’d bet a lot of money on.

~
Dale Franks
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Economic Statistics for 9 Oct 12

Here are today’s statistics on the state of the economy:

Wholesale inventories rose sharply, up 1.1% in September, but is offset by a 2.0% rise in sales, leaving a leaner 1.19 stock-to-sales ratio.

Export prices were unchanged in October, and are down –0.5% on a year-over-year basis. Import prices rose 0.5%, but only 0.4% year-over-year.

Consumer sentiment is strengthening, up 2.3 points to another recovery best of 84.9.

~
Dale Franks
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Zombie “climate change” returns

It is quotes like this that drive me crazy:

“Climate scientists agree the Earth will be hotter by the end of the century, but their simulations don’t agree on how much. Now a study suggests the gloomier predictions may be closer to the mark. … That means the world could be in for a devastating increase of about eight degrees Fahrenheit by 2100, resulting in drastically higher seas, disappearing coastlines and more severe droughts, floods and other destructive weather.”

First, some “climate scientists agree”, not all.  Some climate scientists actually disagree.  In fact, quite a few.

Second – their simulations have been shown to be factually invalid.   They can’t even recreate the past.  Yet here we have a newsie asserting, by fiat, that they’re valid and the only problem we face is figuring out “how much” is “right” from these hopelessly flawed models.

Finally, a “new study” based on these flawed models predicts even more extreme consequences than most.  Wow … there’s a surprise.

Zombie climate apocalypse continues to stagger on. Why? Because it will be used as a basis to claim we need a carbon tax. Government is not going to miss the opportunity to create a revenue stream out of thin air no matter how questionable the “science” supporting such a power grab remains. It has paid it’s grants, gotten the “science” it paid for and now plans to cash in.

~McQ

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In reality, it’s all about math

And we know we’re a nation of math scholars – NOT.

Seriously though, you shouldn’t have to be a math scholar to understand what constitutes unsustainable fiscal conduct. We seem to be a nation in denial. So was Greece and reality didn’t pay a bit of attention to their desire to ignore the math that put them in the situation they now enjoy. We, however, continue to think we’ll be an exception to reality.

Good luck with that. From Zero Hedge:

The amount of debt required today to create a single dollars’ worth of GDP today is clearly unsustainable. However, the current Administration has been increasing Federal debt at a run rate of more than $1.2 Trillion annually to date. The understanding of the impact of increasing debt on economic growth is crucially important to understand.

As we discussed recently in “Debt and Deficits: Killing Economic Prosperity” it is “the economic impact of spiraling debt levels that have eroded economic growth. Debt is, by its very nature, a cancer on economic growth. As debt levels rise it consumes more capital by diverting it from productive investments into debt service. As debt levels spread through the system it consumes greater amounts of capital until it eventually kills the host.

But:

The current Administration, however, is trapped into the belief that “big government” is the solution to the long term economic ills. However, a simple look at the impact of debt increases on economic growth tells us that this approach is misguided.

It is not “misguided”, it is flat wrong. And there are tons of examples to make the point. But, we’ve just seen the status quo given another 4 years to redefine “unsustainable” into something from which we can’t recover (btw, 4th quarter GDP has been downgraded to 1.5%).

The good news?

Well the good news is “lady parts” will be “safe” for those 4 years unless, of course, the unsustainable crashes and then, well, I guess the Sandra Flukes of the world will have to find a new provider of contraception.

~McQ

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Why the Right Should Embrace “Fairness” in Entitlement Reform

This is a departure from my previous two posts; it’s not about a particular group that has pulled away from the GOP.  Romney pulled a slightly larger share of older voters than McCain did, even if fewer total turned out than in previous years.  That the Romney-Ryan ticket did this while proposing entitlement reform is a substantial feat, but it did involve watering down the reforms a great deal.  For example, Republicans now make a habit of promising that nobody under age 55 will be affected by their reforms.

Why make this concession when the lion’s share of the fiscal problem is current retirees and the many, many Baby Boomers who will retire soon?  Boomers vote, of course, but what motivates them?  I don’t think most seniors could bring themselves to act on straightforward greed; I think they’re voting based on a particular concept of fairness.

Specifically, they paid into the system over a long career, and they believe they should be able to get back what they paid in.  And even though current Medicare beneficiaries get two to six times as much in benefits as they paid in (if this is right), only about a third of Americans think Medicare beneficiaries get any more than they paid in.  As long as they think that way, they’ll continue to oppose means testing and raising the retirement age by wide margins.

You might be tempted to say that our task is to educate them, but it’s much easier to persuade people based on their current beliefs than to convince them of inconvenient facts first.  Republicans basically conceded that cutting benefits to older voters at all would be unfair, and pushed complicated plans that few people aside from Paul Ryan can competently defend.

But we might be even bolder if we just hugged that core fairness principle tighter.

September’s Reason-Rupe poll (PDF – fixed link) asked Americans if they’d support cuts to their own Medicare benefits “if you were guaranteed to receive benefits at least equal to the amount of money that you and your employer contribute into the system.”  It was a blowout: 68% yes, 25% no.  Three quarters of Tea Partiers said yes.

At a stroke, you could slash Medicare in half with a reform based on that principle.  (Their August 2011 poll suggested similar support for applying the principle to Social Security, but the cuts would be much more modest.)

Centering a reform on that principle achieves steeper cuts and seems easier to defend than what Paul Ryan is trying.  Because if Democrats fought us on it, they’d have to make the wildly unpopular case for entitlements as redistribution programs rather than as “insurance” or “savings.”

The kind of coalition the Right needs for sustainable entitlement reform has to include people who highly value fairness (or, as Jonathan Haidt would call it, proportionality).  If we want the project of liberty to be successful, we have to pluck on other heartstrings.

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Why Conservatives Should Embrace Gay Marriage

I already mentioned that marriage, kids, and a mortgage are very strong indicators of conservatism.  Here’s a straightforward causal explanation: when you’re invested in something, you don’t want it to be taken from you, and you’re skeptical of starry-eyed meddlers doing anything that might threaten it.  Probably the best thing done for the cause against gun control was teaching others how to use and maintain a firearm: once people own one, it sharpens the mind to cut through any argument for taking it away.

But a gun is a small investment compared to a committed and intimate relationship, custody of children, and homeownership.  A dollar taxed is one that you can’t spend on your family when they want something, a dollar borrowed is one that your kids will pay back, and that meddler on TV is rolling the dice with a major part of your life.

In the case of immigration, Hispanics are already primed to be conservative because they’re already invested.  With gay marriage, you have a group trying awfully hard to get more invested.

The conservative argument for embracing gay marriage is that marriage seems to be a fine institution that benefits even people who can’t have children together, and that it may strengthen the institution and the country to expand the institution so that a nontrivial minority of the population is on the inside trying to protect it rather than on the outside where their exclusion leads to thorny political issues of respect and tribalism.

Another conservative argument is that if gay marriage is politically inevitable, conservatives should proactively move through legislation to ensure that it goes smoothly without infringing on other freedoms (like those of association and contract), rather than allow this to play out entirely in the courts or in a referendum.  If conservatives keep trying to board the windows, more stuff is going to end up broken than if they just opened the door.

As with immigration and Hispanics, marriage may not be gays’ top priority, but it matters, and the way Republicans approach and discuss the issue can signal that “you’re not one of us,” which is poison for coalition-building.

The flip side of that coin doesn’t have to be pandering; given the consciousness of gay communities about targeted violence and bullying, it’d be awesome if conservatives taught more gays how to use and maintain firearms.

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Economic Statistics for 8 Nov 12

The following US economic statistics were announced today:

Late yesterday, the Consumer Credit report showed another steep $11.4 billion increase in consumer credit for September, following August’s very large $18.4 billion increase. One of the main contributors to the increase was student loan debt.

Initial claims for unemployment fell 8,000 last week, to 355,000. The 4-week moving average rose 3,250 to 370,500. Continuing claims fell a sharp 135,000 to 3.127 million.

The Bloomberg Consumer Comfort Index rose 0.3 points to –34.3, the highest reading since spring.

The U.S. international trade gap in September fell to -$41.5 billion from -$44.2 billion in August. Exports rose 3.1%, and imports rose 1.5%.

~
Dale Franks
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