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Posts Tagged ‘debt’

Debt Delusion

The recent budget fight is simply a precursor of what must be done.  Both sides are still playing small ball, messing with discretionary spending, when the huge entitlement bomb is going to cause our demise.  While Democratis cry about “cruel” budgets, our debt will go up more this week (about $50B) than the $38B or so that Congress was able to agree to cut.  We’re using bandaids and aspirin when wholesale amputation and emergency surgery is required.  Columnist Robert Samuelson put the matter well in his column today:

We in America have created suicidal government; the threatened federal shutdown and stubborn budget deficits are but symptoms. By suicidal, I mean that government has promised more than it can realistically deliver and, as a result, repeatedly disappoints by providing less than people expect or jeopardizing what they already have. But government can’t easily correct its excesses, because Americans depend on it for so much that any effort to change the status arouses a firestorm of opposition that virtually ensures defeat. Government’s very expansion has brought it into disrepute, paralyzed politics and impeded it from acting in the national interest.

Few Americans realize the extent of their dependency. The Census Bureau reports that in 2009 almost half (46.2 percent) of the 300 million Americans received at least one federal benefit: 46.5 million, Social Security; 42.6 million, Medicare; 42.4 million, Medicaid; 36.1 million, food stamps; 3.2 million, veterans’ benefits; 12.4 million, housing subsidies.

While Paul Krugman cries that Obama is a wimp and Republicans are cruel, it is our continued, insane-level of deficit spending that is cruel.  It has real practical consequences today ($5 gas) and tomorrow (a shrinking, sclerotic, no jobs economy).  There are signs of seriousness and hope among both voters (the Tea Party) and politicians (Paul Ryan, for example),  but one wonders if the stars can align for the kind of serious courage needed to get this sorted out before we have a real Greek-style meltdown.

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The Republicans appear likely to indulge in their worst instincts by agreeing (a) to extend unemployment benefits while (b) signing on to various tax cuts.  While perhaps tax cuts would be valuable, the real driver of our economic troubles is a widespread fiscal disaster among individuals, states and localities, and the federal government.  At all levels there is too much spending, not enough saving, and therefore too much debt.  Tax cuts and spending increases are a formula for more debt, and real debt hawkishness–not the timid embrace of welfare concomitant with tax cuts–is what is called for.  If anything taxes should stay the same while massive spending cuts are enacted in order to go to war with the debt.  If things continue as they are, there will soon be a complete devaluation of our currency, a debt default and/or hyperinflation, and continued stagnation.  Further, these various efforts at stimulating the economy through deficit spending have little to show for them this time around at home, in Japan for the last ten years, or in the US in the 1930s.  Only the private sector can create real wealth, and for it to work, this 1/3-of-the-economy-sucking-government to shrink.

The government needs to get out of the way of the economy.  In the late 70s, the way to do that was through tax cuts, which were exorbitant before Reagan came into power.  But today the way is by its overall mass and impact to shrink:  smaller spending, less generous entitlements, and a serious effort to attack the debt.  If that does not take place, tinkering with this or that program or tax rate will mean little.  Further, the real lesson of the Bush years, one would hope, is that we cannot follow the repeated Republican short-term-thinking which would cut taxes only to maintain generous spending programs.  This only kicks the can down the road.  The spending is the problem:   whether that money comes from borrowing or taxes is somewhat immaterial, either way it is sucked out of the productive economy and will be foisted on taxpayers eventually in some fashion or other.

The worst kind of politics often comes from bipartisanship, where each side gets what it wants, gives up its principles, and the public as a whole suffers due to mutual political expediency by the parties.  Obama must be opposed tooth and nail, along with nearly every component of his agenda.  If taxes slightly rise to deny him a victory on continued deficit spending, so be it.  He must be stopped, rendered impotent, and spending must be cut.

On the merits, unemployment benefits for 99 weeks are ridiculous.  People need to work, lean on family and friends, and nothing makes that happen more surely and quickly than a cut in these benefits.  Yes, there are bona fide hard luck cases, but there also a great many people that will look for and find a job within weeks of benefits running out.  If you subsidize something–in this case unemployment there will be more of it.  A much better program would be one where difficult make work was required to receive benefits, or if the government subsidized home sales and moves to places like North Dakota or Texas where work is plentiful.  More stringent work requirements for unemployment benefits (in the manner of the old “poor house”) would separate those truly unable to find a job from those running out their benefits to the max, while a spouse or parent or significant other’s income allows a middle class living when coupled with the benefits, plus some highly valuable leisure time.

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It turns out Obamacare–which expanded government benefits dramatically to the uninsured–will not save money, as Obama promised quite unbelievably a few months ago:

Did you see the new reports last week that – once again, big surprise – Obamacare is not going to lower our deficits as promised? Medicare’s chief actuary says it will add $311 billion to health care costs over the next 10 years. That doesn’t include the Congressional Budget Office projections that our premiums will be going up too.

Sure, President Barack Obama did look right into the TV cameras and pledge to you that his plan wouldn’t raise deficits “not by a single nickel.” And yes, members of Congress echoed that claim when they threw their support in too.

Just six weeks later and we’re already finding out Washington had the math all wrong.

Gee, who could have seen that coming? Other than the millions of Tea Party protesters, that is. Oh, and the 66 percent of Americans who told pollsters before the bill even passed that they knew it would bust the budget.

I can’t say I’m shocked.  Since this thing takes a while to ramp up, perhaps it will be significantly defanged or turned over in November.  It’s hard to say.  Of course many other enormous, structural problems remain with the welfare/entitlement state, and the lack of new wealth creation (and the destruction of the temporary enabler of credit) portends a rough decade.  I feel like I’m living in the 70s.  Yet somehow everybody seems to be able to scrape together the dough for a fancy new cell phone every other year.  These are contrary indicators.  Well, I guess disposable income shoots right up when you quit paying your mortgage!

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I would not be so offended if Obama or any other politician said:  we’ve spent too much money on too many things for too long; we must economize, and the Defense Department too must learn to be more efficient with public funds.  But Obama, instead, has said we must spend far and wide on everything from sidewalk improvements and  “green jobs” to home mortgages and banks, because government spending is needed to lift us out of an economic crisis.  But the one area that must embrace austerity and cut its budget is the Department of Defense, which is charged with fighting two wars and keeping us safe from any emerging threats

The whole thing suggests partisan spite, a holdover from Obama’s 1980s liberalism and its contempt for Reagan’s rebuilding of the military after the painful, post-Vietnam degradation of its capabilities.  This spending has proven to be a huge bargain, leading to the end of the Soviet Union, the nearly bloodless victory in the First Gulf War, and our ability today to project unmatched conventional power in defense of our nation and its interests around the globe.  Those interceptor vests, Abrams tanks, Apache helicopters, and stealth fighters weren’t cheap, but neither should be American lives. 

It may well be debatable whether the F-22 is absolutely necessary given the state of conventional threats.  But if we’re going to be spending gazillions of dollars on everything and nothing in a Pelosi-drafted Stimulus Bill, while also surging our forces in Afghanistan, would it be too much to ask that they be given the best, most life saving weapons whether improved MRAPs, body armor, rifles, and transport helicopters like the Osprey. Is it so extravagent to update our helicopters every 40 years so that pilots don’t fly unsafe aircraft older than they are! The Pentagon must do better with the money it has and have a strategic reality check on the threats ahead.  Rumsfeld, to his credit, did away with the Crusader Artillery program and encoruaged all branches to be more expeditionary.  But to cut its budget in a time of profligacy on general principle reeks of spite and Obama’s (and his socialist father’s) college kid dreams of sticking it tot he military-industrial complex.  After all, unlike midnight basketball and housing bailouts, national defense is a constitutionally mandated federal government responsibility.

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Obama has repeatedly reached for one of the lowest and most insulting rhetorical tricks in the book:  begging the question. In his inaugural address, for instance, he labeled all criticis of government spending as “cynics” who “fail to understand . . . that the ground has shifted beneath them — that the stale political arguments that have consumed us for so long no longer apply.”  In other words, I’m right and the only question now is the details.   He just wants “common sense” on gun control and other areas.  Any high principled reason for avoiding the big government fad of the moment  is cynicism and never accepted as a stand for high principle or constitutionalism, nor even as reasonable disagreement.

Consider his defense of the pork-laden “stimulus bill” authored by his fellow Democrats in the Congress:

In recent days, there have been misguided criticisms of this plan that echo the failed theories that helped lead us into this crisis — the notion that tax cuts alone will solve all our problems; that we can meet our enormous tests with half-steps and piecemeal measures; that we can ignore fundamental challenges such as energy independence and the high cost of health care and still expect our economy and our country to thrive.

I reject these theories, and so did the American people when they went to the polls in November and voted resoundingly for change. They know that we have tried it those ways for too long. And because we have, our health-care costs still rise faster than inflation. Our dependence on foreign oil still threatens our economy and our security. Our children still study in schools that put them at a disadvantage. We’ve seen the tragic consequences when our bridges crumble and our levees fail.

In spite of indefensible pork, a dubious theory of government spending increasingly discredited by economic historians, and a growing national debt that has more than a little to do with why we are here, Obama assumes his mandate is whatever he happens to want at the moment, regardless of how it deviates from his campaign themes.  He did not run, after all, on big deficit stimuli but instead on “middle class tax cuts” and a return to sanity on foreign policy.  In fact, he spent a lot of time criticizing Bush’s pork and fiscal irresponsibility.

One thing every elected official must understand is that his mandate is more often pretty weak; it’s not a license to do whatever he wants whenever he wants without regard to public opinion.  People will turn against policies that were never explained earlier or seem extravagant and wrong-headed.

Obama’s own sense of incorruptibility may be his political Achilles’ Heal.  Obama’s appointment of the tax cheat and former healthcare lobbyist Tom Daschle for HHS, the tax cheat Tim Geithner to the Treasury, and the occasional military lobbyist, William Lynn–it’s all just corruption with a human face, in this case the reassuring face of Obama.  “Don’t worry kids, I know what I’m doing.  I’m incorruptible, and me breaking my own promises for a ‘new tone’ and a ‘new ethical climate’ is not breaking promises.  I know when to follow the rules and when to make exceptions.”

At times like these, we should not forget that he is a South Side of Chicago politician, a man formed in a a onepartytown of ethnic spoils and big government.  Chicago is a place where no one, including the opposition, respects limited government and fiscal responsibility.  It’s winner take all.  Obama’s arrogance, his roots, and his free pass by the media are leaving him vulnerable to his tin ear for the apolitical sense by many Americans that a government spending spree during a recession may not be the best idea on earth. But, I guess all those people are just devoid of common sense and cynical.

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